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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998,
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-26649
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NEXTEL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1191 SECOND AVENUE, SUITE 1600 98101
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (206) 749-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated herein by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [X]
The registrant's common equity securities are not publicly traded, and
accordingly, no aggregate market value of the registrant's common equity is
available.
On March 15, 1999, the number of shares outstanding of the registrant's
Common Stock, no par value, was 36,523,679.
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NEXTEL INTERNATIONAL, INC.
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business.................................................... 2
2. Properties.................................................. 47
3. Legal Proceedings........................................... 47
4. Submission of Matters to a Vote of Security Holders......... 48
PART II
5. Market for the Registrant's Common Stock and Related
Security Holder Matters..................................... 49
6. Selected Consolidated Historical Financial Data............. 50
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 51
7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 66
8. Financial Statements and Supplementary Data................. 67
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 67
PART III
10. Directors and Executive Officers of the Company............. 68
11. Compensation of Executive Officers and Directors............ 70
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 74
13. Certain Relationships and Related Transactions.............. 75
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 77
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Unless the context requires otherwise, the terms "Company" and "Nextel
International" refer to Nextel International, Inc. (formerly McCaw
International, Ltd.) and the Operating Companies (as defined below) and all
references herein to "Nextel Brazil" refer to McCaw International (Brazil), Ltd.
and its subsidiaries and affiliates. The Company is an indirect, substantially
wholly owned subsidiary of Nextel Communications, Inc. ("Nextel
Communications"). Except as otherwise indicated, all dollar amounts are
expressed in U.S. dollars and references to "dollars" and "$" are to U.S.
dollars. All consolidated historical financial statements contained herein are
prepared in accordance with U.S. generally accepted accounting principles ("U.S.
GAAP") and are presented in U.S. dollars.
Unless indicated otherwise, the information contained herein (other than
the financial statements included herein) gives effect to the following
transactions: (i) the issuance of 82.54 shares of the Company's Series A
Redeemable Exchangeable Preferred Stock, par value $10.00 per share (the "Series
A Preferred Stock"), to a wholly owned subsidiary of Nextel Communications for
consideration of $8,254,000 on March 12, 1998; (ii) the transfer to the Company
by a wholly owned subsidiary of Nextel Communications of 6,777,778 Class D
Shares of Clearnet Communications Inc. ("Clearnet") in exchange for 906.32
shares of Series A Preferred Stock on March 12, 1998; (iii) the acquisition by
the Company of the remaining 50% equity interest in the holding company for
Nextel Argentina S.R.L. ("Nextel Argentina," formerly McCaw Argentina S.A.) on
January 30, 1998 for $46 million; (iv) the acquisition by the Company of a 70.1%
equity interest in Nextel del Peru, S.A., a Peruvian company ("Nextel Peru,"
formerly Valorcom S.A.), on January 29, 1998 for $27.9 million; and (v) the
purchase by the Company of an equity interest in J-Com Co., Ltd. ("J-Com") on
March 17, 1998 for a purchase price of 77.2 million yen (approximately $593,000
based on the exchange rate on the date of purchase) and a shareholder loan of
4.1 billion yen to J-Com (approximately $31.5 million based on the exchange rate
on the date of purchase). As a result of these transactions, the Company
currently owns 100% of the outstanding capital stock of Nextel Argentina,
approximately 62.1% of the outstanding capital stock of Nextel Peru (giving
effect to the exercise of a put by the Company and the dilution of a minority
shareholder of Nextel Peru as described further herein), a 21% equity interest
in J-Com and an approximately 15% equity interest in Clearnet. See "-- Fiscal
Year 1998 Transactions and Developments."
GENERAL
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 December 31, 1998, 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 December 31, 1998, 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, J-Com, introduced a multi-functional commercial ESMR service
under the brand name "NEXNET(TM)" in the Kanto region of Japan (which includes
Tokyo) in
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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 "-- 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, a Canadian wireless
communications services company, and has a contractual right through its Chinese
joint venture to receive 12.1% of the profits generated by a Global System for
Mobile communications ("GSM") network in Shanghai, China (the "Shanghai GSM
System"). The wireless communications services companies that the Company owns
or has interests in and the right to receive profits in the Shanghai GSM System
are referred to herein as the "Operating Companies." The Company 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 December 31, 1998, 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 166,500, 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
December 31, 1998, total international digital subscriber units in service for
the Operating Companies was estimated to be approximately 618,800.
Nextel International is an indirect, substantially wholly owned subsidiary
of Nextel Communications, which is the largest provider of SMR and ESMR services
in the United States. Nextel Communications offers a differentiated, integrated
package of digital wireless communications services primarily to business users.
At December 31, 1998, the Nextel Communications digital network, provided
coverage in various markets throughout the United States, including in and
around 91 of the top 100 metropolitan statistical areas ("MSAs") in the United
States. Nextel Communications' largest shareholders include certain entities
controlled by Craig O. McCaw, the founder of McCaw Cellular Communications, Inc.
(now AT&T Wireless Services, Inc.), and Motorola. Nextel Communications files
periodic and other reports with the Securities and Exchange Commission (the
"Commission") pursuant to the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). More detailed and specific information
concerning Nextel Communications is contained in such Exchange Act reports.
The Company's principal executive office is located at 1191 Second Avenue,
Suite 1600, Seattle, Washington 98101, and its telephone number at that location
is (206) 749-8000.
FISCAL YEAR 1998 TRANSACTIONS AND DEVELOPMENTS
ARGENTINA ACQUISITION. On January 30, 1998, the Company acquired the
remaining 50% equity interest in the holding company for Nextel Argentina for
$46 million (the "Argentina Acquisition").
ARGENTINA CREDIT FACILITY. As of February 27, 1998, Nextel Argentina
entered into an $83 million senior secured credit facility with The Chase
Manhattan Bank, as Administrative Agent, which facility, as amended, was
increased to $100 million (the "Argentina Credit Facility"). Borrowings under
the Argentina Credit Facility are subject the satisfaction or waiver of certain
borrowing conditions. Loans under the Argentina Credit Facility bear interest at
a rate equal to either (i) the ABR plus 2.75% (ABR is the highest of the prime
rate, the base CD rate plus 1% or the federal funds rate plus 0.5%) or (ii) the
Eurodollar rate plus 3.75% (the Eurodollar rate is the LIBO rate multiplied by
the statutory reserve rate). The loans under the Argentina Credit Facility will
be repaid in quarterly installments beginning September 30, 2000 and ending
March 31, 2003.
In March 1999, Nextel Argentina notified the Administrative Agent under 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
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covenants for the first quarter of 1999 and is currently in negotiations with
such lenders regarding an amendment to the Argentina Credit Facility to modify
the covenants in question for future quarters. See Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
PERU ACQUISITION AND PUT. On January 29, 1998, the Company purchased 70.1%
of the common equity of Nextel Peru, for $27.9 million (the "Peru Acquisition"),
$23.8 million of which represented new capital to be contributed to Nextel Peru
to finance the expansion, upgrade and operation of its wireless services
business. Nextel Peru currently offers analog SMR and dispatch-only ESMR
services in the greater Lima area and holds licenses covering 130 SMR channels
in its coverage area.
In August 1998, the Company gave notice to Motorola International
Development Corporation ("Motorola International"), an indirect wholly owned
subsidiary of Motorola and the holder of a minority equity interest in Nextel
Peru, of the Company's exercise of its option to sell a portion of the Company's
shares of Nextel Peru to Motorola International (the "Nextel Peru Put
Transaction"). Pursuant to the agreement between the Company and Motorola
International, the Company had the right to sell to Motorola International
shares representing approximately 10% of the outstanding shares of Nextel Peru
for a purchase price of approximately $6.0 million. The Nextel Peru Put
Transaction was consummated on October 30, 1998. Additionally, as a result of
the decision of the other minority shareholder of Nextel Peru not to contribute
his pro rata share of capital contributions to Nextel Peru subsequent to the
Peru Acquisition, such shareholder's equity interest in Nextel Peru has been
diluted and the Company's and Motorola International's respective equity
interest in Nextel Peru have increased. Immediately following the closing of the
Nextel Peru Put Transaction, and giving effect to the dilution of the other
minority shareholder, the Company and Motorola International held approximately
62.1% and 30.9%, respectively, of the outstanding shares of Nextel Peru.
PHILIPPINES DEVELOPMENTS. In April 1998, the Company entered into
agreements (the "Philippines Partner Agreements") with the three groups of local
shareholders of Infocom Communications Network, Inc. ("Nextel Philippines"),
including the Gotesco group (the "Gotesco Group," and together with the other
local shareholders, the "Philippines Shareholders"), which held a 20% interest
in Nextel Philippines. Pursuant to the Philippines Partner Agreements, among
other things, the Gotesco Group obtained the right to put its 20% interest to
the Company for approximately $9.4 million, beginning in January 1999 (the
"Gotesco Put") and the Company had the right to purchase the Gotesco Group's 20%
interest for approximately $11.6 million, if the Gotesco Group did not exercise
the Gotesco Put. On June 26, 1998, the Company and the Gotesco Group entered
into an Agreement to Accelerate Put Rights (the "Gotesco Put Acceleration
Agreement") pursuant to which the exercise date of the Gotesco Put was
accelerated from January 1999 to August 21, 1998. Pursuant to the Gotesco Put
Acceleration Agreement, the Company agreed to pay the Gotesco Group $9,000,000
for the shares covered by the Gotesco Put in three installments: (i) $500,000
upon the delivery of irrevocable proxies covering the voting rights on the
shares of Nextel Philippines owned by the Gotesco Group; (ii) $500,000 to the
Gotesco Group upon the conclusion of the Nextel Philippines annual shareholder
meeting, provided that the Gotesco Group's shares of Nextel Philippines were
voted in favor of the corporate governance provisions of the Philippines Partner
Agreements at such annual meeting; and (iii) $8,000,000 upon the transfer of the
shares covered by the Gotesco Put to a qualified third-party purchaser in
accordance with Philippines law. The first two installments were paid on June
26, 1998 and July 13, 1998, respectively. On August 21, 1998, Gamboa Holdings,
Inc. ("Gamboa Holdings"), which is 60% owned by ACCRA Investments Corporation, a
corporation organized under the laws of the Philippines and owned by Philippine
nationals ("ACCRAIN"), and 40% owned by an indirect subsidiary of the Company,
delivered the final installment of $8,000,000 to the Gotesco Group and the
Gotesco Group delivered the shares covered by the Gotesco Put to Gamboa
Holdings. As a result of Gamboa Holdings's acquisition of the Gotesco Group's
shares of Nextel Philippines, the Company's aggregate equity interest in Nextel
Philippines, which includes its direct and indirect holdings, increased from 30%
to 38%. See "-- The Company's Operations and Investments -- Corporate
Governance -- Philippines."
MARCH 1998 OFFERING. On March 12, 1998, the Company completed a private
placement offering (the "March 1998 Offering") of its 12 1/8% Senior Discount
Notes due 2008 (the "March 1998 Notes"). The March 1998 Offering generated
aggregate net proceeds to the Company of approximately $387 million. The
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March 1998 Notes are noncallable for five years and require no cash interest
payments for the first five years. The March 1998 Notes were sold pursuant to an
exemption from registration under the Securities Act of 1933, as amended (the
"Securities Act"). On September 10, 1998, the Company completed an exchange
offer in which the March 1998 Notes were exchanged for substantially identical
securities issued pursuant to a registration statement declared effective by the
Commission on August 4, 1998.
ISSUANCE OF PREFERRED STOCK. On March 12, 1998, in connection with the
March 1998 Offering, a wholly owned subsidiary of Nextel Communications
transferred to the Company 6,777,778 Class D Shares of Clearnet in exchange for
906.32 shares of Series A Preferred Stock (the "Clearnet Transaction"). As a
result of the Clearnet Transaction, the Company currently owns 583,104 Class A
Shares and 7,790,741 Class D Shares of Clearnet (each Class D Share is
convertible at the option of the holder into one Class A Share). Additionally,
the Company issued 82.54 shares Series A Preferred Stock to the same wholly
owned subsidiary of Nextel Communications for consideration of $8,254,000.
The Series A Preferred Stock was issued at an original liquidation
preference of $100,000 per share and thereafter the liquidation preference on
the Series A Preferred Stock accretes at an annual rate equal to 13.625%. Except
as required by law, the holders of the Series A Preferred Stock are not entitled
to receive dividends or other distributions. The Company has the right at any
time to redeem the Series A Preferred Stock in full (or with the consent of the
holder of the affected shares of Series A Preferred Stock, in part) at a
redemption price equal to 100% of the accreted liquidation preference thereof on
the redemption date and under certain circumstances, the holders of the Series A
Preferred Stock have the right to exchange the Series A Preferred Stock for
shares of the Company's Series B Redeemable Preferred Stock, par value $10.00
per share (the "Series B Preferred Stock") having a liquidation preference equal
to the accreted liquidation preference of the Series A Preferred Stock so
exchanged.
The Series B Preferred Stock to be issued in exchange for shares of Series
A Preferred Stock will have an initial annual dividend rate equal to 13.625%,
increasing to 18.00% as of March 13, 2010. The Series B Preferred Stock will
have terms substantially similar to those of the Series A Preferred Stock,
except for the right to elect one director to the Company's Board of Directors
and the accrual of cumulative dividends payable quarterly in cash. In addition,
the Company may not issue shares of Series B Preferred Stock, except in exchange
for shares of Series A Preferred Stock, without the consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock, voting together as a class.
JAPAN ACQUISITION. On March 17, 1998, the Company purchased a 21% equity
interest in J-Com, a digital SMR provider in Japan ("J-Com"), for a purchase
price of 77.2 million yen (approximately $593,000 based on the exchange rate on
the date of purchase) (the "Japan Acquisition"). The Company also provided a
shareholder loan of 4.1 billion yen (approximately $31.5 million based on the
exchange rate on the date of purchase) to J-Com. J-Com has a contractual right
to provide service in Japan under a sublicense covering more than 125 million
people. DJSMR Business Partnership, a Japanese partnership in which an affiliate
of Motorola is the majority partner, holds a 49% equity interest in J-Com. The
remaining equity interests in J-Com are held by Nichimen Corporation, an
investment firm ("Nichimen"), which holds a 25% equity interest, and ORIX
Corporation, a leasing firm ("ORIX"), which holds a 5% equity interest.
INDONESIA OPTION. On June 26, 1998, the Company and PT Gunung Sewu Kencana
("GSK") agreed to amend the preliminary agreement entered into by the two
parties in connection with the Company's right to purchase a 37.5% interest in
PT Mitra Kencana Telekomunindo ("MKT"), an Indonesian SMR licenseholder owned by
GSK, to extend the deadline for receipt of regulatory approvals from June 30,
1998 to December 31, 1998. MKT's preliminary SMR license became permanent in
December 1998. Additionally, the Company and MKT received the government
approvals required for the Company to invest in MKT in December 1998. Although
the Company believes that MKT presents it with significant opportunities to
expand its SMR network in Asia, the Company is evaluating the merits and risks
of an investment in MKT in light of the current economic and political
conditions in Indonesia, in particular, and the economic conditions in Asia
generally. The Company plans to decide whether to exercise the option in MKT by
the end of the second quarter of 1999.
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ORGANIZATIONAL AND MANAGEMENT CHANGES. During fiscal year 1998, the
Company announced a series of organizational and management changes. The Company
named Brian A. Vincent, formerly Vice President of Business Development of the
Company, as its President, Asia-Pacific Region, and Jose Felipe as its
President, Latin America Region. Additionally, the Company named Byron R.
Siliezar as Vice President and Controller.
Since the end of fiscal year 1998, the Company has effected other
significant management changes. See "-- Post Fiscal Year-End Transactions and
Developments -- Management Changes."
PHILIPPINES MOTOROLA BRIDGE FINANCING. On August 27, 1998, Nextel
International and Motorola Credit Corporation ("Motorola Credit") entered into a
financing agreement (the "Motorola Bridge Financing Agreement"), pursuant to
which Motorola Credit agreed to provide up to $12 million in term loans to the
Company to (i) finance the cost of iDEN(R) equipment and related services
(including ancillary products and services) purchased from Motorola by Nextel
Philippines and (ii) to reimburse the Company for payments made by the Company
to Motorola for the purchase of iDEN(R) equipment and related services for the
benefit of Nextel Philippines (the "Philippines Motorola Bridge Financing").
Loans under the Philippines Motorola Bridge Financing were unsecured, bore
interest at rates based upon the U.S. prime rate plus 2.5% and were repayable,
together with accrued and unpaid interest, in one installment on December 31,
1998 (which was extended to February 1999). As of December 31, 1998, borrowings
under the Philippines Motorola Bridge Financing totaled $8.6 million. In
February 1999, the Company repaid the Philippines Motorola Bridge Financing with
a portion of the proceeds from the International Motorola Financing Facility (as
defined below). See "-- Post Fiscal Year-End Transactions and Developments."
SHANGHAI DEVELOPMENTS. Prior to September 1998, China United
Telecommunications, Ltd. ("Unicom") had requested that Shanghai CCT-McCaw
Telecommunications Systems Co., Ltd. ("Shanghai CCT McCaw") participate in
financing the expansion of the Shanghai GSM System ("Phase IV"). Although the
Company had previously advised its partners in Shanghai CCT McCaw that it was
not willing to provide funding for Phase IV of the Shanghai GSM System, such
partners advised the Company that each intended to participate in the funding of
Phase IV.
In September 1998, Unicom advised the parties that pursuant to a new policy
of the Chinese government, Unicom was no longer permitted to enter into any new
contracts for its projects wherein financing was derived through investment
structures involving indirect investment by foreign investors, including the
structure utilized by Shanghai CCT McCaw with respect to the Shanghai GSM
System. Further, Unicom advised the parties that it intended to finance Phase IV
and any possible future expansions of the Shanghai GSM System on its own using
financing derived independently of Shanghai CCT McCaw.
To date, the Company is not aware of any new rules or regulations that have
been published or announced by the Chinese government with respect to the new
policy cited by Unicom or with respect to the treatment of existing contracts
such as those in existence between Shanghai CCT McCaw and Unicom under such new
policy. Pursuant to various discussions between and among representatives of
Shanghai CCT McCaw, the Company and Unicom, the Company believes that under the
unpublished restrictions imposed by the Chinese government (a) no agreement with
respect to Phase IV or subsequent phases will be entered into with Shanghai CCT
McCaw or any other investor that derives funds directly or indirectly from
foreign parties and (b) Shanghai CCT McCaw's existing contract with Unicom will
remain in effect and enforceable. However, it is unclear what effect the new
policy will have on the respective rights of Unicom and Shanghai CCT McCaw with
respect to the Shanghai GSM System. The restrictions to be imposed on the
Company pursuant to the new, unpublished regulations may have a material adverse
effect on Shanghai CCT McCaw's interest in the Shanghai GSM System and the value
of the Company's investment in Shanghai CCT McCaw. The Company's investment in
Shanghai CCT McCaw is carried on the Company's books at cost, which was
approximately $15.7 million as of December 31, 1998.
INTERNATIONAL MOTOROLA FINANCING COMMITMENT. On November 11, 1998, Nextel
International and Motorola Credit entered into a commitment letter and term
sheet (the "Motorola Financing Commitment") regarding the terms and conditions
under which Motorola Credit will provide equipment financing to the Company and
certain Operating Companies. Under the Motorola Financing Commitment, Motorola
Credit agreed to provide up to $275 million in term loans to the Company,
including up to $50 million in loans by
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Motorola Credit to Nextel Argentina as incremental loans under the Argentina
Credit Facility (the "Argentina Incremental Facility Loans").
On February 4, 1999, the Company and Motorola Credit entered into
definitive agreements providing for $225 million of financing in accordance with
the Motorola Financing Commitment. See "-- Post Fiscal Year-End Transactions and
Developments." The Company contemplates negotiating and entering into definitive
agreements with Motorola Credit with respect to the Argentina Incremental
Facility Loans during the second quarter of 1999. See "-- Risk Factors -- 12.
Nextel International's forward-looking statements are subject to a variety of
factors that could cause actual results to differ materially from current
beliefs."
POST FISCAL YEAR-END TRANSACTIONS AND DEVELOPMENTS
MANAGEMENT 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 move of its principal executive and
administrative offices from Seattle, Washington to Reston, Virginia. See Part I.
Item 2. "Properties."
INTERNATIONAL MOTOROLA FINANCING FACILITY. The Company and Motorola Credit
entered into definitive agreements, which became effective on February 4, 1999,
with respect to the Motorola Financing Commitment (the "International Motorola
Financing Facility"). The International Motorola Financing Facility 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 facilities between Motorola Credit and
Nextel Philippines (the "Philippines Motorola Financing") and 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 Peru, Nextel Philippines and
J-Com and such other entities in which the Company holds an equity interest and
which have been so designated by agreement between the Company and Motorola
Credit.
The availability of borrowings under the International Motorola Financing
Facility are subject to the satisfaction or waiver of certain applicable
borrowing conditions. See Part II, Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
BRAZIL CURRENCY DEVALUATION. During the quarter ending March 31, 1999,
there has been 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 will record a pre-tax charge (net of minority
interests) of approximately $45.1 million on its consolidated statement of
operations for the first quarter of 1999 related to foreign currency transaction
losses. This amount has been 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 will record 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 will be reflected as an
adjustment to the cumulative translation adjustment account within stockholders'
equity.
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Although the Company cannot predict what other effects the devaluation of
the Brazilian real will have on its results of operation and the value of its
investments in Brazil, the 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 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 also "-- Risk Factors -- 5.
Nextel International operates in foreign markets and this presents certain
risks" and "-- 12. 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'S NETWORKS
The following table provides a brief overview of the wireless
communications systems of each of the Operating Companies as of December 31,
1998.
<TABLE>
<CAPTION>
PROPORTIONATE
TOTAL DIGITAL DIGITAL
NEXTEL SUBSCRIBERS SUBSCRIBERS
INTERNATIONAL SYSTEM AS OF AS OF START DATE OF
MARKET OWNERSHIP TYPE 12/31/98 12/31/98 COMMERCIAL SERVICES
- ------------------ ------------- --------------- ------------- ------------- -------------------------------------
(THOUSANDS) (THOUSANDS)
<S> <C> <C> <C> <C> <C>
Brazil............ 77%(1) SMR/ESMR 54 42 October 1994/May 1998(2)
Mexico............ 100% SMR/ESMR 12 12 September 1993/September 1998(2)
Argentina......... 100% SMR/ESMR 35 35 February 1997/June 1998(2)
Peru(3)........... 62.1% SMR/ESMR -- -- April 1995/1999
Philippines....... 38% ESMR 3 1 July 1998(2)
Canada(4)......... 15% SMR/ESMR/PCS 309 48 April 1994/October 1996/
October 1997
Japan(5).......... 21% SMR/ESMR 40 9 May 1997/July 1998(2)
China (Shanghai).. 12.1%(6) GSM 166 20 June 1995
--- -----
Total......... 619 167
=== =====
</TABLE>
- ---------------
(1) The Company through its 81% equity interest in Nextel Brazil, and Nextel
Brazil's 95% equity interest in Nextel S.A., the holding company for Nextel
Brazil's operations, holds a 77% equity interest in Nextel S.A.
(2) The Company launched commercial ESMR service in Sao Paulo and Buenos Aires
in the second quarter of 1998 and Rio de Janeiro, Manila and Mexico City
during the third quarter of 1998 and Rosario, Argentina during the fourth
quarter of 1998. The Company's Japanese affiliate, J-Com, introduced a
multi-functional ESMR service in the Kanto region of Japan (which includes
Tokyo) in July 1998. See "-- The Company's Operations and Investments."
(3) Nextel Peru currently offers analog and dispatch-only ESMR services in the
greater Lima area. The Company currently plans to launch commercial,
multi-functional ESMR services in the greater Lima area in the second half
of 1999. See "-- The Company's Operations and Investments -- Peru."
(4) Clearnet publicly reported that it had launched commercial ESMR and PCS
services in Canada's largest urban centers in 1996 and 1997, respectively.
The subscriber numbers are based on the subscriber counts publicly reported
by Clearnet as of December 31, 1998 and include ESMR and PCS services.
(5) Until its launch of multi-functional commercial ESMR services in the Kanto
region of Japan (which includes Tokyo) in July 1998, J-Com offered digital
dispatch SMR services in the Kanto region of Japan. The subscriber count is
based on information furnished to the Company by J-Com as of December 31,
1998.
(6) Represents the Company's share of profits from the Shanghai GSM System,
which is accounted for under the cost method. The subscriber number is based
on the subscriber count reported to the Company as of December 31, 1998. See
"-- The Company's Operations and Investments -- Shanghai, People's Republic
of China."
8
<PAGE> 10
THE COMPANY'S MARKETS
The Company primarily targets emerging markets characterized by strong
long-term economic growth prospects, highly concentrated population centers and
favorable competitive environments.
STRONG ECONOMIC GROWTH PROSPECTS. The Company operates primarily in
emerging markets that it believes offer favorable long-term economic growth
prospects.
HIGHLY CONCENTRATED POPULATION CENTERS. The Company primarily focuses its
operations in major population centers of emerging markets, including Sao Paulo,
Rio de Janeiro, Buenos Aires, Mexico City, Lima and Manila. These cities are
characterized by extremely high population densities and a relatively high
concentration of the country's wealth. In addition, vehicle traffic congestion,
low landline penetration and unreliability of the telecommunications
infrastructure encourage the use of wireless communications services in these
cities.
FAVORABLE COMPETITIVE ENVIRONMENTS. There are relatively few licensed
wireless communications service providers currently operating in most of the
emerging markets in which the Company operates, compared to the U.S.
The Company has also made strategic investments in entities that operate
ESMR systems in developed markets (Canada and Japan).
COMPANY STRATEGY
The Company's principal strategy is to grow by continuing to upgrade and
expand its existing analog SMR wireless communications operations to incorporate
digital wireless communications services, which will enable the Company to
increase its subscriber base and revenues. The key elements of the Company's
strategy are:
CAPITALIZE ON LEADING POSITION. The Company holds licenses covering more
SMR channels than any other SMR or ESMR system operator in Brazil and Argentina
and believes it is among the largest SMR (and potential ESMR) service providers,
based on its channel position, in its principal markets in Mexico, Peru, the
Philippines, and Japan.
EXPAND CAPACITY AND SERVICES BY PROVIDING DIGITAL ENHANCED SERVICES. The
Company is upgrading its analog SMR networks to digital ESMR networks using
Motorola's iDEN(R) technology. The upgrade to digital networks allows the
Company to increase capacity and quality significantly and also offer, in a
single digital subscriber handset, additional services and advanced features.
See "-- The Company's Operations and Investments."
PROVIDE A BROAD INTERNATIONAL NETWORK. The Company intends to deploy a
broad international digital wireless network that will provide roaming
capabilities on a single digital subscriber handset to its subscribers in
selected markets where it provides service. The Company believes that its
current network constitutes one of the largest ESMR wireless communications
systems in Latin America utilizing a single transmission technology. The
Company's ESMR networks are being designed, constructed and implemented to
deliver uniform functionality by providing the same package of integrated,
multiple-feature digital wireless communications services throughout in each
market.
BENEFIT FROM NEXTEL COMMUNICATIONS AND MOTOROLA RELATIONSHIPS. Nextel
Communications is the largest SMR and ESMR provider in the United States. The
Company intends to continue to access the technology, operations, supplier
relationships, network development and marketing expertise of Nextel
Communications in upgrading its SMR networks to ESMR in its existing markets and
in entering new markets. In addition, the Company believes that it will continue
to benefit from its relationship with Motorola, which supplies Nextel
Communications and the Company with iDEN(R) equipment and related services.
MAINTAIN ACTIVE MANAGEMENT ROLE. The Company has acquired controlling
ownership and management positions in its principal markets to the extent local
law does not restrict such foreign ownership or management control positions. As
of December 31, 1998, the Company had a controlling interest in its
9
<PAGE> 11
Operating Companies in Brazil, Mexico, Argentina and Peru. Where the Company
holds less than a majority interest in an Operating Company, it manages its
investment through contractual arrangements that ensure representation on the
board of directors or comparable governing body and/or enable it to veto, or
require its approval of, certain significant corporate actions. The Company
actively participates in the management of such Operating Companies, other than
in China and in Canada, by (i) selecting the key members of the local management
team, (ii) managing the system's technology and infrastructure deployment, (iii)
developing business plans and marketing plans together with local management,
(iv) maintaining close working relationships with partners, suppliers,
regulators and others and (v) obtaining or arranging for financing.
WIRELESS TECHNOLOGY
Currently, three systems dominate the market for wireless communications
services: SMR/ESMR, cellular/PCS and paging. The Operating Companies utilize one
or more of each of these forms of wireless communications. The following is a
brief description of each type of wireless communications system.
SMR/ESMR
SMR, also referred to as "trunked radio" or wireless dispatch
communications, is primarily a business communications tool that provides cost
effective point-to-multipoint or "one-to-many" voice communications. This
service allows reliable, flexible and convenient communications among a defined
group of users, typically within a business or "work group."
Historically, SMR operators have generally been unable to provide mobile
telephone service competitive with that provided by cellular operators because
of various factors affecting SMR system capacity and voice quality. The primary
factors affecting capacity and voice quality include: the smaller portion of the
radio spectrum allocated to SMR; regulations and procedures that initially
served to spread ownership of SMR licenses among a large number of operators in
each market, thereby limiting the amount of SMR spectrum available to any
particular operator; and the limitations of traditional SMR technology, which
employs analog transmission and a single site, high-power transmitter
configuration that precludes the use of any given SMR frequency by more than one
caller at a time within a given service area.
Partially as a result of the constraints on capacity, SMR operators,
including the Operating Companies that offer SMR services, have traditionally
emphasized radio dispatch service, which involves shorter duration
communications than mobile telephone service and places less demand on system
capacity. The traditional SMR market, therefore, has been oriented primarily to
business customers such as contractors, service companies, security firms and
delivery services that have significant field operations and need to provide
their personnel with the ability to communicate directly with one another,
either on a one-to-one or on a one-to-many basis. The broader market of
businesses and individuals that are primarily interested in mobile telephone
service has been largely beyond the reach of traditional SMR operators.
Motorola has developed its proprietary iDEN(R) digital technology, which
allows analog SMR networks to be upgraded to digital ESMR networks offering
enhanced services such as instant conferencing (enhanced dispatch), mobile
telephone (interconnect), short-text messaging with acknowledgment (alphanumeric
paging), call forwarding, three-way calling, voice mail and data transmission.
The iDEN(R) technology that the Company deploys carries up to three voice and/or
control paths per channel for the ESMR network's mobile telephone function and
up to six voice and/or control paths per channel for the ESMR network's instant
conferencing function.
The implementation of an ESMR network utilizing iDEN(R) digital technology
involves upgrading existing 800 MHz SMR systems via two fundamental changes in
system architecture. First, the analog transmission format of traditional SMR
systems is replaced by a Time Division Multiple Access ("TDMA") digital
transmission format. Second, the single, high-powered transmitter typical of
traditional SMR systems is replaced or augmented by a number of low-powered
transmitters, dispersed across the coverage area, enabling frequency reuse.
Additionally, the ESMR frequency reuse system uses a mobile switching office to
enable the hand-off of transmissions from one transmitter to another as
subscribers move across the coverage area.
10
<PAGE> 12
During the third and fourth quarters of 1996, Nextel Communications
launched commercial service of its current-generation iDEN(R) ESMR networks in
several markets in the United States and, during the fourth quarter of 1996,
Clearnet launched commercial services of its iDEN(R) ESMR network in the
Ontario-Quebec market under the "MiKE(TM)" brand name. Since then, both Nextel
Communications and Clearnet have continued expanding their iDEN(R) ESMR networks
in additional markets.
CELLULAR/PCS
Cellular telephone systems are capable of providing high-quality,
high-capacity voice and data communications to and from vehicle-mounted and
hand-held radio telephones. Cellular telephone systems are capable of handling
thousands of calls at any one time and providing service to hundreds of
thousands of subscribers in any particular area.
Cellular telephone technology is based upon the division of a given
geographical area into a number of cells and the simultaneous re-use of radio
channels in non-contiguous cells within the system. Each cell contains a low
power transmitter-receiver at a base station that communicates by a switch that
controls the routing of calls and that, in turn, is connected to the public
switched telephone network. The switch enables cellular telephone users to move
freely from cell to cell while continuing their calls.
Cellular telephone systems generally offer subscribers the features offered
by the most up-to-date landline telephone services. Cellular telephone systems
are interconnected with the landline telephone network, which allows subscribers
to receive and originate local, long-distance and international calls from their
cellular telephones.
A cellular telephone system's capacity can be increased in various ways.
Initially, increasing demand may be satisfied by adding available channel
capacity to cells. When all available channels are used, further growth can be
accomplished through a process known as cell splitting. Cell splitting entails
dividing a single cell into a number of smaller cells allowing for greater
channel re-use, thereby increasing the number of calls that can be handled in a
given area.
PAGING
Paging is a well-established wireless technology, and is widely available
in many countries. A paging system typically consists of a number of transmitter
sites connected to a central messaging center. The messaging center receives
incoming messages from the public telephone network and prepares batches of
messages for transmission to subscribers. There are two basic types of paging
services: numeric (digital display) and alphanumeric, which allows subscribers
to receive and store messages of up to 5,000 characters consisting of both
letters and numbers. Historically, paging was a one-way communication service;
however, technological advances in wireless messaging have made two-way
communications possible. Two-way paging systems allow message acknowledgment
responses and the transmission of short data messages by the paging subscriber.
In emerging markets where telephone penetration is low, paging often provides an
affordable alternative to public telephone service.
The table below illustrates some of the main differences between SMR/ESMR,
cellular/PCS and paging.
COMPARISON OF SMR/ESMR, CELLULAR/PCS AND PAGING
<TABLE>
<CAPTION>
SMR/ESMR CELLULAR/PCS PAGING
-------- ------------ ------
<S> <C> <C> <C>
Services Offered..................... Voice, data, direct connect Voice and data Data only
(one-to-many and (one-to-one) (one-to-one and
one-to-one) one-to-many)
Typical Frequency Range.............. 800 MHz 800 MHz (cellular) Lowband and 931
1.8 and 1.9 GHz (PCS) MHz
</TABLE>
11
<PAGE> 13
THE COMPANY'S SPECTRUM POSITION
The Operating Companies' current license holdings represent one of the
largest international wireless footprints, covering approximately 373 million
POPs as of December 31, 1998. The Company's current spectrum strategy is to
strengthen its channel position in its existing markets in Latin America. The
Company also may seek to acquire SMR channels or other wireless communications
spectrum in other selected urban centers having attractive economic
characteristics on an opportunistic basis.
In order to construct a digital network utilizing iDEN(R) technology, the
Company believes that at least 100 SMR channels are necessary in any given
market. Generally, the Company estimates that each SMR channel has the capacity
to provide service to approximately 100 subscribers using analog SMR technology.
Deploying digital technology on these SMR channels will increase subscriber
capacity significantly. Moreover, the Company believes its large channel
position reduces capital expenditures required to upgrade to digital networks.
Nextel International generally owns or has options to acquire at least 100
channels in the principal markets in which it has constructed or intends to
construct digital networks. In smaller markets, Nextel International will
continue to focus its efforts on growing its analog SMR operations and
subscriber base.
NETWORK IMPLEMENTATION, DESIGN AND CONSTRUCTION
The Company's networks are in various stages of development and deployment.
The Company launched commercial ESMR service in Sao Paulo and Buenos Aires
during the second quarter of 1998 and Rio de Janeiro, Manila and Mexico City
during the third quarter of 1998 and Rosario, Argentina during the fourth
quarter of 1998. The Company's Japanese affiliate, J-Com, introduced a
multi-functional commercial ESMR service in the Kanto region of Japan (which
includes Tokyo) in July 1998. The Company plans to launch commercial,
multi-functional ESMR service in the greater Lima area in the second half of
1999.
The Company's critical design criteria for its upgrade to ESMR networks
include:
- contiguous wide area coverage of substantially all of the major
population areas and traffic corridors in its licensed areas;
- signal quality comparable to that currently provided by existing
cellular and/or PCS carriers in such licensed areas;
- call "hand-off" for mobile telephone service throughout the ESMR
networks;
- minimization of blocked and dropped calls;
- regulatory authorizations necessary to offer enhanced services such
as mobile telephone service, data transmission and short-text
messaging services; and
- cost-efficient routing of calls to minimize local interconnection
costs and toll charges and to provide maximum utilization of the
Company's ESMR network facilities.
The Company believes careful frequency planning is necessary prior to
commencing network construction in order to ensure satisfactory coverage over
the entire ESMR network. Frequency planning involves the selection of specific
areas in the Company's markets for the placement of transmitter sites and the
identification of specific frequencies that will be employed at each site in the
initial configuration. Sites are selected on the basis of their coverage and on
frequency propagation characteristics.
In addition to frequency planning and system design, the implementation of
the digital wireless networks requires site acquisition, equipment procurement,
construction and equipment installation, testing and optimization. Sites are
selected on the basis of their proximity to targeted customers, the ability to
acquire and build the site and frequency propagation characteristics. Site
procurement efforts include obtaining leases and permits and, in many cases,
zoning approvals. Once the requisite governmental approvals are obtained, the
preparation of each site, including grounding, ventilation, air conditioning and
construction, typically takes three months, while equipment installation,
testing and optimization generally takes an additional four weeks. Following
commencement of system operations in a selected market, the Company expects to
add new sites to its networks continually in order to improve coverage and
capacity.
12
<PAGE> 14
In certain instances, the Company's ability to proceed with the build-out
and/or expansion of its ESMR networks in its coverage areas or elsewhere may be
subject to successful negotiation of site acquisitions or leases, the
availability of equipment and receiving necessary governmental approvals. In
addition, the timing of any scheduled build-out and/or expansion will be subject
to obtaining additional financing on a timely basis and typical construction and
other delays. See "-- Risk Factors -- 2. Nextel International will need
substantial amounts of financing over the next several years" and "-- 6. Nextel
International's success depends on its ability to manage the expansion of its
operations."
MARKETING
Most of the Operating Companies market their wireless communications
services primarily to business customers and mobile work forces, such as service
companies, security firms, contractors and delivery services. The Company
believes that companies with mobile work forces represent growing sectors of the
economies in the Company's markets. These types of businesses often have the
need to provide their personnel with the ability to communicate directly with
one another, either on a one-to-one or one-to-many basis. By upgrading its
operations to provide ESMR services, the Company will increase significantly the
quality and capacity of its wireless communications networks utilizing SMR
frequencies and be in a position to offer a broader array of digital wireless
services to a larger customer base. For a more detailed description of the
marketing focus of each Operating Company, see the "Marketing" discussion for
each Operating Company under "-- The Company's Operations and Investments."
COMPETITION
In each of the markets where the Operating Companies operate or will
operate, the Company competes or will compete with other communications services
providers, including landline telephone companies and other wireless
communications companies. Many of the Company's competitors are well-established
companies with substantially greater financial and marketing resources, larger
customer bases, and better name recognition than the Company, and in certain
markets may be able to provide coverage to a larger number of subscribers. In
addition, many existing telecommunications enterprises in the markets in which
the Operating Companies conduct business have successfully attracted significant
investments from multinational communications companies. Because of their
financial resources, these competitors may be able to reduce prices in order to
gain market share. The Company expects that the prices it charges for its
products and services will decline over the next few years as competition
intensifies in its markets. Because iDEN(R) technology is not compatible with
other digital cellular or PCS technologies, the Company's customers will not be
able to roam on cellular or PCS systems. Accordingly, such customers will not
have coverage outside of the applicable Operating Company's coverage area until
such time as (i) the Company builds out additional ESMR markets either as
full-scale commercial markets or as "roamer" markets; (ii) other SMR operators
deploy the iDEN(R) technology in markets outside of the Company's coverage area
and the Company enters into roaming agreements with any such operators; or (iii)
multi-band and/or multi-mode subscriber units that can be used on iDEN(R) and
other wireless communications networks become available and the Operating
Companies enter into roaming agreements with other wireless communications
providers in such markets. For a more detailed description of the competitive
factors affecting each Operating Company, see the "Competition" discussion for
each Operating Company under "-- The Company's Operations and Investments." See
also "-- Risk Factors -- 4. Nextel International's future performance depends on
its ability to compete in the highly competitive wireless communications
industry."
In addition, the various regulatory environments in the countries where the
Operating Companies conduct their businesses impose or may impose limitations
that adversely affect the Company's competitive position. Certain provisions of
the Brazilian SMR regulations impose limitations or restrictions on the Company
that are not imposed on other Brazilian wireless service providers. Accordingly,
such regulations may limit the Company's ability to compete effectively with
other wireless communications service providers in Brazil, including the
operators of the Band B cellular licenses. See "-- The Company's Operations and
Investments -- Brazil -- Regulatory and Legal Overview."
13
<PAGE> 15
GOVERNMENT REGULATION
The licensing, construction, ownership and operation of wireless
communications systems, and the grant, maintenance and renewal of applicable
licenses and radio frequency allocations, are regulated by governmental entities
in the markets in which the Operating Companies conduct business. In addition,
such matters and certain other aspects of wireless communications system
operations, including rates charged to customers and the resale of wireless
communications services, may be subject to public utility regulation in the
jurisdiction in which service is provided. Further, statutes and regulations in
certain of the markets in which such Operating Companies conduct business impose
limitations on the ownership of telecommunications companies by foreign
entities. Changes in the current regulatory environments in such countries, or
future judicial intervention, including with respect to interconnection
arrangements, requirements for increased capital investments, regulations
affecting prices the Operating Companies are able to charge for their services
or foreign ownership limitations, could have a material adverse effect on the
Company. For a more detailed description of the regulatory environment in each
of the countries in which the Operating Companies conduct business, see the
"Regulatory and Legal Overview" discussion for each Operating Company under
"-- The Company's Operations and Investments" and "-- Risk Factors -- 3. Nextel
International's prospects depend on government regulations in various
countries."
THE COMPANY'S OPERATIONS AND INVESTMENTS
The Company, through the Operating Companies, offers wireless
communications services in Latin America (Brazil, Argentina, Mexico and Peru),
Asia (Philippines, Japan and Shanghai, China) and Canada. See also "-- Corporate
Governance."
BRAZIL
OPERATING COMPANY OVERVIEW. Nextel Brazil provides analog SMR services in
28 cities in Brazil, including Belo Horizonte and Brasilia under the tradename
"Nextel(TM)." Nextel launched commercial ESMR service under the tradename
"Nextel(TM)" in Sao Paulo during the second quarter of 1998 and in Rio de
Janeiro during the third quarter of 1998.
Nextel Brazil has a centralized customer service and installation center
located in Sao Paulo. As of December 31, 1998, Nextel Brazil, through its
subsidiaries and affiliates, provided service to approximately 9,100 analog SMR
subscriber units and approximately 54,400 ESMR subscriber units.
The Company intends to evaluate the timing of any steps in connection with
an upgrade to ESMR in Belo Horizonte and any other cities in Brazil where the
Company owns or has options to acquire at least 100 channels, based on the
competitive and regulatory environment. See "-- Risk Factors -- 12. 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
"-- 6. Nextel International's success depends on its ability to manage the
expansion of its operations."
Nextel Brazil's operations are headquartered in Sao Paulo and it has branch
offices in nine other major cities. As of December 31, 1998, Nextel Brazil's
subsidiaries and affiliates had 630 employees.
MARKETING. Nextel Brazil offers both a broad range of options and pricing
plans designed to meet the specific needs of its targeted business customers. It
currently offers ESMR dispatch and integrated service plans (dispatch and
interconnect) in Sao Paulo and Rio de Janeiro and analog SMR dispatch and
integrated service plans in its other markets. In accordance with the
requirements of Brazilian SMR regulations, Nextel Brazil markets its services to
businesses and not to individuals. Nextel Brazil's target markets are businesses
engaged in transportation, construction, security services and also include
utilities and government agencies. Nextel Brazil utilizes both a direct sales
force as well as dealers and independent agents. As of December 31, 1998, Nextel
Brazil had 222 direct sales representatives and approximately 25 dealers and
independent agents.
COMPETITION. Nextel Brazil is the largest SMR service provider in Brazil.
In addition, Nextel Brazil has the largest SMR channel position in Brazil.
14
<PAGE> 16
Nextel Brazil competes with other SMR service providers and with cellular
service providers in Brazil. The SMR service providers that Nextel Brazil
competes with in Brazil include MComCast S.A. ("MComCast," a joint venture
between Comcast Corporation, a U.S. cable services provider, and MCom Wireless
S.A., a Brazilian holding company owned by, among others, GP Investimentos and
Grupo Carso), Splice Com S.A. (a subsidiary of Splice do Brasil Telecom e
Eletronica S.A., a Brazilian telecommunications equipment manufacturer, "Splice
do Brasil"), Teleglobal S.A. and Unical S.A. MComCast operates an ESMR network
in the greater Sao Paulo area using a TDMA downbanded-cellular technology
developed by Telefonaktiebolaget LM Ericsson ("Ericsson"). The other SMR service
providers operate analog SMR networks in the larger cities of Brazil.
Until 1998, all local, long distance and cellular telecommunications
services in Brazil were provided by Telecomunicacoes Brasileiras S.A., a
government-owned holding company ("Telebras"), and its operating subsidiaries.
In July 1998, the Government of Brazil conducted a privatization sale of
Telebras, pursuant to which the Government of Brazil divided Telebras into
twelve separate telecommunications holding companies and sold a controlling
interest in each newly created company through an auction. Since the
privatization of Telebras, each cellular market that was served by Telebras is
now served by one of eight cellular companies created by the privatization,
including Telesp Celular S.A. (controlled by Portugal Telecom) in Sao Paulo;
Tele Sudeste Celular S.A. (controlled by a consortium led by Telefonica de
Espana S.A.) in Rio de Janeiro and Espirito Santo; and Tele Centro Oeste Celular
S.A. (controlled by Splice do Brasil) in Brasilia and other central cities.
Additionally, the Government of Brazil has divided the Brazilian market into ten
cellular regions, and during 1997 and 1998 it awarded Band B cellular licenses
covering all ten regions in Brazil. Accordingly, in several markets in Brazil,
including the city of Sao Paulo, there are a total of two cellular service
providers. In May 1998, BCP Telecomunicacoes S.A., an affiliate of BellSouth
Corp., began offering digital cellular service in Sao Paulo. See also
"-- Regulatory and Legal Overview."
PARTNER DESCRIPTION. On January 30, 1997, Nextel Communications acquired
an 81% equity interest in Nextel Brazil for a purchase price of $186.3 million,
which was paid with shares of Nextel Communications common stock, and
simultaneously contributed its interest in Nextel Brazil to the Company. Telcom
Ventures, LLC ("Telcom Ventures") and certain affiliates of Telcom Ventures
(together, the "Telcom Group") own the remaining 19% equity interest in Nextel
Brazil.
On September 26, 1997, Nextel S.A. acquired 49% percent of the capital
stock of MCS Telefonia Ltda. ("MCS"), an indirect wholly-owned subsidiary of
Motorola in exchange for $1.9 million and 5% of the outstanding capital stock of
Nextel S.A. (which is held by Motorola International), thereby diluting the
Company's effective ownership interest in its Brazilian operations to 77%. In
September 1998, upon receipt of approval of the applicable Brazilian regulatory
authorities, including Anatel, Nextel S.A. purchased the remaining 51% of the
capital stock of MCS for an exercise price of $3.2 million.
REGULATORY AND LEGAL OVERVIEW. On November 3, 1997, the Brazil Ministry of
Communications issued new regulations governing SMR service providers in Brazil.
These new regulations (Ordinance 557, which adopted Norma 14/97 ("Norma 14/97"))
impose limits on the types of customers that an SMR provider can serve, the
number of telephone numbers granted to an SMR provider, the amount of
interconnect traffic allowed with respect to a provider's network, the number of
channels a provider can hold, and provides for consolidation of multiple
licenses under one license and various technical specifications for wireless
communications networks.
On July 16, 1997, the Agencia Nacional de Telecomunicacoes ("Anatel") was
created by the General Law (as defined below) as an independent agency in charge
of regulating telecommunications services and performing many of the tasks
formerly performed by the Brazil Ministry of Communications. Anatel is in charge
of implementing Norma 14/97, issuing specific regulations and licenses
(concessions, authorizations and permissions) and applying the relevant
penalties for each segment of the telecommunications services. Anatel is
governed by a Board of Directors composed of five members appointed by the
President of Brazil after approval by the Brazilian Senate.
Many aspects of the law, rules and regulations applicable to the Company's
SMR and ESMR business in Brazil are relatively new and still developing. As a
result, it is difficult to determine how regulators will
15
<PAGE> 17
interpret rules or judge compliance and what if any enforcement action would be
taken. The Company has had numerous meetings and discussions with various
Brazilian governmental and regulatory authorities, including representatives of
the Brazil Ministry of Communications and Anatel, regarding its ownership and
operation of SMR frequencies and its operation of its ESMR network in Brazil.
These discussions have been informal and are not binding on the regulatory
authorities. Although the Company expects that further clarifying
interpretations and refinements will be promulgated by the appropriate Brazilian
governmental and regulatory authorities in the future, the Company believes that
it has a fundamentally sound and well-informed understanding of and basis for
interpreting the current regulatory framework (including Norma 14/97), and will
be able to implement its business plans in Brazil substantially as currently
contemplated. There can be no assurance that the Brazilian governmental and
regulatory authorities, including particularly Anatel, in the future will not
modify or interpret the existing regulatory framework in ways, or adopt further
or replacement legislation, rules, or regulations, that could significantly
restrict or otherwise materially adversely affect the Company's Brazilian
operations. See also "-- Risk Factors -- 3. Nextel International's prospects
depend on government regulations in various countries."
Norma 14/97 requires that SMR service be provided only to legal entities or
groups of legal entities that perform specific activities. SMR service may not
be provided to individual subscribers and all SMR subscriber units must be
capable of providing dispatch service. Under Norma 14/97, an SMR service
provider must apply to the public switch telecommunications network ("PSTN") to
obtain blocks of telephone numbers to be issued by such PSTN for use by the SMR
service provider's subscribers. The PSTN will forward the request to Anatel and
Anatel will inform the SMR provider of the allotment of numbers. The telephone
numbers granted to an SMR provider by Anatel cannot exceed 50% of the total
number of SMR mobile subscriber units that the SMR service provider projects to
be in operation in accordance with its schedule for the deployment of services.
Norma 14/97 prohibits an operator of a PSTN from adopting practices that
inhibit competition or procedures that result in discrimination of any kind
against SMR license holders. Accordingly, Norma 14/97 contemplates that each SMR
provider may obtain interconnect to the PSTN pursuant to interconnect agreements
with the operators of the PSTN. If interconnect negotiations do not produce an
interconnect agreement within 60 days of the commencement of negotiations or if
full interconnection is not implemented within 90 days of the conclusion of
negotiations, either party to the negotiation may refer the matter to Anatel for
resolution. The Company has executed an interconnect agreement for the provision
of interconnect services on its ESMR network in Sao Paulo and Rio de Janeiro and
has obtained blocks of telephone numbers from the applicable PSTNs for the
provision of interconnect services on its ESMR network in each city.
Norma 14/97 also limits the volume of interconnect traffic for SMR service
providers. Norma 14/97 provides that within an SMR service provider's network,
the volume of traffic interconnected with the PSTN cannot exceed one-third of
the sum of intra-network traffic volume and outgoing calls interconnected to the
PSTN. For purposes of calculating the number of intra-network calls, each
subscriber unit called during a one-to-many dispatch call counts as one
intra-network call. The evaluation of the traffic volumes for the purposes of
the above restrictions is to take place every four months. In the event that the
interconnect regulations are violated by the license holders, the licensees are
subject to the imposition of penalties under Norma 14/97, including suspension
of their licenses. Because Anatel has not yet adopted regulations specifying the
format for this report, Nextel Brazil's subsidiaries have not filed any reports
under Norma 14/97 with Anatel to date.
In addition, Norma 14/97 provides that SMR license holders may not hold
more than 200 SMR channels in each geographic area. Norma 14/97 permits SMR
licensees that are under common ownership or control to request Anatel to
consolidate their SMR channels under certain circumstances, subject to the 200
channel limitation, under one SMR licensee. Under Norma 14/97, Nextel Brazil had
until November 3, 1998 to eliminate any extra SMR channels and to seek approval
of the consolidation of its licenses. Norma 14/97 provides that Anatel must
approve any request for consolidation within three months of receipt of any such
request. Nextel Brazil filed timely approvals to consolidate the ownership of
its SMR licenses in each city in Brazil. As of December 31, 1998, Anatel had
approved the consolidation of Nextel Brazil's SMR licenses under common
ownership or control under one SMR licensee in eight cities, including Sao
Paulo, Rio de
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Janeiro and Belo Horizonte. The Company held 210 channels in Sao Paulo and
Anatel, as part of its approval of the consolidation of Nextel Brazil's SMR
licenses in Sao Paulo, canceled, without compensation, 10 of Nextel Brazil's SMR
channels in Sao Paulo. Nextel Brazil appealed Anatel's cancellation of its 10
SMR channels in Sao Paulo unsuccessfully. As to the remaining cities in Brazil
where Nextel Brazil has applied for approval to consolidate the ownership of its
SMR licenses in each city in Brazil where it holds licenses, there can be no
assurance that such approval will be granted by Anatel. Upon effectuation of
such consolidation by Anatel, the Company intends (i) to request permission from
Anatel that the SMR licensees holding the consolidated channels be merged into a
subsidiary of Nextel S.A. and (ii) to cause the Nextel Brazil subsidiaries that
no longer hold SMR channels to be merged into a subsidiary of Nextel S.A. or be
dissolved.
Nextel Brazil's interest in licensees holding 980 of its 2,245 channels in
Brazil is structured pursuant to a number of option agreements (the "Option
Agreements") entered into with the shareholders of the respective corporate
licensees of such channels. Pursuant to the Option Agreements, Nextel Brazil,
through its subsidiaries, has acquired a minority interest in each such licensee
not exceeding 49%. Although Nextel Brazil has exercised the options under all of
the Option Agreements to acquire the remaining equity interest in these
licensees, the actual transfer of the balance of the ownership interest in each
such licensee is subject to approval of Anatel. Approval for change of control
can only be granted after the commencement of commercial operations, and Nextel
Brazil has failed to meet the installation requirements for a significant
portion of the channels that are the subject of Option Agreements. Nextel
Brazil's subsidiaries are currently conducting analog SMR system installation
with regard to a significant portion of such channels and are in discussions
with Anatel regarding their proposed installation and loading plan. To the
extent the Company is not able to acquire the balance of the ownership interest
in a particular licensee, the Company believes that Nextel S.A., a subsidiary of
Nextel Brazil and the holding company for Nextel Brazil's SMR licensee
companies, would be able to continue to maintain its contractual right to render
management services for the operations subject to the license held by such
licensee pursuant to a service agreement and receive fees under such service
agreement. Nextel Brazil, however, would not own such license and the its rights
with respect to such license could be limited. There can be no assurance that
Anatel would not challenge the validity of such service agreements. All of
Nextel Brazil's channels in Sao Paulo and Rio de Janeiro are indirectly and
entirely owned by Nextel S.A. and are not held pursuant to Option Agreements nor
covered by the proposed installation and loading plan referred to above. While
the Company believes it will receive Anatel approval for its installation and
loading plan and Anatel approval for transfer of control when it has met the
installation requirements under such plan and commenced commercial operations,
no assurance can be given that such approval will be obtained.
Since July 13, 1994, it had been the Brazil Ministry of Communication's
practice to grant SMR licenses for a 15-year period and to renew such licenses
for an equal period upon submission of an application to the Brazil Ministry of
Communications. Certain of the Company's licenses granted prior to July 13, 1994
were granted for a term of five years and the Company has been informed by the
Brazil Ministry of Communications that such licenses have been automatically
extended for a term of 15 years from their original issuance date. Effective
July 20, 1996, however, Law No. 9295 (the "Minimum Law"), modified existing law
so that SMR licenses granted after such effective date are issued for a period
of ten years and renewable for an additional ten-year period upon submission of
an application to the Brazil Ministry of Communications. The reduction to ten
years of the term and renewal periods for the licenses was confirmed by Decree
No. 2197, effective April 19, 1997. In either case, a license will be renewed
absent existing violations of applicable rules and regulations and upon
application 18 months prior to the expiration of the license. All of the
Company's licenses were granted prior to July 20, 1996. Notwithstanding the
Minimum Law, a bill was signed into law on July 16, 1997 (the "General Law"),
which, among other things, revokes several provisions of the Minimum Law,
including the ten-year license term. Pursuant to the General Law, absent any new
regulations, existing SMR licenses will remain valid for the term for which they
were issued. However, to be renewed or extended, the term of the licenses must
be adapted to comply with the General Law. The General Law does not specify the
term of renewal or extension of SMR licenses.
The Brazil Ministry of Communications has previously established
comprehensive operating standards and requirements applicable to SMR licensees,
which remain in effect notwithstanding the enactment of
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Norma 14/97. A license holder of SMR channels is required to meet certain
installation and minimum loading requirements. The SMR licensee must submit an
installation and loading proposal and must commence commercial operation within
the term indicated in its proposal, which cannot exceed 24 months. The channels
that have not been installed and loaded pursuant to the terms of applicable
legislation, the license and the proposal are subject to revocation by Anatel,
except in the event of the occurence of certain circumstances beyond the control
of the licensee. Certain SMR equipment must be installed within 12 months after
receiving an SMR license from Anatel. Additional installation time may be
permitted if more than four repeater stations are being installed. The
installation time also may be extended at the discretion of Anatel if
circumstances beyond the control of the licensee contribute to the delay. Under
the former rules, which still apply to the Brazilian operating companies' SMR
licenses, the period for installation of the equipment was 12 months, which
could be extended, in case of occurrence of events beyond the control of the
license holder, at the discretion of the Brazil Ministry of Communications.
Further, installation cannot be extended for longer than six months after the
agreed upon installation date. Additionally, the SMR licensee must load 30
mobile stations for each 25 KHz channel and 15 mobile stations for each 12.5 KHz
channel within 12 to 24 months from the date of commencement of commercial
operations, depending on the population of the coverage area of the license.
After four years, each 25 KHz channel must have been loaded with at least 70
mobile stations and each 12.5 KHz channels must have been loaded with at least
35 mobile stations. The SMR licensee must evidence its compliance with such
requirements by submitting a list of its subscribers to Anatel. Nextel Brazil
has been challenged by Anatel in regard to the applicable installation and
minimum loading requirement with respect to licenses covering a total of 1,885
SMR channels (including the channels covered by the Option Agreements) in a
number of cities, all of which are outside of Sao Paulo and Rio de Janeiro.
Nextel Brazil has filed timely defenses to such challenges, but to date no
decision has been rendered by Anatel. Although the Company believes that its
defense will be successful, no assurance can be given that such defenses will be
accepted by Anatel. There can be no assurance that Anatel will not take action
in response to such failure to comply, including the cancellation of such
channels, which would have an adverse impact on Nextel Brazil.
Any Brazilian company headquartered in Brazil is eligible to obtain
licenses to operate SMR services and there are no limitations on foreign
ownership of such companies. However, under Decree No. 2197, new SMR licenses
can only be obtained pursuant to a public bid.
On February 20, 1997, the Brazilian Ministry of Communications released the
new SMR Rules (the "New SMR Rules"), which governs a number of technical issues,
including (i) permitting the combination of adjacent channels in certain
frequencies in the 400 MHz, 800 MHz and 900 MHz band and (ii) mandating the use
of digital technology for SMR systems operating in channels 401 to 600 of the
806-821 MHz and 851-866 MHz bands. The New SMR Rules also provide that channels
001 to 400 of the above referenced bands will be the object of a study
addressing the prospective regrouping of such channels for application in
systems using digital technology. In addition, Norma 14/97 established that the
Brazil Ministry of Communications by request of all licensees involved can
change the SMR channels consigned to such licensees provided that this
alteration: (a) does not involve channels intended exclusively for digital
modulation techniques, according to the SMR implementation planning; (b)
exclusively includes channels already consigned to the interested parties; (c)
involves only channels that are in the same radio frequency band and refer to
the same service rendering area; and (d) provides each of the permit holders
involved with the same number of consigned channels. Because the New SMR Rules
allow SMR operators to combine adjacent channels to create contiguous blocks and
may provide for a regrouping of SMR channels to create more contiguous blocks in
the future, SMR operators may have additional technology choices available to
them. Although the Company does not believe that the New SMR Rules will
materially affect its technology decisions or the attractiveness of Nextel
Brazil's product or service offerings, the New SMR Rules and technology
decisions by other SMR operators, including existing and future competitors, may
increase competition in Brazil.
From June 1997 to December 1998, the Government of Brazil awarded Band B
cellular licenses covering all of the ten cellular regions in Brazil, including
the cities of Sao Paulo, Rio de Janeiro and Brasilia, pursuant to rules released
on January 13, 1997 (the "Band B Rules"). See "-- Competition." Under the Band B
Rules, a cellular license winner can provide service in only one major Brazilian
market and one secondary market
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(e.g., the winner of the Sao Paulo license is precluded from owning the Rio de
Janeiro license). In addition, future licensing and commencement of cellular
services, as well as the initiation of operations by certain other mobile
telecommunications service providers in the areas covered by the Band B
licenses, will not be permitted prior to December 31, 1999, except by the
existing Brazilian cellular system operators and the holders of the Band B
cellular licenses. Some of the largest telecommunications companies in the world
have been granted cellular licenses in the Band B auction, which has resulted in
significant competition in the Company's Brazilian markets. The Company does not
believe that the Band B Rules are applicable to its ESMR operations in Brazil.
There can be no assurance, however, that Anatel or companies holding the Band B
licenses will not challenge the Company's offering of ESMR services before
December 31, 1999.
The purchase and sale of foreign currency in Brazil are subject to
governmental control. There are two foreign exchange markets in Brazil that are
subject to Central Bank of Brazil regulations. The first is the
commercial/financial floating exchange rate market which is reserved generally
for (i) trade-related transactions, such as import and export transactions; (ii)
registered foreign currency investments in Brazil; and (iii) certain other
transactions involving remittances abroad. The second is the tourism floating
exchange rate market. The commercial/financial exchange market is restricted to
transactions, which require prior approval of the Brazilian monetary
authorities. Both markets operate at floating rates freely negotiated between
the parties. The purchase of currency for repatriation of capital invested in
the country and for payment of dividends to foreign shareholders of Brazilian
companies is made in the commercial/financial floating market, provided that the
original investment of foreign capital and capital increases were registered
with the Central Bank of Brazil. In this case, there are no significant
restrictions on the repatriation of share capital and remittance of dividends.
The majority of the capital of Nextel S.A., the Brazilian subsidiary through
which any dividends are expected to flow, has been registered with the Brazilian
monetary authorities, and Nextel S.A. intends to structure future capital
contributions to Brazilian subsidiaries to maximize the amount of share capital
and dividends that can be repatriated through the commercial financial exchange
market. There can be no assurance that Nextel S.A. can repatriate through the
commercial financial exchange market share capital and dividends on foreign
investments that have not been registered.
Brazilian law provides that whenever there is a material imbalance or a
serious risk of a material imbalance in Brazil's balance of payments, the
Brazilian government may, for a limited period of time, impose restrictions on
the remittance by Brazilian companies to foreign investors of the proceeds of
investments in Brazil. The Brazilian government may also impose restrictions on
the conversion of Brazilian currency into foreign currency. Any such
restrictions may hinder or prevent the Company from purchasing equipment
required to be paid for in any currency other than Brazilian reais. Under
current law, there is a 15% withholding tax on interest payments. Dividends paid
out of profits generated after December 31, 1996 are currently not subject to
withholding tax.
MEXICO
OPERATING COMPANY OVERVIEW. Nextel Mexico began offering commercial analog
SMR operations in September 1993 and launched commercial ESMR service in Mexico
City under the tradename "Nextel(TM)" during the third quarter of 1998. Nextel
Mexico, through its subsidiaries and management agreements, provides analog SMR
services in 15 cities and along a number of major highways. As of December 31,
1998, Nextel Mexico provided service to approximately 26,100 analog SMR
subscriber units and 12,000 ESMR subscriber units. The cities in which Nextel
Mexico holds SMR licenses include: Mexico City (with a total of 204 channels
representing approximately 10 MHz), Guadalajara (with a total of 60 channels)
and Monterrey (with a total of 25 channels). Nextel Mexico has deployed
Motorola, Uniden, Nokia and General Electric technology in its analog SMR
networks and has deployed Motorola's iDEN(R) technology on its ESMR network.
While migrating its analog SMR customers in Mexico City to the ESMR
network, Nextel Mexico has operated parallel digital and analog networks. Nextel
Mexico intends to cease offering analog SMR services in Mexico City by the end
of the second quarter of 1999.
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Nextel Mexico's assets also include 1,040 channels in the 400 MHz frequency
band covering central and northern Mexico. Nextel Mexico currently is seeking a
purchaser for its 400 MHz channels because these channels are not central to
Nextel Mexico's business plan. In addition, Nextel Mexico has built a digital
microwave network throughout central and northern Mexico to provide long
distance services for its customers. The Company has entered into arrangements
for the lease of excess capacity on its digital microwave network with Holdings
Protel, S.A. de C.V. (formerly Telecomunicaciones Globales, S.A. de C.V.), a
company in which the Company holds a 3.0% equity interest.
Nextel Mexico is headquartered in Mexico City and has branch offices in
Guadalajara, Monterrey and Tijuana. As of December 31, 1998, Nextel Mexico had
345 employees in Mexico.
MARKETING. Nextel Mexico offers its analog SMR and ESMR customers a broad
range of services and pricing plans designed to meet the specific needs of these
customers. Nextel Mexico offers both dispatch only and integrated service plans
(dispatch and interconnect) on its analog SMR network. These plans include sale
or rental of various models of handsets. The basic price package consists of a
monthly fee and interconnect and dispatch charges depending on minutes of use.
Unlike many SMR providers, Nextel Mexico sells the majority of its handsets
instead of leasing handsets. Nextel Mexico's ESMR service offerings include
interconnect services, dispatch radio and paging using one multi-functional
handset. Initially, Nextel Mexico is marketing its ESMR network service to
businesses with mobile workforces, which it believes will be the most likely
users of its ESMR network's integrated services.
On June 30, 1998, the Mexican Federal Telecommunications Commission
("COFETEL") issued a press bulletin in which it ordered Nextel Mexico to cease
its pre-launch marketing campaign for its ESMR services because, according to
the COFETEL press release, Nextel Mexico's SMR concessions did not authorize the
Company to offer the services specified in Nextel Mexico's marketing materials.
On July 8, 1998, Nextel Mexico received a letter from COFETEL containing such
order. Prior to receipt of COFETEL's order, and based on the press reports
regarding COFETEL's press release, Nextel Mexico had ceased its pre-launch
marketing campaign. On July 9, 1998, Nextel Mexico sent a written reply to
COFETEL in which it informed COFETEL that the Company had ceased its pre-launch
marketing campaign and intended to revise its pre-launch marketing campaign to
insure that any terms describing its ESMR services were consistent with its SMR
licenses. After meeting with COFETEL, Nextel Mexico revised the language in its
pre-launch marketing campaign and, with COFETEL's authorization, resumed such
campaign. Although the Company believes that its licenses authorize all of the
services contemplated to be offered on its ESMR network and that COFETEL will
not have any further objections to Nextel Mexico's marketing campaigns, there
can be no assurance that COFETEL will accept Nextel Mexico's interpretation of
its SMR licenses or that COFETEL will not object to Nextel Mexico's future
marketing campaigns.
Nextel Mexico's sales and marketing efforts focus primarily on providing
(i) local and regional analog SMR dispatch radio services to its target
customers and (ii) local ESMR service to its target customers that require
integrated service offerings, including interconnect services. Nextel Mexico's
target customers are businesses with a need for mobile communications, such as
companies engaged in transportation, distribution, manufacturing and security.
Nextel Mexico markets its services through a multichannel distribution network
including direct sales representatives and independent dealers. Direct sales
representatives account for approximately 70% of new customers and distributors
account for approximately 30%.
COMPETITION. Nextel Mexico is the largest SMR provider in Mexico, both in
terms of channels and subscribers and has an approximately 30% market share. The
second largest SMR operator in Mexico is Radiocel, S.A. de C.V., with a 27%
market share. Other significant operators include Intercom and Multicom. The
Mexican cellular market is divided into nine regions and there are two cellular
licensees per region. Telefonos de Mexico, S.A. de C.V. ("Telmex"), Mexico's
largest telephone company, has a nationwide cellular license. In the Mexico City
region and throughout most of the southern portion of Mexico, the second
cellular carrier is Iusacell, S.A. de C.V. (a joint venture controlled by Bell
Atlantic). In the northern part of Mexico, cellular carriers include Movitel
S.A. de C.V., Cedetel, Norcel and Baja Celular Mexicana. Motorola is a
shareholder of each of the foregoing companies in northern Mexico. Poctatel del
Sureste also provides cellular service in Southern Mexico.
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During 1998, the Mexican government completed the auction of four PCS
licenses in each of the nine cellular regions of Mexico, including Mexico City.
Accordingly, each market may have as many as four PCS providers in addition to
the two current cellular providers. Each new PCS provider is expected to begin
offering services in 1999. Pegaso Telecomunicaciones S.A. de C.V., a joint
venture including Leap International, Inc. (formerly a subsidiary of Qualcomm
Incorporated), Grupo Pegaso and Grupo Televisa, launched commercial services in
Tijuana in February 1999 and has announced that it plans to launch commercial
services in each of Mexico City, Monterrey and Guadalajara in 1999.
As part of its drive to improve and increase Mexican telecommunications
services, the Mexican government has announced its intention to auction a number
of licenses to provide wireless communications services, including licenses for
dispatch services in the 900 MHz frequency band and for narrowband dispatch
services in the 220 MHz frequency band. These auctions, which were originally
anticipated to occur during 1998 and are currently anticipated to occur during
1999, will increase the number of actual and potential competitors that Nextel
Mexico will face.
REGULATORY AND LEGAL OVERVIEW. The Secretary of Communications and
Transportation of Mexico (the "Mexico SCT") regulates the telecommunications
industry in Mexico. COFETEL oversees certain aspects of the telecommunications
industry on behalf of the SCT. Since early 1994, the Mexican government has been
deregulating the telecommunications industry in order to improve the quality and
expand the coverage of telecommunications services. The Mexican government has
stated its intention to increase competition within the telecommunication
industries and its desire to attract foreign investment for the purpose of
improving Mexico's telecommunications infrastructure. Mexico's Federal
Telecommunications Law (the "Mexican Federal Telecommunications Law"), which
became effective in June 1995, outlines the broad rules for opening the local
and long distance service markets to competition.
The Mexican Federal Telecommunications Law requires that all
telecommunications licenses (referred to as "concesiones" in Mexico) must be
owned by entities that do not have more than 49% of their voting equity interest
owned by non-Mexican entities. Although such 49% limitation existed prior to the
enactment of the Mexican Federal Telecommunications Law for certain types of
telecommunications licenses, SMR licenses issued prior to the effectiveness of
the legislation could be owned by entities wholly owned by non-Mexicans. Nextel
Mexico believes that in accordance with the terms of the Mexican Federal
Telecommunications Law and Mexican constitutional law principles, the 49%
limitation on non-Mexican participation does not apply to the SMR licenses in
which it had an interest at the time of the effectiveness of the Mexican Federal
Telecommunications Law. Consistent with this view, in May 1996, the SCT amended
all of the 800 MHz SMR licenses issued prior to the effective date of the
Mexican Federal Telecommunications Law in which Nextel Mexico had an interest to
delete a provision limiting non-Mexican participation to 49%. Accordingly, all
of the 800 MHz SMR licenses in which Nextel Mexico has an interest, except for
one license covering 10 channels along a major highway from Mexico City to
Guadalajara, were amended to remove the 49% foreign-ownership limitation.
Although licenses to provide cellular services are also subject to the 49%
limitation on foreign ownership, the Mexican Federal Telecommunications Law
explicitly provides for a waiver procedure of such limitations for cellular
providers upon receipt of a favorable opinion from the Mexican National Foreign
Investments Commission. Unless Nextel Mexico obtains a waiver with respect to
the 49% limitation on foreign ownership with respect to the license covering the
10 channels between Mexico City and Guadalajara or is otherwise able to
structure future SMR license acquisitions to comply with such limitation, the
provisions of the Mexican Federal Telecommunications Law will prevent the
Company from having a controlling interest in such license and/or obtaining a
controlling interest in additional licenses, including licenses for additional
channels needed to build-out digital mobile networks in markets outside of
Mexico City.
The Mexican Federal Telecommunications Law provides all wireless services
providers with the right to interconnect to the public switched network operated
by Telmex. Certain telecommunications companies, however, have had difficulty
obtaining interconnect services from Telmex despite negotiating and executing an
interconnect agreement with Telmex. Nextel Mexico has entered into interconnect
agreements with Telmex for its analog SMR networks in various cities in Mexico
and its ESMR network in Mexico City. Nextel Mexico provides interconnect
services through Telmex to its ESMR service subscribers and to a limited
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number of its analog SMR service subscribers. As the number of Nextel Mexico's
ESMR subscribers increase, Nextel Mexico will be required to enter into
additional interconnect agreements to provide interconnect services to the
additional subscribers. Any failure to enter into additional interconnect
agreements, with Telmex or any other PSTNs, or to obtain interconnect services
from Telmex or any other PSTNs after entering into such agreements would have a
material adverse effect on Nextel Mexico's results of operations. See also "--
Risk Factors -- 3. Nextel International's prospects depend on government
regulations in various countries."
Mexican companies may remit dividends and profits outside of Mexico if the
Mexican company meets certain distribution and legal reserve requirements. A
Mexican company must distribute 10% of its pretax profits to employees and
allocate 5% of net profits to the legal reserve until 20% of the stated capital
is set aside. Although the Company's investment in Nextel Mexico is registered
with the Mexican National Registry of Foreign Investments, registration is no
longer a prerequisite for the remittance of dividends and profits outside of
Mexico. Under Mexican corporate law, approval of a majority of shareholders of a
corporation is required to pay dividends. Dividends paid by Nextel Mexico to its
U.S. shareholders are subject to a 5% withholding tax unless Nextel Mexico
chooses to pay the Mexican corporate income tax on the net earnings from which
the dividends are being paid. Interest paid by Nextel Mexico to U.S. residents
is subject to a 10% withholding tax.
ARGENTINA
OPERATING COMPANY OVERVIEW. Nextel Argentina has 240 SMR channels (12 MHz)
in Buenos Aires, 200 SMR channels (10 MHz) in each of Cordoba, Rosario and
Mendoza, 20 SMR channels in Mar del Plata, 5 in Tucuman and 25 in the Buenos
Aires to Rosario highway. The Company believes its channel position will allow
Nextel Argentina to compete effectively with other wireless communications
providers.
In February 1997, Nextel Argentina launched commercial analog SMR service
in Buenos Aires. In the second quarter of 1997, the company began offering
commercial analog SMR service in Cordoba and Rosario. Nextel Argentina launched
commercial ESMR service under the tradename "Nextel(TM)" in Buenos Aires in the
second quarter of 1998 and in Rosario in the third quarter of 1998. Nextel
Argentina ceased offering analog SMR services in Buenos Aires and Rosario in the
second half 1998. As of December 31, 1998, Nextel Argentina provided service to
approximately 8,500 analog SMR subscriber units approximately 35,200 ESMR
subscriber units.
Nextel Argentina is headquartered in Buenos Aires. As of December 31, 1998,
Nextel Argentina had 514 employees.
MARKETING. Nextel Argentina's ESMR service offerings include interconnect
services and dispatch radio and paging using one multi-functional handset.
Initially, the company is targeting the mobile workforce, which it believes are
the most likely users of its ESMR network's integrated service offerings. Nextel
Argentina currently offers analog SMR dispatch and interconnect service
utilizing both Motorola and Ericsson equipment. Analog SMR service offerings
include private call, call alert and scanning. Nextel Argentina differentiates
itself from other analog SMR providers by providing extensive service coverage
and maintaining a high level of customer service. Nextel Argentina has a
centralized customer service and installation center located in Buenos Aires.
Nextel Argentina's analog SMR and ESMR services are designed to be a
business tool for the mobile workforce in its Argentine markets. Nextel
Argentina focuses its marketing efforts on businesses that have a need for
mobile communications, such as trucking and transportation companies, real
estate firms, construction companies, suppliers and distributors and security
companies. Nextel Argentina has developed a distribution network and believes a
strong direct sales force is essential to reaching potential business customers.
At December 31, 1998, Nextel Argentina had a direct sales force consisting of
117 sales representatives. In addition, the company has contracted with
independent dealers to market Nextel Argentina's products and is providing
extensive training to each of its distribution channels in order to ensure a
high level of customer satisfaction.
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COMPETITION. The two largest SMR providers in Argentina, as measured by
subscribers, are owned by Movicom S.A.(a joint venture that includes BellSouth
Corporation and Motorola) and Miniphone S.A. ("Miniphone") (a joint venture
among the two Argentine telephone companies, Telefonica de Argentina S.A. and
Telecom Argentina STET-France Telecom S.A.) and operate under the tradenames
"Movilink" and "Starcom," respectively. Movicom owns 100 SMR channels in Buenos
Aires and 40 SMR channels in each of the three other major cities. In addition
to operating various SMR networks, Movicom also operates an iDEN(R) system in
Buenos Aires. Movicom's iDEN(R)-based digital ESMR system utilizes the
higher-capacity, "first-generation" voice algorithm system. Starcom owns and
operates 60 channels in Buenos Aires and additional SMR channels in two other
major cities.
There are two cellular service providers in each of the major markets in
Argentina. In Buenos Aires, the two service providers are Movicom and Miniphone.
In 1996, over 425,000, or 64%, of Argentina's cellular subscribers were located
in Buenos Aires. In the northern region of Argentina, the two cellular service
providers are Compania de Telefonos del Interior S.A. ("CTI") (a joint venture
that includes GTE and Lucent Technologies, Inc.) and Telecom Personal S.A. (a
wholly owned subsidiary of Telecom Argentina STET-France Telecom S.A.). In the
southern region of Argentina, the two cellular service providers are CTI and
Telefonica Comunicaciones Personales S.A., a wholly owned subsidiary of
Telefonica de Argentina S.A., which operates under the name UNIFON.
The company expects additional competition following the auction of PCS
licenses for the largest cities in Argentina, which has been temporarily
postponed but is expected to occur during 1999.
REGULATORY AND LEGAL OVERVIEW. The Comision Nacional de Comunicaciones
("Argentina CNC") and the Secretary of Communications of Argentina are the
Argentine telecommunications authorities responsible for administration and
regulation of the SMR industry.
Argentina CNC regulations require SMR operators to build out their channels
within 12 months of the channel authorization issuance if the system is
multi-site and to guarantee their performance by posting a letter of credit
equivalent to the price paid in the spectrum auction. The letter of credit is
released once the installation and activation of the SMR site or sites have been
verified by the Argentina CNC. In December 1997, Nextel Argentina acquired an
additional 60 SMR channels in Buenos Aires in a public auction and posted a $12
million letter of credit. Nextel Argentina has built out its channels in a
timely fashion and the letters of credit posted by Nextel Argentina in
connection with its build-out obligations have been released by the Argentina
CNC.
SMR licenses have an indefinite term, but are subject to revocation for
violation of applicable regulatory rules as discussed below. SMR service must
commence within six months to one year after receipt of the channel assignment
(depending on the type of network configuration). Failure to meet service or
loading requirements can result in revocation of the channel authorizations. The
Argentina CNC will revoke the licensee's license upon the finding of a third
breach by a licensee of service requirements. Licenses and channel
authorizations may be revoked for violation of other regulatory authority rules
and regulations. All SMR channel holders that received their channel
authorizations pursuant to the November 1995 SMR auction, including Nextel
Argentina, were granted an extension to December 1997 from the original December
1996 deadline to meet initial loading requirements. The Company met the initial
loading requirements in Buenos Aires by the deadline and believes it will retain
its rights to substantially all of its licenses in its other Argentine markets.
Argentina imposes no limitation on foreign ownership of SMR licenses.
SMR providers are assured interconnection with the PSTN pursuant to the
terms of the tender rules under which the channels were awarded, as well as
pursuant to applicable laws. Furthermore, interconnection with the PSTN must be
on a nondiscriminatory basis. Nextel Argentina provides interconnect services to
its subscribers pursuant to an interconnect agreements with Telefonica de
Argentina S.A. and Telecom Argentina STET-France Telecom S.A. for local and
national calls and with Telintar S.A. for international calls.
Under current law, Argentine currency is convertible into U.S. dollars
without restrictions, and Argentina has a free exchange market for all foreign
currency transactions.
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Under applicable Argentine corporate law, dividends may be paid only from
liquid and realized profits as shown on the company's financial statements
prepared in accordance with Argentine generally accepted accounting principles.
Five percent of such profits must be set aside until a reserve equal to twenty
percent of the company's capital stock has been established. Subject to these
requirements, the balance of profits may be declared as dividends and paid in
cash pursuant to a majority vote of the shareholders. Under current law, there
is a 13.2% withholding tax on interest payments and no withholding taxes on
dividends.
PERU
OPERATING COMPANY OVERVIEW. Nextel Peru provides analog SMR and
dispatch-only ESMR services in the greater Lima area under the tradename
"Nextel(TM)." In January 1999, Nextel Peru merged with and into its subsidiaries
and became the direct holder of the SMR licenses formerly held by its
subsidiaries. See "-- Regulatory and Legal Overview." Nextel Peru has an
aggregate of 130 SMR channels (6.5 MHz) in the greater Lima area. As of December
31, 1998, Nextel Peru provided service to approximately 3,600 analog SMR
subscriber units.
Nextel Peru has constructed an ESMR network in the greater Lima area
utilizing Motorola's iDEN(R) technology and plans to launch commercial ESMR
service in the second half of 1999. While migrating its analog SMR customers to
the digital network, Nextel Peru intends to operate parallel digital and analog
SMR networks. Nextel Peru intends to cease offering analog SMR services by the
end of the second quarter of 1999. As part of the migration process, Nextel Peru
is encouraging its higher-usage customers to convert to the digital network so
they can benefit from the broader range of service offerings.
Nextel Peru is headquartered in Lima. As of December 31, 1998, Nextel Peru
had 181 employees.
MARKETING. Nextel Peru's digital service offerings are planned to include
interconnect services, dispatch radio and paging using one multi-functional
handset. Initially, Nextel Peru is targeting the mobile workforce, which it
believes will be the most likely users of the ESMR network's integrated service
offerings. To establish brand identity for its ESMR services, Nextel Peru has
undertaken a promotional advertising campaign targeting the business segment of
the market. In addition to advertising, Nextel Peru initially will rely heavily
on its direct sales force to educate potential customers on the benefits of
using its ESMR services.
COMPETITION. The largest SMR provider in Peru, as measured by subscribers,
is Radio Trunking del Peru S.A. Nextel Peru is the country's second largest SMR
provider. Tele2000 and Telefonica del Peru S.A.A. are Peru's two cellular
operators. Telefonica del Peru (a joint venture between Telefonica Internacional
S.A. of Spain and Peruvian investors) provides nationwide coverage and operates
under the brand name "Moviline." Tele2000 (a joint venture between BellSouth and
Peruvian investors) offers service in the greater Lima area, and recently
established nationwide roaming agreements with Telefonica del Peru S.A.A.
Tele2000 operates under the brand name "Celular2000."
PARTNER DESCRIPTION. The Company's partners in Nextel Peru are Motorola
International, which holds approximately 30.9%, and a Peruvian individual who
holds approximately 7% of the capital stock of Nextel Peru.
REGULATORY AND LEGAL OVERVIEW. The Organismo Supervisor de Inversion
Privada en Telecomunicaciones of Peru ("OSIPTEL") and the Ministry of
Transportation, Communications, Housing and Construction of Peru (the "Peru
Ministry of Communications") regulate the telecommunications industry in Peru.
OSIPTEL is responsible for overseeing private investments in the
telecommunications industry and the Peruvian Ministry of Communications grants
telecommunications licenses and issues regulations governing the
telecommunications industry. In 1994, the Peruvian government began to
deregulate the telecommunications industry in order to promote free and open
competition for the provision of telecommunications services. The
Telecommunications Law of Peru (the "Peruvian Telecommunications Law"), the
general regulations thereunder (the "Peruvian General Regulations") and the
specific regulations governing trunking services outline the rules for the
operation of SMR services in Peru.
In Peru, SMR and paging service providers are granted licenses for
twenty-year terms, which may be extended for an additional 20-year term (subject
to compliance with the terms of the license). SMR and
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paging licenses may also be revoked prior to expiration for violations of
applicable regulatory rules as discussed below. SMR and paging licensees must
comply with a five-year minimum expansion plan that sets forth the minimum
loading requirements for the licensees (the "Minimum Expansion Plan"). The
Minimum Expansion Plan may be amended at the licensee's request at the end of
the first and second years of the license terms if the licensee determines that
market demand for its services is insufficient for the licensee to meet the
requirements of the Minimum Expansion Plan. Failure to meet the Minimum
Expansion Plan may result in revocation of the licenses. Licenses and channel
authorizations may be revoked for violation of other regulatory authority rules
and regulations. Nextel Peru failed to meet the Minimum Expansion Plan for 1997,
but filed requests for modification of such Minimum Expansion Plan for the
licenses in question. In January 1999, the Peru Ministry of Communications
approved Nextel Peru's modified Minimum Expansion Plan and the merger of Nextel
Peru with and into its subsidiaries. In connection with such approval, the
Peruvian Ministry of Communications revoked 8 of Nextel Peru's SMR channels due
the failure of one of Nextel Peru's subsidiaries to comply with its prior
Minimum Expansion Plans. Immediately following such approval and revocation,
Nextel Peru had 130 SMR channels in the greater Lima area.
Pursuant to the Peruvian General Regulations, all wireless
telecommunications licensees have the right to interconnect to the PSTNs.
Furthermore, interconnection with the PSTN must be on an equal and
nondiscriminatory basis and the terms and conditions of interconnect agreements
must be negotiated in good faith between the parties in accordance with the
interconnect regulations and procedures issued by OSIPTEL. In February 1999,
Nextel Peru executed an interconnect agreement with Telefonica del Peru S.A.A.
Peru imposes no limitation on foreign ownership of SMR or paging licenses or
licensees.
Under current law, Peruvian currency is convertible into U.S. dollars
without restrictions, and Peru has a free exchange market for all foreign
currency transactions. Nextel Peru has executed a legal stability agreement with
the Peruvian government, which, among other things, guarantees free conversion
of foreign currency for Nextel Peru and its shareholders for a period of 10
years.
The payment and amount of dividends on the company's common stock is
subject to the approval of a majority of the shareholders at a mandatory meeting
of the shareholders of the company, as well as to the availability of earnings
to distribute determined in accordance with Peruvian GAAP. According to Peruvian
corporate law, interim dividends may be distributed subject to the prior
approval of the shareholders' meetings.
Available earnings are subject to the following priorities: (i) mandatory
employee profit sharing of 10% of pre-tax profits and (ii) 10% of the net
profits must be allocated to a legal reserve, which is not further available for
use except to cover losses in the profit and loss statement. The latter
obligation remains until the legal reserve constitutes 20% of the capital stock.
After the legal reserve has been allocated, the shareholders at a shareholders'
meeting can then allocate any portion of the net profits to any special reserve.
The remaining amount of the net profits is available for distribution.
Dividends paid by Nextel Peru to its U.S. shareholders are not subject to
withholding tax and interest paid by Nextel Peru to U.S. residents is subject to
a 30% withholding tax.
Under Peruvian labor law, any telecommunications company with more than 20
employees is required to distribute among its employees 10% of its annual
pre-tax profits.
PHILIPPINES
OPERATING COMPANY OVERVIEW. Nextel Philippines owns nationwide licenses
(with a total of 100 channels representing approximately 5 MHz), to provide SMR,
ESMR and paging services. Nextel Philippines launched commercial paging services
in February 1995 under the brand name "Infopage(TM)." Nextel Philippines
currently offers paging coverage across Metropolitan Manila and Subic Bay. The
company provided service to approximately 68,836 paging subscriber units at
December 31, 1998 and was the third largest paging company in the country.
Nextel Philippines launched commercial ESMR service in Manila during the
third quarter of 1998. As of December 31, 1998, Nextel Philippines provided
service to approximately 3,200 ESMR subscriber units.
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Nextel Philippines is headquartered in Metropolitan Manila. As of December
31, 1998, Nextel Philippines had 1,183 employees of which 659 were operators
serving its paging customers.
MARKETING. Nextel Philippines offers both alphanumeric and numeric paging
services utilizing Motorola's FLEX(TM) technology and differentiates itself from
its competitors by offering a variety of value-added services, including
secretarial services, voice mail, call forwarding, fax mail and group call.
Moreover, the company places considerable emphasis on providing a high level of
customer service through its customer service center located at the company's
headquarters in Manila.
Paging services in the Philippines are targeted at both the business and
consumer segments. Nextel Philippines has developed a comprehensive and diverse
distribution network and believes that such a diverse distribution mix will
contribute to an increased growth in its subscriber base. In order to capture
the consumer segment and create brand awareness, Nextel Philippines has 16 owned
and operated retail outlets, primarily located within large shopping malls, that
exclusively carry Nextel Philippines's products. To target the business segment,
Nextel Philippines has a direct sales force of 105 people. Finally, Nextel
Philippines has contracted with five major dealers and 75 sub-dealers to market
its Infopage products.
Nextel Philippines' ESMR business targets the larger business customers in
its markets. Nextel Philippines is focused on building profitability rather than
building market share in a similar fashion to its efforts in its paging
business. Within the business segment, Nextel Philippines believes the mobile
workforce, including construction, service, real estate and sales companies will
be the most likely users of the ESMR network's integrated service offerings.
Although Nextel Philippines uses its established paging distribution
network and leverages Infopage's brand recognition, it also uses its direct
sales force to target other business customers. Nextel Philippines's pricing
plans charge a premium to low usage subscribers and a slight discount to high
usage subscribers while offering a significantly greater number of services.
COMPETITION. There are two major SMR license holders in the Philippines,
each owning 100 channels nationwide, and 12 licensed paging operators. Nextel
Philippines believes that it is uniquely positioned to compete effectively in
the Philippines as a result of its nationwide SMR license and its fast-growing
paging business. There are currently five cellular providers with nationwide
licenses in the Philippines, two of which are AMPS operators. Filipino SMART
Communications, Inc. ("SMART"), is the largest cellular provider, with an
approximately 47% market share. As part of its effort to improve teledensity,
the government requires cellular providers to meet certain landline buildout
requirements, which require the installation of 400,000 telephone lines. This
represents a significant investment for each of these providers. See "--
Regulatory and Legal Overview."
PARTNER DESCRIPTION. The Company's partners in Nextel Philippines
currently include an affiliate of American International Group, Inc. ("AIG"),
which holds 10% of the outstanding shares of Nextel Philippines, Gamboa
Holdings, which is 60% owned by ACCRAIN and 40% owned by an indirect subsidiary
of the Company, which holds 20% of the outstanding shares of Nextel Philippines,
and the two remaining Philippines Shareholders, who hold the remaining 40% of
the outstanding shares of Nextel Philippines. AIG has notified the Company that
it has exercised its right to sell its 10% in Nextel Philippines back to the
Philippines shareholder from which it had originally purchased such interest,
but, to date, the sale of such interest has yet to occur. AIG is in litigation
with such shareholder with regard to such transaction.
On August 21, 1998, Gamboa Holdings purchased the shares of Nextel
Philippines held by the Gotesco Group. As a result of Gamboa Holdings's
acquisition of the Gotesco Group's shares of Nextel Philippines, the Company's
aggregate equity interest in Nextel Philippines, which includes its direct and
indirect holdings, increased from 30% to 38%. See "-- Fiscal Year 1998
Transactions and Developments -- Philippines" and "-- Corporate Governance --
Philippines."
REGULATORY AND LEGAL OVERVIEW. In the Philippines, the telecommunications
industry is principally governed by Republic Act No. 7925 (the "Philippines
Telecoms Act") enacted on March 1, 1995. Under the Telecoms Act, the National
Telecommunications Commission (the "Philippines NTC"), an agency under the
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Department of Transportation and Communications, is mandated to regulate the
telecommunications industry.
Engaging in telecommunications operations requires a franchise from the
Philippine Congress, which is the country's legislative body. After securing a
Congressional franchise, a franchise holder must apply to the Philippines NTC
for an operating license called a Certificate of Public Convenience and
Necessity ("CPCN"). The grant of a CPCN goes through a process of public notice
and hearing. After receipt of an application for a CPCN for a particular
telecommunications service, and after the applicant presents its evidence of
legal, technical and financial capability to operate the services at a public
hearing, the Philippines NTC will initially issue a provisional authority
("PA"), which serves as a temporary operating permit for the particular
telecommunications services applied for. Pursuant to the PA an applicant can
commence construction and commercial operations. Nextel Philippines has a PA
authorizing it to operate a nationwide digital trunked radio dispatch
communications system. Nextel Philippines' PA is subject to revocation for
failure to (i) operate continuously for two years or (ii) commence operations
within two years of the issuance of the PA or the expiration date of any
extensions to the PA. Nextel Philippines' PA expires on January 19, 2000. Nextel
Philippines has applied for a CPCN.
The Philippines Telecoms Act provides that a telecommunications entity with
regulated types of services must make a public offering of at least 30% of its
aggregate common stock within a period of five years from the effective date of
the Telecoms Act or the entity's first start of commercial operations, whichever
occurs later. Accordingly, Nextel Philippines is mandated to make a public
offering of 30% of its common stock by March 1, 2000.
Under Philippine law, foreign entities' direct ownership of a public
utility telecommunications company is limited to 40% of the company's capital
stock (the "40% Rule"). Philippine law also limits the participation of foreign
investors in the governing body of any public utility enterprise to their
proportionate share in its capital. Therefore, a foreign investor's
participation in the management of a telecommunications company is limited
solely to membership on its board of directors and committees of the board of
directors, including but not limited to the executive committee. Accordingly,
all the executive and managing officers (e.g., president, chief executive
officer, treasurer) are required to be citizens of the Philippines.
Presidential Executive Order No. 59 (1993) prescribes, as a matter of
national policy, the compulsory and nondiscriminatory interconnection of
authorized public telecommunications carriers. Interconnection is negotiated and
effected through bilateral negotiations between the parties involved subject to
certain technical/operational and traffic settlement rules of the Philippines
NTC. Nextel Philippines has entered into an interconnect agreement with
Philippines Long Distance Telephone Company and is interconnected through such
agreement with most of the public telecommunications carriers in the
Philippines. Nextel Philippines, however, has not entered into interconnect
agreements with certain public telecommunications carriers, including SMART. If
Nextel Philippines and SMART do not enter into an interconnect agreement with
each other, subscribers to each company's respective services will be unable to
place or receive calls from subscribers of the other.
Presidential Executive Order No. 109 Series of 1993, and, subsequently, the
Philippines Telecoms Act (as implemented by the Philippines NTC's Memorandum
Circular No. 8-9-25) require cellular mobile operators to install at least
400,000 local exchange lines. The Company does not believe that Nextel
Philippines is subject to such requirement, however, there can be no assurance
that this will be the case. If this requirement were found to be applicable to
Nextel Philippines, it would require Nextel Philippines to make a significant
capital investment.
In June and July of 1998, a number of the Philippine cellular mobile
telephone companies commenced proceedings with the NTC against Nextel
Philippines in connection with the NTC's issuance of an extension to Nextel
Philippines' PA in March 1998. The outcome of these proceedings may affect
Nextel Philippines' application for a CPCN. The Company is also involved in
arbitration proceedings against two of the Philippines Shareholders. See Part I,
Item 3, "Legal Proceedings."
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Under current regulations of the Central Bank of the Philippines (the
"Philippines Central Bank"), foreign exchange may be freely sold and purchased
outside the Philippine banking system. Restrictions exist on the sale and
purchase of foreign exchange in the banking system. The Philippine monetary
authority, with the approval of the President of the Philippines, has the
statutory authority, during a foreign exchange crisis or in times of national
emergency, to temporarily suspend or restrict sales of foreign exchange, require
licensing of foreign exchange transactions or require delivery of foreign
exchange in the Philippines Central Bank or its designee.
Foreign investments need not be registered with the Philippines Central
Bank. The registration of a foreign investment with the Philippines Central Bank
is only required if the foreign exchange needed to service the repatriation and
the remittance of capital and dividends are to be sourced from the Philippine
banking system. Nevertheless, even without Central Bank registration, foreign
exchange needed for capital repatriation and remittance of dividends of
unregistered investments can be sourced lawfully outside of the Philippine
banking system. The Company's investment in 30% of the equity of Nextel
Philippines has been registered with the Philippines Central Bank.
Under current law there is a 20% withholding tax on dividends and a 15%
withholding tax on interest payments.
JAPAN
OPERATING COMPANY OVERVIEW. J-Com launched ESMR service in the Kanto
region of Japan (which includes Tokyo) in the third quarter of 1998. J-Com
provides its ESMR services to its subscribers pursuant to a subentrustment
agreement with Motorola Japan Ltd., a subsidiary of Motorola ("Motorola Japan").
J-Com's ESMR network operates on the 1.5 GHz frequency rather than the 800 MHz
frequency used by the Company's other SMR Operating Companies. As of December
31, 1998, J-Com provided service to approximately 40,000 ESMR subscriber units.
J-Com is headquartered in Tokyo. As of December 31, 1998, J-Com had 109
employees.
MARKETING. J-Com's current sales and marketing efforts focus primarily on
providing cost-effective, local ESMR services to its target customers, which are
primarily businesses in the transportation industry. J-Com believes that
businesses with mobile workforces will be the most likely users of its
integrated digital service offerings and accordingly, J-Com will target such
business customers. In addition to advertising, J-Com will initially rely on its
network of independent dealers to sell J-Com's services to potential
subscribers.
COMPETITION. Japan has two licensed SMR providers, both of which are
nonprofit organizations. The Japan Ministry of Posts and Telecommunications (the
"Japan MPT") has promulgated regulations that provide that SMR licenses may only
be granted to nonprofit organizations. Such organizations may, however, entrust
the operation of the network under such license to a commercial entity or
entities. The Japan MPT has granted licenses to two commercial SMR providers:
(1) National Mobile Radio Centers Council ("MRC"), which began offering
commercial analog SMR service in 1982, is an association of eight mobile radio
centers that are regionally organized and supported financially by the Japanese
government and several other companies, such as manufacturers and dealers and
(2) Japan Mobile Telecommunications Association ("JAMTA") which was founded in
1994 and began offering commercial analog SMR service the same year. Pursuant to
an entrustment agreement, Motorola Japan is authorized to operate JAMTA's SMR
business. Pursuant to a entrustment agreement, Motorola Japan has sublicensed
the operation of JAMTA's digital SMR business on the 1.5 GHz frequency to J-Com.
Motorola Japan continues to operate JAMTA's analog SMR business, which uses the
800 MHz frequency. MRC and JAMTA are licensed to offer both analog and digital
SMR services.
Japan is divided into ten cellular licensing regions including Kanto and
Shin-etsu (the Tokyo metro area), Tokai, Kansai, Hokuriku, Chugoku, Shikoku,
Kyushu, Hokkaido, Tohoku and Okinawa. For the most populous and economically
active regions, Kanto, Tokai and Kansai, the Japan MPT licensed four operators
in each region. With the exception of Okinawa, three service providers have been
licensed to operate in each of the remaining six regions. In Okinawa, Daini
Denden Incorporated ("DDI") is the only operator. In
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July 1995, Japan launched the world's first commercial PCS network (referred to
as "Personal Handyphone Service" or "PHS" in Japan). The Japan MPT divided the
country into ten PHS licensing regions, allowing up to three operators in each
region.
The largest cellular operator is state-owned Nippon Telegraph and Telephone
("NTT") DoCoMo, with a market share of more than 50%, followed by DDI, Digital
Phone Group, Nippon Idou Tsushin Corp. (IDO), TU-KA Group and Digital TU-KA
Group, respectively. DDI Pocket Telephone is the largest PHS operator, with a
42% market share, followed by NTT Personal and Astel.
PARTNER DESCRIPTION. The Company holds a 21% equity interest in J-Com. The
Company's partners in J-Com are DJSMR Business Partnership, a Japanese
partnership in which Motorola Japan is the majority partner, which holds a 49%
equity interest, Nichimen, which holds a 25% equity interest, and ORIX, which
holds a 5% equity interest.
REGULATORY AND LEGAL OVERVIEW. The Japan MPT regulates the
telecommunications industry in Japan. The Japan Radio Wave Law ("RWL") governs
all users of radio spectrum. Additionally, the Japan Telecommunications Business
Law ("Japan TBL") governs the operations of telecommunications providers. The
Japan MPT classifies telecommunications service providers as either "Type One"
or "Type Two." Type One operators, which include cellular, PHS and paging
providers, own and operate telecommunications infrastructure and Type Two
operators, which are all services under the Japan MPT's jurisdictions not
classified as Type One, provide value-added services and basic services through
leased circuits from Type I operators. Both Type One and Type Two operators are
governed by the Japan RWL and the Japan TBL. The Japan TBL requires Type One
service providers to comply with certain infrastructure and network
requirements, but provides specific procedures for interconnection to the PSTNs.
The Japan MPT has not classified JAMTA as a Type One operator.
The Japan MPT regulates the use of radio frequency assigned for SMR
services by the grant of licenses for radio equipment to be installed on the SMR
network. Each license is granted for terms of up to five years, which may be
renewed for additional five-year terms. There are no loading requirements with
respect to such licenses.
Wireless telecommunications services operators have the right to
interconnect to the PSTN subject to approval by the Japan MPT of the
interconnect agreement between the wireless telecommunications services operator
and the PSTN. The Japan MPT has approved J-Com's interconnect agreement with
NTT.
There are no foreign-ownership restrictions for Japanese telecommunications
companies other than for ownership of NTT and Kokusai Denshin Denwa.
Under current law, the Japanese Yen is convertible into U.S. dollars
without restrictions, and Japan has a free exchange market for all foreign
currency transactions. Dividends and interest paid by J-Com to its U.S.
shareholders are subject to a 10% withholding tax pursuant to the tax treaty
between the U.S. and Japan.
CANADA
OPERATING COMPANY OVERVIEW. The Company currently owns 583,104 Class A
Common Shares and 7,790,741 Class D Common Shares of Clearnet (each of which
Class D Common Share is convertible at the option of the holder into one Class A
Common Share). Clearnet is the largest SMR operator in Canada as measured by the
number of current subscribers, the number of 800 MHz channels and the population
of its service territory. Clearnet reported publicly that as of December 31,
1998, it provided analog SMR services to approximately 40,532 subscriber units
and ESMR services in Ontario, Quebec and British Columbia to approximately
114,095 subscriber units. Additionally Clearnet holds one of the two national 30
MHz licenses to provide PCS in Canada. Clearnet launched PCS services in
Canada's largest urban centers in October 1997 and reported publicly that as of
December 31, 1998, it had approximately 194,378 PCS subscribers. The Company has
two representatives on Clearnet's board of directors. Clearnet files periodic
and other reports with the Commission pursuant to the requirements of the
Exchange Act. More detailed and specific information concerning Clearnet and
information regarding the Company's rights to representation on the Clearnet
Board of Directors is contained in such Exchange Act reports.
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SHANGHAI, PEOPLE'S REPUBLIC OF CHINA
OPERATING COMPANY OVERVIEW. The Shanghai GSM System is a cooperative
project established by China United Telecommunications, Ltd. ("Unicom") and
Shanghai Science Technology Investment Corp. Ltd. ("SSTIC") to construct and
operate a GSM cellular network in Shanghai. The Shanghai GSM System commenced
commercial operations in July 1995 and as of December 31, 1998 reported that it
had approximately 165,500 subscribers. The current network has 143 cell sites
covering the greater Shanghai region (including the Pudong New Area). Under the
current laws of the People's Republic of China, foreign investors are not
permitted to be involved directly in the ownership or operation of
telecommunications services.
In August 1995, the Company formed a joint venture with SSTIC pursuant to
which the Company provided financial support to the Shanghai GSM System for
construction of the initial phases of the system in exchange for a contractual
right to share profits from the system with SSTIC. The Company also provides
advice and direction to the Shanghai GSM System in the key areas of engineering,
customer care, billing practices, quality assurance and system performance.
In December 1997, CCT Technology Services Limited ("CCT") acquired a 51%
ownership interest in Shanghai CCT McCaw, in which the Company had a 60% equity
interest, in exchange for approximately $46 million of investments in the forms
of equity, shareholder loans, shareholder guarantees and fees. CCT's 51%
interest represents the right to receive 20.5% of the profits generated by the
Shanghai GSM System. CCT's proposed investment in Shanghai CCT McCaw received
the necessary governmental approvals, whereupon a new business license
reflecting CCT's admission as a new shareholder of Shanghai CCT McCaw and the
change of the name to Shanghai CCT McCaw, was issued. In consideration for its
admission as a shareholder of Shanghai CCT McCaw, CCT agreed to provide the
funds necessary to enable Shanghai CCT McCaw to meet its funding obligations
with respect to the expansion of the Shanghai GSM system (the "Phase III
Expansion"). As a result of CCT's acquisition of a 51% ownership interest in
Shanghai CCT McCaw, the Company's ownership interest in Shanghai CCT McCaw was
diluted from 60% to 30% and the Company's contractual rights to the profits
generated by the Shanghai GSM System was diluted from 25.2% to 12.1%.
Shanghai CCT McCaw currently employs five people, all of whom are local
Chinese. CCT has appointed the General Manager of Shanghai CCT McCaw, who is
seconded by CCT to Shanghai CCT McCaw and remains on the payroll of CCT.
Shanghai CCT McCaw initially provided technical advice to the Shanghai GSM
System during the construction phase of the network. Shanghai CCT McCaw has
continued to provide technical support in the ongoing process of upgrading the
quality and coverage of the GSM network and has become increasingly involved in
supporting the development of a diversified sales and marketing plan to compete
with the systems operated by China Telecom, which is an entity controlled by the
Ministry of Information and Industry (the "China MII," formerly the Ministry of
Post and Telecommunications).
COMPETITION. There are only two authorized cellular providers in Shanghai,
Unicom and the Shanghai PTA (the local branch of the China MII). The Shanghai
PTA has been in operation since 1989 and operates three cellular networks (two
TACS systems and one GSM system).
PARTNER DESCRIPTION. Unicom was established in 1994 by the Ministry of
Electronics Industry, the Ministry of Railways, the Ministry of Power and 13
other shareholders, including SSTIC. SSTIC is an investment holding company
established for the purpose of developing the Shanghai high-technology industry.
SSTIC was formed by the Municipal Government of Shanghai, six major Shanghai
banks as well as two major diversified Shanghai conglomerates. SSTIC is also a
shareholder of Unicom.
CCT is the Company's other partner in Shanghai CCT McCaw. CCT is CCT
Telecom's holding company for its domestic telecommunications business in China.
Its investments include a communications project in Guangzhou and a second GSM
project in Shanxi province.
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REGULATORY AND LEGAL OVERVIEW. Until 1994, the China MII was the sole
entity authorized to provide public telecommunications services in China. In
July 1994, the State Council established Unicom with the authority to provide
public telecommunications services. In addition, pursuant to a 1995 agreement
the China MII and the Peoples Liberation Army (the "PLA") agreed to jointly
develop 800 MHz cellular communications networks to provide wireless
communications services to the public using spectrum originally allocated to the
PLA for military communications use. Accordingly, there are three entities in
China authorized to provide cellular telecommunications services to the public.
The China MII continues in its role as the central government's regulatory
authority over the telecommunications sector.
Under current Chinese law, foreign investors are not permitted to be
involved directly in the ownership or operation of telecommunications services.
Prior to September 1998, Unicom had requested that Shanghai CCT McCaw
participate in financing the Phase IV of the Shanghai GSM System. While the
Company had previously advised its partners in Shanghai CCT McCaw that it was
not willing to provide funding for Phase IV of the Shanghai GSM System, such
partners advised the Company that each intended to participate in the funding of
Phase IV.
In September 1998, Unicom advised the parties that pursuant to a new policy
of the Chinese government, Unicom was no longer permitted to enter into any new
contracts for its projects wherein financing was derived through investment
structures involving indirect investment by foreign investors, including the
structure utilized by Shanghai CCT McCaw with respect to the Shanghai GSM
System. Further, Unicom advised the parties that it intended to finance Phase IV
and any possible future expansions of the Shanghai GSM System on its own using
financing derived independently of Shanghai CCT McCaw.
To date, the Company is not aware of any new rules or regulations that have
been published or announced by the Chinese government with respect to the new
policy cited by Unicom or with respect to the treatment of existing contracts
such as those in existence between Shanghai CCT McCaw and Unicom under such new
policy. Pursuant to various discussions between and among representatives of
Shanghai CCT McCaw, the Company and Unicom, the Company believes that under the
unpublished restrictions imposed by the Chinese government (a) no agreement with
respect to Phase IV or subsequent phases will be entered into with Shanghai CCT
McCaw or any other investor that derives funds directly or indirectly from
foreign parties and (b) Shanghai CCT McCaw's existing contract with Unicom will
remain in effect and enforceable. However, it is unclear what effect the new
policy will have on the respective rights of Unicom and Shanghai CCT McCaw with
respect to the Shanghai GSM System. The restrictions to be imposed on the
Company pursuant to the new, unpublished regulations may have a material adverse
effect on Shanghai CCT McCaw's interest in the Shanghai GSM System and the value
of the Company's investment in Shanghai CCT McCaw. The Company's investment in
Shanghai CCT McCaw is carried on the Company's book at cost, which was
approximately $15.7 million as of December 31, 1998.
Pursuant to the current PRC Regulation on Foreign Exchange Control,
Renminbi, the currency of China, is freely convertible under current account,
however, it is not freely convertible under capital account. A foreign invested
enterprise is permitted to convert its Renminbi earnings to foreign currencies
for the purpose of enabling the foreign investors to receive dividends and
interest payments. Conversion of Renminbi to foreign currencies for the purpose
of repatriating foreign investors' capital contributions to, and principal
payments from, a foreign invested enterprise is subject to approval by relevant
government authorities, which approval will be granted upon showing that the
foreign invested enterprise has been lawfully terminated and dissolved or the
loan has been properly registered, as the case may be. The company's loan to
Shanghai CCT McCaw has been registered with the relevant governmental authority.
Under current law there is a 10% withholding tax on interest payments and no
withholding tax on dividends paid to foreign investors out of the foreign
invested enterprise.
CORPORATE GOVERNANCE
As of December 31, 1998, Nextel International owned 100% of its Operating
Companies in Mexico and Argentina. The following is a description of the
Company's contractual relationships with its partners in the other Operating
Companies.
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BRAZIL. The Company owns 81% of the capital stock of Nextel Brazil, which
entitles it to 90% of the voting rights. The Company, therefore, has the right
to make management and operating decisions of Nextel Brazil. The Telcom Group
owns 19% of the capital stock, which entitles it to 10% of the voting rights.
The Telcom Group has the right to designate candidates representing at least 10%
of the directors of Nextel Brazil, but at least one candidate so long as the
Telcom Group owns at least 10% of Nextel Brazil. The Telcom Group holds veto
rights with respect to the following actions: (i) amending the articles of
incorporation or bylaws of Nextel Brazil; (ii) creating any equity senior to the
existing shares of Nextel Brazil or changing or adversely affecting any
provisions or rights of the existing shares of Nextel Brazil; (iii) permitting
or causing Nextel Brazil or any of its material subsidiaries to issue voting
securities with voting rights different from those to which then-issued
securities are entitled; (iv) entering into a merger, a sale of substantially
all of the assets, a dissolution, a liquidation or a spin-off of Nextel Brazil
or any of its material subsidiaries; (v) permitting Nextel Brazil or any of its
subsidiaries to enter into a material contract with the Company or its
affiliates other than on an arm's-length, fair-market-value basis; or (vi)
permitting Nextel Brazil or any of its affiliates to issue or dispose of
securities of the company other than for cash at fair market value. If the
Telcom Group exercises its veto rights, Nextel Brazil has the right to purchase
(upon vote of a simple majority of its board of directors) all of the Telcom
Group's shares of Nextel Brazil then-owned by them at their appraised fair
market value. The repurchase price can be paid in cash or in shares of Nextel
Communications common stock or a combination thereof. Nextel Brazil has the
right to declare dividends without the approval of the Telcom Group.
The Telcom Group has the right to defer making its pro rata share of any
capital calls that may arise until April 29, 1999 without suffering any dilution
of its right to receive dividends and other cash or noncash distributions;
provided, however, that the failure by the Telcom Group to ultimately make such
capital contributions (and interest thereon) by April 29, 1999 will result in
the proportionate dilution of its economic interest in Nextel Brazil. Based on
capital contributions made to by the Company to Nextel Brazil as of March 29,
1999, if the Telcom Group chooses not to make the required capital contributions
on April 29, 1999, its interest in Nextel Brazil will decrease and the Company's
interest will increase proportionately. The Telcom Group has the right at any
time between October 31, 2001 and November 1, 2003, or at any time after a
change of control of Nextel Brazil, to require Nextel Brazil to redeem the
Telcom Group's entire interest at its appraised fair market value. The
redemption price is payable in cash, or, at Nextel Brazil's election, publicly
traded common stock of any entity owning 50% or more of Nextel Brazil or a
combination thereof. In the event that Nextel Brazil issues additional shares of
its common stock to such a third party and, as a result, the Telcom Group's
interest in Nextel Brazil is reduced to less than 17%, the Telcom Group has the
right to purchase additional shares in Nextel Brazil such that after the
issuance to a third party, the Telcom Group would own no more than 17% of the
outstanding common stock.
The Company has a right of first refusal with respect to proposed transfers
by members of the Telcom Group of their respective interests in Nextel Brazil
and has the right to compel the Telcom Group to join in any proposed transfer by
the Company of its entire interest in Nextel Brazil. The Telcom Group has the
right to join in any proposed transfer by the Company of its entire interest in
Nextel Brazil.
Nextel Brazil is the owner of 95% of the share capital of Nextel S.A. in
the form of Nextel S.A. Class A Common Stock. In September 1997, the Company
sold 5% of Nextel S.A. to Motorola International in the form of Nextel S.A.
Class B Common Stock. Except for the veto rights of the Telcom Group described
above and except for the restrictions described below, the Company has the right
to make management and operating decisions of Nextel S.A. Nextel Brazil has a
right of first refusal with respect to transfers of Nextel S.A. capital stock by
any other shareholder of Nextel S.A. Each shareholder of Nextel S.A., other than
Nextel Brazil, has the right to include all, but not less than all, of such
shareholder's shares in any transfer by Nextel Brazil to a third party. If the
Company transfers control of Nextel Brazil, the Company is obligated to ensure
that all other shareholders of Nextel S.A. are provided the right to receive
economic benefits comparable to those described in the previous sentence. Nextel
Brazil has the right to cause the other shareholders of Nextel Brazil to sell
their shares if Nextel Brazil transfers its entire interest in Nextel S.A.
PERU. The Company owns 62.1% of the capital stock of Nextel Peru, Motorola
International owns 30.9% and a corporation controlled by Oscar Benalcazar Coz, a
Peruvian citizen, owns 7%. As long as the
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Company controls Nextel Peru, the Company will have the right to designate for
election four members of the seven-member board of directors of Nextel Peru.
Each shareholder of 10% or more of the outstanding shares of Nextel Peru has a
right to designate one of the seven members of Nextel Peru's board of directors.
If any shareholder fails to maintain at least a 10% ownership interest in Nextel
Peru, the directors designated for election by such shareholder will be required
to resign.
The following actions require the approval of at least five members of the
board of directors of Nextel Peru (including each of the directors designated by
each shareholder holding at least 19% of the outstanding shares of Nextel Peru):
(i) participation in and approval of the selection of the senior management of
Nextel Peru (which approval shall not be unreasonably withheld); (ii) adoption
or amendment of any three-year business plan and budget; and (iii) approval of
any expenditures for any year that would cause free cash flow for such year to
be more than 15% less than the amount approved in the business plan for such
year. In addition, the following actions must be approved by an absolute
majority of the outstanding shares at a shareholders' meeting having a quorum of
at least 83% of the outstanding shares: (i) increasing or decreasing the
authorized share capital of Nextel Peru; (ii) issuing debentures; (iii) entering
into a merger, or sale of substantially all of the assets of Nextel Peru; or
(iv) dissolving, liquidating or winding-up of Nextel Peru.
Each shareholder of 5% or more of the outstanding shares of Nextel Peru has
a right of first refusal with respect to transfers by the other shareholders.
The other shareholders have the right to join in any proposed transfer by the
Company of its controlling interest in Nextel Peru. The Company has the right to
cause the other shareholders of Nextel Peru to join in any proposed transfer of
all of the outstanding shares of Nextel Peru. Nextel Peru may not transfer any
shares of capital stock of its subsidiaries without the prior written consent of
each holder of 15% or more of the outstanding shares of Nextel Peru.
If Nextel Peru makes a capital call on its shareholders and a shareholder
fails to make a required capital contribution, subject to certain conditions,
(i) the director or directors nominated by such shareholder will be required to
resign, (ii) the other shareholders may make all or any part of such capital
contribution and receive shares of Nextel Peru in exchange and (iii) the other
shareholders may purchase, or Nextel Peru may redeem, all or any of the shares
of Nextel Peru owned by such shareholder. If any shareholder materially breaches
any provision of the Shareholders Agreement dated as of January 29, 1998, by and
among Nextel Peru and the shareholders of Nextel Peru, the other shareholders
have the right to purchase any or all of the shares of Nextel Peru owned by such
shareholder at a value based on total paid-in capital, if the breach occurs
prior to January 29, 2000, and at 75% of appraised fair market value thereafter.
Motorola has the right to cause Nextel Peru to acquire all shares of Nextel
Peru held by Motorola and its affiliates at the appraised fair market value of
such shares if Motorola owns at least 19% of the outstanding shares of Nextel
Peru and Nextel Peru does not purchase ESMR infrastructure equipment from
Motorola; provided that such ESMR infrastructure equipment is technologically
competitive and is offered to Nextel Peru on competitive commercial terms.
PHILIPPINES. The Company owns, directly and indirectly, 38% of the
outstanding shares of Nextel Philippines and has the right to designate three of
11 members of the board of directors and one of five members of the executive
committee of the board. Pursuant to the Revised Corporate Structure (as defined
below), the Company holds veto rights with respect to decisions involving a
number of significant corporate actions including the following (collectively,
the "Company Veto Rights"): (i) the acquisition of any entity; (ii) the merger,
consolidation or sale of the company or any subsidiary or any disposition of a
material amount of assets; (iii) the amendment of the articles of incorporation
or by-laws; (iv) any amendment affecting the preemptive rights of stockholders;
(v) appointment and removal of the President and Secretary; (vi) approval of or
amendment to the annual business plan; (vii) entering other lines of business;
(viii) issuances of stock; (ix) the approval of annual operating and capital
budgets; (x) any borrowings in excess of $200,000; (xi) any transactions with
affiliates in excess of $200,000; (xii) any dispositions of assets or making
loans other than in the ordinary course of business; (xiii) appointment and
removal of the chief executive officer and chief financial officer of Nextel
Philippines; (xiv) election of members of the executive committee; (xv) filling
of vacancies of the board of directors for causes other than removal or
expiration of term; and (xvi) decisions of the executive committee of the board.
The presence of the member nominated by the Company is required to
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satisfy the quorum requirement for meetings of the executive committee. As
discussed below, in connection with an administrative proceeding, Nextel
Philippines later agreed not to implement the Company Veto Rights.
In April 1998, the Company entered into an agreement with the Philippines
Shareholders, including the Gotesco Group, which held a 20% interest in Nextel
Philippines. Pursuant to the Philippines Partner Agreements, among other things,
(i) the Nextel Philippines corporate governance arrangements were restructured
to give the Company increased minority shareholder rights (the "Revised
Corporate Structure") and the Philippines Shareholders agreed to vote for the
election of new, professional senior management of Nextel Philippines; (ii) the
Company purchased existing shareholder loans of the Philippines Shareholders
totaling approximately $19.6 million, which loans bear interest at 18% per annum
and are convertible into equity of Nextel Philippines; (iii) the Company could,
at its option, fund Nextel Philippines' capital needs for 1998 pursuant to loans
that, at the option of the Company, may be converted into equity of Nextel
Philippines; (iv) the Gotesco Group obtained the right to put its 20% interest
to the Company for approximately $9.4 million beginning in January 1999 and the
Company obtained the right to call the Gotesco Group's 20% interest for
approximately $11.6 million, if the Gotesco Group did not exercise the Gotesco
Put.
On June 26, 1998, the Company and the Gotesco Group entered into the
Gotesco Put Acceleration Agreement, pursuant to which the exercise date of the
Gotesco Put was accelerated from January 1999 to August 21, 1998. Pursuant to
the Gotesco Put Acceleration Agreement, the Company agreed to pay the Gotesco
Group $9,000,000 for the shares covered by the Gotesco Put in three
installments: (i) $500,000 upon the delivery of irrevocable proxies covering the
voting rights on the shares of Nextel Philippines owned by the Gotesco Group;
(ii) $500,000 to the Gotesco Group upon the conclusion of the Nextel Philippines
annual shareholder meeting, provided that the Gotesco Group's shares of Nextel
Philippines were voted in favor of the corporate governance provisions of the
Philippines Partner Agreements at such annual meeting; and (iii) $8,000,000 upon
the transfer of the shares covered by the Gotesco Put to a qualified third-party
purchaser in accordance with Philippines law. The first two installments were
paid on June 26, 1998 and July 13, 1998, respectively. On August 21, 1998,
Gamboa Holdings delivered the final installment of $8,000,000 to the Gotesco
Group and the Gotesco Group delivered the shares covered by the Gotesco Put to
Gamboa Holdings.
Funds used by Gamboa Holdings to consummate the acquisition of the Gotesco
Group's shares of Nextel Philippines were derived from (a) equity contributions
by shareholders of Gamboa Holdings and (b) proceeds of loans made by a lending
institution to Gamboa Holdings and to ACCRAIN. The loans to Gamboa Holdings and
to ACCRAIN are secured by cash collateral deposits of the Company in the amount
of the loans and a pledge of Gamboa Holdings's shares of Nextel Philippines. As
a result of Gamboa Holdings's acquisition of the Gotesco Group's shares of
Nextel Philippines, the Company's aggregate equity interest in Nextel
Philippines, which includes its direct and indirect holdings, increased from 30%
to 38%.
ACCRAIN is a Philippine holding company with investments in a number of
Philippines companies. Pursuant to an agreement, dated as of August 21, 1998
between an indirect wholly owned subsidiary of the Company and ACCRAIN (the
"ACCRAIN Agreement"), ACCRAIN granted the Company a call right on ACCRAIN's
shares in Gamboa Holdings, exercisable at anytime provided that the actual
purchaser of the shares is the Company or a qualified purchaser in accordance
with applicable Philippines foreign corporate ownership rules. Upon expiration
of the ACCRAIN Agreement, ACCRAIN may put its shares in Gamboa Holdings to the
Company or its qualified designee for approximately $8 million (the "ACCRAIN
Put"). The ACCRAIN Agreement expires in August 1999 unless extended. The Company
believes, and has been advised by Philippine counsel, that the above-described
transactions with Gamboa Holdings comply with Philippines law, including
applicable Philippines foreign corporate ownership rules. However, there can be
no assurance that the above-described transactions will not be subject to legal
challenge. In addition, the ability of the Company to call ACCRAIN's interest in
Gamboa Holdings or to satisfy the ACCRAIN Put is subject to applicable
Philippines foreign ownership rules.
Immediately prior to Nextel Philippines' 1998 annual shareholders meetings,
the Philippines Securities and Exchange Commission (the "ROP SEC") issued a
temporary restraining order (the "TRO") upon petition of one of the Philippines
Shareholders and certain individual shareholders who hold shares in Nextel
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Philippines in their capacity as members of the board of directors of Nextel
Philippines representing the interests of Jetcom, Inc. and Foodcamp Industries
and Marketing, Inc., two of the Philippine Shareholders (the "Petitioners"). The
Petitioners requested the nullification of the amendments of the bylaws of
Nextel Philippines contemplated by the corporate governance provisions of the
Philippines Partner Agreements (the "Bylaw Amendments") and the TRO enjoined
Nextel Philippines from implementing such Bylaw Amendments for a 72-hour period.
The Petitioners further requested that a preliminary injunction be issued with
the same effect pending a trial on the merits with respect to the validity of
the Bylaw Amendments. On July 15, 1998, pursuant to the agreement of Nextel
Philippines and the Petitioners and confirmed by the ROP SEC (a) the TRO was
permitted to expire and (b) pending a trial on the merits as to the validity of
the Bylaw Amendments (i) the Petitioners agreed to withdraw their petition for a
preliminary injunction and (ii) Nextel Philippines agreed that the provisions of
the Bylaw Amendments granting the Company Veto Rights would not be implemented.
On October 30, 1998, pursuant to the dispute resolution provisions of the
Philippines Partner Agreements, the Company commenced arbitration proceedings in
Hong Kong against the Petitioners, in which the Company asserts that such
shareholders have failed to perform their respective obligations under the
Philippines Partner Agreements. See Part I, Item 3, "Legal Proceedings."
Although the Company believes that the provisions of the Philippines
Partner Agreements are enforceable against each of the Philippines Shareholders
and that the Company will eventually be successful in asserting its claims
against Jetcom and Foodcamp regarding such agreements, there can be no assurance
that the Company will prevail in any arbitration or legal action against Jetcom
and Foodcamp or that such claims will be resolved in a timely manner. To the
extent the Company is not successful in resolving these issues with Jetcom and
Foodcamp, the Company may decide not to continue to fund Nextel Philippines. Any
failure to resolve the legal issues among the shareholders of Nextel Philippines
in a timely manner, and any resulting decision by the Company not to continue to
provide additional funding to Nextel Philippines, would have a material adverse
effect on Nextel Philippines' business, prospects, financial condition and
results of operation. The Company does not believe that any of the Philippines
Shareholders intend to fund Nextel Philippines in fiscal year 1999. Any lack of
funding of Nextel Philippines, either from the Company, the Philippines
Shareholders or other sources, would have a material adverse effect on Nextel
Philippines' business, prospects, financial condition and results of operation,
including its ability to meet its obligations, and, accordingly, on the value of
the Company's investment in Nextel Philippines.
At its March 3, 1999 meeting, the board of directors of Nextel Philippines
authorized Nextel Philippines to effect borrowings from the Company to finance
(a) the cost of purchases of iDEN(R) infrastructure equipment and related
services from Motorola; (b) the repayment of the principal amounts outstanding
under the existing financing facility between Motorola Credit and Nextel
Philippines; and (c) repayment of amounts to reimburse the Company for funds
drawn by the Company under the Philippines Motorola Bridge Financing. The
Company has agreed to provide such loans to Nextel Philippines (the "Philippines
NI Facility") and will use proceeds drawn by the Company under the International
Motorola Financing Facility to fund such loans. The aggregate amounts drawn
under the Philippines NI Facility, together with the amounts of all other loans
made by the shareholders of Nextel Philippines in 1999, cannot exceed $50
million. The Company estimates that the aggregate amounts drawn under the
Philippines NI Facility will not exceed $30 million.
Nextel Philippines and the Company have entered into a technical services
agreement pursuant to which the Company agreed to provide Nextel Philippines
with engineering and other technical services, marketing assistance and system
operation assistance on a cost reimbursement basis. The agreement has an initial
term of three years, which expires on June 30, 1999. The Company and Nextel
Philippines are negotiating an amendment to this agreement.
SHANGHAI. Under current Chinese law, foreign entities or individuals are
prohibited from participating directly in the ownership and operation of
telecommunications services. Because of this limitation, the Company's interest
in the Shanghai GSM System is held through its 30% equity interest in a Chinese
equity joint venture, Shanghai CCT McCaw. Shanghai CCT McCaw participates in the
Shanghai GSM System
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through the Unicom Agreement originally between Unicom and Shanghai Science
Technology Investment Corp. Ltd. ("SSTIC"), its Chinese partner, and Unicom.
SSTIC and CCT hold 19% and 51% equity interests in Shanghai CCT McCaw,
respectively.
Shanghai CCT McCaw participates in the Shanghai GSM System through a
profit-sharing arrangement under (i) the Shanghai Mobile Telecommunications GSM
Project Cooperation Contract, dated April 21, 1995 (the "Unicom Agreement"),
between SSTIC, one of the Company's partners in Shanghai CCT McCaw and (ii) the
China Unicom Shanghai GSM Phase III Cooperation Agreement, dated March 29, 1997
(the "Phase III Agreement"), between Shanghai CCT McCaw and Unicom, which
modified the arrangements under the Unicom Agreement. The Phase III Agreement
requires Shanghai CCT McCaw to provide 60% of the funds required for the "Phase
III Expansion", which is estimated by Shanghai CCT McCaw to be approximately $38
million. Pursuant to the Phase III Unicom Agreement Shanghai CCT McCaw has
agreed to provide 60% of the funds required to expand the capacity of the
Shanghai GSM System to provide service for an additional 100,000 subscribers.
Shanghai CCT McCaw's share of the funds is estimated to be equal to
approximately RMB$386.4 million (approximately $46 million). Pursuant to the
Phase III Unicom Agreement, since September 15, 1997, Shanghai CCT McCaw has
received 40.2% of the profits of the Shanghai GSM System. The Phase III Unicom
Agreement expires January 15, 2012.
Pursuant to a joint venture agreement and other agreements entered into
between the Company, CCT and SSTIC, membership of the nine person board of
directors of Shanghai CCT McCaw is allocated as follows: (i) five directors are
appointed by CCT Telecom, (ii) two directors appointed by SSTIC; and (iii) two
directors appointed by the Company. Certain significant corporate actions
require unanimous approval of the board of directors, including: (i) an
amendment to the articles of association; (ii) changes in the ratio of the
partners' capital contribution; and (iii) the merger or dissolution of Shanghai
CCT McCaw. Certain other matters require the approval of at least five members
of the board of directors (including approval of at least one director appointed
by each shareholder). Those matters include the following: (i) allowing a third
party to participate in the ownership of Shanghai CCT McCaw; (ii) certain
changes to capitalization; (iii) borrowing money; (iv) paying dividends; (v)
approving operating and capital budgets; (vi) changing the management structure;
(vii) entering into transactions with affiliates; (viii) the purchase and sale
of capital equipment; and (ix) any action not in the ordinary course of business
of Shanghai CCT McCaw. None of the parties is permitted to sell its interest in
Shanghai CCT McCaw without the consent of the other two parties.
In September 1998, Unicom advised the parties that pursuant to a new policy
of the Chinese government, Unicom was no longer permitted to enter into any new
contracts for its projects wherein financing was derived through investment
structures involving indirect investment by foreign investors, including the
structure utilized by Shanghai CCT McCaw with respect to the Shanghai GSM
System. Further, Unicom advised the parties that it intended to finance Phase IV
and any possible future expansions of the Shanghai GSM System on its own using
financing derived independently of Shanghai CCT McCaw.
To date, the Company is not aware of any new rules or regulations that have
been published or announced by the Chinese government with respect to the new
policy cited by Unicom or with respect to the treatment of existing contracts
such as those in existence between Shanghai CCT McCaw and Unicom under such new
policy. Pursuant to various discussions between and among representatives of
Shanghai CCT McCaw, the Company and Unicom, the Company believes that under the
unpublished restrictions imposed by the Chinese government (a) no agreement with
respect to Phase IV or subsequent phases will be entered into with Shanghai CCT
McCaw or any other investor that derives funds directly or indirectly from
foreign parties and (b) Shanghai CCT McCaw's existing contract with Unicom will
remain in effect and enforceable. However, it is unclear what effect the new
policy will have on the respective rights of Unicom and Shanghai CCT McCaw with
respect to the Shanghai GSM System. The restrictions to be imposed on the
Company pursuant to the new, unpublished regulations may have a material adverse
effect on Shanghai CCT McCaw's interest in the Shanghai GSM System and the value
of the Company's investment in Shanghai CCT McCaw.
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In addition to its capital contribution, the Company was responsible for
providing a $13.2 million to fund the Shanghai GSM System (the "Shanghai Loan").
As of December 31, 1998, the outstanding balance of the Shanghai Loan (after
repayments of principal by Shanghai CCT McCaw) was $9.3 million.
In addition to its capital contribution, CCT agreed to provide to Shanghai
CCT McCaw (i) a loan of $13.2 million (the "CCT Loan") and (ii) an additional
loan of up to $3 million to cover cost overruns for Phase III Expansion required
to be borne by Shanghai CCT McCaw (the "CCT Additional Loan"). CCT and Shanghai
CCT McCaw have agreed that CCT may not accept any payment of principal or
interest in respect of the CCT Loan or the CCT Additional Loan during any period
when Shanghai CCT McCaw is in default under the Shanghai Loan.
EMPLOYEES
As of December 31, 1998, the Company, at the corporate level, employed 39
employees and the Operating Companies (excluding Clearnet and the Shanghai GSM
System) had an aggregate of 2,853 employees. The Company is not a party to any
collective bargaining agreements and the Company believes its relationship with
its employees is good.
RISK FACTORS
Nextel International's business, financial condition and future prospects
are subject to a number of risks and contingencies. The risks and contingencies
that Nextel International regards currently as among the most significant are
summarized below.
1. NEXTEL INTERNATIONAL HAS A SHORT OPERATING HISTORY, A HISTORY OF NET LOSSES
AND EXPECTS LOSSES TO CONTINUE FOR SEVERAL YEARS.
Each of our operating subsidiaries and affiliates has been operating for a
relatively short time. Additionally, if we acquire or commence operations in new
markets, any of these new operations are likely to also have either a short or
no operating history. Our prospects must therefore be considered in light of the
risks, expenses, uncertainties and obstacles of establishing a new business in a
rapidly developing industry such as wireless telecommunications. We have never
been profitable and we have experienced negative cash flow since we began
operating. Our accumulated deficit was about $340 million at December 31, 1998.
We expect that losses will continue for the next several years as we build,
expand and enhance our ESMR networks. We cannot assure you that we will become
or remain profitable or achieve positive cash flow. If we cannot achieve
profitability or positive cash flow, we may not be able to meet our debt
service, working capital or other cash needs.
2. NEXTEL INTERNATIONAL WILL NEED SUBSTANTIAL AMOUNTS OF FINANCING OVER THE NEXT
SEVERAL YEARS.
A) REASONS NEXTEL INTERNATIONAL WILL NEED FINANCING.
We anticipate that we will need substantial amounts of financing over the
next several years for the following:
- capital expenditures to build, expand and enhance our ESMR networks;
- funding operating losses relating to the wireless communications
businesses conducted by our operating subsidiaries and affiliates;
- debt service requirements; and
- other general corporate purposes.
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In addition to the above, we have a number of contingent capital
requirements that will become payable over the next several years. These
contingent capital requirements include the following:
- payments to the Telcom Group (the minority shareholders in Nextel
Brazil) if the Telcom Group exercises its right to require Nextel Brazil to
redeem their interest in Nextel Brazil at fair market value between October
31, 2001 and November 1, 2003;
- payments to Motorola International if Motorola International
exercises its right to require Nextel Peru to purchase the interests of
Motorola International and its affiliates in Nextel Peru at fair market
value under certain circumstances; and
- payments to ACCRAIN if ACCRAIN exercises its right to require us or
our qualified assignee to purchase its interest in Gamboa Holdings for
about $8 million under certain circumstances.
B) AMOUNTS AVAILABLE TO NEXTEL INTERNATIONAL UNDER ITS EXISTING FINANCING
AGREEMENTS ARE INSUFFICIENT TO MEET ITS LONG-TERM CASH NEEDS.
Based on our assessment of the business activity and related cash needs of
our operating subsidiaries and affiliates for 1999, we believe that we currently
have adequate funding to continue our operations only into the latter half of
1999. Our financing needs for 1999 are greater than our funding available under
our existing financing arrangements. We will, therefore, have to raise
substantial amounts of additional funds, in the form of public or private debt
or equity, to meet our cash needs for the second half of 1999 and into the
future. We may seek to obtain financing from various sources, including
additional vendor financing provided by equipment suppliers such Motorola,
project financing from commercial banks and bank lines of credit. We are
exploring a number of these alternative sources of funds. If we issue debt, our
leverage and debt service obligations will increase. Moreover, our ability to
access additional funds may be limited by the terms of our existing financing
agreements, including:
- covenants that restrict how much additional borrowing we can incur;
- covenants that restrict our ability to grant liens on the assets of
our operating subsidiaries and affiliates; and
- covenants that restrict the ability of our operating subsidiaries
and affiliates to pay dividends to us.
Our ability to raise additional funds may also be affected by:
- general market conditions in the U.S. and in our international
markets that may have an adverse effect on the availability or cost of
capital;
- the recent downturn in the economies of Latin American and Asia,
which may make lenders and investors less likely to lend to or invest in
Nextel International and/or our relevant operating subsidiaries and
affiliates;
- our high level of indebtedness, which may affect our attractiveness
as a debt or an equity investment vehicle; and
- the market's perception of our performance in each of our markets.
Other than our existing financing arrangements, we have no legally binding
commitments or agreements with any third parties to obtain additional debt or
equity financing. Nextel Communications, our parent company, is not obligated to
provide any additional funds to us. We cannot assure you that we will be able to
raise additional funds in the amounts or at the times that we may require it.
Further, if we do raise any additional funds, we cannot assure you that it will
be on acceptable terms. If we are unable to raise additional funds or to obtain
these funds on acceptable terms and in a timely manner, we will be required to
reduce the scope of the build-out, expansion and enhancement of our ESMR
networks and to curtail our operations significantly, which could have a
material adverse effect on our ability to compete and on our financial condition
in general.
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3. NEXTEL INTERNATIONAL'S PROSPECTS DEPEND ON GOVERNMENT REGULATIONS IN VARIOUS
COUNTRIES.
In each market in which we operate, one or more regulatory entities
regulate the licensing, construction, acquisition, ownership and operation of
our wireless communications systems. Additionally, certain other aspects of our
wireless communications system operations, including the rates we charge our
subscribers and the resale of our wireless communications services, may be
governed by public utility regulations. Further, in certain of the countries in
which we conduct business, local statutes and regulations impose foreign
ownership limitations for telecommunications companies. Changes in the current
telecommunications statutes or regulations in any one or more of these countries
could adversely affect our business.
Wireless communications licenses and spectrum allocations are subject to
ongoing review and, in some cases, to modification or early termination for
failure to comply with applicable regulations. Most of our wireless
communications licenses have fixed terms and are not renewed automatically. In
cases where license terms are fixed, we cannot assure you that our licenses will
be renewed, or if renewed, that renewal will be on acceptable economic terms.
Because of the uncertainty as to the interpretation of regulations in
certain countries in which we operate, we cannot assure you that we will always
be able to provide the services we have planned in each market. It is possible
that in the future we may be prohibited from providing services we have planned
in certain markets, particularly some of the services we have planned on our
ESMR networks. This could make it more difficult for us to compete in those
markets. We have provided a detailed description of the regulatory environment
for each of the countries in which our operating subsidiaries and affiliates
conduct business under the "Regulatory and Legal Overview" discussion for each
operating subsidiary or affiliate under "The Company's Business -- Operations
and Investments."
Our licensee companies must comply with the terms of their licenses and
certain regulatory requirements, such as installation deadlines and minimum
loading requirement. We cannot assure you that we will always be able to comply
with these requirements. If our licensee companies do not comply with these
requirements, we could lose the applicable licenses. We are currently out of
compliance with certain installation deadlines and minimum loading requirements
with respect to certain channels located in Brazil in certain cities outside of
Sao Paulo and Rio de Janeiro and in Argentina in certain cities outside of
Buenos Aires and Rosario. In the case of Brazil, Nextel Brazil has proposed an
installation and loading plan to Anatel. We cannot assure you that Anatel will
approve our proposed plan. If we do not obtain Anatel's approval for our
installation and loading plan, or waivers, extensions or similar relief from the
relevant deadlines from the Argentina CNC with respect to Argentina, the
channels for which we are out of compliance may be revoked.
4. NEXTEL INTERNATIONAL'S FUTURE PERFORMANCE DEPENDS ON ITS ABILITY TO COMPETE
IN THE HIGHLY COMPETITIVE WIRELESS COMMUNICATIONS INDUSTRY.
Our success will depend on our ability to compete effectively with other
communications services providers, including landline telephone companies and
other wireless communications companies, in the markets in which we operate.
A) SOME OF NEXTEL INTERNATIONAL'S COMPETITORS ARE FINANCIALLY STRONGER THAN
NEXTEL INTERNATIONAL.
Many competitors in our markets are well-established companies with
substantially greater financial and marketing resources, larger customer bases,
better name recognition and larger coverage areas than our operating
subsidiaries and affiliates. Because of their financial resources, these
competitors may be able to offer services to customers at prices that are below
the prices that our operating subsidiaries and affiliates can offer for
comparable services. As a result, our ability to compete based on the price of
our service offerings will be limited. In addition, we anticipate that we will
face future market pressure to reduce the prices we charge for our products and
services over the next few years because of increased competition in our
markets.
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B) NEXTEL INTERNATIONAL'S COVERAGE IS NOT AS EXTENSIVE AS THOSE OF OTHER
WIRELESS SERVICE PROVIDERS IN OUR MARKETS.
Many of the cellular and PCS providers in our markets have entered into
roaming agreements with each other, which permits these providers to offer
coverage to their subscribers in each other's markets. Because the iDEN(TM)
technology that we deploy in our markets is not compatible with other wireless
technologies such as digital cellular or PCS technologies, our customers will
not be able to roam on cellular or PCS systems. We, therefore, will not be able
to provide coverage to our subscribers outside of our current ESMR markets
until:
- we build out additional ESMR markets;
- other SMR providers build out markets outside of our coverage area
using iDEN(R) technology and we enter into roaming agreements with these
providers; or
- a multi-band or multi-mode phone (ESMR and cellular or PCS
frequencies) becomes available for use on our ESMR network and we enter
into roaming agreements with other wireless communications providers.
Because of the above, we cannot assure you that we will able to compete
effectively with cellular and PCS providers in our markets. We have provided
more a detailed description of the competitive factors affecting each of our
operating subsidiaries and affiliates under the "Competition" section for each
operating subsidiary or affiliate under "The Company's Business -- Operations
and Investments."
C) NEXTEL INTERNATIONAL MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES.
The digital technology deployed on our ESMR networks could become obsolete.
We rely on digital technology that is not compatible with, and competes with,
other forms of digital and non-digital voice communication technology.
Competition among these differing technologies can:
- segment the user markets, thereby reducing demand for specific
technologies, including the technology that we use;
- reduce the resources devoted by third-party suppliers, including
Motorola, which supplies all of our current ESMR technology, to developing
or improving the technology for our networks; and
- adversely affect market acceptance of our service offerings.
We cannot assure you that the digital technology we use on our ESMR
networks will successfully compete with the other forms of digital and
non-digital voice communication systems. Further, new digital or non-digital
voice communication transmission technology may develop that will cause our
existing systems and technology to be obsolete or otherwise impair market
acceptance of our service offerings.
5. NEXTEL INTERNATIONAL OPERATES IN FOREIGN MARKETS AND THIS PRESENTS CERTAIN
RISKS.
A) NEXTEL INTERNATIONAL FACES POLITICAL RISKS IN ITS MARKETS.
Most of our markets are considered to be "emerging markets." Although
political, economic and social conditions differ in each country in which we
currently operate, developments in one country may affect us as a whole,
including our access to international capital markets. In Peru, for example,
there was significant terrorist activity in the 1980s and the early 1990s.
During that time anti-government groups escalated violence against the
government, the private sector and Peruvian residents. Although the government
of Peru has made progress in suppressing terrorist activity since 1990,
incidents of terrorist activity continue to occur, including the hostage
incident at the residence of the Japanese Ambassador to Peru in 1997. Terrorist
activity could recur, and if it does, it may have a material adverse effect on
the operations of Nextel Peru. We have attempted to limit our exposure in Peru
by obtaining political risk insurance for this country.
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B) WIRELESS TELECOMMUNICATIONS SERVICES COMPANIES HAVE A LIMITED HISTORY IN
NEXTEL INTERNATIONAL'S MARKETS.
The success of our business plan and strategies is subject to factors that
are beyond our control and impossible to predict due, in part, to the limited
history of wireless communications services in our existing and targeted
markets. Consequently, we face many uncertainties in our markets, including:
- the size of the markets for wireless communications services;
- the penetration rates of these markets;
- the ability of potential subscribers to pay subscription and other
fees;
- the extent and nature of the competitive environment in these
markets; and
- the immediate and long-term commercial viability of wireless
communications services in these markets.
C) NEXTEL INTERNATIONAL IS SUBJECT TO FLUCTUATIONS IN CURRENCY EXCHANGE RATES.
Substantially all of our revenues are denominated in non-U.S. currencies,
although a significant portion of our capital and operating expenditures,
including imported network and subscriber handset equipment, and substantially
all of our outstanding debt, are denominated in U.S. dollars. Accordingly,
fluctuations in exchange rates relative to the U.S. dollar may have a material
adverse effect on our earnings or assets. For example, the recent economic
turmoil in Asia has resulted in a significant devaluation of the currencies in
several countries in Asia and has caused fluctuations in the currencies of other
emerging countries, particularly in Latin America. Further, the recent currency
devaluation in Brazil has caused us to record a charge against earnings and a
negative adjustment to the carrying value of our assets.
Any other devaluation of local currencies in the countries in which our
operating subsidiaries or affiliates conduct business will result in increased
costs for imported goods and services, and may, as a result, decrease demand for
our products and services in the affected markets. If our operating subsidiaries
or affiliates distribute dividends in local currencies in the future, the amount
of cash we receive will be affected by fluctuations in exchange rates and
currency devaluations. In addition, certain of the countries in which we have
operations do or may restrict the expatriation or conversion of currency.
Although we routinely assess our foreign currency exposure, we have not entered
into any hedging transactions.
D) NEXTEL INTERNATIONAL IS SUBJECT TO OTHER FLUCTUATIONS IN THE LOCAL
ECONOMIES IN WHICH IT OPERATES.
Our operations depend on the economies of the markets in which we operate.
These markets are in countries with economies in various stages of development
or structural reform, some of which are subject to rapid fluctuations in terms
of:
- consumer prices;
- employment levels;
- gross domestic product;
- interest rates; and
- inflation rates.
If such fluctuations have an effect on the ability of customers to pay for
our products and services, our business may be adversely affected. For example,
several countries in Asia, including the Philippines, have experienced
significant economic turmoil during the past year. In addition, these countries
have experienced a number of bank failures and consolidations. The economic
conditions in Asia have also affected other emerging markets, particularly those
in Latin America. Because of the foregoing, our operating subsidiaries and
affiliates may experience lower demand for their products and services and a
decline in the growth of their customer base and in revenues derived from
customers in their markets.
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In addition, as a result of the foregoing, the other shareholders in our
operating subsidiaries may have difficulty in funding their capital contribution
requirements. We then may be required to assume and satisfy the funding
obligations of these shareholders or restrict the conduct of business of the
affected operating subsidiary or affiliate.
Certain of our operating subsidiaries and affiliates conduct business in
countries where the rate of inflation is significantly higher than in the United
States. We cannot assure you that any significant increase in the rate of
inflation in any of these countries could be offset, in whole or in part, by
corresponding price increases by our operating subsidiaries and affiliates, even
over the long term.
Many of the countries in which we operate do not have established credit
bureaus. This makes it more difficult to ascertain the creditworthiness of
potential customers. Accordingly, we may experience a higher level of bad debt
expense than similar companies in the U.S. For example, our bad debt expense as
a percentage of revenues in Brazil and Argentina has been significantly higher
than in our other markets and in the U.S. wireless communications industry in
general.
E) NEXTEL INTERNATIONAL PAYS SIGNIFICANT IMPORT DUTIES ON ITS NETWORK
EQUIPMENT AND HANDSETS.
Our operations are highly dependent upon the successful and cost-efficient
importation of network equipment and handsets from North America and, to a
lesser extent, from Europe and Japan. In the countries in which we operate,
network equipment and handsets are subject to significant import duties and
other taxes that can be as high as 50%. Although we believe there is a trend
away from increased import duties, any significant increase in the future could
have a material adverse effect on our results of operations.
F) NEXTEL INTERNATIONAL IS SUBJECT TO INTERNATIONAL TAXES IN THE COUNTRIES IN
WHICH IT OPERATES.
Distributions of earnings and other payments, including interest, received
from our operating subsidiaries and affiliates may be subject to withholding
taxes imposed by the countries in which these entities operate. Any such taxes
will reduce the amount of after-tax cash we can receive from our operating
subsidiaries and affiliates.
In general, a U.S. corporation may claim a foreign tax credit against its
federal income tax expense for foreign withholding taxes and for foreign income
taxes paid directly by foreign corporate entities in which the company owns 10%
or more of the voting stock. Our ability to claim foreign tax credits and to
utilize net foreign losses is, however, subject to numerous limitations, and we
may incur incremental tax costs as a result of these limitations or because we
do not have U.S. federal taxable income.
We may also be required to include in our income for U.S. federal income
tax purposes our proportionate share of certain earnings of our foreign
corporate subsidiaries that are classified as "controlled foreign corporations"
without regard to whether distributions have been actually received from these
subsidiaries.
G) NEXTEL INTERNATIONAL HAS ENTERED INTO A NUMBER OF AGREEMENTS THAT ARE
SUBJECT TO ENFORCEMENT IN FOREIGN COUNTRIES.
A number of the agreements that we enter into with our operating
subsidiaries and affiliates are governed by the laws of, and are subject to
dispute resolution in the courts of or through arbitration proceedings in, the
country or region in which the operation is located. We cannot accurately
predict whether such forums will provide us with an effective and efficient
means of resolving disputes that may arise. Even if we are able to obtain a
satisfactory decision through arbitration or a court proceeding, we could have
difficulty enforcing any award or judgment on a timely basis. Our ability to
obtain or enforce relief in the United States is also uncertain.
H) NEXTEL INTERNATIONAL IS SUBJECT TO THE FOREIGN CORRUPT PRACTICES ACT.
The Foreign Corrupt Practices Act (the "FCPA") generally prohibits U.S.
companies and their intermediaries from bribing foreign officials for the
purpose of obtaining or keeping business. Although we have taken precautions to
comply with the FCPA, we cannot assure you that such precautions will protect us
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against liability under the FCPA, particularly as a result of actions that may
have been taken in the past or may be taken in the future by our agents and
other intermediaries. In particular, we may be held responsible for actions
taken by our local representatives or by other shareholders in an operating
subsidiary even though we have no ability to control them. Any determination
that we have violated the FCPA could affect us adversely.
6. NEXTEL INTERNATIONAL'S SUCCESS DEPENDS ON ITS ABILITY TO MANAGE THE EXPANSION
OF ITS OPERATIONS.
Since our inception, we have experienced rapid growth. We intend to
continue to grow through further expansion and enhancement of our existing
operations, and may grow through acquisitions and joint ventures and through the
establishment of new operations. Our future success and our ability to meet our
debt service obligations depend on the expansion of our operations and the
development of a large subscriber base on a timely basis.
A) CHALLENGES ASSOCIATED WITH OUR ESMR NETWORK CONSTRUCTION AND EXPANSION
PROJECTS.
Our ESMR network construction and expansion projects will be subject to
numerous factors, any of which could require substantial changes to proposed
plans or otherwise alter our current time frames or budgets. These factors
include:
- securing the necessary radio spectrum licenses and adhering to
regulatory requirements relating to the licenses;
- locating suitable sites for communications sites or towers,
obtaining any required zoning variances or other governmental or local
regulatory approvals, and negotiating acceptable purchase, lease, joint
venture or other agreements;
- negotiating favorable interconnection agreements with local phone
companies;
- delays that may be caused by frequency cross-interference with other
radio spectrum users, such as television stations; and
- risks typically associated with any construction project, including
possible shortages of equipment or skilled labor, engineering or
environmental problems, work stoppages, weather interference and
unanticipated cost increases.
We cannot assure you that our currently planned ESMR network construction
and expansion activities will be completed successfully or in a or timely way.
B) CHALLENGES ASSOCIATED WITH SELLING AND MARKETING OUR ESMR SERVICES.
Once our ESMR network operations are in place in a particular market, the
development of a significant subscriber base depends on the success of our sales
and marketing efforts and the receptiveness of the marketplace to our services.
In most of our markets, we have limited experience in marketing our wireless
communications services and in tailoring our sales and marketing to local
conditions. Additionally, in certain markets, there are restrictions on the type
of customers to whom our operating subsidiaries or affiliates may offer their
ESMR services. We cannot assure you that our sales and marketing teams will be
able to establish a large subscriber base in our markets successfully. In most
of our markets, we rely in part on the efforts of independent dealers and
distributors to market our services. We cannot assure you that we will be able
to establish and maintain satisfactory relationships with enough independent
dealers or distributors or that this will be a cost-effective way of acquiring
subscribers.
C) CHALLENGES ASSOCIATED WITH MANAGING OUR EXPANDED OPERATIONS.
During 1998, we accomplished commercial launches of service in six markets
in 1998. As a result of our aggressive construction and expansion plans, we face
significant challenges in managing our expanded operations. We must hire and
train a significant number of key personnel to manage our growth, and our
construction and expansion plans will place substantial burdens on our current
management resources, information systems and financial controls. In addition,
we expect significant challenges in integrating any newly acquired businesses
with our existing operations. In order to assist in the management of our
expanded
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operations, we created two regional groups, one for Latin America and one for
Asia/Pacific to work with the management teams of our operating subsidiaries and
affiliates. We cannot assure you that we will be able to manage the growth of
our expanded operations effectively. Any failure to do so would have a material
adverse effect on our results of operations.
7. NEXTEL INTERNATIONAL RELIES PRINCIPALLY ON ONE SUPPLIER TO IMPLEMENT ITS ESMR
NETWORKS.
Motorola is currently our sole source for the iDEN(R) network and
subscriber handset equipment used throughout our ESMR markets. We expect to rely
on Motorola for the manufacture of a substantial portion of the equipment
necessary to construct our ESMR networks and for the manufacture of handset
equipment for the next several years. Motorola's failure to deliver necessary
technology improvements and enhancements and iDEN(R) system network and
subscriber equipment on a timely, cost-effective basis would have an adverse
effect on our business. We expect that for the next few years, Motorola will be
the only manufacturer of subscriber equipment that is compatible with our ESMR
networks. The equipment purchase agreements between Nextel Communications and
Motorola provide for the licensing by Motorola of interfaces relating to network
and subscriber equipment and of additional manufacturers for subscriber
equipment. Currently, however, there are no arrangements in effect with any
additional manufacturers to supply alternative sources for either iDEN(R) system
network or subscriber equipment. Although we believe that we have or will be
able to secure contractual rights to procure sufficient equipment for our
anticipated requirements, we cannot assure you that such equipment will continue
to be available to us or that additional equipment would be available if demand
for our services exceeds our current projections. A substantial portion of the
network and subscriber handset equipment required by our operating subsidiaries
is manufactured in North America. Accordingly, in addition to any potential
equipment manufacturing problems, delays or disruptions affecting our suppliers,
we could also be adversely affected by any inability to ship or delays in
shipping equipment from its place of manufacture to the overseas market where it
is required.
8. NEXTEL INTERNATIONAL IS CONTROLLED BY AND DEPENDENT ON NEXTEL COMMUNICATIONS.
A) NEXTEL COMMUNICATIONS AND ITS SIGNIFICANT SHAREHOLDERS CONTROL NEXTEL
INTERNATIONAL.
We are an indirect, substantially wholly owned subsidiary of Nextel
Communications. Nextel Communications, therefore, has the power to elect all of
the members of our board of directors. Of the seven directors that comprise our
board of directors, five are also directors and/or officers of Nextel
Communications. Although Nextel Communications has provided us with a
substantial amount of financing in the past, it is under no obligation to do so
in the future.
Based on the ownership information relating to Nextel Communications as of
December 31, 1998, entities controlled by Craig O. McCaw beneficially owned
about 20% of the outstanding Nextel Communications stock. In addition, Motorola
beneficially owned about 20% of the outstanding Nextel Communications stock.
Digital Radio L.L.C., which is one of the entities controlled by Mr. McCaw,
may designate at least one fourth of the board of directors of Nextel
Communications. In addition, Digital Radio may select, from its representatives
on the board of directors, a majority of the operations committee of Nextel
Communications's board of directors, which has significant authority relating to
Nextel Communications's business strategy, budgets, financing arrangements and
in the nomination and oversight of certain executive officers. As a result,
Digital Radio may exert significant influence over Nextel Communications's
affairs, and thereby our affairs. Motorola is entitled to nominate two directors
to the board of directors of Nextel Communications.
B) NEXTEL INTERNATIONAL'S INTEREST MAY CONFLICT WITH THOSE OF NEXTEL
COMMUNICATIONS OR ITS SIGNIFICANT SHAREHOLDERS.
Nextel Communications, and directors and officers of Nextel Communications
who are also members of our board of directors, are in positions that may result
in conflicts of interests with respect to transactions in which we are involved.
We have entered into a noncompetition agreement with Nextel Communication. Under
that agreement, Nextel Communications has agreed that neither it nor its
controlled affiliates may, for
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a period of time, participate in other two-way terrestrial based mobile wireless
communications systems in any region other than the United States unless these
opportunities have first been presented to and rejected by Nextel International.
Nextel International has agreed that neither it nor any of its controlled
affiliates will participate in the ownership or management of any wireless
communications service business in the United States or Canada other than with
respect to its interest in Clearnet without the consent of Nextel
Communications.
Digital Radio, Mr. McCaw and their affiliates have and, subject to the
terms of agreements between Digital Radio and Nextel Communications, may have an
investment or interest in entities that provide wireless telecommunications
services that could potentially compete with Nextel Communications and with us.
Under the agreements, Mr. McCaw, Digital Radio and their controlled affiliates
may not, for a period of time, participate in other two-way terrestrial-based
mobile wireless communications systems in the region that includes any part of
North America or South America unless these opportunities have first been
presented to and rejected by Nextel Communications.
Motorola and its affiliates engage in wireless communications businesses,
and may in the future engage in additional businesses, that do or may compete
with some or all of the services we offer. Although we believe that our
relationship with Motorola reflects the realities of purchasing and obtaining
financing from a competitor, we cannot assure you that the potential conflict of
interest will not adversely affect us in the future. In addition, Motorola is a
significant stockholder of Nextel Communications, and indirectly of Nextel
International and a significant shareholder in our operating subsidiaries or
affiliates in Brazil, Peru and Japan, which creates potential conflicts of
interest, particularly with regard to significant transactions.
9. NEXTEL INTERNATIONAL DEPENDS ON ITS SENIOR MANAGEMENT TEAM.
Our success and our growth strategy depend in large part on our ability to
attract and retain key management, marketing, finance and operating personnel,
both at the Nextel International and operating subsidiary or affiliate levels.
In many of the countries in which our operating subsidiaries or affiliates
conduct business, experienced management and other highly skilled personnel are
in great demand. We cannot assure you that we will continue to attract and
retain the qualified personnel necessary to implement our business plan and
strategies. In addition, the unexpected loss of the services of one or more
members of our senior management team could adversely affect us. We do not
maintain key person life insurance on any members of our senior management team.
10. NEXTEL INTERNATIONAL'S PROSPECTS MAY BE AFFECTED BY CONCERNS ABOUT HEALTH
RISK.
Mobile communications devices have been alleged to pose health risks due to
radio frequency emissions from these devices. Studies performed by wireless
telephone equipment manufacturers have investigated these allegations, and a
major industry trade association and governmental agencies in the United States
have stated publicly that the use of these phones poses no undue health risk.
The actual or perceived risk of mobile communications devices could adversely
affect us through a reduced subscriber growth rate, a reduction in subscribers,
reduced network usage per subscriber or through reduced financing available to
the mobile communications industry.
11. NEXTEL INTERNATIONAL'S OPERATIONS MAY BE DISRUPTED DUE TO YEAR 2000 ISSUES.
We are subject to risks associated with the "Year 2000" issue. We have
substantially completed our assessment phase with respect to the Year 2000
readiness status of our own internal systems and processes and recently
commenced the remediation and testing phase for some aspects of our business. We
have not yet developed contingency plans for resolving issues that may be
identified and for which remediation is not possible on a timely or
cost-effective basis. We do not currently anticipate that our own assessment,
remediation and testing process of financial and operating systems or of
embedded technology in our systems will exceed $5 million or will require that
we defer or abandon any material projects, or objectives relating to our
operations (excluding parallel Year 2000 issues readiness expenses incurred by
Nextel Communications
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relating to common or shared systems or components, for which we may be required
to provide appropriate reimbursement to Nextel Communications).
We remain subject to risks associated with the Year 2000 readiness problems
of third parties, especially providers of products and services that are
critical to our ability to conduct our business operations, including other
telephone service providers with which our service connects. We are also aware
that governmental authorities and third parties in the markets where our
subsidiaries and our affiliates operate with whom we may have material business
relationships may not be at the same level of awareness, or assessment or
remediation of their potential Year 2000 readiness issues as are their United
States counterparts. If any of these third parties or we are unable to resolve
material Year 2000 readiness issues on a timely or cost-effective basis, there
would be an adverse effect on us.
12. NEXTEL INTERNATIONAL'S FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY
OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT
BELIEFS.
A) "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:
A number of the statements made in this Annual Report on Form 10-K 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 materially differ
from our actual experience involving any one or more of these matters and
subject areas. We have attempted to identify, in context, some of the factors
that we currently believe may cause actual experience and results to differ from
our current expectations regarding the relevant matter or subject area. The
operation and results of our wireless communications business also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified elsewhere in the foregoing "Risk Factors"
section, including, but not limited to:
- general economic conditions in Latin America and Asia and in the
market segments that we are targeting for our services;
- the effect of the Brazilian currency devaluation on the economies of
the other Latin American economies in which we operate;
- the accuracy of our 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 our operating companies
conduct business, including Brazil;
- future legislation or regulation by governmental entities in the
markets in which our operating subsidiaries and affiliates conduct their
business;
- the availability of adequate quantities of system network and
subscriber equipment and components to meet our 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 our access
to sufficient debt and equity financing to meet our operating and financial
needs;
- the successful deployment and performance of Motorola's iDEN(R)
technology on our wireless communications networks;
- the ability to achieve market penetration and average subscriber
revenue level sufficient to provide financial viability to our wireless
communications business;
- our ability to accomplish required scale-up of our billing, customer
care and similar administrative support timely and successfully to keep
pace with anticipated customer growth and increased system usage;
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- the quality and price of similar or comparable wireless
communications services offered or to be offered by our competitors,
including providers of cellular and PCS, other wireless communications
services or telecommunications generally;
- satisfactory identification and completion of Year 2000 software and
hardware revisions by us and by the entities with which we do business; and
- other risks and uncertainties described from time to time in our
reports filed with the Commission.
ITEM 2. PROPERTIES
The Company currently leases 6,559 square feet for its principal executive
and administrative offices in Seattle, Washington. The Seattle lease is a
five-year lease expiring in December 2000 and payments thereunder equal
approximately $130,000 per year. The Company also leases 394 square feet of
office space for its Latin America regional office in Miami, Florida. The Miami
lease is a six-month lease expiring on March 31, 1999, and payments thereunder
equal approximately $27,600 per year. In addition, the Company's subsidiaries
have leases for office space and transmission sites in each of the countries
where the Operating Companies conduct business.
On March 17, 1999, the Company announced the move of its principal
executive and administrative offices from Seattle, Washington to Reston,
Virginia. The Company's new principal and executive offices will be at the same
location as Nextel Communications's new principal executive and administrative
offices. The Company plans to complete its move to its new offices by the end of
the third quarter of 1999, but plans to retain its office space in Seattle,
Washington until the expiration of its lease in December 2000 for its Asia/
Pacific regional office and other administrative services.
Each of the Operating Companies leases antenna sites for the conduct of its
ESMR business. Most of such leases are for terms of five years or less, with
options to renew. As of December 31, 1998, the Operating Companies (excluding
Clearnet and the Shanghai GSM System) had approximately 584 constructed sites at
leased locations for their ESMR business, as shown below:
<TABLE>
<CAPTION>
OPERATING COMPANY NUMBER
----------------- ------
<S> <C>
Nextel Brazil............................................... 212
Nextel Mexico............................................... 88
Nextel Argentina............................................ 100
Nextel Peru................................................. 38
Nextel Philippines.......................................... 45
J-Com....................................................... 101
---
Total..................................................... 584
===
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
NEXTEL PHILIPPINES SEC PROCEEDINGS. Immediately prior to the Nextel
Philippines annual shareholders meeting on July 13, 1998, The ROP SEC issued the
TRO in favor of the Philippines Shareholders. The Petitioners requested the
nullification of the amendments of the bylaws of Nextel Philippines contemplated
by the corporate governance provisions of the Philippines Partner Agreements and
the TRO enjoined Nextel Philippines from implementing such Bylaw Amendments for
a 72-hour period. The Petitioners further requested that a preliminary
injunction be issued with the same effect pending a trial on the merits with
respect to the validity of the Bylaw Amendments. On July 15, 1998, pursuant to
the agreement of Nextel Philippines and the Petitioners and confirmed by the ROP
SEC, (a) the TRO was permitted to expire and (b) pending a trial on the merits
as to the validity of the Bylaw Amendments (i) the Petitioners agreed to
withdraw their petition for a preliminary injunction and (ii) Nextel Philippines
agreed that the provisions of the Bylaw Amendments granting the Company Veto
Rights would not be implemented. Although the Company cannot predict the outcome
of this proceeding, the Company believes that the Petitioners' claims
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are without merit and Nextel Philippines intends to vigorously defend against
them. See Part I, Item 1, "Business -- Philippines" and
"-- Business -- Corporate Governance -- Philippines."
NEXTEL PHILIPPINES NTC PROCEEDINGS. Pursuant to the Nextel Philippines's
application for an extension of its PA to operate its wireless communications
network using its licensed frequencies in the Philippines, the Philippines NTC
issued on March 18, 1998 an order extending the Nextel Philippines's PA to
January 20, 1999 (the "Extension Order"). The language of the Extension Order
contained a reference to Nextel Philippines' "Integrated Dispatch Enhanced
Network (IDEN) [sic] . . . . which can function as a trunk radio system and can
work also as a cellular system (full-duplex transmission)" (emphasis added). In
June and July of 1998, a number of the Philippine cellular mobile telephone
companies filed proceedings (which have since been consolidated into one
proceeding) with the NTC asserting that (a) the Extension Order improperly
expanded Nextel Philippines' authority to provide cellular mobile telephone
services ("CMTS") and (b) if Nextel Philippines was indeed authorized to operate
CMTS, then Nextel Philippines should be required to meet the other obligations
applicable to CMTS operators, including certain obligations to build out local
exchange lines. Nextel Philippines has responded by asserting that (a) its PA
does not authorize Nextel Philippines to provide CMTS services, (b) by operating
trunk radio services using the iDEN(R) technology it is not providing CMTS
services and (c) the Extension Order does not expand its PA by authorizing it to
provide CMTS services. Although the Company cannot predict the outcome of this
proceeding, the Company believes that the claims against Nextel Philippines are
without merit and Nextel Philippines intends to vigorously defend against them.
The Philippines NTC issued an order in February 1999 extending Nextel
Philippines's PA to January 19, 2000.
NEXTEL PHILIPPINES ARBITRATION. On October 30, 1998, pursuant to the
dispute resolution provisions of the Philippines Partner Agreements, the Company
commenced arbitration proceedings in Hong Kong against the Petitioners, two of
the local shareholders of Nextel Philippines, in which the Company asserts that
such shareholders have failed to perform their respective obligations under the
Philippines Partner Agreements. The Company seeks equitable and legal relief,
including, but not limited to, compensatory damages and injunctive relief.
Other than the proceedings described above, neither the Company nor the
Company's subsidiaries are party to any material litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the period commencing October 1, 1998 and concluding December 31, 1998,
which is the final quarter covered by this report.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
(A)(I) MARKET INFORMATION
There is no public trading market for the Company's common equity. A wholly
owned subsidiary of Nextel Communications is the holder of record of
substantially all of the Company's Common Stock.
(II) DIVIDENDS
The Company has not paid any dividends on its equity securities. Covenants
in the Company's public indentures and in the International Motorola Financing
Facility restrict the Company's ability to pay cash dividends on its equity
securities.
(III) SALES OF UNREGISTERED SECURITIES
The Company did not sell any equity securities that were not registered
under the Securities Act during the period covered by this report.
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ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth the selected financial data on a
consolidated historical basis for the Company as of December 31, 1998, 1997,
1996, 1995 and 1994, and for the years then-ended. The selected consolidated
historical financial data of the Company as of and for the years ended December
31, 1998, 1997, 1996, 1995 and 1994 were derived from the consolidated financial
statements and the notes thereto of the Company, which have been audited by
Deloitte & Touche LLP, independent auditors, whose report, with respect to each
of the three years ended December 31, 1998 and at December 31, 1997 and 1996,
has been included herein.
The selected consolidated historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements,
including the notes thereto, appearing elsewhere in Part II of this Annual
Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................... $ 42,488 $ 13,015 $ -- $ -- $ --
Costs and expenses related to revenues..... 20,085 7,424 -- -- --
Selling, general and administrative........ 143,098 26,768 9,318 277 --
Depreciation and amortization.............. 56,039 18,381 168 19 2
---------- ---------- -------- -------- --------
Operating loss............................. (176,734) (39,558) (9,486) (296) (2)
Interest income............................ 16,655 19,666 4,300 6,233 2,688
Interest expense........................... (106,824) (56,583) (323) -- --
Loss from equity method investments........ (12,193) (11,401) (5,991) (6,853) --
Other, net(1).............................. 2,472 5,561 379 (15,002) --
Minority interest.......................... 17,131 2,085 -- -- --
---------- ---------- -------- -------- --------
Income (loss) before income tax benefit
(provision).............................. (259,493) (80,230) (11,121) (15,918) 2,686
Income tax benefit (provision)............. 22,358 6,282 (1,355) (2,119) (914)
---------- ---------- -------- -------- --------
Net income (loss).......................... $ (237,135) $ (73,948) $(12,476) $(18,037) $ 1,772
========== ========== ======== ======== ========
Net income (loss) per share, basic and
diluted.................................. $ (6.50) $ (2.03) $ (0.34) $ (0.49) $ 0.05
Weighted average shares outstanding(2)..... 36,503 36,500 36,500 36,500 36,500
CONSOLIDATED BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and cash equivalents(3)............... $ 121,116 $ 159,790 $ 53,029 $ 85,302 $125,542
Marketable securities...................... -- 128,560 -- -- --
Property, plant and equipment, net......... 530,571 136,210 8,703 36 --
Investment in unconsolidated
subsidiaries............................. 134,691 106,489 98,982 47,951 --
Intangible assets, net..................... 552,419 526,000 10,878 10,135 --
Total assets............................... 1,601,136 1,123,038 199,367 169,675 171,536
Current portion of long-term debt.......... 2,061 2,211 -- -- --
Long-term debt, excluding current
portion.................................. 1,254,882 597,809 -- -- --
Stockholders' equity....................... 95,898 296,029 39,203 11,939 1,772
</TABLE>
- ---------------
(1) Other, net includes a $15.0 million charge in 1995 representing an other
than temporary decline in the fair value of the Company's investment in
Nextel Mexico as a result of a decline in the Mexican Peso.
(2) As adjusted for the 100,000-for-1 stock split effective March 6, 1997 and
the 3.65-for-1 stock split effective August 25, 1997.
(3) Includes approximately $17.0 million and $69.0 million of cash held by the
Company at December 31, 1998 and 1997, respectively, that is restricted for
use as equity investments under the Company's financing agreements and
equipment purchases under certain infrastructure purchase contracts.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes thereto appearing
elsewhere in Part II of this Annual Report on Form 10-K.
OVERVIEW
GENERAL
Nextel International provides wireless communications services in five of
the largest cities in Latin America and three of the largest cities in Asia. The
Company's markets cover approximately 373 million POPs, approximately 131
million of which are in Latin America. Nextel International is the largest SMR
service provider in Brazil and Mexico, and holds the largest SMR channel
position in Argentina. The Company's strategy is focused on using its leading
analog dispatch or SMR channel positions in its principal markets, together with
Nextel Communications' experience and supplier relationships, to upgrade its
services from analog dispatch to digital ESMR services. The Company intends to
use digital iDEN(R) technology developed by Motorola in its ESMR networks. The
Company launched commercial ESMR service in Sao Paulo and Buenos Aires in the
second quarter of 1998 and Rio de Janeiro, Manila and Mexico City during the
third quarter of 1998 and Rosario, Argentina in the fourth quarter of 1998. The
Company's Japanese affiliate, J-Com, introduced a multi-functional commercial
ESMR service in the Kanto region of Japan (which includes Tokyo) in July 1998.
The Company's upgrade to digital networks allows it to increase capacity
significantly and to offer, in a single digital subscriber unit, additional
services and advanced features, such as direct connect (group calling and
instant conferencing), telephone interconnect and text messaging services.
As of December 31, 1998, the Company directly or indirectly owned the
following entities that are treated as consolidated subsidiaries: 100% of Nextel
Mexico; 100% of Nextel Argentina; 81% of Nextel Brazil (and through Nextel
Brazil's 95% interest in Nextel S.A., 77% of Nextel S.A.); and 62.1% of Nextel
Peru. Nextel International's 38% of Nextel Philippines and its 21% of J-Com are
each accounted for using the equity method. Nextel International's approximately
15% of Clearnet is accounted for as an investment available-for-sale and
reflected at fair market value and its contractual right to receive 12.1% of the
profits of the Shanghai GSM System is accounted for as a cost method investment.
The Company's consolidated financial statements include the accounts of Nextel
Brazil, Nextel Mexico, Nextel Argentina and Nextel Peru commencing January 30,
1997, September 1, 1997, February 1, 1998 and February 1, 1998, respectively,
which are the approximate dates when the Company acquired a controlling interest
in the respective Operating Companies.
The accounts of the Company's consolidated foreign subsidiaries and those
foreign subsidiaries accounted for under the equity method are presented
utilizing accounts as of a date one month earlier than the accounts of the
Company and its United States subsidiaries to ensure timely reporting of
consolidated results.
REVENUES
The Company's principal source of revenue is service fees billed to its
subscribers. Service fees are generally derived from access fees, usage fees,
and other service features. In certain instances, the Company also bills for
activation fees, but such amounts are not significant to its operations. Access
fees are billed at various amounts depending on the number of minutes and
features included in a specific rate plan. Each rate plan includes a designated
number of dispatch minutes of use, a designated number of interconnect minutes
of use or a combination of both. Depending on the rate plan, some other features
such as voice mail or short message services may also be included in the monthly
access fee. When a subscriber exceeds the minutes of use as designated in their
rate plan, additional usage fees are billed based on the contracted usage rates.
These rates vary depending on the service provided and the specific rate plan.
Additionally, voice mail, short message service, three-way calling and other
features may be billed to the customer on a per usage basis. Each Operating
Company sets the pricing of the different components of its services in
accordance with its marketing plan in each of the markets in which it operates,
taking into account, among other things, competitive factors. Usage revenues are
accrued for during the month incurred and billed at the end of the monthly
billing cycle. Rental fee revenues and monthly fixed access charges are billed
in advance and recognized in the period service was delivered. Equipment sales
are recognized at the time of delivery. During
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<PAGE> 53
1999 and thereafter, due to a number of considerations, in particular the change
in the tax law in Brazil as well as competitive pressures in each of its
markets, the Company expects that it generally will not be charging its
subscribers an activation fee related to commercial ESMR service. The Company
does not expect this transaction to have a material effect on its financial
statements.
As the Company upgrades its existing analog SMR networks to ESMR networks
and begins to offer enhanced services, features and coverage, it expects
increased revenue per subscriber. Over time, the Company expects such increases
will be partially offset by a decline in rates resulting from increased
competition and lower average usage per subscriber.
By principally targeting business customers, the Company believes it
experiences lower customer turnover, lower acquisition costs per subscriber and
a generally more stable customer base than if it targeted customers in the
general population. In addition, customers using the Company's ESMR systems will
be required to have ESMR handsets, which are not compatible with or adaptable
for use on a cellular or PCS system. The Company believes that the cost that
would be incurred by a customer switching to a competing cellular or PCS service
may also result in lower turnover.
Historically, the Company has experienced relatively high rates of churn
and bad debt expense. However, the Company has taken a number of steps to reduce
these levels, including tightening the credit screening process, instituting the
requirement of longer term contracts and implementing more aggressive collection
processes.
The Company expects the revenues of the Operating Companies to increase
over the next few years due to the launch of commercial ESMR service in Sao
Paulo and Buenos Aires during the second quarter of 1998, Rio de Janeiro and
Mexico City during the third quarter of 1998 and Rosario, Argentina during the
fourth quarter of 1998 and the planned launch of commercial multi-function ESMR
service in Lima during the second half of 1999. See "Business -- Operations and
Investments." In addition, as the Company upgrades its existing analog SMR
networks to ESMR networks, it anticipates its revenues will increase due to the
large increase in subscriber capacity that results from ESMR system design and
operation and the anticipated increase in average revenue per subscriber that is
expected to result from the Company's ability to offer enhanced services and
features for which it can charge higher fees. Although the Company believes it
will be able to obtain the necessary licenses to expand its ESMR networks as
planned, no assurance can be given that it will be able to do so. See "Risk
Factors -- 3. Nextel International's prospects depend on government regulations
in various countries."
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which the
Operating Companies conduct business. These laws and regulations cover, among
other things, the number of licenses that can be used in any one service area by
affiliated companies, the construction and loading requirements necessary to
retain a license, the number of telephone numbers that can be assigned to an
individual licensee, the type of customer to whom service can be provided and
the rights of a licensee to interconnect with a public telecommunications
network. Each of these factors can have a significant influence on the Company's
ability to generate revenues and are subject to change by the governmental
agency responsible for determining the laws and regulations in the respective
countries. The Company cannot predict what future laws and regulations might be
passed that could have a material effect on the Company's results of operations.
The Company assesses the impact of significant changes in laws and regulations
on a regular basis.
COSTS AND EXPENSES RELATED TO REVENUES
Costs and expenses related to revenues include both the cost of radio
service revenue and the cost of equipment sales and maintenance. Cost of radio
service revenue represents the cost of maintaining networks, interconnection
charges, site lease costs, technical expenses and utilities. The Company
anticipates the cost of radio service revenue will increase with the expansion
of its wireless networks. Cost of equipment sales and maintenance represents
primarily cost of analog equipment sold and warranty and maintenance costs on
handsets. As the Company launches commercial ESMR service in markets where it
formerly offered analog
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SMR service, the cost of equipment sales and maintenance is expected to
decrease. Digital ESMR handsets are sold at a loss and such losses are accounted
for as a sales and marketing expense.
The Company is billed directly on a monthly basis by landline telephone
companies for interconnect services and by various governments for taxes. The
Company bills its subscribers for these charges and taxes and is responsible for
collecting the charges and taxes from them.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of salaries, credit
and collections costs, professional fees, and general office expenses. Prior to
1997, substantially all of the general and administrative expenses were incurred
at the Nextel International level. As the Company has entered new markets and
the consolidated Operating Companies continue to expand their wireless
communications networks and the support to maintain such networks, general and
administrative expenses increased significantly in fiscal year 1998 and are
expected to continue to increase in fiscal year 1999.
Many of the countries in which the Company operates do not have established
credit bureaus, thereby making it more difficult for the Company to ascertain
the creditworthiness of potential customers. Accordingly, the Company
experiences a relatively high level of bad debt expense in most of its markets.
In particular, the Company's bad debt expense as a percentage of revenue and
customer turnover in Brazil and Argentina have been significantly higher than
that in the Company's other markets.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist mainly of customer acquisition costs,
including salaries and sales commissions, other media and advertising expenses
and ESMR subscriber equipment subsidies. As part of the Company's promotional
program, digital handsets are generally sold at a price below the Company's cost
to encourage new subscriber additions. The cost of the subsidy is recorded as a
selling and marketing expense and recognized at the time of sale of the handset.
The Company expects sales and marketing expenses to increase over time as
it continues to launch and expand its ESMR operations.
DEPRECIATION AND AMORTIZATION
Prior to 1997, the Company's depreciation and amortization expense was
primarily attributable to the depreciation of property, plant and equipment at
its corporate headquarters. As a result of the acquisitions of a controlling
interest in Nextel Brazil in January 1997, Nextel Mexico in August 1997 and
Nextel Argentina and Nextel Peru in January 1998, the Company's depreciation and
amortization expense has increased significantly. Additionally, as construction
on the Company's networks is completed and service launched, the depreciation
expense related to ESMR infrastructure equipment has also increased
significantly.
INTEREST INCOME
Interest income represents income earned on notes receivable, cash and cash
equivalents and marketable securities.
INTEREST EXPENSE
During 1997, interest expense consisted of amounts payable on its 13%
Senior Discount Notes due 2007 (the "March 1997 Notes") and to a lesser extent
outstanding borrowings under the Brazil Motorola Financing. Interest expense has
increased during 1998 as a result of the 1998 Notes Offering and the incurrence
of additional indebtedness, including the Brazil Motorola Financing and the
Argentina Credit Facility.
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LOSS FROM EQUITY METHOD INVESTMENTS
Loss from equity method investments represents the Company's proportionate
share of net loss from its investments in companies of which it owns between 20%
and 50%. For the year ended December 31, 1998, loss from equity method
investments consisted of the Company's proportionate share of net losses from
its interest in Nextel Argentina prior to obtaining a majority interest in
January 1998, 38% interest in Nextel Philippines (30% prior to the closing of
the Gotesco Put Acceleration Agreement in August 1998) and 21% interest in J-Com
commencing March 1998. For the year ended December 31, 1997, loss from equity
method investments consisted of the Company's proportionate share of net losses
from its interest in Nextel Mexico prior to obtaining a majority interest in
August 1997, 30% interest in Nextel Philippines and 50% interest in Nextel
Argentina after May 6, 1997. Loss from equity method investments also includes
amortization of the excess purchase price over net assets acquired in its
investments in entities accounted for under the equity method.
OTHER, NET
Other, net consists primarily of foreign currency transaction gains and
losses. In addition, it also includes fees received for management services
provided to Shanghai CCT McCaw and Nextel Philippines.
MINORITY INTEREST
For the year ended December 31, 1998, minority interest represents the 23%
interest in Nextel S.A. not owned by the Company and approximately 30% minority
interest in Nextel Peru from the purchase date through October 1998 when the
Motorola Peru Put Transaction was completed (38% subsequent to the Motorola Peru
Put Transaction). For the year ended December 31, 1997, minority interest
represents the 19% interest in Nextel Brazil (or approximately 23% interest in
Nextel S.A. subsequent to the MCS Transaction) not owned by the Company and the
minority interest in Nextel Mexico not owned by the Company prior to acquiring
100% of Nextel Mexico in 1997.
INCOME TAX BENEFIT (PROVISION)
The Company is subject to income taxes in the United States and in each of
the jurisdictions in which the Operating Companies conduct business. In the
United States, the Company is included in the consolidated tax return of Nextel
Communications; however, the tax accounts are stated as if the Company filed a
separate return pursuant to the terms of a Tax Sharing Agreement between the
Company and Nextel Communications dated as of March 6, 1997 (the "Tax Sharing
Agreement").
In the periods prior to the Company's merger with Nextel International
(Mexico), Ltd. ("NI Mexico," formerly Nextel International (CANMEX), Ltd.), the
Company was precluded from recognizing income tax benefits associated with its
U.S. net operating losses because it was not reasonably certain that the Company
would generate taxable income. Historically on a stand-alone basis, NI Mexico
generated taxable income from the interest earned on its investments of cash and
cash equivalents. Because accounting rules related to the pooling of interest
method of accounting preclude the offsetting of the Company's historical net
operating losses against NI Mexico's historical taxable income, the Company has
recognized only the NI Mexico income tax expense in the combined financial
statements presented prior to the merger date. Subsequent to the merger, which
occurred in the first quarter of 1997, the Company combined the tax attributes
of the merged companies. The Company is obligated to pay to Nextel
Communications, pursuant to the Tax Sharing Agreement, amounts for taxes paid by
Nextel Communications because net operating losses at the Operating Company
level cannot be used for United States income tax purposes and interest expense
on the March 1997 Notes and the March 1998 Notes is not deductible for United
States income tax purposes.
Subsequent to the acquisitions of Nextel Brazil, Nextel Mexico and Nextel
Argentina, the Company recognized income tax benefits related to its operations
in Brazil, Mexico and Argentina. Certain of the Brazilian, Mexican and Argentine
subsidiaries have taxable temporary differences allowing for the recognition of
the tax benefits derived from net operating losses.
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Due to changes in tax legislation in Argentina and Mexico, the recognition
of tax benefits derived from net operating losses is expected to decline during
1999. In addition, timing differences in Brazil that have been used to offset
net operating loss carryforwards have been depleted; therefore, the Company
expects to see a decrease in the amount of tax benefits recognized during 1999
related to Brazil net operating loss carryforwards.
HISTORICAL RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 AND 1997
The Company's consolidated financial statements include the accounts of
Nextel Brazil and Nextel Mexico for the entire year, and Nextel Argentina and
Nextel Peru for the eleven months ended December 31, 1998. Prior to the Company
gaining a controlling interest in Nextel Argentina, Nextel Argentina was
accounted for under the equity method.
Revenues increased to $42.5 million in 1998 from $13 million in 1997. Of
the $29.5 million increase, $7.9 million relates to increases in Nextel Brazil's
revenue, $10.7 million to Nextel Argentina, and $9.1 million to Nextel Mexico.
The increase is primarily attributable to fees generated from ESMR and analog
SMR services provided in Brazil in 1998 by affiliates of Nextel Brazil and from
analog SMR services provided in Mexico in 1998 by affiliates of Nextel Mexico. A
portion of the increase is also attributable to the higher number of months
Nextel Mexico was consolidated during 1998 (four months in 1997 versus twelve
months in 1998), and the purchase of majority interest in Nextel Argentina and
Nextel Peru in January 1998. During 1997, revenues were primarily attributable
to analog SMR services in Mexico and Brazil. As the Company launched ESMR
services in Sao Paulo, Rio de Janeiro, Buenos Aires, Mexico City and Rosario,
Argentina during 1998, fees were generated predominately by ESMR services.
Costs and expenses related to revenues increased to $20.1 million from $7.4
million. Cost of radio service revenues increased $8.1 million from $6.2 million
in 1997 to $14.3 million in 1998. The increase of $2.0 million in Brazil, $4.0
million in Argentina and $1.8 million in Mexico relates to increases in site and
switch operating costs, including site rents, utilities and maintenance, as well
as an increase in interconnect costs related to the Company's ESMR networks.
Cost of equipment sales and maintenance increased $4.5 million in 1998 primarily
attributable to increases of $2.6 million in Nextel Mexico and $1.3 million in
Nextel Argentina. The increase in cost and expenses related to revenue also is
attributable to Nextel Mexico's full year of consolidated operations compared to
only four months in 1997 and the addition of Nextel Argentina and Nextel Peru as
consolidated subsidiaries during 1998.
General and administrative expenses increased to $78.0 million in 1998 from
$26.3 million in 1997. Approximately $19.1 million of the increase is
attributable to Nextel Brazil, $19.2 million to Nextel Argentina, $7.3 million
to Nextel Mexico and $6.1 million to Corporate and Other. General and
administrative expenses at the Operating Company level have increased primarily
due to market growth, launch of the ESMR networks and an increase in staffing
and other costs, including customer assistance, collections and billing,
required to launch and support the ESMR businesses. Additionally, general and
administrative expenses have increased due to the consolidation of the operating
results of Nextel Argentina and Nextel Peru commencing in January 1998 and the
consolidation of a full year of Nextel Mexico's operations in 1998.
The Company recognized an aggregate of approximately $7.1 million in bad
debt expense for the year ended December 31, 1998. Bad debt expense as a
percentage of total revenues, including revenues from the ESMR networks, was
10.5% in 1998. The amount of bad debt expense recognized by the Company during
1998 was a result of a number of factors, including principally delays in the
effective implementation of a subscriber billing system, deficiencies in the
Company's billing and collection processes, inadequate staffing, difficulty in
ascertaining the creditworthiness of customers and the lack of established
credit bureaus in many of the Company's markets, among others. The Company
believes that it is pursuing appropriate activities and already 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 anticipates that the dollar amount of bad debt expense and the
percentage of bad debt expense as compared to total revenues will each increase
in 1999. Accordingly, the amount of bad debt expense recognized by the Company
during 1998
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should not be viewed as indicative of either the amount or level of bad debt
expense that the Company may recognize in 1999.
Sales and marketing expenses increased to $65.1 million during 1998 from
$0.5 million in 1997. The $64.6 million increase is due primarily to the launch
of the ESMR networks in Sao Paulo, Rio de Janeiro, Buenos Aires, Mexico City and
Rosario, Argentina during 1998. Approximately $35.5 million of sales and
marketing costs were recorded in Nextel Brazil, $21.5 million in Nextel
Argentina and $7.2 million in Nextel Mexico. The increase is attributable to an
increase in sales personnel and related salaries and commissions, an increase in
equipment subsidies on ESMR handsets, and advertising and marketing costs to
create brand awareness in each of the markets that launched ESMR service during
1998.
Depreciation and amortization increased to $56.0 million in 1998 from $18.3
million in 1997. The $37.7 million increase is primarily attributable to
amortization of licenses in Nextel Argentina, Nextel Brazil and Nextel Mexico.
Additionally, the remaining increase is due to the increase in depreciation
expense related to the ESMR networks launched during 1998 and depreciation and
amortization expense related to the consolidation of the operating results of
Nextel Argentina in January 1998 and Nextel Peru commencing in February 1998.
Interest income decreased $3.0 million to $16.7 million in 1998 from $19.7
million in 1997. The decrease was primarily attributable to a reduction of
income recognized on the investment of the net proceeds from the March 1998
Notes compared to the investment of the net proceeds from the March 1997 Notes,
prior to their application in the Company's business.
Interest expense of $106.8 million was recognized in 1998 compared to $56.6
million in 1997. The $50.2 million increase primarily represents accretion on
the March 1998 Notes, the March 1997 Notes and related amortization of debt
issue costs, as well as interest expense recorded on the Brazil Motorola
Financing and Argentina Credit Facility. In 1998, the Company capitalized $23.8
million of interest expense in connection with the construction and development
of its ESMR networks. In 1997, $2.5 million of interest was capitalized.
Loss from equity method investments increased $0.8 million to $12.2 million
in 1998 from $11.4 million in 1997. The loss in 1998 was primarily attributable
to approximately $5.8 million in losses associated with the Company's 38%
interest (30% through August 1998) in Nextel Philippines and $5.5 million in
losses associated with the Company's 21% interest in J-Com. During 1997, the
loss from equity method investments also includes $4.5 million of losses
associated with the Company's 50% interest in Nextel Argentina accounted for
using the equity method in 1997.
Other, net of $2.5 million decreased from $5.6 million in 1997. The $3.1
million decrease in 1998 is primarily attributable to an increase of $3.5
million in foreign currency gains recognized on the remeasurement of Nextel
Mexico's net monetary liabilities and J-Com's Japanese yen-denominated debt
offset by increases in other corporate and Operating Company expenses.
Minority interest in the net loss of Nextel S.A. and Nextel Mexico totaled
$17.1 million in 1998, an increase of $15.0 million. The amount is primarily
attributable to the minority shareholders' approximately 23% interest in the net
loss of Nextel S.A.
The Company recognized an income tax benefit of $22.4 million in 1998
compared to an income tax benefit of $6.3 million in 1997. The income tax
benefit recognized in 1998 was primarily attributable to $17.9 million of
operating losses and changes in temporary timing differences related to Nextel
Brazil and $3.9 million related to Nextel Mexico.
YEAR ENDED DECEMBER 31, 1997 AND 1996
The Company's consolidated financial statements include the accounts of
Nextel Brazil and Nextel Mexico commencing January 30, 1997 and September 1,
1997, respectively, which are the dates when the Company acquired a controlling
interest in the respective companies. Prior to September 1, 1997, Nextel Mexico
was accounted for using the equity method. The Company's consolidated financial
statements also
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include the accounts of Nextel Argentina prior to May 6, 1997, when it was
contributed to the Argentina Joint Venture. On and after May 6, 1997 and until
February 1, 1998, Nextel Argentina was accounted for using the equity method. In
1997, substantially all of the revenues and costs and expenses related to
revenues result from the eleven months of Nextel Brazil's SMR operations and
four months of Nextel Mexico's SMR operations included in the Company's
consolidated financial statements.
Revenues increased to $13.0 million in 1997 from $0 in 1996. The increase
in revenues is primarily attributable to fees generated from analog SMR services
provided in Brazil in 1997 by affiliates of Nextel Brazil and from analog SMR
services provided in Mexico in 1997 by affiliates of Nextel Mexico. Nextel
Argentina commenced commercial operations in February 1997; therefore, minimal
revenues were recognized in 1997 and no revenues were recognized in 1996.
Selling, general and administrative expenses increased $17.5 million to
$26.8 million in 1997 from $9.3 million in 1996. Approximately $17.4 million of
the increase is attributable to Nextel Brazil. Additionally, approximately $2.4
million of the increase is attributable to the four months of Nextel Mexico's
SMR operations. The increase in selling, general and administrative expenses
from Nextel Brazil's and Nextel Mexico's operations was offset by a $2.0 million
decrease attributable to the Company's contribution to Nextel Argentina.
Depreciation and amortization increased to $18.4 million in 1997 from $0.2
million in 1996. Approximately $14.0 million and $3.8 million of the increase is
attributable to the depreciation and amortization expense of Nextel Brazil and
Nextel Mexico, respectively. The remaining increase is due to the amortization
of licenses in Nextel Argentina.
Interest income increased $15.4 million to $19.7 million in 1997 from $4.3
million in 1996. The increase was primarily attributable to income recognized on
the investment of the net proceeds from the March 1997 Notes Offering prior to
their application in the Company's business.
Interest expense of $56.6 million was recognized in 1997, which primarily
represents accretion on the March 1997 Notes and amortization of associated debt
issue costs. In 1997, the Company capitalized $2.5 million of interest expense
in connection with the construction and development of its ESMR networks. No
significant interest expense was recognized in 1996.
Loss from equity method investments increased $5.4 million to $11.4 million
in 1997 from $6.0 million in 1996. The increase was primarily attributable to
approximately $5.1 million in losses associated with the Company's 50% interest
in the Argentina Joint Venture. Additionally, losses associated with its 30%
interest in Nextel Philippines increased $2.6 million primarily due to the
effect of the devaluation of the Philippine peso. The increase in loss from
equity method investments was partially offset by the effect of Nextel Mexico no
longer being accounted for under the equity method.
Other, net of $5.6 million in 1997 increased from $0.4 million in 1996. The
increase in 1997 is primarily attributable to approximately $6.0 million in
foreign currency transaction gains recognized upon the remeasurement of Nextel
Brazil's and Nextel Mexico's net monetary liabilities denominated in the local
currency to the U.S. dollar.
Minority interest in the net loss of Nextel Brazil and Nextel Mexico
totaled $2.1 million in 1997. The amount is primarily attributable to the
minority shareholders' approximately 23% interest in the net loss of Nextel
Brazil.
The Company recognized an income tax benefit of $6.3 million in 1997
compared to an income tax provision of $1.4 million in 1996. The income tax
benefit recognized in 1997 was primarily attributable to $8.0 million of
operating losses and changes in temporary timing differences of Nextel Brazil
and Nextel Mexico. The foreign income tax benefits recognized during 1997 were
partially offset by a U.S. tax provision of $1.7 million resulting from the
taxes payable on the interest income associated with the investment of the net
proceeds from the Company's offering of its March 1997 Notes (the "March 1997
Offering") pending their application in the Company's business. The income tax
provision recognized in 1996 was primarily attributable to the taxes associated
with NI Mexico's interest income.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred historical cumulative net losses of approximately
$341.6 million from January 1, 1995 through December 31, 1998. 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. Through December 31, 1998, funds necessary to finance the
Company's activities have been provided to the Company (prior to March 1997)
primarily by its parent, Nextel Communications, in the form of equity
contributions and (since March 1997) from the net proceeds of the March 1997
Offering and March 1998 Offering, and to a lesser extent from vendor and bank
financing, including the existing Brazil Motorola Financing, and the Argentina
Credit Facility. Nextel Communications is not obligated to provide any
additional funding to the Company.
Net cash used in operating activities for 1998, 1997 and 1996 approximated
$178.0 million, $16.5 million and $2.9 million, respectively. During 1998, cash
used in operations consisted primarily of selling, general and administrative
expenses related to the development and management of ESMR networks, value-added
taxes imposed on equipment purchased to construct the ESMR networks, and
purchase of inventory used with the ESMR networks. During 1997, cash used in
operations consisted primarily of selling, general and administrative expenses
related to the development and management of wireless communication networks
(including engineering expenses) in Brazil and Mexico offset by interest income
earned on the proceeds of the March 1997 Notes. In 1996, cash from operating
activities consisted mainly of interest income generated from cash held by NI
Mexico offset by selling, general and administrative expenses of the Company.
Net cash used in investing activities approximated $402.9 million, $389.2
million and $72.3 million for 1998, 1997, and 1996, respectively. In 1998, cash
used in investing activities primarily consists of capital expenditures relating
to the purchase and installation of ESMR infrastructure equipment, investments
in J-Com, Nextel Peru and Nextel Philippines, and the acquisition of the
remaining equity interest in Nextel Argentina. The cash used in investing
activities was offset by proceeds from the sale of marketable securities
acquired with the proceeds of the March 1997 Notes and the March 1998 Notes.
During 1997, cash used in investing activities consisted of the purchase of ESMR
infrastructure equipment, additional ownership interests in Nextel Mexico and
investments in marketable securities acquired with the proceeds of the March
1997 Notes. During 1996, the Company's investments consisted primarily of the
purchase of analog SMR infrastructure equipment and equity interests in Nextel
Mexico and Nextel Philippines.
Net cash provided by financing activities approximated $542.2 million,
$512.4 million, and $43.0 million for 1998, 1997, and 1996, respectively. During
1998, cash provided by financing activities consists primarily of proceeds from
the issuance of the March 1998 Notes, the Argentina Credit Facility and proceeds
of additional financing pursuant to the Brazil Motorola Financing. During 1997,
cash provided by the Company's financing activities consisted mainly of proceeds
from the issuance of the March 1997 Notes, offset by repayment of other
long-term debt and amounts due to Nextel Communications. In 1996, financing
activities consisted mainly of capital contributions from Nextel Communications,
which were partially offset by repayment of amounts due to Nextel
Communications.
MOTOROLA FINANCINGS AND ARGENTINA CREDIT FACILITY
MOTOROLA FINANCING OVERVIEW. As of December 31, 1998, the Company and
certain of its Operating Companies had received a commitment from Motorola
Credit for $400 million of financing as follows: (i) $225 million currently
available for borrowings by the Company under the International Motorola
Financing Facility (including refinancing of the Philippines Motorola Financing
and the Philippines Motorola Bridge Financing); (ii) confirmation of $125
million currently available for borrowings by Nextel Brazil under the Brazil
Motorola Financing; and (iii) $50 million available for borrowings by Nextel
Argentina as Argentina Incremental Facility Loans under the Argentina Credit
Facility, subject to the negotiation and execution of definitive agreements.
INTERNATIONAL MOTOROLA FINANCING FACILITY. On February 4, 1999, the
Company and Motorola Credit entered into the International Motorola Financing
Facility in accordance with the terms set forth in the Motorola Financing
Commitment. The International Motorola Financing Facility provides for up to
$225 million in incremental term loans to the Company consisting of (i) up to
$100 million in Reimbursement Loans
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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
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 and (B) repay the
principal amounts outstanding under the under the Philippines Motorola Financing
and the Philippines Motorola Bridge Financing. The "Borrowing Affiliates," for
purposes of the International Motorola Financing Facility, include Nextel
Mexico, Nextel Peru, Nextel Philippines and J-Com and such other entities in
which the Company holds an equity interest and which have been so designated by
agreement between the Company and Motorola Credit. 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.
In addition, the Company contemplates negotiating and entering into
definitive agreements with Motorola Credit with respect to the Argentina
Incremental Facility Loans during the second quarter of 1999. See "-- Risk
Factors -- 12. 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 all amounts outstanding under the
Philippines Motorola Bridge Financing with a portion of the proceeds of a loan
under the International Motorola Financing Facility. As of March 31, 1999,
approximately $102.3 million had been borrowed under the International Motorola
Financing Facility (including all $100 million of available Reimbursement Loans)
and $122.7 million remained available for future borrowings under such facility.
The availability of borrowings under the International Motorola Financing
Facility is subject to the satisfaction or waiver of certain applicable
borrowing conditions. See "--Risk Factors -- 12. Nextel International's
forward-looking statements are subject to a variety of factors that could cause
actual results to differ materially from current beliefs."
PHILIPPINES MOTOROLA FINANCING. In June 1997, Nextel Philippines, an
unconsolidated affiliate, and Motorola entered into the Philippines Motorola
Financing, pursuant to which Motorola committed to provide a maximum amount of
$14.7 million in term loans to Nextel Philippines to finance the purchase of
infrastructure equipment and services from Motorola. The Philippines Motorola
Financing matures in June 1999 and provides for an annual interest rate of LIBOR
plus 506 basis points. Pursuant to the Philippines Motorola Financing the term
loans are secured by a first-priority lien on substantially all of Nextel
Philippines' assets and guarantees of by the Company and one of the Philippines
Shareholders of 57% and 43%, respectively. As of December 31, 1998 all of the
$14.7 million had been borrowed under the Philippine Motorola Financing. The
Company plans to refinance the amounts owed under Philippines Motorola Financing
with proceeds of loans under the International Motorola Financing Facility. See
"-- Risk Factors -- 12. Nextel International's forward-looking statements are
subject to a variety of factors that could cause actual results to differ
materially from current beliefs."
BRAZIL MOTOROLA FINANCING. In October 1997, Nextel Brazil and Motorola
Credit entered into the Brazil Motorola Financing, pursuant to which Motorola
Credit agreed to provide up to $125 million in term loans to Nextel Brazil to
finance the purchase of infrastructure equipment and services from Motorola. The
Brazil Motorola Financing is repayable in semiannual installments over a period
of 42 months commencing June 30, 2000 and bears interest at an annual rate
periodically determined by the Company at either LIBOR plus 4.63% or the Prime
Rate plus 2.5%. Pursuant to the Brazil Motorola Financing, the loans are secured
by a first priority lien on substantially all of Nextel Brazil's assets, a
pledge of all of the stock of Nextel Brazil and its subsidiaries, including
Nextel S.A., and guarantees by the Company and Motorola International (which
indirectly holds a 5% equity interest in Nextel S.A.) of 93.9% and 6.1%,
respectively, of Nextel Brazil's obligations under such financing. Additionally,
approximately $17 million of the Company's cash and cash equivalents was
restricted at December 31, 1998 for use as future equity investments in Nextel
Brazil and its
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subsidiaries. The Brazil Motorola Financing contains certain financial and
operating covenants. In the event of noncompliance with certain of the financial
covenants, Nextel Brazil may cure any such noncompliance by receiving additional
equity contributions. As of December 31, 1998, $103 million of the $125 million
available had been borrowed under the Brazil Motorola Financing. The
availability of borrowings under the Brazil Motorola Financing is subject to the
satisfaction or waiver of certain applicable borrowing conditions. See "-- Risk
Factors -- 12. Nextel International's forward-looking statements are subject to
a variety of factors that could cause actual results to differ materially from
current beliefs."
ARGENTINA CREDIT FACILITY. As of February 27, 1998, Nextel Argentina
entered into the Argentina Credit Facility, an $83 million senior secured credit
facility, which facility, as amended, was increased to $100 million. Borrowings
under the Argentina Credit Facility are subject to the satisfaction or waiver of
certain conditions. Loans under the Argentina Credit Facility will bear interest
at a rate equal to either (i) the ABR plus 2.75% (ABR is the highest of the
prime rate, the base CD rate plus 1% or the federal funds rate plus 0.5%) or
(ii) the Eurodollar rate plus 3.75% (the Eurodollar rate is the LIBO rate
multiplied by the statutory reserve rate). Tranche A loans may be used for
financing the import of capital goods; Tranche B loans may be used for financing
the import of capital goods, financing capital expenditures related to
development, expansion and upgrade of Nextel Argentina's network system,
permitted spectrum acquisitions and general working capital needs. Borrowings
may be made in minimum amounts of $5 million.
The Argentina Credit Facility is secured by a pledge of the stock of Nextel
Argentina and a first priority lien on the assets of Nextel Argentina and its
subsidiaries and each of Nextel Argentina's material subsidiaries have
guaranteed the Argentina Credit Facility. The loans under the Argentina Credit
Facility will be repaid in quarterly installments beginning September 30, 2000
and ending March 31, 2003. The first nine installments will be equal to 1/18 of
the then-outstanding balance and the final installment will be in an amount
equal to the then-outstanding balance. Nextel Argentina will be required to make
mandatory prepayments under the Argentina Credit Facility equal to 50% of Excess
Cash Flow commencing with the fiscal year ending December 31, 2000. The
Argentina Credit Facility also contains certain financial and operating
covenants. As of December 31, 1998, $83.5 million of the $100 million available
had been borrowed under the Argentina Credit Facility and no amounts had been
borrowed under the Argentina Incremental Facility Loans. The availability of
borrowings under the Argentina Credit Facility is subject to the satisfaction or
waiver of certain applicable borrowing conditions. See "-- Risk Factors -- 12.
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 connection with the Argentina Credit Facility, Nextel International has
entered into a Capital Subscription Agreement whereby it agreed to make
aggregate equity contributions in cash or equipment to Nextel Argentina as
follows: $115.5 million on or before June 30, 1998, $133 million on or before
December 31, 1998, $140.5 million on or before June 30, 1999 and $148 million on
or before December 31, 1999. As of December 31, 1998, the Company has made
contributions totaling $155.6 million to Nextel Argentina.
In addition, Nextel Argentina may request Argentina Incremental Facility
Loans from $10 million to $50 million, provided that Nextel International
matches such loans on a dollar-for-dollar basis. The maximum amount available
under the Argentina Incremental Facility Loans is $50 million. Under the
Motorola Financing Commitment, Motorola Credit agreed to provide up to $50
million in Argentina Incremental Facility Loans to Nextel Argentina upon the
satisfaction or waiver of certain conditions and the negotiation and execution
of definitive agreements.
In March 1999, Nextel Argentina notified the Administrative Agent under 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 and is currently in
negotiations with such lenders regarding an amendment to the Argentina Credit
Facility to modify the covenants in question for future quarters. There can be
no assurance that such lenders will agree to the proposed amendment to the
Argentina Credit Facility. Failure to agree to an amendment of the Argentina
Credit Facility as proposed could subject the entire
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amount outstanding under the Argentina Credit Facility to acceleration by the
lenders and any such acceleration by the lenders would have a material adverse
effect on the Company.
FUTURE CAPITAL NEEDS AND RESOURCES
The Company currently estimates that its funding requirements for fiscal
year 1999 will be approximately $345 million. This amount consists of capital
expenditures for the construction and enhancement of its ESMR networks, 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.
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 into the latter half of 1999. Such assessment is based on the
Company's assumed utilization of its available cash and cash equivalents and
borrowings expected to be available under the International Motorola Financing
Facility, the Brazil Motorola Financing and the Argentina Credit Facility
(including Argentina Incremental Facility Loans) to meet its assumed 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 into the latter half of 1999. The Company is reviewing various
financing options, including private debt or equity financing, that if obtained
would provide the Company with sufficient funds to meet its funding requirements
for the remainder of fiscal year 1999. There can be no assurance that the
Company will obtain any such funds on satisfactory terms, if at all, or that
such funds, if obtained, would be sufficient to meet the Company's funding
requirements for the remainder of fiscal year 1999. 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 in 1999
significantly and to reduce the scope of its expansion and enhancement of its
ESMR networks. Any such action 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 "-- Risk Factors --
12. 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 anticipates that it will prioritize its expenditures to focus on its
key markets in Latin America and that it will not provide any significant
funding to J-Com or the Shanghai GSM System in 1999. The Company historically
has not provided and does not expect to provide any funding to Clearnet. If,
however, the Company's plans change, its assumptions regarding its funding needs
associated with any further build-out, expansion and enhancement of its ESMR
network at the Operating Company level prove to be inaccurate, the other
shareholders in certain of the Operating Companies do not fund their expected
capital requirements, it increases its existing equity ownership interests in
certain of the Operating Companies, it experiences growth in its business or
subscriber base greater than or less than that which is currently anticipated,
it experiences unanticipated costs or competitive pressures, the Operating
Companies are unable to access funds under the International Motorola Financing
Facility, the Brazil Motorola Financing and/or the Argentina Credit Facility, 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. The availability of borrowings under the International Motorola
Financing Facility, the Brazil Motorola Financing and the Argentina Credit
Facility are subject to the satisfaction or waiver of certain applicable
borrowing conditions.
Subsequent to fiscal year 1999, the Company will also 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
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such needs. The Company anticipates that it will be required to seek to raise
additional capital from public or private equity or debt markets to fund such
future capital needs. The Company may seek to obtain financing from various
sources, including vendor financing provided by equipment suppliers (including
the International Motorola Financing Facility), 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 March 1997
Notes and the March 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 Part 1, Item 1,
"Business -- Risk Factors -- 12. 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 addition to the above, the Company has a number of contingent capital
requirements that may become payable over the next several years. Pursuant to
the Nextel Brazil Put, the Telcom Group has the right between October 31, 2001
and November 1, 2003, to require Nextel Brazil to redeem such shareholder's
interest in Nextel Brazil at fair market value as determined pursuant to an
appraisal procedure. Motorola has the right to exercise the Nextel Peru Put if
Motorola owns at least 19% of the outstanding shares of Nextel Peru and Nextel
Peru does not purchase ESMR infrastructure equipment from Motorola, provided
that such ESMR infrastructure equipment is technologically competitive and is
offered to Nextel Peru by Motorola on competitive commercial terms. ACCRAIN has
the right to exercise the ACCRAIN Put upon the expiration of the ACCRAIN
Agreement, which, unless extended, will be in August 1999. The Company
anticipates that it would seek any required funding to meet any such obligations
through the issuance of additional debt and equity securities at both the
Company level and the applicable Operating Company levels, and capital
contributions from Nextel Communications in the form of cash or common stock of
Nextel Communications. Nextel Communications has no obligation to provide any
financing in any form and there can be no assurance that the Company or any of
the other Operating Companies will be successful in obtaining all of the amounts
required to fund any of these put obligations. The failure to fund any of these
contingent obligations may have a material adverse effect on the Company.
As of December 31, 1998, the Company owned 100% 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 J-Com, passive minority
investment stakes in the Shanghai GSM System and Clearnet. Even though the
Company participates in the management of the Operating Companies (except for
Clearnet and the Shanghai GSM System) and has certain contractual rights
designed to protect its interests as a minority shareholder, it cannot control
the outcome of matters submitted to the shareholders of the Operating Companies
in which it has less than a majority interest. In addition, the Company may be
unable to access the cash flow of its affiliated companies because (i) it does
not have the requisite control to cause such entities to pay dividends and (ii)
substantially all of such entities are parties to or expected to become parties
to vendor financing or other borrowing agreements that severely restrict the
payment of dividends, and such entities are likely to continue to be subject to
such restrictions and prohibitions for the foreseeable future. The existing
Brazil Motorola Financing, the Philippines Motorola Financing and the Argentina
Credit Facility restrict the payment of dividends to the Company by the
Operating Companies that have debt outstanding thereunder. Any future vendor or
bank financings are likely to include similar covenants restricting the payment
of dividends. See Part I, Item 1, "Business -- Risk Factors -- 2. Nextel
International will need substantial amounts of financing over the next several
years."
INFLATION AND FOREIGN CURRENCY EXCHANGE
The net monetary assets of the Company's subsidiaries are subject to
foreign currency exchange risks since they are maintained in local currency.
Certain of the Operating Companies conduct business in countries
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in which the rate of inflation is significantly higher than that of the United
States. The Company will attempt to protect its earnings from inflation and
possible currency devaluation by trying to periodically adjust the relevant
Operating Companies' prices in local currencies and in some cases setting such
prices in direct relation to the U.S. dollar. However, there can be no assurance
that any significant devaluation against the U.S. dollar could be offset, in
whole or in part, by a corresponding price increase. While the Company routinely
assesses its foreign currency exposure, the Company has not entered into any
hedging transactions.
As a result of the recent devaluation in the Brazilian real, the Company
will record a pre-tax charge (net of minority interests) of approximately $45.1
million on its consolidated statement of operations during the quarter ending
March 31, 1999 related to foreign currency transaction losses. Additionally, the
Company will record a negative cumulative translation adjustment on its balance
sheet (determined in a manner consistent with prior periods) of approximately
$136.1 million, which will be reflected as an adjustment to the cumulative
translation adjustment account within stockholders' equity. See Part I, Item 1,
"Business -- Post Fiscal Year-End Transactions and Developments."
The countries in which the Operating Companies now conduct business
generally do not restrict the repatriation or conversion of local or foreign
currency. There can be no assurance, however, that this will be the case in each
market that the Company may enter in the future or that this situation will
continue in the Company's existing markets. The Operating Companies are all
directly affected by their respective countries' governmental, economic, fiscal
and monetary policies and other political factors. See Part I, Item 1,
"Business -- Risk Factors -- 5. Nextel International operates in foreign markets
and this presents certain risks."
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1998, there were the following net operating losses
("NOLs") at the Operating Company level: (i) $74.3 million in Brazil; (ii) $61.7
million in Argentina; (iii) $50.7 million in Mexico; and (iv) $5.5 million in
Peru. Such NOLs are only available to be utilized as a potential future
reduction of taxes at the Operating Company level and their use in any one year
may be limited by the Operating Companies' ability to generate sufficient
taxable income.
YEAR 2000 READINESS
GENERAL. The "Year 2000 issue" arises as a result of the potential
inability of some computer software to interpret correctly any date after
December 31, 1999 in entries in which the year is represented by two digits
rather than four. Any such failure could result in data processing errors or
miscalculations, and consequently, interruption in services, operations,
customer billing and other date-sensitive processes.
Many of the Company's administrative and accounting services are performed
for the Company by Nextel Communications. Additionally, many of the Company's
third party vendors are also vendors to Nextel Communications. Accordingly, in
these instances the Company has coordinated its assessment of its status toward
compliance with the Year 2000 issue with Nextel Communications.
STATE OF READINESS. The Company has taken or is scheduled to take actions
that are designed to assure that it addresses any Year 2000 readiness issues by
the end of the third quarter of 1999. The Company's ability to reach its Year
2000 readiness goal, however, is and will continue to be dependent on the
parallel efforts of Nextel Communications and certain third party vendors,
suppliers, subcontractors to and business partners of Nextel Communications and
the Company. Some of these significant third parties are not yet Year 2000
ready, while others have provided the Company with detailed action plans and
timetables for achieving Year 2000 readiness. The Company monitors the progress
of these third parties towards Year 2000 issues 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;
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- 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 to assist it and the
Company in defining the status of their 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 March 1, 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 with an exception to the short message
service feature on all other phones. 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.
- Oracle provided information to the Nextel Communications that the
software that supports Nextel Communications' 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.
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<PAGE> 66
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' and the Company's information technology 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, who are
responsible for assisting in the identification, assessment and remediation of
Year 2000 issues. 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. Although the Company's 1999 budget for Year 2000 readiness
efforts has not yet been finalized, the Company currently estimates expenditures
in connection with these efforts 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 physically 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 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. Subject to the
foregoing, 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.
Moreover, any failure by Nextel Communications or by third parties that have a
material relationship with the Company to achieve full Year 2000 readiness
challenges may be a potential risk if such failure adversely impacts the ability
of such parties to provide any products or services that are critical to the
Company's operations. Finally, where the Company is not in a position to
validate or
65
<PAGE> 67
certify that technology provided by third parties is 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.
The Company cannot independently assess the impact of Year 2000 readiness
risks, and compliance activities and programs involving operators of PSTNs or
other service providers (such as electric utilities). The Company, therefore,
must rely on the respective PSTN's and utility providers' estimates of its own
Year 2000 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 the Year 2000 readiness as their U.S. counterparts,
consequently resulting in delays and lag in remediation efforts. Because the
Operating Companies' systems will be interconnected with PSTNs in their
respective countries and will be dependent upon the systems of other service
providers, any disruption of operations in the computer programs of such PSTNs
or service providers will have an impact on the Company's network. Moreover, to
the extent that such PSTNs or other service providers fail to address their
respective Year 2000 readiness challenges in a timely manner, any resulting
disruption in the Company's service could have a materially adverse effect on
the Company's operations.
THE COMPANY'S CONTINGENCY PLANS. The Company has not completed all systems
and software testing in its critical systems nor has it been advised of the
completion of such activities by Nextel Communications or all third party
vendors of critical products and services. As a result, the Company has not
fully assessed its exposure from potential Year 2000 readiness noncompliance.
Nextel Communications and the Company are preparing guidelines for addressing
Year 2000 readiness contingency plans for external and internal systems 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 noncompliance. Additionally, because contingency
plans may also be provided by third parties, the Company will have to assess
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.
ITEM 7A. 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. These
financial instruments expose the Company to certain market risks including
interest rate risk and foreign currency exchange risk. Because the Company's
debt does not require any significant principal payments in the near term, the
Company has not entered into any hedging activities to protect itself from
foreign currency exchange or interest rate risks.
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<PAGE> 68
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 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
operating 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 significant 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 stock
of Clearnet, a publicly traded company, which had a fair value of $68.0 million
at December 31, 1998. The investment in common stock 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 $6.8 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 December 31, 1998. See Note 7 to Nextel
International's consolidated financial statements for additional information
related to Nextel International's debt obligations.
<TABLE>
<CAPTION>
YEAR OF MATURITY
----------------- TOTAL DUE AT
1999 2000 2001 2002 2003 THEREAFTER MATURITY FAIR VALUE
------ ------- ------- ------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate.............................. $1,681,463 $1,681,463 $886,048
Average interest rate................... 12.6%
Variable rate........................... $2,061 $30,562 $39,801 $50,021 $75,071 $ 4,379 $ 201,895 $201,895
Average interest rate................... 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are filed under this
Item are filed under Part IV, Item 14(a)(1) of this Report. The financial
statement schedules required under Regulation S-X are filed under Part IV, Item
14(a)(2) of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 69
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The executive officers and directors of the Company as of March 31, 1999,
are set forth below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- ---- ---------
<S> <C> <C>
Daniel F. Akerson................. 50 Chairman of the Board of Directors
Keith D. Grinstein................ 38 Chief Executive Officer and Director
Steven P. Dussek.................. 42 President and Chief Operating Officer
Jose Felipe....................... 48 President-Latin America Region
Heng-Pin Kiang.................... 50 Vice President and General Counsel
Byron R. Siliezar................. 43 Vice President and Chief Financial Officer
Brian A. Vincent.................. 40 President-Asia/Pacific Region
Barry West........................ 50 Vice President and Chief Technology Officer
C. James Judson................... 54 Vice Chairman of the Board of Directors(2)
Timothy M. Donahue................ 50 Director
Craig O. McCaw.................... 49 Director
Steven M. Shindler................ 36 Director(1)
Dennis M. Weibling................ 48 Director(1)(2)
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Plan Administration Committee
Daniel F. Akerson has served as Chairman of the Board of the Company since
March 1996. Mr. Akerson is also Chairman of the Board and Chief Executive
Officer of Nextel Communications, positions he has held since March 1996. From
June 1993 to March 1996, Mr. Akerson served as a general partner of Forstmann
Little & Co., a private investment firm ("Forstmann Little"), and also held the
positions of Chairman of the Board and Chief Executive Officer of General
Instrument Corporation, a technology company acquired by Forstmann Little. From
1983 to 1993, Mr. Akerson held various senior management positions with MCI
Communications Corporation, including President and Chief Operating Officer. Mr.
Akerson currently serves as a director of American Express Company and America
Online, Inc. Mr. Akerson received a B.S. from the United States Naval Academy
and a M.S. from the London School of Economics.
Keith D. Grinstein has served as President, Chief Executive Officer and as
a director of the Company since January 1996. From January 1991 to December
1995, Mr. Grinstein was President and Chief Executive Officer of the aviation
communications division of AT&T Wireless Services, Inc. ("AT&T Wireless,"
formerly McCaw Cellular Communications, Inc. ("McCaw Cellular")). Mr. Grinstein
held a number of positions at McCaw Cellular and its subsidiaries, including
Vice President, General Counsel and Secretary of LIN Broadcasting Company, a
subsidiary of McCaw Cellular, and Vice President and Assistant General Counsel
of McCaw Cellular. Mr. Grinstein received a B.A. from Yale University and a J.D.
from Georgetown University. Mr. Grinstein currently is a director of Clearnet.
Steven P. Dussek was named President and Chief Operating Officer of the
Company on March 17, 1999. From May 1996 until he assumed his current
responsibilities, Mr. Dussek served in various senior management positions with
Nextel Communications, most recently as Vice President of Operations. From May
1995 to May 1996, Mr. Dussek served as vice president and general manager of the
Northeast region for the PCS division AT&T Wireless. From January 1993 to March
1995 Mr. Dussek served as Senior Vice President and Chief Operating Officer of
Paging Networks, Inc.
Jose Felipe has served as President-Latin America Region of the Company
since June 1998. From 1991 to 1998, Mr. Felipe held various senior management
positions with AT&T Corp, most recently President and Chief Executive Officer of
the Puerto Rico and Virgin Islands region and Vice President of emerging markets
for the Latin American region. Mr. Felipe received a B.A. from Florida Atlantic
University and he is a certified public accountant.
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<PAGE> 70
Heng-Pin Kiang has served as Vice President and General Counsel of the
Company since January 1996. From September 1984 to December 1995, Mr. Kiang was
a partner in the Perkins Coie law firm. Mr. Kiang received a B.S.E. in Chemical
Engineering from Princeton University and a J.D. from Columbia University.
Byron R. Siliezar has served as Vice President and Chief Financial Officer
since January 29, 1999. From July 1998 to January 29, 1999, Mr. Siliezar served
as Vice President and Controller of the Company. From May 1997 to July 1998, Mr.
Siliezar served as Vice-President of Finance at Neodata, a subsidiary of EDS
Corporation ("EDS"). From April 1996 to May 1997, Mr. Siliezar served as Vice
President and Controller of Pagenet International, Inc. From 1982 to April 1996,
Mr. Siliezar served in various executive and management positions at GTE
Corporation, most recently as Corporate Director of Mergers and Acquisitions.
Mr. Siliezar received a B.A. degree from the University of California in Santa
Barbara and an M.A. and M.B.A. from the University of California at Los Angeles.
Brian A. Vincent has served as President-Asia/Pacific Region since July
1998. From January 1996 until he assumed his current responsibilities with the
Company, Mr. Vincent served as Vice President of Business Development of the
Company. From 1986 to 1995, Mr. Vincent served as Vice President of Worldwide
Marketing Operations at Intermec Corporation, a leading manufacturer of handheld
data collection computers and on-premise wireless communication networks. Mr.
Vincent received a B.A. from the University of California at Berkeley and an
M.B.A. from the University of Washington.
Barry West has served as Vice President and Chief Technology Officer of the
Company since January 1999. Mr. West also serves as Vice President and Chief
Technology Officer of Nextel Communications, a position he has held since
joining Nextel Communications in March 1996. Prior thereto, Mr. West served in
various senior positions with British Telecom plc for more than five years, most
recently as Director of Value-Added Services and Corporate Marketing at Cellnet,
a cellular communications subsidiary of British Telecom.
C. James Judson has served as a director of the Company since February
1995. Mr. Judson is Vice President, Secretary and General Counsel of Eagle
River, Inc., a company formed to make strategic investments in
telecommunications ventures ("Eagle River"), a position he has held since
January 1995. From 1969 to January 1995, Mr. Judson was a partner in the Davis
Wright Tremaine law firm. Mr. Judson received a B.A. and a L.L.B. from Stanford
University.
Timothy M. Donahue has served as a director of the Company since August
1997. Mr. Donahue has served as President of Nextel Communications since
February 1, 1996 and has served as a director of Nextel Communications since May
1996. On February 29, 1996, Mr. Donahue was elected to the additional position
of Chief Operating Officer of Nextel Communications. From 1986 to January 1996,
Mr. Donahue held various senior management positions with AT&T Wireless
Services, Inc., most recently Regional President for the Northeast.
Craig O. McCaw served as a director of the Company from February 1995 until
the acquisition of the Company by Nextel Communications in August 1995. Mr.
McCaw was reelected to the Company's board of directors in February 1997. Since
1994, Mr. McCaw has served as Chairman of the Board and Chief Executive Officer
of Eagle River, Inc. a company formed to make strategic investments in
telecommunications ventures, and since 1995, as Chairman of the Board of Digital
Radio, L.L.C., a company formed for the purpose of making an equity investment
in Nextel Communications. From March 1990 to November 1994, Mr. McCaw served as
Chairman of the Board and Chief Executive Officer of LIN Broadcasting Company.
From 1974 to September 1994, Mr. McCaw served as Chairman of the Board and Chief
Executive Officer of McCaw Cellular, which was sold to AT&T Corp. in August
1994. Mr. McCaw serves as a director of Nextel Communications and as Chairman of
the Operations Committee of the Nextel Communications board of directors. Mr.
McCaw also serves as Chairman of the Board of NEXTLINK Communications, Inc., a
facilities-based local exchange carrier ("NEXTLINK"), and Teledesic Corporation.
Mr. McCaw is an appointee to the President's National Security
Telecommunications Advisory Committee.
Steven M. Shindler has served as a director of the Company since May 1997.
Mr. Shindler is Vice President and Chief Financial Officer of Nextel
Communications, a position he has held since May 1996.
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<PAGE> 71
From 1987 and 1996, Mr. Shindler was an officer with Toronto Dominion Bank where
most recently he was a Managing Director in its Communications Finance Group.
Dennis M. Weibling has served as a director of the Company since February
1995. From October 1995 to March 1996, Mr. Weibling served as Nextel
Communications' acting Chief Executive Officer. Mr. Weibling is President of
Eagle River, a position he has held since 1993. From 1981 to 1993, Mr. Weibling
was a shareholder of Clark, Nuber and Co., P.S., a public accounting firm in
Bellevue, Washington. Mr. Weibling received a B.A. from Wittenberg University
and a J.D. from the University of Nebraska. Mr. Weibling is a director of Nextel
Communications and is a member of the Operations Committee, Audit Committee and
Compensation Committee of the Nextel Communications Board. He is also a director
of NEXTLINK and of Teledesic Corporation and Cable Plus Holding Company, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company established an audit committee (the "Audit Committee") in
November 1997. Messrs. Weibling (Chairman) and Shindler serve as members of the
Audit Committee. During 1998, the Audit Committee held two meetings. The Company
established a stock option plan administration committee (the "Plan
Administration Committee") in June 1998. Messrs. Weibling and Judson serve as
members of the Plan Administration Committee. During 1998, the Plan
Administration Committee held four meetings. The Board of Directors of the
Company has no other standing committees.
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
COMPENSATION OF EXECUTIVE OFFICERS
The following table and discussion summarize the compensation earned by the
Company's President and Chief Executive Officer and the four other most highly
compensated executive officers of the Company who earned more than $100,000 in
salary and bonuses (collectively, the "Named Executive Officers") for services
rendered in all capacities to the Company during the fiscal years ended December
31, 1998, 1997 and 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM(1)
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
--------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER(2)
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein....... 1998 195,054 79,200 -- 60,000/-- 3,900
President and Chief 1997 180,000 60,000 -- 540,000/-- 3,200
Executive Officer 1996 150,000 -- -- 50,000/400,000 2,500
Heng-Pin Kiang........... 1998 165,769 60,000 -- 14,000/-- 7,600
Vice President and 1997 160,940 52,500 -- 290,000/-- 5,572
General Counsel 1996 150,000 -- -- 25,000/250,000 3,625
Brian A. Vincent......... 1998 159,057 60,000 -- 14,000/-- 2,800
Vice President of 1997 152,940 56,000 -- 145,000/-- 2,714
Business Development 1996 140,000 -- -- 10,000/100,000 2,450
David E. Rostov*......... 1998 145,903 65,000 -- 15,000/-- 6,200
Vice President and 1997 132,940 50,000 -- 145,000/-- 4,868
Chief Financial Officer 1996 94,744(3) -- -- 15,000/100,000 1,895
</TABLE>
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<PAGE> 72
<TABLE>
<CAPTION>
LONG-TERM(1)
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------
--------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER(2)
SALARY BONUS COMPENSATION OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) ($)
- --------------------------- ---- ------- ------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
William S. Roberts**..... 1998 200,101 -- -- 15,000/-- 4,400
Vice President of 1997 170,000 -- -- 130,000/-- 6,200
Country Operations/ 1996 20,705(4) 40,000 -- --/75,000 --
President-Nextel Mexico
</TABLE>
- ---------------
* Mr. Rostov's employment with the Company terminated on January 15, 1999.
** Mr. Roberts' employment with the Company terminated on December 31, 1998.
(1) Options were granted pursuant to the Nextel International 1997 Stock Option
Plan (the "NII Stock Option Plan") and the Nextel Communications Incentive
Equity Plan (the "NCI Incentive Equity Plan"). Options vest over a four-year
period and become exercisable, subject to the provisions of each plan, for
shares of the Company's common stock (the "Company's Common Stock") and
Nextel Communications Class A Common Stock, respectively. SARs were granted
pursuant to the Company's Stock Appreciation Rights Plan (the "NII SAR
Plan"). As of December 31, 1998, all but one holder of stock appreciation
rights ("SARs") granted under the NII SAR Plan, including all of the members
of the Company's senior management, had agreed to exchange their SARs for
options granted pursuant to the NII Stock Option Plan ("NII Options").
(2) Comprised of the Company's contributions to the Nextel Communications
Section 401(k) Plan and the value received from purchases under the Nextel
Communications Stock Purchase Plan which reflect the difference between the
purchase price (which is the lower of 85% of market value at the beginning
or the end of each quarter) and the market value.
(3) Reflects salary paid from January 22, 1996 to December 31, 1996.
(4) Reflects salary paid from November 18, 1996 to December 31, 1996.
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OPTION GRANTS IN FISCAL YEAR 1998
The following table sets forth certain information with respect to options
exercisable for shares of the Company's Common Stock and Nextel Communications's
Class A Common Stock granted to the Named Executive Officers during fiscal year
1998.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE OR GRANT DATE
OPTIONS GRANTED FISCAL YEAR BASE PRICE(2) EXPIRATION PRESENT VALUE
NAME (#)(1) (%) ($/SHARE) DATE ($)(2)
---- --------------- ------------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Keith D. Grinstein
NCI Options................... 60,000 .72 26.56 2/11/08 1,008,000
Heng-Pin Kiang
NCI Options................... 14,000 .17 26.56 2/11/08 235,200
Brian A. Vincent
NCI Options................... 14,000 .17 26.56 2/11/08 235,200
David E. Rostov
NCI Options................... 15,000 .18 26.56 2/11/08 252,000
William S. Roberts
NCI Options................... 15,000 .18 26.56 2/11/08 252,000
</TABLE>
- ---------------
(1) Options were granted pursuant to the NCI Incentive Equity Plan ("NCI
Options"). NCI Options granted vest over a four-year period, becoming
exercisable with respect to 25% of the shares on each of the first four
anniversary dates following the date of grant.
(2) The Company used the Black-Scholes pricing model to estimate the present
value of the options at date of grant.
OPTION EXERCISES IN FISCAL YEAR 1998 AND YEAR-END OPTION VALUES
The following table sets forth information concerning the exercise of
options during the year ended December 31, 1998 and unexercised option values as
of the fiscal year ended December 31, 1998 with respect to each of the Named
Executive Officers.
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AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1998 AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
SHARES OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE (#) ($)(1)
EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Keith D. Grinstein
NII Options................ -- -- 356,248 143,752 -- --
NCI Options................ -- -- 47,500 102,500 385,000 178,750
Heng-Pin Kiang
NII Options................ -- -- 204,685 70,315 -- --
NCI Options................ -- -- 22,500 31,500 181,875 104,500
Brian A. Vincent
NII Options................ -- -- 87,290 42,710 -- --
NCI Options................ -- -- 8,750 30,250 74,375 97,000
David E. Rostov
NII Options................ -- -- 87,289 42,711 -- --
NCI Options................ -- -- 11,250 33,750 95,625 115,313
William S. Roberts
NII Options................ -- -- 51,248 -- -- --
NCI Options................ -- -- 5,000 -- 42,500 --
</TABLE>
- ------------------
(1) The value of the in-the-money options is based on the closing price of the
Nextel Communications Class A Common Stock as reported by the Nasdaq Stock
Market on December 31, 1998, which was $23.69 per share, less the aggregate
exercise price, times the aggregate number of shares issuable pursuant to
such options.
EMPLOYMENT AGREEMENTS
In November 1995, the Company entered into an employment agreement with Mr.
Grinstein providing for his employment as President and Chief Executive Officer,
which renews on July 1 of each year. The current agreement with Mr. Grinstein
terminates on June 30, 1999. The agreement provides for a base salary of
$150,000 per year, subject to an annual performance evaluation (plus performance
bonuses based on the achievement of mutually determined objectives).
The Company also entered into an employment agreement with Mr. Kiang in
November 1995 providing for his employment as Senior Vice President and General
Counsel, which renews on July 1 of each year. The current agreement with Mr.
Kiang terminates on June 30, 1999. The agreement provides for a base salary of
$150,000 per year, subject to an annual performance review (plus performance
bonuses based on the achievement of mutually determined objectives).
In January 1996, the Company entered into an employment agreement with Mr.
Vincent providing for his employment as Senior Vice President of Business
Development, which renews automatically, annually on January 1 of each year.
Either party may terminate the agreement upon 60 days' written notice. The
agreement provides for a base salary of $140,000 per year, subject to an annual
performance evaluation (plus performance bonuses based on the achievement of
certain objectives).
In January 1996, the Company entered into an employment agreement with Mr.
Rostov providing for his employment as Vice President and Chief Financial
Officer, which renews automatically, annually on January 12 of each year. Either
party may terminate the agreement upon 60 days' written notice. The agreement
provides for a base salary of $100,000 per year, subject to an annual
performance evaluation (plus performance bonuses based on the achievement of
certain objectives). On January 15, 1999, Mr. Rostov's employment with the
Company terminated.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors does not currently have a compensation
committee. The Company's Board of Directors is responsible for executive
compensation matters. During 1997, Mr. Grinstein served on the Company's Board
of Directors and as Chief Executive Officer and President of the Company.
COMPENSATION OF DIRECTORS
Currently, the Company's directors do not receive any compensation or
reimbursements for out-of-pocket expenses for their service on the Company's
board of directors.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 1999 (the "Ownership
Date"), the amount and percentage of shares of each class of the Company's
capital stock that are deemed under the rules of the Commission to be
"beneficially owned" by (i) each director of the Company, (ii) each of the Named
Executive Officers employed by the Company as of the Ownership Date, (iii) all
directors and officers of the Company as a group and (iv) each person or "group"
(as such term is used in Section 13(d)(3) of the Exchange Act) known by the
Company to be the beneficial owner of more than 5% of the outstanding shares of
each class of the Company's capital stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
TYPE OF CLASS OF THE OF BENEFICIAL APPROXIMATE
NAME OF BENEFICIAL OWNER COMPANY'S CAPITAL STOCK OWNERSHIP % OF CLASS(1)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel F. Akerson............... Common Stock 26,041(2) *
Keith D. Grinstein.............. Common Stock 377,080(2) 1.0%
Timothy M. Donahue.............. Common Stock 10,625(2) *
C. James Judson................. Common Stock -- *
Craig O. McCaw.................. Common Stock -- *
Steven Shindler................. Common Stock 13,020(2) *
Dennis M. Weibling.............. Common Stock -- *
Heng-Pin Kiang.................. Common Stock 204,685(2) *
Brian A. Vincent................ Common Stock 92,705(2) *
All directors and executive
officers as a group (14
persons)...................... Common Stock 756,132(2) 2.0%
5% Stockholders:
Nextel Communications, Inc...... Common Stock 36,500,000 97.9%
1505 Farm Credit Drive Series A Preferred Stock 989 100.0%
McLean, Virginia 22102
</TABLE>
- ---------------
* Less than one percent (1%).
(1) Represents the voting power of the number of shares of each class of
capital stock beneficially owned by each named person or group as of the
Ownership Date, expressed as a percentage of (a) all shares of the
Company's capital stock of the indicated class actually outstanding as of
such date, plus (b) all other shares of the Company's capital stock deemed
outstanding as of such date pursuant to Rule 13d-3(d)(1) under the Exchange
Act.
(2) Comprised entirely of shares of the Company's Common Stock obtainable as of
the ownership date or within 60 days thereafter by the named person or
group upon the exercise of NI Options.
74
<PAGE> 76
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TAX SHARING AGREEMENT
The Tax Sharing Agreement effective as of January 1, 1997, between Nextel
Communications and the Company (the "Tax Sharing Agreement") provides that the
Company must pay Nextel Communications its federal income tax liability computed
as if the Company had filed a separate federal income tax return. Such
computation would take into account any carryovers and carrybacks of losses and
credits that would be allowed if the Company had filed a separate federal income
tax return except that, in making such computation for any taxable year, such
liability will be determined at the highest corporate tax rate, and without an
exemption for purposes of calculating the alternative minimum tax and the
environmental tax. The Tax Sharing Agreement further provides that the Company
may be included in any consolidated, combined, or unitary state or local income
or franchise tax return or report, and the Company's liability with respect to
such taxes will be computed in a manner similar to and consistent with the
calculation of the Company's federal income tax liability.
Furthermore, the Tax Sharing Agreement provides that Nextel Communications
is entitled to utilize on behalf of the consolidated group all of the tax
attributes and other items of income, gain, loss, deduction, expense, credit and
similar treatments of the Company arising in the current taxable year or another
taxable year or years and which properly may be carried back or carried forward
to such taxable year. The Company is not entitled to receive any compensation by
reason of Nextel Communications' utilization of such attributes or items on
behalf of the group in determining for any taxable year or years the
consolidated taxable income and consolidated tax liability for such taxable year
or years.
Nextel Communications will not be required to compensate the Company for
the benefit of loss or credit carryback from the Company's separate filing to
the consolidated group should the Company leave the Nextel Communications
consolidated group.
Under the U.S. consolidated income tax rules, the Company and each other
member of the U.S. consolidated tax group of which it is a member will be
jointly and severally liable for the U.S. tax liabilities of each other member
of such group.
OVERHEAD SERVICES AGREEMENT
Pursuant to an Overhead Services Agreement between the Company and Nextel
Communications (the "Services Agreement"), Nextel Communications has agreed to
provide to the Company certain services, including those relating to accounts
payable, cash management, payroll, human resources, finance reporting and audit
and legal, engineering and technical and marketing and sales assistance. The fee
for services provided pursuant to the Services Agreement is the actual cost
incurred by Nextel Communications, which is billed monthly and payable in 45
days. Pursuant to the Services Agreement, Nextel Communications has agreed to
apportion the aggregate cost incurred by it to provide such services to the
Company and Nextel Communications' other subsidiaries on the basis that Nextel
Communications determines in good faith, from time to time, represents the
relative portion of such services provided by Nextel Communications and used by
each such subsidiary, including the Company, for the relevant period. The
Company has the right to review Nextel Communications' determination and to
discuss with Nextel Communications adjustments that the Company considers
appropriate in light of the services provided to the Company. Nextel
Communications' good faith determination after such consultation is final and
binding. The Services Agreement has a ten-year term, which commenced on March 3,
1997, and, with the consent of Nextel Communications, the Company may elect to
discontinue a particular service or services provided by Nextel Communications
and/or obtain any service from an independent third party.
Pursuant to the Services Agreement the Company has agreed that the legal
counsel employed by Nextel Communications as part-time or full-time employees
will provide legal services to Nextel Communications as well as to other
subsidiaries of Nextel Communications and potentially to other entities in which
Nextel Communications holds an ownership interest. The Company has agreed that
such legal counsel may represent the Company as well as Nextel Communications or
any such other subsidiary or any other entity.
75
<PAGE> 77
NON-COMPETE AGREEMENT
The Company and Nextel Communications entered into a first-opportunity
agreement (the "Non-Compete Agreement") effective as of March 6, 1997 pursuant
to which Nextel Communications has agreed that neither Nextel Communications nor
any Affiliate (as defined in the agreement) controlled by Nextel Communications
will in the future participate in the ownership or operation of two-way
terrestrial-based mobile wireless communications systems ("Wireless Entities")
anywhere other than in the United States unless such opportunities ("Future
Wireless Opportunity") have first been presented to the Company. Such
restriction does not apply to, among other things, any commercial relationship
with any Wireless Entity (including channel or frequency sharing, roaming,
purchase or sale of goods or services, licensing of intellectual property or
other intangible rights or similar business related arrangement) that does not
involve the directing or participating in the management of such Wireless
Entity. The Company has agreed that, without the consent of Nextel
Communications, neither it, its Restricted Affiliates nor any of its
Unrestricted Affiliates (each as defined in the indentures for the March 1997
Notes and the March 1998 Notes) will participate in the ownership or management
of any wireless communications service business in the United States or Canada
other than with respect to its interest in Clearnet. Such restrictions terminate
upon the earliest to occur of (i) April 15, 2007 and (ii) the date on which a
Change of Control (as defined in the indentures for the March 1997 Notes and the
March 1998 Notes) occurs.
If Nextel Communications gives the Company notice (the "Initial Notice") of
a Future Wireless Opportunity, the Company will have 60 days to notify Nextel
Communications that it intends to pursue such opportunity, and how it intends to
finance its participation. The Company must have secured a financing commitment
within 90 days of the date of the Initial Notice and the Future Wireless
Opportunity must be consummated within nine months of the date of the Initial
Notice. In the event the Company fails to respond to Nextel Communications
within the 60 and 90 day time frames or fails to consummate the transaction
within the nine-month period, Nextel Communications will be free to pursue the
Future Wireless Opportunity.
Nextel Communications and the Company have agreed not to amend the
Non-Compete Agreement if such amendment is material and adverse to the holders
of the March 1997 Notes and to provide such holders with written notice 30 days
prior to any amendment. Effective as of April 11, 1998, the Company and Nextel
Communications entered into an amendment to the Non-Compete Agreement to extend
its benefits to the holders of the March 1998 Notes.
MOTOROLA RELATIONSHIPS
Motorola, a significant shareholder of Nextel Communications, provides
equipment and vendor financing to the Operating Companies. For a description of
the Motorola financing facilities, see Part II, Item 7, "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Motorola, through Motorola International, is also a shareholder in Nextel
Brazil and Nextel Peru. Additionally, Motorola, through its affiliates, is the
majority shareholder in J-Com. See Part I, Item 1, "Business -- The Company's
Operations and Investments -- Partner Description," and "-- Corporate
Governance" for Brazil, Peru and Japan.
76
<PAGE> 78
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following Financial Statements are included in Part II Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997...................................... F-3
Consolidated Statements of Operations and Comprehensive
Income for the Years Ended December 31, 1998, 1997 and
1996................................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996........... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
(2) Financial Statement Schedules are submitted herewith and are
included herein in 14(d):
<TABLE>
<S> <C>
Schedule I........................................ F-30
Schedule II....................................... F-34
</TABLE>
------------------------
(3) List of Exhibits -- Refer to Exhibit Index, which is incorporated
herein by reference.
(b) Reports on Form 8-K:
None.
(c) Exhibits listed above in Item 14(a)(3) are included herein.
(d) Financial Statement Schedules listed above in Item 14(a)(2) are
included herein.
77
<PAGE> 79
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
INDEPENDENT AUDITORS' REPORT................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1998 and
December 31, 1997..................................... F-3
Consolidated Statements of Operations and Comprehensive
Income for the Years Ended December 31, 1998, 1997 and
1996.................................................. F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996.......... F-5
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997
and 1996............................................. F-6
Notes to Consolidated Financial Statements............. F-7
FINANCIAL STATEMENT SCHEDULES
Schedule I -- Condensed Financial Information of
Registrant............................................ F-30
Schedule II -- Valuation and Qualifying Accounts....... F-34
</TABLE>
F-1
<PAGE> 80
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Nextel International, Inc.
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Nextel
International, Inc. and subsidiaries (the Company), a substantially wholly owned
subsidiary of Nextel Communications, Inc., as of December 31, 1998 and 1997, and
the related consolidated statements of operations and comprehensive income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the financial statement
schedules listed in the Index at Item 14(a) (2). These consolidated financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Nextel International, Inc. and
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Seattle, Washington
February 10, 1999 (March 26, 1999 as to Note 7 and 17)
F-2
<PAGE> 81
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $17,000 and
$68,992, respectively, is restricted)................. $ 121,116 $ 159,790
Marketable securities.................................. -- 128,560
Accounts receivable, less allowance for doubtful
accounts of $6,391 and $1,003......................... 35,247 3,838
Subscriber equipment and accessory inventory........... 31,914 1,749
Prepaid and other...................................... 23,902 15,884
---------- ----------
Total current assets.............................. 212,179 309,821
PROPERTY, PLANT AND EQUIPMENT, NET.......................... 530,571 136,210
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less
equity
in net losses of $17,867 and $7,526....................... 134,691 106,489
INTANGIBLE ASSETS, NET...................................... 552,419 526,000
INVESTMENTS AND OTHER ASSETS................................ 171,276 44,518
---------- ----------
$1,601,136 $1,123,038
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 62,436 $ 24,456
Accrued expenses and other............................. 68,149 51,592
Due to parent.......................................... -- 8,254
Current portion of long-term debt...................... 2,061 2,211
---------- ----------
Total current liabilities......................... 132,646 86,513
LONG-TERM DEBT.............................................. 1,254,882 597,809
DEFERRED INCOME TAXES....................................... 90,194 120,777
---------- ----------
Total liabilities................................. 1,477,722 805,099
MINORITY INTEREST........................................... 27,516 21,910
COMMITMENTS AND CONTINGENCIES (NOTES 2, 7, 10 AND 17)
STOCKHOLDERS' EQUITY:
Series A exchangeable redeemable preferred stock,
accreted liquidation preference of $110,456 (1,250
shares authorized, $10.00 par value, 988.86 and no
shares issued and outstanding)........................ 98,886 --
Series B redeemable preferred stock (2,500 shares
authorized
$10.00 par value, no shares issued and
outstanding).......................................... -- --
Common stock (73,000,000 shares authorized, no par
value,
36,523,679 and 36,500,000 shares issued and
outstanding).......................................... 396,574 395,428
Accumulated deficit.................................... (339,824) (102,689)
Accumulated other comprehensive (loss) income:
Unrealized (loss) gain on investments, net of tax.... (35,688) 3,290
Cumulative translation adjustment.................... (24,050) --
---------- ----------
Total accumulated other comprehensive (loss)
income.......................................... (59,738) 3,290
---------- ----------
Total stockholders' equity........................ 95,898 296,029
---------- ----------
$1,601,136 $1,123,038
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 82
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES
Service revenue.................................. $ 34,559 $ 10,589 $ --
Analog equipment sales and maintenance........... 7,929 2,426 --
---------- ---------- ----------
42,488 13,015 --
---------- ---------- ----------
OPERATING EXPENSES
Cost of service revenue.......................... 14,257 6,189 --
Cost of equipment sales and maintenance.......... 5,828 1,235 --
Selling, general and administrative.............. 143,098 26,768 9,318
Depreciation and amortization.................... 56,039 18,381 168
---------- ---------- ----------
219,222 52,573 9,486
---------- ---------- ----------
OPERATING LOSS........................................ (176,734) (39,558) (9,486)
---------- ---------- ----------
OTHER INCOME (EXPENSE)
Interest income.................................. 16,655 19,666 4,300
Interest expense................................. (106,824) (56,583) (323)
Loss from equity method investments.............. (12,193) (11,401) (5,991)
Other, net....................................... 2,472 5,561 379
Minority interest................................ 17,131 2,085 --
---------- ---------- ----------
(82,759) (40,672) (1,635)
---------- ---------- ----------
LOSS BEFORE INCOME TAX BENEFIT (PROVISION)............ (259,493) (80,230) (11,121)
INCOME TAX BENEFIT (PROVISION)........................ 22,358 6,282 (1,355)
---------- ---------- ----------
NET LOSS.............................................. (237,135) (73,948) (12,476)
OTHER COMPREHENSIVE INCOME:
Unrealized (loss) gain on available-for-sale
securities, net of tax......................... (38,978) 389 (5,122)
Foreign currency translation adjustment.......... (24,050) -- --
---------- ---------- ----------
COMPREHENSIVE LOSS.................................... $ (300,163) $ (73,559) $ (17,598)
========== ========== ==========
NET LOSS PER COMMON SHARE, BASIC AND DILUTED.......... $ (6.50) $ (2.03) $ (0.34)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING........................... 36,503,421 36,500,000 36,500,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 83
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<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, 1996........... -- $ -- -- $ -- 36,500,000 $ 20,181 $ (16,265)
Capital contributions from
parent....................... -- -- -- -- -- 44,862 --
Net loss....................... -- -- -- -- -- -- (12,476)
Unrealized loss on investments,
net of tax................... -- -- -- -- -- -- --
------ ------- ------ ------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1996......... -- -- -- -- 36,500,000 65,043 (28,741)
Capital contributions from
parent....................... -- -- -- -- -- 315,585 --
Issuance of warrants in
connection with private
placement.................... -- -- -- -- -- 14,800 --
Net loss....................... -- -- -- -- -- -- (73,948)
Unrealized gain on investments,
net of tax................... -- -- -- -- -- -- --
------ ------- ------ ------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1997......... -- -- -- -- 36,500,000 395,428 (102,689)
Issuance of Series A
preferred stock to parent.... 988.86 98,886 -- -- -- -- --
Issuance of common stock upon
exercise of stock options and
accrued compensation for
compensatory options......... -- -- -- -- 23,679 1,146 --
Unrealized loss on investments,
net of tax................... -- -- -- -- -- -- --
Cumulative translation
adjustment................... -- -- -- -- -- -- --
Net loss....................... -- -- -- -- (237,135)
------ ------- ------ ------- ---------- -------- ---------
BALANCE, DECEMBER 31, 1998......... 988.86 $98,886 -- $ -- 36,523,679 $396,574 $(339,824)
====== ======= ====== ======= ========== ======== =========
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIBLE INCOME
----------------------------
UNREALIZED CUMULATIVE
GAIN (LOSS) TRANSLATION
ON INVESTMENTS ADJUSTMENT TOTAL
-------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, JANUARY 1, 1996........... $ 8,023 $ -- $ 11,939
Capital contributions from
parent....................... -- -- 44,862
Net loss....................... -- -- (12,476)
Unrealized loss on investments,
net of tax................... (5,122) -- (5,122)
-------- -------- ---------
BALANCE, DECEMBER 31, 1996......... 2,901 -- 39,203
Capital contributions from
parent....................... -- -- 315,585
Issuance of warrants in
connection with private
placement.................... -- -- 14,800
Net loss....................... -- -- (73,948)
Unrealized gain on investments,
net of tax................... 389 -- 389
-------- -------- ---------
BALANCE, DECEMBER 31, 1997......... 3,290 -- 296,029
Issuance of Series A
preferred stock to parent.... -- -- 98,886
Issuance of common stock upon
exercise of stock options and
accrued compensation for
compensatory options......... -- -- 1,146
Unrealized loss on investments,
net of tax................... (38,978) -- (38,978)
Cumulative translation
adjustment................... -- (24,050) (24,050)
Net loss....................... (237,135)
-------- -------- ---------
BALANCE, DECEMBER 31, 1998......... $(35,688) $(24,050) $ 95,898
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 84
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(237,135) $ (73,948) $(12,476)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 56,039 18,381 168
Interest accretion on long-term debt, net of
capitalization....................................... 100,069 53,681 --
Loss from equity method investments.................... 12,193 11,401 5,991
Deferred income tax benefit............................ (22,358) (14,292) --
Minority interest...................................... (17,131) (2,085) --
Change in current assets and liabilities:
Accounts receivable, net.......................... (29,932) 1,374 (540)
Subscriber equipment and accessory inventory...... (27,081) 586 (830)
Prepaid and other................................. (6,510) (13,167) (172)
Accounts payable, accrued expenses and other...... 53,535 8,052 7,052
Prepaid value-added taxes and other............... (59,686) (6,447) (2,176)
--------- --------- --------
Net cash used in operating activities.................. (177,997) (16,464) (2,983)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (371,223) (101,892) (8,818)
Purchase of marketable securities...................... (93,997) (227,957) --
Proceeds from sale of marketable securities............ 221,225 100,729 --
Purchase of licenses................................... -- -- (743)
Issuance of notes receivable........................... -- -- (5,703)
Acquisition of additional equity interests in
consolidated subsidiaries............................ (67,251) (35,131) --
Proceeds from sale of equity interest in subsidiary.... 5,976 -- --
Investments in unconsolidated subsidiaries............. (97,632) (120,976) (57,022)
Other.................................................. -- (3,926) --
--------- --------- --------
Net cash used in investing activities.................. (402,902) (389,153) (72,286)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net.............................. (8,254) (23,556) (1,866)
Capital contributions from parent...................... -- 6,366 44,862
Capital contributions from minority stockholders....... 12,401 1,387 --
Proceeds from issuance of Series A preferred stock..... 8,254 -- --
Proceeds from issuance of warrants..................... -- 14,800 --
Proceeds from exercise of stock options................ 237 -- --
Net proceeds from issuance of long-term debt........... 532,634 517,828 --
Repayment of long-term debt............................ (3,047) (4,447) --
--------- --------- --------
Net cash provided by financing activities.............. 542,225 512,378 42,996
--------- --------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (38,674) 106,761 (32,273)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 159,790 53,029 85,302
--------- --------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 121,116 $ 159,790 $ 53,029
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest................. $ 11,247 $ 1,993 $ --
========= ========= ========
Cash paid during the year for income taxes............. $ 1,773 $ -- $ --
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 85
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
1. SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BUSINESS ORGANIZATION: Nextel International, Inc.
(the "Company") is an indirect, substantially wholly owned subsidiary of Nextel
Communications, Inc. ("Nextel Communications"). The Company currently provides
wireless communications services in five of the largest cities in Latin America
and three of the largest cities in Asia, primarily utilizing specialized mobile
radio ("SMR") channels in its licensed service areas. The Company is the largest
SMR service provider in Brazil and Mexico, and holds the largest SMR channel
position in Argentina.
The Company's strategy is focused on using its leading analog dispatch or
SMR channel positions in its principal markets, together with Nextel
Communications' experience and supplier relationships, to upgrade its services
from analog dispatch to digital enhanced specialized mobile radio ("ESMR")
services. The Company's upgrade to digital networks will allow it to increase
capacity significantly and offer in a single digital subscriber unit, additional
services and advanced features such as direct connect (group calling and instant
conferencing), telephone interconnect and text messaging services. The Company
is upgrading its analog SMR networks to digital ESMR networks using the
integrated Digital Enhanced Network ("iDEN") technology developed by Motorola,
Inc. ("Motorola") and deployed by Nextel Communications in certain of its
markets. The Company also continues to assess opportunities to enter into new
markets, particularly in Latin America and Asia.
Based on the Company's current estimate of its funding requirements for
1999, the Company believes that it will have adequate funding to continue its
operations into the latter half of 1999. Such assessment is based on the
Company's assumed utilization of its available cash and cash equivalents and
borrowings expected to be available under the International Motorola Financing
Facility, the Brazil Motorola Financing and the Argentina Credit Facility to
meet its assumed cash needs during the period (See Notes 7 and 17). Future cash
needs include reasonably foreseeable capital expenditures, funding of operating
losses and any debt service obligations. The Company is reviewing various
financing options, including private debt or equity financing, that if obtained
would provide the Company with sufficient funds to meet its funding requirement
for the remainder of fiscal year 1999. If the Company is unable to obtain such
additional financing or obtain it on acceptable terms and in a timely manner,
the Company would be required to curtail its operations in 1999 significantly
and to reduce the scope of expansion and enhancement of its ESMR networks.
PRINCIPLES OF CONSOLIDATION: As of December 31, 1998, the Company directly
or indirectly owned 100% of Comunicaciones Nextel de Mexico S.A. de C.V.
("Nextel Mexico"); 100% of McCaw Argentina S.R.L. ("Nextel Argentina"), 62% of
Comunicaciones Nextel del Peru S.A. ("Nextel Peru"); 38% of Infocom
Communications Network, Inc. ("Nextel Philippines"), accounted for under the
equity method; 21% of J-COM Co., Ltd ("J-COM"), accounted for under the equity
method; approximately 15% of Clearnet Communications, Inc. ("Clearnet"),
accounted for as an investment available-for-sale and reflected at fair market
value; and a contractual right to receive 12.1% of the profits of the Shanghai
GSM System, accounted for as a cost method investment. Additionally, the Company
through an 81% equity interest in McCaw International (Brazil), Ltd. ("Nextel
Brazil") and Nextel Brazil's 95% equity interest in Nextel S.A., holds a 77%
equity interest in Nextel S.A. Accordingly, the Company's consolidated financial
statements include the accounts of Nextel Brazil commencing January 30, 1997,
Nextel Mexico commencing September 1, 1997, and Nextel Argentina and Nextel Peru
commencing February 1, 1998, which are the approximate dates when the Company
acquired a controlling interest in the companies. Prior to September 1, 1997,
Nextel Mexico was accounted for using the equity method. The Company's
consolidated financial statements also include the accounts of Nextel Argentina
prior to May 6, 1997, at which time it was contributed to Nextel International
(Argentina), Ltd., (the "Argentina Joint Venture") a joint venture in which the
Company owned a 50%
F-7
<PAGE> 86
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
interest. From May 6, 1997 until January 31, 1998, the Argentina Joint Venture
was accounted for using the equity method.
The accounts of the Company's consolidated foreign subsidiaries and foreign
subsidiaries accounted for under the equity method are presented utilizing
accounts as of a date one month earlier than the accounts of the Company and its
U.S. subsidiaries to ensure timely reporting of consolidated results.
The consolidated financial statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany transactions
and balances have been eliminated.
CONCENTRATIONS OF RISK: For the year ended December 31, 1998,
substantially all of the Company's revenues were generated from the Company's
subsidiaries located in Brazil, Argentina, Mexico and Peru. As of December 31,
1998, approximately $1,257.0 million of the Company's assets were located in
Brazil, Argentina, Mexico and Peru (See Note 15). Additionally, the Company's
assets include $134.7 million related to its investments in unconsolidated
subsidiaries located in Japan, China and the Philippines (See Note 3).
The Company is party to certain equipment purchase agreements with Motorola
(See Notes 10 and 14). For the foreseeable future the Company expects that it
will need to rely on Motorola to manufacture a substantial portion of the
equipment necessary to construct its digital ESMR networks.
Many of the markets in which the Company operates do not have established
credit bureaus, thereby making it more difficult for the Company to ascertain
the credit worthiness of potential customers. In addition, the Company sells a
substantial portion of its digital subscriber units on an installment basis.
Accordingly, the Company experiences a relatively high level of bad debt expense
in most of its markets. In particular, the Company's bad debt expense as a
percentage of revenue and customer turnover in Brazil and Argentina have been
significantly higher than that in the Company's other markets.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The Company is subject to the laws and regulations governing
telecommunication services in effect in each of the countries in which it
operates. These laws and regulations can have a significant influence on the
Company's results of operations and are subject to change by the responsible
governmental agencies. The financial statements as presented reflect certain
assumptions based on laws and regulations currently in effect in each of the
various countries. The Company cannot predict what future laws and regulations
might be passed that could have a material effect on the Company's results of
operations. The Company assesses the impact of significant changes in laws and
regulations on a regular basis and updates the assumptions used to prepare its
financial statements accordingly.
CASH AND EQUIVALENTS: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents. As of
December 31, 1998 and 1997, approximately $17.0 million and $69.0 million of
cash and cash equivalents, respectively, were restricted for future purchases
and investment in the equity of subsidiaries under certain of the Company's
financing agreements.
MARKETABLE SECURITIES: At December 31, 1997, marketable securities
consisted primarily of short-term investments in certificates of deposit and
commercial paper, were classified as "available for sale" and were recorded at
fair value based on quoted market prices.
F-8
<PAGE> 87
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
SUBSCRIBER EQUIPMENT AND ACCESSORY INVENTORY: Subscriber equipment and
accessory inventory is held for sale to customers and is stated at the lower of
cost or market. Cost is determined using the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided using the straight line method over estimated
useful lives as follows:
<TABLE>
<S> <C>
Equipment................................................... 3-10 years
Computer equipment and software............................. 3-5 years
Furniture and fixtures...................................... 3 years
Leasehold improvements...................................... Life of lease
</TABLE>
Construction in progress includes labor, material, transmission and related
equipment, engineering, site development, capitalized interest, and other costs
relating to the construction and development of wireless networks.
Expenditures that increase value or extend useful lives are capitalized,
while maintenance and repairs are charged to operations as incurred.
INTANGIBLE ASSETS: Intangible assets consist of SMR licenses, goodwill and
trademarks that are recorded at cost. SMR licenses in the countries in which the
Company operates are issued conditionally for various periods of time. The SMR
licenses are generally renewable providing the licensee has complied with
applicable rules and policies. In most instances, the Company believes it has
complied and intends to comply with these standards and is amortizing the
related costs using the straight line method over their estimated useful life of
20 years. In some cases, the Company currently is not in compliance with
applicable requirements and, where appropriate, has filed requests for
extensions with the appropriate government agency (See Note 10). The Company
expects that such extension requests will be granted and the risk of having
these or any other licenses revoked will not have a material adverse effect on
the Company's financial condition or results of operations. The Company begins
amortizing the cost of SMR licenses upon commencement of commercial operations
in each market. The excess of the purchase price paid over the fair value of net
assets acquired is recorded as goodwill and amortized using the straight-line
method over its estimated useful life of 20 years. Trademarks are amortized over
their respective useful lives.
INVESTMENTS: The Company's investment in Clearnet is included in
investments and other assets and classified as available-for-sale as of the
balance sheet date. Accordingly, it is reported at fair value, with unrealized
gains and losses, net of tax, recorded in stockholders' equity.
Investments where the Company has the ability to exercise significant
influence over operating and financial policies and possesses a voting interest
of 50% or less are accounted for using the equity method. The excess of the cost
of the Company's investments over the net assets acquired is being amortized
over 20 years. Amortization of this excess is $1.2 million, $3.1 million and
$3.7 million for the years ended December 31, 1998, 1997 and 1996, respectively,
and is reflected in the accompanying consolidated statements of operations in
loss from equity method investments.
LONG-LIVED ASSETS: Long-lived assets and identifiable intangibles to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
Impairment is measured by comparing the carrying value of the long-lived asset
to the estimated undiscounted future cash flows expected to result from use of
the assets and their eventual disposition.
REVENUE RECOGNITION: Service revenues are recorded when earned. Analog
equipment sales and maintenance revenues are recorded when the related goods and
services are delivered. Monthly access charges
F-9
<PAGE> 88
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
are billed in advance and recognized as revenue when the services are provided.
Rental fee revenue and monthly fixed access charges are recognized in the period
service was provided.
ESMR NETWORK EQUIPMENT SALES AND RELATED COSTS: For the year ended
December 31, 1998, the loss generated from the sale of subscriber units used in
the Company's digital 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:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------
<S> <C>
Equipment sales............................................. $ 25,415
Cost of equipment sales..................................... 37,127
--------
$(11,712)
========
</TABLE>
There were no sales of digital subscriber units for the years ended
December 31, 1997 and 1996.
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 December
31, 1998, accounts receivable and investment and other assets include $19.8
million and $7.4 million, respectively, related to such sales, which are
expected to be billed and collected over the next 24 months.
FOREIGN EXCHANGE: Results of the Company's international operations are
translated from the designated functional currency to the U.S. dollar using
average exchange rates during the period, while assets and liabilities are
translated from the designated functional currency to the U.S. dollar using
end-of-period rates. The resulting translation gains or losses, if any, are
accumulated in the cumulative translation adjustment account, a component of
stockholders' equity. Translation losses recorded during the period ended
December 31, 1998, totaled $24.1 million. No translation gains or losses were
recorded during the periods ended December 31, 1997 and 1996.
All gains or losses resulting from foreign currency transactions are
included in other income (expense) in the Company's consolidated statements of
operations. During the year ended December 31, 1998 and 1997, the Company
recognized $9.5 million and $6.0 million of foreign currency transaction gains,
respectively. There were no foreign currency transaction gains or losses for the
years ended December 31, 1996.
During 1997, Nextel Mexico and Nextel Brazil were considered to be
operating in highly inflationary economies, as defined in Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation. Accordingly, Nextel
Mexico and Nextel Brazil used the U.S. dollar as their functional currency.
Effective January 1, 1998, Nextel Brazil was no longer considered to be
operating in a highly inflationary economy and began using the Brazilian real as
its functional currency. Nextel Mexico continued to use the U.S. dollar as its
functional currency in 1998, but will begin to use the Mexican peso as its
functional currency commencing January 1, 1999. Additionally, due to the
business environment in which it operates, Nextel Peru also uses the U.S. dollar
as its functional currency.
INCOME TAXES: The Company accounts for U.S. federal income taxes under the
asset and liability method. Under this method, deferred income taxes are
recorded for the temporary differences between the financial reporting basis and
tax basis of the Company's assets and liabilities. These deferred taxes are
measured by the provisions of currently enacted tax laws. The Company is
included in the consolidated tax return of Nextel Communications; however, the
income tax accounts of Nextel International are stated as if
F-10
<PAGE> 89
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
the Company filed a separate return, which is consistent with the tax sharing
agreement between the Company and Nextel Communications.
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS: In
March 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which supersedes Accounting Principles Board Opinion No. 15. SFAS 128 requires
dual presentation of basic and diluted earnings per share by entities with
complex capital structures. Basic earnings per share includes no dilution and is
computed by dividing the loss attributable to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity. As presented, the Company's basic and
diluted net loss per share attributable to common stockholders is based on the
weighted average number of common shares outstanding during the period and does
not include other potential common shares (including shares issuable upon
exercise of options, warrants or conversion rights) since their effect would be
antidilutive due to the Company's losses.
COMPREHENSIVE INCOME: Effective December 31, 1998 the Company adopted FASB
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") that establishes standards for reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses on available-for-sale securities and foreign currency translation
adjustments to be included in other comprehensive income. Prior years' financial
statements have been reclassified to conform to the requirements of SFAS 130.
SUPPLEMENTAL CASH FLOW INFORMATION: In March 1998, a wholly owned
subsidiary of Nextel Communications transferred to the Company 6,777,778 Class D
Shares of Clearnet Communications Inc. ("Clearnet") with a fair value of $90.6
million at the date of transfer in exchange for 906.32 shares of the Company's
Series A Exchangeable Redeemable Preferred Stock, $10 par value per share (the
"Series A Preferred Stock") (See Note 12).
SEGMENT INFORMATION: Effective December 31, 1998, the Company adopted FASB
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131") which establishes
standards for the way that public business enterprises report information about
operating segments. SFAS 131 requires that financial information be reported on
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments (See Note 15).
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. The
Company is currently evaluating the potential impact of this standard on its
financial position and results of operations.
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." This statement will
be effective in 1999 and establishes accounting standards for costs incurred in
the acquisition or development and implementation of computer software. These
new standards will require the capitalization of certain software implementation
costs relating to software acquired or developed and implemented for the
Company's use. This statement is not expected to have a significant effect on
the Company's financial position and results of operations.
F-11
<PAGE> 90
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This statement will be effective in 1999 and
will require costs of start-up activities and organization costs to be expensed
as incurred. This statement is not expected to have a significant effect on the
Company's financial position and results of operations.
RECLASSIFICATIONS: Certain amounts in prior years have been reclassified
to conform with the current year presentation.
2. BUSINESS COMBINATIONS AND INVESTMENTS
NEXTEL SERVICES AND NI MEXICO: On January 1, 1997, Nextel International
(Services), Ltd. ("Nextel Services"), a wholly owned subsidiary of Nextel
Communications, was merged into the Company. Nextel Services includes all
amounts associated with the Company's expatriate employees. Subsequent to the
merger, all intercompany liabilities were converted to contributed capital.
On March 3, 1997, Nextel International (Mexico), Ltd, ("NI Mexico",
formerly Nextel International (CANMEX), Ltd.), a wholly owned subsidiary of
Nextel Communications, was merged into the Company. NI Mexico is primarily an
investment and asset holding company.
Immediately prior to the merger, all of NI Mexico's assets were transferred
to Nextel Communications with the exception of an investment in 38% of the
outstanding common stock of Nextel Mexico and related assets and 3.7% of the
outstanding common stock of Clearnet. The remaining intercompany liability was
converted to contributed capital subsequent to the merger.
As the mergers described above represent transfers of companies under
common control, they have been accounted for in a manner similar to pooling of
interests. The pooling-of-interests method of accounting is intended to present
as a single interest two or more common shareholders' interests which were
previously independent; accordingly, the historical financial statements for the
periods presented prior to the mergers are restated as though the companies had
been combined.
NEXTEL BRAZIL: On January 30, 1997, Nextel Communications purchased 81% of
the issued and outstanding capital stock of Nextel Brazil from Telcom Ventures,
Inc. and affiliates (collectively "Telcom Ventures") in exchange for $186.3
million in Nextel Communications Class A Common Stock ("Nextel Common Stock").
Nextel Communications' investment in Nextel Brazil was simultaneously
contributed to the Company. At the time of acquisition, Nextel Brazil and its
subsidiaries held or had options to acquire licenses to provide SMR services in
23 cities in Brazil including Sao Paulo, Rio de Janeiro, Belo Horizonte,
Curitiba, and Brasilia. Telcom Ventures has the right between October 31, 2001
and November 1, 2003, to require the Company to redeem their 19% interest in
Nextel Brazil at fair market value as determined pursuant to an appraisal
procedure. The Company is currently required to fund 100% of Nextel Brazil's
capital requirements until April 30, 1999 when Telcom Ventures must either: (i)
contribute its pro rata share plus accrued interest or (ii) dilute its ownership
interest.
MCS: On September 26, 1997, Nextel S.A. acquired 49% of the capital stock
of MCS Radio Telefonia, Ltda. ("MCS"), an indirect wholly owned subsidiary of
Motorola, in exchange for $1.9 million and 5% of the capital stock of Nextel
S.A., thereby diluting the Company's effective ownership interest in its
Brazilian operations to 77%. In September 1998, upon the approval from Brazilian
regulatory authorities, including Anatel, the remaining 51% of the capital stock
of MCS was purchased for an exercise price of $3.2 million.
NEXTEL ARGENTINA: On May 6, 1997, the Company contributed its 100%
ownership interest in Nextel Argentina into Nextel International (Argentina),
Ltd. (the "Argentina Joint Venture"), a joint venture between the Company and
Wireless Ventures of Argentina, L.L.C. ("WVA"). WVA's contribution included all
of the outstanding common stock of a paging company and two companies that own
SMR licenses in
F-12
<PAGE> 91
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
Argentina (collectively the "WVA Entities"). During 1997, Nextel Argentina and
the WVA Entities were merged, with Nextel Argentina being the surviving entity
(the merged entities are herein collectively referred to as "Nextel Argentina"
subsequent to the formation of the Argentina Joint Venture). As of December 31,
1997, the Company had a 50% voting interest and shared equally in the profits
and losses of the Argentina Joint Venture. Commencing on May 6, 1997, the
Company accounted for its investment in the Argentina Joint Venture under the
equity method of accounting.
On January 30, 1998, the Company acquired the remaining 50% interest in the
Argentina Joint Venture from WVA for a purchase price of $46.0 million in cash.
As a result of the purchase, the Company increased its effective ownership
interest in Nextel Argentina from 50% to 100%, and began consolidating the
accounts of Nextel Argentina commencing February 1, 1998 under the purchase
method of accounting. The carrying value of the Company's investment in Nextel
Argentina as of January 30, 1998 was approximately $63.0 million and was
allocated to the net assets acquired based on their estimated fair values,
including licenses and goodwill, which are amortized over their estimated useful
lives of 20 years.
NEXTEL MEXICO: During the year ended December 31, 1997, through a series
of transactions, the Company increased its equity interest in Nextel Mexico from
30.1% to 100% for consideration equal to approximately $132.2 million. As a
result of such transactions, the Company began consolidating Nextel Mexico
beginning September 1, 1997.
NEXTEL PERU: On January 29, 1998, the Company acquired a 70.1% interest in
Comunicaciones Nextel del Peru S.A. ("Nextel Peru"), a Peruvian wireless
telecommunications company, for $27.9 million, of which $7.0 million was paid at
the acquisition date. The remaining balance of $20.9 million was paid in the
form of capital contributions over approximately six months. Nextel Peru, holds
through its subsidiaries, licenses to operate 138 SMR channels in the greater
Lima area. Motorola International Development Corporation ("Motorola
International"), an indirect wholly owned subsidiary of Motorola, through an
indirect subsidiary, held a 19.9% interest in Nextel Peru. The Company's
investment in Nextel Peru was accounted for as a purchase. Nextel Peru's
historical operations are insignificant relative to the results of the Company.
In August 1998, the Company gave notice to Motorola International of the
Company's exercise of its option to sell approximately 10% of the Company's
shares of Nextel Peru to Motorola International for approximately $6.0 million
(the "Nextel Peru Put Transaction"). The Nextel Peru Put Transaction was
completed on October 30, 1998. Additionally, as a result of the decision of the
other minority shareholder of Nextel Peru not to contribute his pro rata share
of capital contributions to Nextel Peru during 1998, such shareholder's equity
interest in Nextel Peru has been diluted and the Company's and Motorola
International's equity interest in Nextel Peru have increased. As of December
31, 1998, subsequent to the closing of the Nextel Peru Put Transaction, and
giving effect to the dilution of the equity interest of the other minority
shareholder during 1998, the Company and Motorola International held
approximately 62.1% and 30.9%, respectively, of the outstanding shares of Nextel
Peru. No significant gain on sale of Nextel Peru shares was recorded.
NEXTEL PHILIPPINES: On June 14, 1996, the Company acquired a 30% interest
in Nextel Philippines, for $16.0 million in cash. Nextel Philippines provides
paging services to subscribers in the Philippines through a nationwide license
granted by the Philippine government. In addition, Nextel Philippines has a
nationwide license to provide digital ESMR services. The Company's investment in
Nextel Philippines is accounted for using the equity method. The excess purchase
price over the net assets acquired totaled $16.2 million and is being amortized
over 20 years.
In April 1998, the Company reached an agreement (the "Philippines Partner
Agreements") with the three groups of local shareholders of Infocom
Communications Network, Inc. ("Nextel Philippines"), including the Gotesco Group
(the "Gotesco Group" and together with the other local shareholders, the
F-13
<PAGE> 92
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
"Philippines Shareholders"). Pursuant to the Philippines Partner Agreements,
among other things, the Gotestco Group obtained the right to put its 20%
interest to the Company for approximately $9.4 million, beginning in January
1999 (the "Gotesco Put") and the Company had the right to call the Gotesco
Group's 20% interest in Nextel Philippines for approximately $11.6 million, if
the Gotesco Group did not exercise the Gotesco Put. On June 26, 1998, the
Company and the Gotesco Group entered into an Agreement to Accelerate Put Rights
(the "Gotesco Put Acceleration Agreement") pursuant to which the exercise date
of the Gotesco Put was accelerated from January 1999 to August 21, 1998.
Pursuant to the Gotesco Put Acceleration Agreement, the Company agreed to pay
the Gotesco Group $9.0 million for the shares covered by the Gotesco Put in
three installments: (i) $0.5 million upon the delivery of irrevocable proxies
covering the voting rights on the shares of Nextel Philippines owned by the
Gotesco Group; (ii) $0.5 million to the Gotesco Group upon the conclusion of the
Nextel Philippines annual shareholder meeting, provided that the Gotesco Group's
shares of Nextel Philippines were voted in favor of the corporate governance
provisions of the Philippines Partner Agreements at such annual meeting; and
(iii) $8.0 million upon the transfer of the shares covered by the Gotesco Put to
a qualified third-party purchaser in accordance with Philippines law. The first
two installments were paid on June 26, 1998 and July 13, 1998, respectively. On
August 21, 1998, Gamboa Holdings, Inc. ("Gamboa Holdings"), which is 60% owned
by ACCRA Investments Corporation, a corporation organized under the laws of the
Philippines and owned by Philippine nationals ("ACCRAIN"), and 40% owned by an
indirect subsidiary of the Company, delivered the final installment of $8.0
million to the Gotesco Group and the Gotesco Group delivered the shares covered
by the Gotesco Put to Gamboa Holdings.
Funds used by Gamboa Holdings to consummate the acquisition of the Gotesco
Group's shares of Nextel Philippines were derived from (a) equity contributions
by shareholders of Gamboa Holdings and (b) proceeds of loans made by a lending
institution to Gamboa Holdings and to ACCRAIN. The loans to Gamboa Holdings and
to ACCRAIN are secured by cash collateral deposits of the Company in the amount
of the loans and a pledge of Gamboa Holdings's shares of Nextel Philippines. As
a result of Gamboa Holdings's acquisition of the Gotesco Group's shares of
Nextel Philippines, the Company's aggregate equity interest in Nextel
Philippines, which includes its direct and indirect holdings, increased from 30%
to 38%.
ACCRAIN is a Philippine holding company with investments in a number of
Philippines companies. Pursuant to an agreement, dated as of August 21, 1998
between an indirect wholly owned subsidiary of the Company and ACCRAIN (the
"ACCRAIN Agreement"), ACCRAIN granted the Company a call right on ACCRAIN's
shares in Gamboa Holdings, exercisable at any time provided that the actual
purchaser of the shares is the Company or a qualified purchaser in accordance
with applicable Philippines foreign corporate ownership rules. Upon expiration
of the ACCRAIN Agreement, ACCRAIN may put to the Company or its qualified
designee ACCRAIN's shares in Gamboa Holdings to the Company or its qualified
designee for approximately $8.0 million. The ACCRAIN Agreement expires in August
1999 unless extended.
JAPAN: On March 17, 1998, the Company purchased a 21% equity interest in
J-Com, an ESMR provider in Japan, for a purchase price of Y77.2 million in
equity and a shareholder loan of Y4.1 billion (approximately $0.6 million and
$31.5 million, respectively, based on the exchange rate on the date of purchase)
to J-Com. J-Com has a contractual right to provide ESMR service in Japan under a
sublicense covering more than 125 million people. DJSMR Business Partnership, a
Japanese partnership in which an affiliate of Motorola is the majority partner,
holds a 49% equity interest in J-Com. J-Com's historical operations are
insignificant relative to the results of the Company. The equity and shareholder
loan are accounted for using the equity method.
CLEARNET: At December 31, 1997, the Company owned 1,596,067 Class A and
Class D shares of Clearnet stock, representing approximately 3.7% of Clearnet.
On March 12, 1998, Nextel Communications agreed to transfer securities
representing 6,777,778 Class D shares of Clearnet stock (which are convertible,
at
F-14
<PAGE> 93
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS AND INVESTMENTS -- (CONTINUED)
the option of the holder, for Class A shares of Clearnet stock) to the Company
in exchange for 906.32 Series A Redeemable Exchangeable Preferred Stock of the
Company (See Note 12). As a result of the transaction, the Company held
8,373,845 shares of Clearnet representing approximately 15% of the outstanding
common stock at December 31, 1998.
The Company's investment in Clearnet is accounted for at fair market value.
The market value of Clearnet common stock at December 31, 1998 and 1997 was
$8 1/8 and $11 3/8 per share, respectively.
Clearnet provides analog SMR and ESMR services in Canada and holds a
nationwide license to provide PCS services in Canada.
SHANGHAI CCT MCCAW: As of December 31, 1998, the Company maintained a 30%
ownership interest in Shanghai CCT -- McCaw Telecommunications Systems Co., Ltd.
("Shanghai CCT McCaw"), a Chinese equity joint venture. Shanghai CCT McCaw
currently participates in a Global System for Mobile communications network in
Shanghai, China (the "Shanghai GSM System") through a profit sharing arrangement
(the "Unicom Agreement") with China United Communications, Ltd., the owner of
the Shanghai GSM system. Foreign entities or individuals are not permitted to
directly own or operate telecommunications systems in China under current law.
The Company does not have the right to influence the operations of the Shanghai
GSM System and therefore accounts for its investment in Shanghai CCT McCaw under
the cost method.
Under the Unicom Agreement as amended, Shanghai CCT McCaw has the right to
receive 40.2% of the profits, as defined, of the Shanghai GSM System. The
Company, through its 30% interest in Shanghai CCT McCaw and Shanghai CCT McCaw's
right to receive 40.2% of the profits of the Shanghai GSM System, has the right
to receive approximately 12.1% of the profits of the Shanghai GSM System. Cash
payments are made to the Company from Shanghai CCT McCaw in the form of
distributions, which are made at the discretion of Shanghai CCT McCaw's board of
directors. Through December 31, 1998, the Company has received distributions
totaling $1.6 million, of which $1.2 million was remitted to Shanghai CCT McCaw
in the form of a loan (See Note 10).
PRO FORMA INFORMATION: The following summarized pro forma (unaudited)
information is for the year ended December 31, 1997 and assumes the Nextel
Argentina, Nextel Mexico, Nextel Brazil and MCS transactions had occurred on
January 1, 1997.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Revenues.................................................... $ 26,312
==========
Net loss.................................................... $ (89,717)
==========
Net loss per share, basic and diluted....................... $ (2.46)
==========
Weighted average shares outstanding......................... 36,500,000
==========
</TABLE>
The above amounts consolidate the historical results of Nextel Argentina,
the WVA Entities, Nextel Mexico, Nextel Brazil and MCS prior to the acquisitions
and reflect adjustments for the recognition of the minority ownership interests
and the amortization of licenses and goodwill. The pro forma information is not
necessarily indicative of the results that would actually have occurred had the
transactions been consummated on the date indicated, nor are they necessarily
indicative of future operating results of the Company.
3. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Balances at December 31, 1998 consist of the Company's 38% interest in
Nextel Philippines and its results of operations for the year ended December 31,
1998, the Company's 21% interest in J-Com and its
F-15
<PAGE> 94
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES -- (CONTINUED)
results of operations from March 17, 1998 (date of acquisition) through December
31, 1998, and the Company's investment in Shanghai CCT McCaw, accounted for
using the cost method. At December 31, 1997, investments in unconsolidated
subsidiaries consisted of the Company's 30% interest in Nextel Philippines and
its results of operations for the year ended December 31, 1997, the Company's
50% interest in the Argentina Joint Venture and its results of operations from
May 6, 1997 (date of inception) to December 31, 1997, and the Company's
investment in Shanghai CCT McCaw, accounted for using the cost method.
Summarized financial information for the Company's investments in
unconsolidated subsidiaries accounted for using the equity method as of and for
the years ended December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Assets...................................................... $229,725 $133,315
Liabilities................................................. 289,427 111,997
Operating loss.............................................. 26,257 12,167
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land........................................................ $ 1,650 $ 85
Leasehold improvements...................................... 13,599 1,442
Equipment................................................... 243,519 59,836
Furniture and fixtures...................................... 27,921 990
Construction in progress.................................... 269,655 75,849
-------- --------
556,344 138,202
Less accumulated depreciation and amortization.............. (25,773) (1,992)
-------- --------
$530,571 $136,210
======== ========
</TABLE>
For the years ended December 31, 1998 and 1997, the Company capitalized
$23.8 million and $2.5 million of interest related to expenditures for
construction of significant additions to property, plant and equipment. No
interest expense was capitalized during the year ended December 31, 1996.
5. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Licenses.................................................... $479,727 $429,258
Goodwill.................................................... 113,546 109,894
Trademarks and other........................................ 1,629 1,512
-------- --------
594,902 540,664
Less accumulated amortization............................... (42,483) (14,664)
-------- --------
$552,419 $526,000
======== ========
</TABLE>
6. DUE TO PARENT
At December 31, 1997, due to parent represents amounts owed to Nextel
Communications as consideration for certain assets transferred to the Company as
well as amounts due under the terms of the tax sharing agreement between the
Company and Nextel Communications. These liabilities were paid in full during
1998 and no significant amounts remain payable to Nextel at December 31, 1998.
F-16
<PAGE> 95
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
13% Senior discount notes due 2007, net of unamortized
discount of $337,065 and $411,571, respectively........... $ 614,398 $ 539,892
12 1/8% Senior discount notes due 2008, net of unamortized
discount of $289,349 and $0, respectively................. 440,651 --
Nextel Brazil equipment financing (10.25% to 11% -- 1998;
11% -- 1997).............................................. 102,196 50,250
Nextel Argentina credit facility (8.75% to 9.50% -- 1998)... 83,500 --
Nextel Mexico equipment financing (10.4% to 16.5% -- 1998
and 1997)................................................. 7,623 9,878
Philippines Motorola bridge financing (10.25% -- 1998)...... 8,575 --
---------- ---------
1,256,943 600,020
Less current portion........................................ (2,061) (2,211)
---------- ---------
$1,254,882 $ 597,809
========== =========
</TABLE>
13% SENIOR DISCOUNT NOTES: In March 1997, the Company issued through a
private placement 951,463 units generating approximately $482.0 million in net
proceeds. Each unit is comprised of a 13% senior discount note due 2007 (the
"1997 Notes") with a principal amount due at maturity of $1,000 and one warrant
to purchase .38748 shares of Company's common stock (See Note 11). The 1997
Notes have a 13% yield to maturity, are noncallable until April 15, 2002, and
require no interest payments for the first five years. Interest on the Notes is
payable in cash semi annually, commencing October 15, 2002. The Company is
restricted from paying dividends under the terms of the 1997 Notes, and the 1997
Notes contain covenants restricting the incurrence of additional indebtedness
and certain transactions.
12 1/8% SENIOR DISCOUNT NOTES: In March 1998, the Company issued through a
private placement $730,000 principal amount at maturity of 12 1/8% senior
discount notes due 2008 (the "1998 Notes") generating approximately $387.0
million in net proceeds. The 1998 Notes are noncallable until April 15, 2003,
and require no interest payments for the first five years. Interest on the 1998
Notes is payable in cash semi annually, commencing October 15, 2003. The Company
is restricted from paying dividends under the terms of the 1998 Notes, and the
1998 Notes contain covenants restricting the incurrence of additional
indebtedness and certain transactions.
NEXTEL BRAZIL EQUIPMENT FINANCING: In October, 1997, Nextel Brazil and
Motorola Credit Corp. a subsidiary of Motorola ("Motorola Credit"), entered into
an equipment financing agreement whereby Motorola Credit agreed to provide up to
$125.0 million in revolving loans (the "Brazil Motorola Financing") to Nextel
Brazil to be used to acquire infrastructure equipment and related services from
Motorola. The Brazil Motorola Financing is repayable in semi-annual installments
over 42 months commencing June 30, 2000 and bears interest at an annual rate
periodically determined by the Company of either LIBOR plus 4.63% or the prime
rate plus 2.50%. Pursuant to the Brazil Motorola Financing, the revolving loans
are secured by a first priority lien on substantially all of Nextel Brazil's
assets, a pledge of all of the stock of Nextel Brazil and its subsidiaries,
including Nextel S.A., and guarantees by the Company and Motorola International
Development Corporation (which indirectly holds a 5% equity interest in Nextel
S.A.) of 93.9% and 6.1%, respectively, of Nextel Brazil's obligations under such
financing. Additionally, approximately $17.0 million of the Company's cash and
cash equivalents is restricted at December 31, 1998 for use as future equity
investments in Nextel Brazil and its subsidiaries. The Brazil Motorola Financing
prohibits the payment of dividends by Nextel S.A. until the existing loan
balance is paid in full and contains covenants restricting certain transactions
and requiring the maintenance of certain financial ratios. In the event of
non-compliance with certain financial covenants, Nextel Brazil may cure any such
non-compliance by receiving additional equity contributions.
F-17
<PAGE> 96
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
ARGENTINA CREDIT FACILITY: On February 27, 1998, Nextel Argentina entered
into an $83.0 million senior secured credit facility (the "Argentina Credit
Facility") with The Chase Manhattan Bank as administrative agent
("Administrative Agent"), which facility, as amended, was increased to $100.0
million. Borrowings under the Argentina Credit Facility are subject to the
satisfaction or waiver of certain conditions. Loans under the Argentina Credit
Facility bear interest at a rate equal to, at the Company's option, of either
(i) the ABR plus 2.75% (ABR is the highest of the prime rate, the base CD rate
plus 1% or the federal funds rate plus 0.5%) or (ii) the Eurodollar rate plus
3.75% (the Eurodollar rate is LIBOR multiplied by the statutory reserve rate).
Loans under the Argentina Credit Facility will be repaid in quarterly
installments beginning September 30, 2000 through March 31, 2003. The first nine
installments will be equal to 1/18 of the then-outstanding balance and the final
installment will be in an amount equal to the then-outstanding balance. The
Argentina Credit Facility is secured by a pledge of stock of Nextel Argentina,
has a first priority lien on the assets of Nextel Argentina, and requires Nextel
Argentina to meet certain financial and operating ratios.
In connection with the Argentina Credit Facility, Nextel International has
entered into a Capital Subscription Agreement whereby it agreed to make
aggregate equity contributions in cash or equipment to Nextel Argentina as
follows: $115.5 million on or before June 30, 1998, $133.0 million on or before
December 31, 1998, $140.5 million on or before June 30, 1999 and $148.0 million
on or before December 31, 1999. As of December 31, 1998, the Company has made
contributions totaling $155.6 million to Nextel Argentina.
In March 1999, Nextel Argentina notified the Administrative Agent 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 and is currently in negotiation with such lenders regarding an
amendment to the Argentina Credit Facility to modify the covenants in question
for future quarters. Failure to agree to an amendment of the Argentina Credit
Facility as proposed could subject the entire amount outstanding under the
Argentina Credit Facility to acceleration by the lenders and any such
acceleration would have a material adverse effect on the Company.
PHILIPPINES MOTOROLA BRIDGE FINANCING: On August 27, 1998, Nextel
International and Motorola Credit Corporation ("Motorola Credit") entered into a
financing agreement (the "Motorola Bridge Financing Agreement"), pursuant to
which Motorola Credit agreed to provide up to $12.0 million in term loans to the
Company to (i) finance the cost of iDEN equipment and related services
(including ancillary products and services) purchased from Motorola by Nextel
Philippines and (ii) to reimburse the Company for payments made by the Company
to Motorola for the purchase of iDEN equipment and related services for the
benefit of Nextel Philippines (the "Philippines Motorola Bridge Financing").
Loans under the Philippines Motorola Bridge Financing are unsecured, bear
interest at rates based upon the U.S. prime rate plus 2.5%. These loans were
repayable, together with accrued and unpaid interest, in one installment on
December 31, 1998. At December 31, 1998, the outstanding balance on the
financing agreement was $8.6 million. In conjunction with the International
Motorola Financing (See Note 17), the repayment of these loans was extended
until February 1999, at which time, they were repaid with proceeds from the
International Motorola Financing. Accordingly, the loans have been classified as
long term liabilities.
NEXTEL MEXICO EQUIPMENT FINANCING: At December 31, 1998, Nextel Mexico was
a party to several secured financing agreements, with various payment terms and
maturities through 2007. The term loans were secured by a first priority lien on
substantially all of Nextel Mexico's assets and were payable in U.S. dollars. In
February 1999, in conjunction with the International Motorola Financing (See
Note 17), the principal and unpaid interest under these financing agreements was
paid in full.
F-18
<PAGE> 97
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
For the years subsequent to December 31, 1998, annual maturities of
long-term obligations are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 2,061
2000........................................................ 30,562
2001........................................................ 39,801
2002........................................................ 50,021
2003........................................................ 75,071
Thereafter.................................................. 1,685,841
----------
1,883,357
Less unamortized discount................................... (626,414)
----------
$1,256,943
==========
</TABLE>
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts have been determined by the Company, using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1998 and 1997 are as follows:
CASH AND CASH EQUIVALENTS, MARKETABLE SECURITIES, ACCOUNTS RECEIVABLES,
SUBSCRIBER EQUIPMENT AND ACCESSORY INVENTORY, ACCOUNTS PAYABLE AND ACCRUED
EXPENSES: The carrying amounts of these items are a reasonable estimate of
their fair value.
SHANGHAI CCT MCCAW: Included in investments in unconsolidated subsidiaries
is the Company's investment in Shanghai CCT McCaw of approximately $15.7 million
and $19.0 million as of December 31, 1998 and 1997, respectively, accounted for
under the cost method. As there is no active market for this investment, it is
impracticable to estimate its fair value.
INVESTMENTS AND OTHER ASSETS: Included in investments and other assets is
the Company's investment in Clearnet, which approximates its fair value of $68.0
million and $18.2 million based on the quoted stock price of $8 1/8 and $11 3/8
per share as of December 31, 1998 and 1997, respectively.
LONG-TERM DEBT: The fair value of the Company's long-term debt is based on
quoted market prices for the senior discount notes and current borrowing rates
for the vendor and bank equipment financing (See Note 7). At December 31, 1998,
the carrying value of long-term debt exceeded the fair market value by
approximately $169.0 million. At December 31, 1997, the fair market value of
long-term debt exceeded the carrying value by approximately $12.0 million.
INVESTMENT PURCHASE AND SALES OPTIONS: The Company maintains or has
granted certain stock purchase or sale rights and obligations in connection with
its investments in Nextel Brazil and Nextel Philippines (See Note 2). The
Company believes that a reasonable estimate of the fair value of these
instruments is not practicable to determine as of December 31, 1998, as there is
no active market for such instruments.
F-19
<PAGE> 98
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES
The components of income tax benefit (provision) for each of the three
years ended December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ -- $(1,745) $(1,355)
Deferred:
Foreign............................................... 22,358 8,027 --
-------- ------- -------
Total income tax benefit (provision).................... $ 22,358 $ 6,282 $(1,355)
======== ======= =======
</TABLE>
The reconciliation of income taxes computed at the statutory rate to the
income tax benefit for each of the three years ended December 31 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Income tax benefit at statutory rate................... $ 88,180 $ 27,095 $ 3,781
Nonconsolidated subsidiary adjustments................. (4,268) (2,559) (2,209)
High yield discount obligations........................ (2,912) (1,621) --
Other.................................................. 7,565 151 (330)
Increase in valuation allowance........................ (66,207) (16,784) (2,597)
-------- -------- -------
Tax benefit (provision)................................ $ 22,358 $ 6,282 $(1,355)
======== ======== =======
</TABLE>
Deferred taxes as of December 31 consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Operating loss carryforwards................................ $ 65,332 $ 29,088
Deferred interest........................................... 54,104 17,019
Unrealized loss on investment............................... 12,491 --
Other....................................................... 11,220 1,714
--------- --------
143,147 47,821
Valuation allowance......................................... (119,352) (40,654)
--------- --------
23,795 7,167
--------- --------
Deferred tax liabilities:
Intangibles................................................. 113,989 126,172
Unrealized gain on investment............................... -- 1,772
--------- --------
113,989 127,944
--------- --------
Net deferred tax liability.................................. $ 90,194 $120,777
========= ========
</TABLE>
As of December 31, 1998, the Company had approximately $4.0 million of net
operating loss carryforwards for federal income tax purposes that expire in
2018.
As of December 31, 1998, the Company's foreign subsidiaries had
approximately $50.7 million, $61.7 million and $5.5 million of net operating
loss carryforwards for Mexican, Argentine and Peruvian income tax purposes
respectively. These carryforwards expire in various amounts through the year
2008. Additionally, the Company's foreign subsidiaries had approximately $74.3
million of net operating loss carryforwards for Brazilian income tax purposes
that have no expiration date and that can only be utilized up to the limit of
30% of taxable income for the year. The Company's foreign subsidiaries may be
limited in their ability to use foreign tax net operating losses in any single
year depending on their ability to generate sufficient taxable income.
F-20
<PAGE> 99
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE COMMITMENTS: The Company leases various cell sites and
office facilities under operating leases with terms of one to five years which,
in the case of cell sites, are generally renewable at the Company's option, for
additional terms. Total rent expense under operating leases for the years ended
December 31, 1998, 1997 and 1996 totaled $11.8 million, $3.3 million and $0.2
million, respectively.
Future minimum lease payments for years ending after December 31, 1998
under operating leases that have initial noncancelable lease terms exceeding one
year are as follows:
<TABLE>
<S> <C>
1999........................................................ $10,886
2000........................................................ 9,896
2001........................................................ 8,954
2002........................................................ 6,960
2003........................................................ 3,319
Thereafter.................................................. 1,973
-------
$41,988
=======
</TABLE>
FINANCING COMMITMENTS: Since March 1996, the Company has advanced Shanghai
CCT McCaw $12.5 million, of a total maximum commitment of $13.2 million, to fund
the buildout of the Shanghai GSM System. The amount outstanding under such
agreements, as of December 31, 1998, totals $9.2 million and bears interest at
7% per annum that is payable in quarterly installments. Payments of principal
are due in four annual installments. The note is recorded as an addition to the
Company's investment in Shanghai CCT McCaw.
FINANCING GUARANTEES: In June 1997, Nextel Philippines, an unconsolidated
entity of the Company, and Motorola entered into an equipment financing
agreement (the "Philippines Motorola Financing"), pursuant to which Motorola
agreed to provide up to $14.7 million in term loans, denominated in U.S.
dollars, to Nextel Philippines to finance the acquisition of infrastructure
equipment and related services from Motorola. The terms of the Philippines
Motorola Financing provides for a maturity of two years and an annual interest
rate of LIBOR plus 5.06%. Pursuant to the Philippines Motorola Financing, the
term loans are secured by a first priority lien on substantially all of Nextel
Philippines' assets and guarantee of such financing by the Company. As of
December 31, 1998, Nextel Philippines has borrowed the maximum amount available
under the Philippines Motorola Financing.
NEXTEL BRAZIL LICENSES: Nextel Brazil is required to meet certain
installation and minimum loading requirements related to its SMR channels.
Failure to comply with such requirements may subject the licenses relating to
such channels to revocation by the Brazil Ministry of Communications. As of
December 31, 1998, Nextel Brazil is not in compliance with applicable
installation deadlines and minimum loading requirements with respect to licenses
covering 1,885 channels, all of which are outside of Sao Paulo and Rio de
Janiero. The Company is currently conducting analog SMR system installation with
regard to a significant portion of such channels and has submitted an
installation and loading plan and requests for extensions of the applicable
deadlines (except for channels where the Brazilian operating companies failed to
comply with applicable installation requirements due to television frequency
interference, for which extensions were granted automatically by statute) to
Anatel for its review. The Company does not believe that any potential actions
on the part of Anatel will have a material adverse effect on the Company's
financial position and results of operations.
NEXTEL PHILIPPINES ARBITRATION: On October 30, 1998, pursuant to the
dispute resolution provisions of the Philippines Partner Agreements, the Company
commenced arbitration proceedings in Hong Kong against
F-21
<PAGE> 100
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
Jetcom and Foodcamp, two of the local shareholders of Nextel Philippines, in
which the Company asserts that such shareholders have failed to perform their
respective obligations under the Philippines Partner Agreements. The Company
seeks equitable and legal relief, including, but not limited to, compensatory
damages and injunctive relief.
NEXTEL PHILIPPINES SEC PROCEEDINGS. Immediately prior to the Nextel
Philippines annual shareholders meeting on July 13, 1998, The Republic of
Philippines Securities and Exchange Commission ("ROP SEC") issued a temporary
restraining order ("TRO") in favor of the Philippines Shareholders. The
Petitioners requested the nullification of the amendments of the bylaws of
Nextel Philippines contemplated by the corporate governance provisions of the
Philippines Partner Agreements and the TRO enjoined Nextel Philippines from
implementing certain bylaw amendments for a 72-hour period. The Petitioners
further requested that a preliminary injunction be issued with the same effect
pending a trial on the merits with respect to the validity of certain bylaw
amendments. On July 15, 1998, pursuant to the agreement of Nextel Philippines
and the Petitioners and confirmed by the ROP SEC, (a) the TRO was permitted to
expire and (b) pending a trial on the merits as to the validity of certain bylaw
amendments (i) the Petitioners agreed to withdraw their petition for a
preliminary injunction and (ii) Nextel Philippines agreed that the provisions of
certain bylaw amendments granting the Company certain veto rights would not be
implemented. The Company believes the Nextel Philippine bylaw amendments are
valid and the Philippine Shareholders claims are without merit, and intends to
vigorously defend against these claims.
NEXTEL PHILIPPINES NTC PROCEEDINGS. In June and July of 1998, a number of
the Philippine cellular mobile telephone companies filed proceedings (which have
since been consolidated into one proceeding) with the National
Telecommunications Commission (the "NTC") asserting that (a) an extension of its
Provisional Authority ("PA") to operate its wireless communications network
using its licensed frequencies in the Philippines, to January 20, 1999 (the
"Extension Order") improperly expanded Nextel Philippines' authority to provide
cellular mobile telephone services ("CMTS") and (b) if Nextel Philippines was
indeed authorized to operate CMTS, then Nextel Philippines should be required to
meet the other obligations applicable to CMTS operators, including certain
obligations to build out local exchange lines. Nextel Philippines has responded
by asserting that (a) its PA does not authorize Nextel Philippines to provide
CMTS services, (b) by operating trunk radio services using the iDEN(R)
technology it is not providing CMTS services and (c) the Extension Order does
not expand its PA by authorizing it to provide CMTS services. Although the
Company cannot predict the outcome of this proceeding, the Company believes that
the claims against Nextel Philippines are without merit and Nextel Philippines
intends to vigorously defend against them.
11. COMMON STOCK WARRANTS
In March 1997, the Company issued through a private placement, 951,463
units each consisting of one 10-year senior discount note (See Note 7), and one
warrant to purchase .38748 shares of the Company's common stock (the "Warrant").
The Warrants are exercisable at a price of $9.99 per share any time after March
6, 1998 and prior to March 6, 2007 and entitle the holders to purchase, in the
aggregate, approximately 368,673 shares of the Company's common stock that
approximates 1% of the current outstanding shares on a fully diluted basis as of
December 31, 1998.
12. ISSUANCE OF PREFERRED STOCK
On March 12, 1998, a wholly owned subsidiary of Nextel Communications
transferred to the Company 6,777,778 Class D Shares of Clearnet in exchange for
906.32 shares of the Company's Series A Preferred Stock. Additionally, the
Company issued 82.54 shares of Series A Preferred Stock to a wholly owned
subsidiary of Nextel Communications for consideration of $8.3 million.
F-22
<PAGE> 101
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. ISSUANCE OF PREFERRED STOCK -- (CONTINUED)
The Series A Preferred Stock was issued at an original liquidation
preference of $100,000 per share and thereafter the liquidation preference on
the Series A Preferred Stock accretes at an annual rate equal to 13.625%. At
December 31, 1998, the accreted liquidation preference on the Series A Preferred
Stock totaled approximately $110.5 million. Except as required by law, the
holders of the Series A Preferred Stock are not entitled to receive dividends or
other distributions. The Company has the right at any time to redeem the Series
A Preferred Stock in full (or with the consent of the holder of the affected
shares of Series A Preferred Stock, in part) at a redemption price equal to 100%
of the accreted liquidation preference thereof on the redemption date and under
certain circumstances, the holders of the Series A Preferred Stock have the
right to exchange the Series A Preferred Stock for shares of the Company's
Series B Redeemable Preferred Stock, par value $10.00 per share (the "Series B
Preferred Stock"), having a liquidation preference equal to the accreted
liquidation preference of the Series A Preferred Stock so exchanged.
The Series B Preferred Stock to be issued in exchange for shares of Series
A Preferred Stock will have an initial annual dividend rate equal to 13.625%,
increasing to 18.00% as of March 13, 2010. The Series B Preferred Stock will
have terms substantially similar to those of the Series A Preferred Stock,
except for the right to elect one director to the Company's Board of Directors
and the accrual of cumulative dividends payable quarterly in cash. In addition,
the Company may not issue shares of Series B Preferred Stock, except in exchange
for shares of Series A Preferred Stock, without the consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock, voting together as a class.
13. EMPLOYEE BENEFIT PLANS
Nextel Communications Incentive Equity Plan:
Certain of the Company's employees participate in Nextel Communications'
Incentive Equity Plan (the "Nextel Plan"). Generally, options outstanding under
the Nextel Plan (i) are granted at prices equal to or exceeding the market value
of Nextel Communications' stock on the grant date; (ii) vest ratably over either
a four or five year service period; and (iii) expire ten years subsequent to
award.
A summary of the Nextel Plan activity related to the Company's employees is
as follows:
<TABLE>
<CAPTION>
OPTION WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Outstanding, December 31, 1996............... 136,100 $15.12 - $18.37 $15.44
Granted.................................... 175,550 15.12 - 23.81 15.52
------- ------ ------ ------
Outstanding, December 31, 1997............... 311,650 15.12 - 23.81 15.11
Granted.................................... 385,010 22.69 - 31.00 26.38
Acquired/(Disposed), net................... (54,898) 15.12 - 26.56 21.50
Exercised.................................. (20,663) 15.12 - 16.13 15.17
Canceled................................... (89,418) 15.12 - 26.56 19.71
------- ------ ------ ------
Outstanding, December 31, 1998............... 531,681 $15.12 - $31.00 $22.02
======= ====== ====== ======
Exercisable, December 31, 1998............... 111,077 $15.12 - $19.19 $15.54
======= ====== ====== ======
</TABLE>
Nextel International Employee Stock Option Plan:
On June 23, 1997, the board of directors adopted the 1997 Nextel
International Employee Stock Option Plan (the "Company Plan"), under which
certain of the Company's employees participate. Generally, options outstanding
under the Company Plan (i) are granted at fair value, based on periodic
valuations of the
F-23
<PAGE> 102
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
Company using standard industry valuation techniques; (ii) vest ratably over a
four year service period; and (iii) expire ten years subsequent to award.
A summary of Company Plan activity is as follows:
<TABLE>
<CAPTION>
OPTION WEIGHTED AVERAGE
SHARES PRICE RANGE EXERCISE PRICE
--------- ---------------------- ----------------
<S> <C> <C> <C> <C> <C>
Outstanding, December 31, 1996............. -- $ -- - $ -- $ --
Granted.................................. 1,621,000 10.00 - 10.00 10.00
Canceled................................. (30,000) 10.00 - 10.00 10.00
--------- ------ ------ ------
Outstanding, December 31, 1997............. 1,591,000 10.00 - 10.00 10.00
--------- ------ ------ ------
Granted.................................. 362,500 10.00 - 65.75 62.83
Exercised................................ (23,679) 10.00 - 10.00 10.00
Canceled................................. (178,429) 10.00 - 65.75 20.38
--------- ------ ------ ------
Outstanding, December 31, 1998............. 1,751,392 $10.00 - $65.75 $19.88
========= ====== ====== ======
Exercisable, December 31, 1998............. 1,065,423 $10.00 - $65.75 $13.16
========= ====== ====== ======
</TABLE>
The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. If the Company had
elected to recognize compensation expense based on the fair value of the awards
granted in 1998 and 1997 consistent with the provisions of SFAS 123, Accounting
for Stock Based Compensation, the Company's net loss and net loss per common
share for the year ended December 31 would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net loss:
As reported............................................... $ (237,135) $ (73,948)
========== ==========
Pro forma................................................. $ (243,376) $ (76,024)
========== ==========
Loss per common share, basic and diluted:
As reported............................................... $ (6.50) $ (2.03)
========== ==========
Pro forma................................................. $ (6.67) $ (2.08)
========== ==========
Weighted average fair value of options granted.............. $ 12.27 $ 6.59
========== ==========
Weighted average remaining contractual life................. 7.6 years 8.2 years
========== ==========
</TABLE>
The fair value of each Nextel International option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1998 1997
------------ -------
<S> <C> <C>
Expected stock price volatility............................. 51% 53%
Risk-free interest rate..................................... 5.01 - 5.08% 6.6%
Expected life of options.................................... 8 years 8 years
Expected dividend yield..................................... 0.00% 0.00%
</TABLE>
F-24
<PAGE> 103
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. EMPLOYEE BENEFIT PLANS -- (CONTINUED)
The Nextel International stock options are not transferable, and the actual
value of the stock options that an employee may realize, if any, will depend on
the excess of the market price on the date of exercise over the exercise price.
The Company has based its assumption for stock price volatility on the
historical variance of weekly closing prices of Nextel Communications' stock.
The risk-free rate of return used equals the yield on eight year zero-coupon
U.S. Treasury issues on the grant date. No discount was applied to the value of
the grants for non-transferability or risk of forfeiture.
Stock Appreciation Rights:
On November 1, 1996, the Company adopted a Stock Appreciation Rights Plan
(the "SAR Plan"), which was effective as of November 1, 1995, whereby selected
employees and agents of the Company may be granted rights to share in the future
appreciation in the value of the Company. Such rights do not represent an equity
interest in the Company, only a right to compensation under the terms of the
plan.
The Company retroactively granted 1,140,000 rights under the plan, at an
exercise price of $10.00 per right, on dates ranging from October 1, 1995 to
December 31, 1996, with vesting periods of four years. Under the provisions of
the plan, the number of shares used in calculating the fair value per share is
adjusted periodically to reflect capital contributed to the Company by its
parent. This adjustment is generally only for purposes of valuing the SARs. It
does not necessarily reflect the actual issuance of additional shares of common
stock. Rights under the plan may not be exercised until 50% of the employee's
grant has vested. As of December 31, 1998 and 1997, there were 5,000 and 25,000
rights outstanding, respectively. At December 31, 1998, approximately 4,200 SARs
are exercisable under the terms of the plan.
In conjunction with the adoption of the 1997 Stock Option Plan, the board
of directors also approved a plan to terminate the SAR Plan. Each holder of SARs
granted previously has been given the option to exchange the SARs for stock
options to be granted at fair value under the 1997 Stock Option Plan. As of
December 31, 1998, 1,090,000 rights have been exchanged for options under the
1997 Stock Option Plan and 5,000 SARs remain outstanding. With respect to SAR
holders who elected not to exchange their SARs for stock options, the Company
will continue to be obligated by the terms and conditions of the SAR agreements
previously entered into with such holders.
In connection with the exercise of certain Nextel International stock
options and appreciation of SARs, the Company has recorded approximately $1.0
million of compensation expense during the year ended December 31, 1998. No
compensation expense related to the Company's SARs or stock option plans was
recorded during the years ended December 31, 1997 and 1996.
Employee Benefit Plan:
Certain officers and employees of the Company are eligible to participate
in Nextel Communications' defined contribution plans pursuant to Section 401(k)
of the Internal Revenue Code. The Company provides a matching contribution of
$.50 for every $1.00 contributed by the employee up to 4% of each employee's
salary. Such contributions were approximately $41, $29, and $10 for the years
ended December 31, 1998, 1997 and 1996, respectively. At December 31, 1998, the
Company had no other pension or post employment benefit plans.
14. RELATED PARTIES
Pursuant to the Company's Overhead Services agreement with Nextel
Communications, Nextel Communications performs certain administrative functions
for the Company, consisting of accounting, legal
F-25
<PAGE> 104
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED PARTIES -- (CONTINUED)
and other services, totaling $0.4 million, $0.3 million and $0.5 million for the
years ended December 31, 1998, 1997 and 1996, respectively which are reimbursed
by the Company to Nextel Communications.
At December 31, 1998, Motorola beneficially owned approximately 20.0% of
Nextel Communications' outstanding common stock. The Company maintains various
business relationships with Motorola, including purchases of infrastructure
equipment and handsets, equipment financing agreements, and joint venture
partnerships (See Notes 2 and 7).
Motorola is the principal supplier of the Company's ESMR infrastructure
equipment and handsets. During the years ended December 31, 1998 and 1997, the
Company acquired approximately $162.6 million and $87.3 million, respectively in
ESMR infrastructure equipment, handsets and related services from Motorola. As
of December 31, 1998 and 1997, the Company's consolidated balance sheets include
amounts payable to Motorola related to such purchases of $14.8 million and $11.9
million in accounts payable and $102.2 million and $50.3 million in long-term
debt (See Note 7), respectively. As of December 31, 1998, there was no cash
contractually restricted for future Motorola purchases.
15. SEGMENT INFORMATION
For the year ended December 31, 1998, Nextel International has three
reportable operating segments: 1) Brazil, 2) Argentina, and 3) Mexico. The
operations of all other businesses that fall below the reporting thresholds are
included in "Corporate and Other" segment below, and includes Peru and all
corporate entities which hold equity investments in Philippines and Japan. For
the year ended December 31, 1997, the Company has identified two reportable
operating segments: 1) Brazil, in which the Company obtained a controlling
interest as of January 1997; and 2) Mexico, in which, through a series of
transactions, the Company obtained a controlling interest effective September
1997. Corporate and other includes equity method investments in Argentina and
Philippines. Prior to 1997, due to the start up nature of the Company and its
investments, no reportable segments were identified.
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 excludes any unusual or
non-recurring charges. The
F-26
<PAGE> 105
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SEGMENT INFORMATION -- (CONTINUED)
accounting policies are the same as those described in the summary of
significant accounting policies (See Note 1). Intercompany eliminations have
been included in Corporate and Other.
<TABLE>
<CAPTION>
CORPORATE AND
BRAZIL ARGENTINA MEXICO OTHER CONSOLIDATED
--------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
1998
Service revenue.................... $ 14,999 $ 9,470 $ 8,695 $ 1,395 $ 34,559
Equipment sales and maintenance.... 2,481 1,192 3,717 539 7,929
--------- --------- --------- -------- ----------
17,480 10,662 12,412 1,934 42,488
Cost of service revenues........... 7,332 4,035 2,557 333 14,257
Cost of equipment sales and
maintenance...................... 1,584 1,289 2,775 180 5,828
Selling, general and
administrative................... 69,509 40,691 17,333 15,565 143,098
--------- --------- --------- -------- ----------
78,425 46,015 22,665 16,078 163,183
Segment loss....................... (60,945) (35,353) (10,253) (14,144) (120,695)
Depreciation and amortization...... 56,039
----------
Operating loss..................... $ (176,734)
==========
Capital expenditures............... $ 202,970 $ 81,141 $ 76,825 $ 38,931 $ 399,867
========= ========= ========= ======== ==========
Long-lived assets.................. $ 497,914 $ 200,808 $ 342,120 $323,321 $1,364,163
========= ========= ========= ======== ==========
Total assets....................... $ 579,429 $ 237,542 $ 377,952 $406,213 $1,601,136
========= ========= ========= ======== ==========
</TABLE>
<TABLE>
<CAPTION>
CORPORATE AND
BRAZIL MEXICO OTHER CONSOLIDATED
--------- --------- ------------- ------------
<S> <C> <C> <C> <C>
1997
Service revenue............................... $ 8,040 $ 2,491 $ 58 $ 10,589
Equipment sales and maintenance............... 1,565 857 4 2,426
--------- --------- -------- ----------
9,605 3,348 62 13,015
Cost of service revenues...................... 5,372 715 102 6,189
Cost of equipment sales and maintenance....... 1,035 200 -- 1,235
Selling, general and administrative........... 15,343 2,398 9,027 26,768
--------- --------- -------- ----------
21,750 3,313 9,129 34,192
Segment loss.................................. (12,145) 35 (9,067) (21,177)
Depreciation and amortization................. 18,381
----------
Operating loss................................ $ (39,558)
==========
Capital expenditures.......................... $ 87,370 $ 13,938 $ 14,028 $ 115,336
Long-lived assets............................. $ 371,521 $ 277,391 $157,130 $ 806,050
========= ========= ======== ==========
Total assets.................................. $ 420,242 $ 288,695 $414,101 $1,123,038
========= ========= ======== ==========
</TABLE>
F-27
<PAGE> 106
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998
Revenues.................................... $ 8,558 $ 9,189 $ 8,850 $ 15,891
Operating loss.............................. (19,413) (29,730) (60,454) (67,137)
Net loss.................................... (28,569) (45,810) (69,864) (92,892)
Net loss per common share, basic and
diluted................................... (0.78) (1.26) (1.91) (2.54)
1997
Revenues.................................... $ 1,460 $ 2,504 $ 3,085 $ 5,966
Operating loss.............................. (5,930) (8,571) (9,674) (15,383)
Net loss.................................... (9,811) (18,338) (20,621) (25,178)
Net loss per common share, basic and
diluted................................... (0.27) (0.50) (0.56) (0.69)
</TABLE>
The sum of the per share amounts may not equal the annual amounts due to
changes in the weighted average shares outstanding during the year.
17. SUBSEQUENT EVENTS
INTERNATIONAL MOTOROLA FINANCING COMMITMENT. Effective February 4, 1999,
the Company and Motorola Credit Corp ("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 Credit 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 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 $225.0
million in loans (less the amount of Reimbursement Loans advanced) to (A)
finance the cost of qualifying future purchases of iDEN equipment and related
services (including ancillary products and services) purchased by or for the
benefit of the Borrowing Affiliates (as defined below) and (B) repay the
principal amounts outstanding under the existing financing facilities between
Motorola Credit and Nextel Philippines and the Philippines Motorola Bridge
Financing. The "Borrowing Affiliates," for purposes of the International
Motorola Financing Facility, include Nextel Mexico, Nextel Peru, Nextel
Philippines and J-Com and such other entities in which the Company holds an
equity interest and which have been so designated by agreement between the
Company and Motorola Credit.
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 February 28, 1999, approximately $102.3 million had
been borrowed under the International Motorola Financing Facility, including the
entire $100.0 million of Reimbursement Loans; $122.7 million remains available
for borrowing under the facility.
F-28
<PAGE> 107
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SUBSEQUENT EVENTS -- (CONTINUED)
BRAZIL CURRENCY DEVALUATION. During the quarter ending March 31, 1999,
there has been 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 will record a pre-tax charge (net of minority
interests) of approximately $45.1 million on its consolidated statement of
operations during the quarter ending March 31, 1999 related to foreign currency
transaction losses based on the outstanding amount of U.S. dollar-denominated
debt of the Company's Brazilian subsidiaries, the average exchange rate for the
quarter and the Company's percentage ownership interest in its Brazilian
subsidiaries at the end of such period. Additionally, the Company will record 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 fiscal quarter in 1999 in
accordance with the Company's consolidation policy, which will be reflected as
an adjustment to the cumulative translation adjustment account within
stockholders' equity.
CHANGES IN TAX LEGISLATION IN ARGENTINA AND MEXICO. Effective for tax
years after December 31, 1998, Argentina and Mexico enacted tax legislation
that, among other things, increases the statutory income tax rates applied for
income tax purposes. The statutory rate increased from 33% to 35% in Argentina,
and from 34% to 35% in Mexico. In addition, Argentina enacted tax legislation
whereby taxes are assessed on assets if an entity is not in a position to pay
income tax. The Company will apply the enacted statutory tax rates in the first
quarter of 1999.
F-29
<PAGE> 108
NEXTEL INTERNATIONAL, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 52,698 $100,975
Marketable securities.................................. -- 128,560
Accounts receivable, net............................... 56 44
Prepaid and other...................................... 13 10
---------- --------
Total current assets.............................. 52,767 229,589
PROPERTY, PLANT, AND EQUIPMENT, NET......................... 161 260
INVESTMENT IN AND ADVANCES TO SUBSIDIARIES.................. 1,011,148 594,471
INTANGIBLE ASSETS........................................... 1,469 1,512
INVESTMENTS AND OTHER ASSETS................................ 96,900 18,862
---------- --------
$1,162,445 $844,694
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable....................................... $ 2,042 $ 2,277
Accrued expenses and other............................. 882 1,532
Due to parent.......................................... -- 8,254
---------- --------
Total current liabilities......................... 2,924 12,063
LONG-TERM DEBT.............................................. 1,063,623 539,892
COMMITMENTS AND CONTINGENCIES (NOTE 1)
STOCKHOLDERS' EQUITY:
Series A exchangeable redeemable preferred stock,
accreted liquidation preference of $110,456 (1,250
shares authorized, $10.00 par value, 988.86 and 0
shares issued and outstanding)........................ 98,886 --
Series B redeemable preferred stock (2,500 shares
authorized, $10.00 par value, no shares issued and
outstanding........................................... -- --
Common stock (73,000,000 shares authorized, no par
36,523,679 and 36,500,000 shares issued and
outstanding).......................................... 396,574 395,428
Accumulated deficit.................................... (339,824) (102,689)
Accumulated other comprehensive loss:
Unrealized (loss) gain on investment, net of
tax............................................. (35,688) --
Cumulative translation adjustment................. (24,050) --
---------- --------
Total accumulated other comprehensive loss... (59,738) --
---------- --------
Total stockholders' equity................... 95,898 292,739
---------- --------
$1,162,445 $844,694
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 109
NEXTEL INTERNATIONAL, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
REVENUES.................................................... $ -- $ 3 $ --
OPERATING EXPENSES
Selling, general and administrative.................... 7,029 5,175 5,641
Depreciation and amortization.......................... 555 172 135
--------- -------- --------
7,584 5,347 5,776
--------- -------- --------
OPERATING LOSS.............................................. (7,584) (5,344) (5,776)
--------- -------- --------
OTHER INCOME (EXPENSE):
Interest income........................................ 12,065 17,303 29
Interest expense....................................... (117,291) (56,241) --
Other, net............................................. 5,302 (15) 385
--------- -------- --------
(99,924) (38,953) 414
--------- -------- --------
LOSS BEFORE INCOME TAX PROVISION AND EQUITY IN NET LOSSES OF
SUBSIDIARIES.............................................. (107,508) (44,297) (5,362)
INCOME TAX PROVISION........................................ -- (1,931) --
--------- -------- --------
LOSS BEFORE EQUITY IN NET LOSSES OF SUBSIDIARIES............ (107,508) (46,228) (5,362)
EQUITY IN NET LOSSES OF SUBSIDIARIES........................ (129,627) (27,720) (7,114)
--------- -------- --------
NET LOSS.................................................... (237,135) (73,948) (12,476)
COMPREHENSIVE LOSS, NET OF INCOME TAX:
Unrealized (loss) gain on available for sale securities... (38,978) 389 (5,122)
Cumulative translation adjustment......................... (24,050) -- --
--------- -------- --------
COMPREHENSIVE LOSS.......................................... $(300,163) $(73,559) $(17,598)
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 110
NEXTEL INTERNATIONAL, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(237,135) $(73,948) $(12,476)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation and amortization.......................... 555 172 135
Accreted interest expense.............................. 100,069 56,241 --
Loss from investment in subsidiaries................... 131,111 27,720 7,114
Change in current assets and liabilities:
Accounts receivable.................................. (12) 339 (383)
Prepaid and other.................................... (3) 38 (37)
Investments and other assets......................... (9,004) (2,221) (568)
Accounts payable..................................... (235) 1,477 741
Other................................................ (2,983) 200 (10,012)
--------- -------- --------
Net cash provided by (used in) operating
activities...................................... (17,637) 10,018 (15,486)
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (78) (152) (299)
Investments in marketable securities...................... (93,997) (227,957) --
Disposal of marketable securities......................... 221,225 100,729 --
Investments in and advances to subsidiaries............... (567,482) (246,230) (37,221)
Other..................................................... -- (624) --
--------- -------- --------
Net cash used in investing activities............. (440,332) (374,234) (37,520)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayments to) parent, net............... (8,254) (23,556) 8,146
Capital contributions from parent......................... 6,366 44,862
Proceeds from the issuance of preferred stock............. 8,254 -- --
Proceeds from the issuance of long-term debt.............. 409,455 467,578 --
Proceeds from issuance of warrants........................ -- 14,800 --
Proceed from exercise of stock options.................... 237 -- --
--------- -------- --------
Net cash provided by financing activities......... 409,692 465,188 53,008
--------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................... (48,277) 100,972 2
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 100,975 3 1
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 52,698 $100,975 $ 3
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 111
NEXTEL INTERNATIONAL, INC.
(PARENT ONLY)
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. For accounting policies and other information, see the Notes to the
Consolidated Financial Statements of Nextel International, Inc. and
Subsidiaries included elsewhere herein.
2. The parent company accounts for its investments in subsidiaries by the equity
method of accounting.
F-33
<PAGE> 112
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS INC.)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE, ALLOWANCE OF CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF ACQUIRED COSTS AND OTHER END
PERIOD COMPANIES(1) EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for Doubtful
Accounts.................. $1,003 $ 604 $7,127 $ -- $(2,343) $ 6,391
====== ====== ====== ====== ======= =======
Reserve for inventory
obsolescence.............. $1,334 $ 16 $3,475 $ -- $(2,232) $ 2,593
====== ====== ====== ====== ======= =======
YEAR ENDED DECEMBER 31, 1997
Allowance for Doubtful
Accounts.................. $ -- $3,241 $1,131 $ -- $(3,369) $ 1,003
====== ====== ====== ====== ======= =======
Reserve for inventory
obsolescence.............. $ -- $ 449 $ 885 $ -- $ -- $ 1,334
====== ====== ====== ====== ======= =======
</TABLE>
- ---------------
(1) Represents allowance of majority-owned subsidiaries acquired during the
years ended December 31, 1998 and 1997.
F-34
<PAGE> 113
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Seattle, State of Washington.
NEXTEL INTERNATIONAL, INC.
By: /s/ BYRON R. SILIEZAR
------------------------------------
March 29, 1999 BYRON R. SILIEZAR
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed by the following persons on behalf of the registrant and in the
capacities indicated below on March 29, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ DANIEL F. AKERSON Chairman of the Board of Directors
- -----------------------------------------------
Daniel F. Akerson
/s/ KEITH D. GRINSTEIN Chief Executive Officer and Director
- ----------------------------------------------- (Principal Executive Officer)
Keith D. Grinstein
/s/ BYRON R. SILIEZAR Vice President and Chief Financial Officer
- ----------------------------------------------- (Principal Financial and Accounting Officer)
Byron R. Siliezar
/s/ C. JAMES JUDSON Vice Chairman of the Board of Directors
- -----------------------------------------------
C. James Judson
/s/ TIMOTHY M. DONAHUE Director
- -----------------------------------------------
Timothy M. Donahue
/s/ CRAIG O. MCCAW Director
- -----------------------------------------------
Craig O. McCaw
/s/ STEVEN M. SHINDLER Director
- -----------------------------------------------
Steven M. Shindler
/s/ DENNIS M. WEIBLING Director
- -----------------------------------------------
Dennis M. Weibling
</TABLE>
<PAGE> 114
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<C> <S>
3.1 Restated Articles of Incorporation of the Company (filed on
August 13, 1998 as Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended June 30,
1998 (the "June 1998 Form 10-Q") and incorporated herein by
reference).
3.2 Restated By-laws of the Company.
4.1 Indenture, dated as of March 3, 1997, between McCaw
International, Ltd. and The Bank of New York (filed as
Exhibit No. 4.1 to the Company's Registration Statement No.
333-26649 on Form S-4, as amended, originally filed with the
Commission on May 7, 1997 (the "1997 Form S-4") and
incorporated herein by reference).
4.2 Form of Exchange Note (included in Exhibit 4.1).
4.3 Warrant Agreement, dated March 6, 1997, between Nextel
International and the Bank of New York (filed as Exhibit 4.4
to the 1997 Form S-4 and incorporated herein by reference).
4.4 Indenture, dated as of March 12, 1998, between the Company
and the Bank of New York (filed on May 14, 1998 as Exhibit
4.1 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1998 (the "March 1998 Form
10-Q") and incorporated herein by reference).
4.5 Form of Exchange Note (included in Exhibit 4.4).
10.1 Motorola Vendor Financing Template Memorandum of
Understanding, dated November 1996, between Motorola, Inc.,
Nextel Communications, Inc. and the Company (filed as
Exhibit No. 10.1 to the 1997 Form S-4 and incorporated
herein by reference).
10.2 Shareholders Agreement, dated January 29, 1997, between the
Company, McCaw International (Brazil), Ltd. ("McCaw Brazil")
and the minority shareholders of McCaw Brazil (filed as
Exhibit No. 10.2 to the 1997 Form S-4 and incorporated
herein by reference).
10.3 Amendment No. 1, dated April 27, 1997, to Shareholders
Agreement between the Company, McCaw Brazil and the minority
shareholders of McCaw Brazil (filed as Exhibit No. 10.3 to
the 1997 Form S-4 and incorporated herein by reference).
10.4 Equipment Financing Agreement, dated as of October 31, 1997,
by and between McCaw International (Brazil), Ltd. and
Motorola Credit Corporation (filed on November 14, 1997 as
Exhibit No. 10.1 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997 and
incorporated herein by reference).
10.5 Stockholders Agreement, dated June 21, 1996, between Infocom
Communications Network, Inc. and the shareholders of Infocom
(filed as Exhibit No. 10.11 to the 1997 Form S-4 and
incorporated herein by reference).
10.6* Employment Letter, dated November 3, 1995, between the
Company and Keith D. Grinstein (filed as Exhibit No. 10.12
to the 1997 Form S-4 and incorporated herein by reference).
10.7* Employment Letter, dated January 11, 1996, between the
Company and Brian A. Vincent (filed as Exhibit No. 10.14 to
the 1997 Form S-4 and incorporated herein by reference).
10.8* Employment Letter, dated November 3, 1995, between the
Company and Heng-Pin Kiang (filed as Exhibit No. 10.13 to
the 1997 Form S-4 and incorporated herein by reference).
10.9* Nextel International, Ltd. 1997 Stock Option Plan.
10.10 Tax Sharing Agreement, dated January 1, 1997, between Nextel
Communications, Inc. and its subsidiaries named therein
(filed as Exhibit No. 10.18 to the 1997 Form S-4 and
incorporated herein by reference).
</TABLE>
(i)
<PAGE> 115
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<C> <S>
10.11 Overhead Services Agreement, dated March 3, 1997, between
Nextel Communications, Inc. and the Company (filed as
Exhibit No. 10.19 to the 1997 Form S-4 and incorporated
herein by reference).
10.12 Amended and Restated Right of First Opportunity Agreement,
dated March 12, 1998, between Nextel Communications, Inc.
and the Company (filed as Exhibit No. 10.16 to the 1998 Form
S-4 and incorporated herein by reference).
10.13 Indemnification Agreement, dated March 6, 1997, between
Nextel Communications, Inc. and the Company (filed as
Exhibit No. 10.21 to the 1997 Form S-4 and incorporated
herein by reference).
10.14 Credit Agreement, dated as of February 27, 1998, among
Nextel Argentina S.R.L., the Lenders named therein and The
Chase Manhattan Bank as Administrative Agent (filed as
Exhibit 10.1 to the March 1998 Form 10-Q and incorporated
herein by reference).
10.15 Stock Purchase Agreement, dated as of January 29, 1998 by
and among Nextel International (Peru), LLC, Motorola
International Development Corporation, Oscar Benalcazar Coz,
the Company and Valorcom S.A. (filed as Exhibit 10.2 to the
March 1998 Form 10-Q and incorporated herein by reference).
10.16 Shareholders Agreement, dated as of January 29, 1998, by and
among Valorcom S.A., Nextel International (Peru), LLC,
Motorola International Development Corporation and Oscar
Benalcazar Coz (filed as Exhibit 10.3 to the March 1998 Form
10-Q and incorporated herein by reference).
10.17 Share Purchase Agreement, dated as of January 7, 1998 by and
among the Company, Nextel International (Delaware), Ltd.,
Nextel International (Holdings), Ltd., Telcom Ventures, LLC,
Wireless Ventures of Argentina, L.L.C. and Nextel
International (Argentina), Ltd. (filed as Exhibit 10.4 to
the March 1998 Form 10-Q and incorporated herein by
reference).
10.18 Stock Purchase Agreement, dated as of March 17, 1998 by and
among Nextel International (Japan), Ltd., Nippon Motorola
Ltd. and J-Com Co., Ltd. (filed as Exhibit 10.5 to the March
1998 Form 10-Q and incorporated herein by reference).
10.19 Credit Agreement, dated as of March 17, 1998, between J-Com.
Co., Ltd. and Nextel International (Japan), Ltd. (filed as
Exhibit 10.6 to the March 1998 Form 10-Q and incorporated
herein by reference).
10.20 Memorandum, dated as of March 17, 1998, among J-Com Co.,
Ltd. and the shareholders named therein (filed as Exhibit
10.7 to the March 1998 Form 10-Q and incorporated herein by
reference).
10.21 Amendment No. 1 and Waiver, dated May 8, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent (filed as Exhibit
10.19 to the Company's Registration Statement No. 333-55877
on Form S-4, as amended, originally filed with the
Commission on June 3, 1998 (the "1998 Form S-4") and
incorporated herein by reference).
10.22 Restructuring Agreement, dated as of April 2, 1998, by and
among Foodcamp Industries and Marketing, Inc., Chan Chon
Siong, Nextel International, Inc., Top Mega Enterprises Ltd.
and Infocom Communications Network, Inc. (filed as Exhibit
10.26 to the 1998 Form S-4 and incorporated herein by
reference).
10.23 Restructuring Agreement, dated as of April 2, 1998, by and
among Gotesco Properties Inc., Jose C. Go, Joel T. Go,
Nextel International, Inc., Top Mega Enterprises, Ltd. and
Infocom Communications Network, Inc. (filed as Exhibit 10.27
to the 1998 Form S-4 and incorporated herein by reference).
</TABLE>
(ii)
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
- -------------- -------------------
<C> <S>
10.24 Restructuring Agreement, dated as of April 2, 1998, by and
among Jetcom Inc., Nextel International, Inc., Top Mega
Enterprises, Ltd. and Infocom Communications Network, Inc.
(filed as Exhibit 10.28 to the 1998 Form S-4 and
incorporated herein by reference).
10.25 Pledge Agreement, dated as of April 2, 1998 by and among
Infocom Communications Network, Inc., Nextel International,
Inc. and Jetcom, Inc. (filed as Exhibit 10.29 to the 1998
Form S-4 and incorporated herein by reference).
10.26 Form of Credit Agreement between Infocom Communications
Network, Inc. and the shareholders listed on Exhibit A
attached thereto, as amended from time to time (filed as
Exhibit 10.30 to the 1998 Form S-4 and incorporated herein
by reference).
10.27 Agreement to Accelerate Put Rights, dated June 26, 1998,
among Gotesco Properties Inc., Jose C. Go, Joel T. Go,
Nextel International, Inc. and Top Mega Enterprises Ltd.
(filed as Exhibit 10.32 to the 1998 Form S-4 and
incorporated herein by reference).
10.28* Employment Agreement dated May 20, 1998 between the Company
and Jose Felipe (filed as Exhibit 10.9 to the June 1998 Form
10-Q and incorporated herein by reference).
10.29 Amendment No. 2, dated September 30, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent (filed on November
16, 1998 as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30,
1998 (the "September 1998 Form 10-Q") and incorporated
herein by reference).
10.30 Agreement, dated as of August 21, 1998, by and between ACCRA
Investments Corporation and Top Mega Enterprises Ltd. (filed
as Exhibit 10.2 to the September 1998 Form 10-Q and
incorporated herein by reference).
10.31 Master Equipment Financing Commitment Letter and Term Sheet
dated November 11, 1998 between Motorola Credit Corporation
and Nextel International, Inc. (filed as Exhibit 10.3 to the
September 1998 Form 10-Q and incorporated herein by
reference).
10.32 Master Equipment Financing Agreement, dated as of February
4, 1999, by and between Nextel International, Inc., the
lenders named therein and Motorola Credit Corporation as
Administrative Agent and Collateral Agent (filed on February
19, 1999 as Exhibit 99.1 to the Company's Current Report on
Form 8-K dated February 19, 1999 and incorporated herein by
reference).
21. Subsidiaries of the Company.
23. Consent of Deloitte & Touche LLP.
27.** Financial Data Schedule.
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
** Submitted only with electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act.
(iii)
<PAGE> 1
EXHIBIT 3.2
RESTATED BYLAWS
OF
NEXTEL INTERNATIONAL, INC.
AS OF JANUARY 29, 1999
<PAGE> 2
AMENDMENTS
<TABLE>
<CAPTION>
Date of
Section Effect of Amendment Amendment
- ------- ------------------- ---------
<S> <C>
3.17 Addition of Audit Committee 11/14/97
2.14 Amended to permit action by less than unanimous 7/10/98
consent of shareholders.
3.18 Addition of Plan Administration Committee 7/10/98
2.1 Annual meeting date changed to the month of April 1/29/99
</TABLE>
Page i
<PAGE> 3
<TABLE>
<CAPTION>
CONTENTS
--------
<S> <C>
SECTION 1. OFFICES...........................................................1
SECTION 2. SHAREHOLDERS......................................................1
2.1 Annual Meeting....................................................1
2.2 SpecialMeetings...................................................1
2.3 Meetings by Communication Equipment...............................1
2.4 Date, Time and Place of Meeting...................................2
2.5 Notice of Meeting.................................................2
2.6 Waiver of Notice..................................................2
2.7 Fixing of Record Date for Determining Shareholders................3
2.8 Voting Record.....................................................3
2.9 Quorum............................................................3
2.10 Manner of Acting..................................................4
2.11 Proxies...........................................................4
2.12 Voting of Shares..................................................4
2.13 Voting for Directors..............................................4
2.14 Action by Shareholders Without a Meeting..........................5
SECTION 3. BOARD OF DIRECTORS................................................5
3.1 General Powers....................................................5
3.2 Number and Tenure.................................................6
3.3 Annual and Regular Meetings.......................................6
3.4 Special Meetings..................................................6
3.5 Meetings by Communications Equipment..............................6
3.6 Notice of Special Meetings........................................7
3.6.1 Personal Delivery..........................................7
3.6.2 Delivery by Mail...........................................7
3.6.3 Delivery by Private Carrier................................7
3.6.4 Facsimile Notice...........................................7
</TABLE>
Page ii
<PAGE> 4
<TABLE>
<S> <C>
3.6.5 Delivery by Telegraph......................................7
3.6.6 Oral Notice................................................8
3.7 Waiver of Notice..................................................8
3.7.1 In Writing.................................................8
3.7.2 By Attendance..............................................8
3.8 Quorum............................................................8
3.9 Manner of Acting..................................................8
3.10 Presumption of Assent.............................................9
3.11 Action by Board or Committees Without a Meeting...................9
3.12 Resignation.......................................................9
3.13 Removal...........................................................9
3.14 Vacancies.........................................................10
3.15 Executive and Other Committees....................................10
3.15.1 Creation of Committees.....................................10
3.15.2 Authority of Committees....................................10
3.15.3 Quorum and Manner of Acting................................11
3.15.4 Minutes of Meetings........................................11
3.15.5 Resignation................................................11
3.15.6 Removal....................................................11
3.16 Compensation......................................................11
3.17 Audit Committee...................................................12
3.18 Plan Administration Committee.....................................12
SECTION 4. OFFICERS..........................................................12
4.1 Appointment and Term..............................................12
4.2 Resignation.......................................................13
4.3 Removal...........................................................13
4.4 Contract Rights of Officers.......................................13
4.5 Chairman of the Board.............................................13
</TABLE>
Page iii
<PAGE> 5
<TABLE>
<S> <C>
4.6 President.........................................................13
4.7 Vice President....................................................13
4.8 Secretary.........................................................14
4.9 Treasurer.........................................................14
4.10 Salaries..........................................................14
SECTION 5. CERTIFICATES FOR SHARES AND THEIR
TRANSFER.................................................................15
5.1 Issuance of Shares................................................15
5.2 Certificates for Shares...........................................15
5.3 Stock Records.....................................................15
5.4 Restriction on Transfer...........................................15
5.5 Transfer of Shares................................................16
5.6 Lost or Destroyed Certificates....................................16
SECTION 6. BOOKS AND RECORDS.................................................16
SECTION 7. SEAL..............................................................17
SECTION 8. INDEMNIFICATION...................................................17
8.1 Right to Indemnification..........................................17
8.2 Restrictions on Indemnification...................................18
8.3 Advancement of Expenses...........................................18
8.4 Right of Indemnitee to Bring Suit.................................19
8.5 Procedures Exclusive..............................................19
8.6 Nonexclusivity of Rights..........................................19
8.7 Insurance, Contracts and Funding..................................19
8.8 Indemnification of Employees and Agents of the
Corporation.......................................................20
8.9 Persons Serving Other Entities....................................20
SECTION 9. AMENDMENTS........................................................20
</TABLE>
Page iv
<PAGE> 6
BYLAWS
SECTION 1. OFFICES
The principal office of the corporation shall be located at the principal
place of business or such other place as the Board of Directors ("Board") may
designate. The corporation may have such other offices, either within or without
the State of Washington, as the Board may designate or as the business of the
corporation may require from time to time.
SECTION 2. SHAREHOLDERS
2.1 ANNUAL MEETING
The annual meeting of the shareholders shall be held during the month of
April in each year at on a date chosen by the President or the Board for the
purpose of electing Directors and transacting such other business as may
properly come before the meeting. If the day fixed for the annual meeting is a
legal holiday at the place of the meeting, the meeting shall be held on the next
succeeding business day. (THIS SECTION AMENDED 1/29/99 BY VOTE OF THE BOARD OF
DIRECTORS.)
2.2 SPECIAL MEETINGS
The Chairman of the Board, the President or the Board may call special
meetings of the shareholders for any purpose. Further, a special meeting of the
shareholders shall be held if the holders of not less than 10% of all the votes
entitled to be cast on any issue proposed to be considered at such special
meeting have dated, signed and delivered to the Secretary one or more written
demands for such meeting, describing the purpose or purposes for which it is to
be held.
2.3 MEETINGS BY COMMUNICATION EQUIPMENT
Shareholders may participate in any meeting of the shareholders by any
means of communication by which all persons participating in the meeting can
hear each other during the meeting. Participation by such means shall constitute
presence in person at a meeting
Page 1
<PAGE> 7
2.4 DATE, TIME AND PLACE OF MEETING
Except as otherwise provided herein, all meetings of shareholders,
including those held pursuant to demand by shareholders as provided herein,
shall be held on such date and at such time and place, within or without the
State of Washington, designated by or at the direction of the Board.
2.5 NOTICE OF MEETING
Written notice stating the place, day and hour of the meeting and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called shall be given by or at the direction of the Board, the Chairman of the
Board, the President or the Secretary to each shareholder entitled to notice of
or to vote at the meeting not less than 10 nor more than 60 days before the
meeting, except that notice of a meeting to act on an amendment to the Articles
of Incorporation, a plan of merger or share exchange, the sale, lease, exchange
or other disposition of all or substantially all of the corporation's assets
other than in the regular course of business or the dissolution of the
corporation shall be given not less than 20 nor more than 60 days before such
meeting. Such notice may be transmitted by mail, private carrier, personal
delivery, telegraph, teletype or communications equipment which transmits a
facsimile of the notice to like equipment which receives and reproduces such
notice. If these forms of written notice are impractical in the view of the
Board, the Chairman of the Board, the President or the Secretary, written notice
may be transmitted by an advertisement in a newspaper of general circulation in
the area of the corporation's principal office. If such notice is mailed, it
shall be deemed effective when deposited in the official government mail,
first-class postage prepaid, properly addressed to the shareholder at such
shareholder's address as it appears in the corporation's current record of
shareholders. Notice given in any other manner shall be deemed effective when
dispatched to the shareholder's address, telephone number or other number
appearing on the records of the corporation. Any notice given by publication as
herein provided shall be deemed effective five days after first publication.
2.6 WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Further, notice of the time, place and purpose of any
meeting will be deemed to be waived by any shareholder by attendance thereat in
person or by proxy, unless such shareholder
Page 2
<PAGE> 8
at the beginning of the meeting objects to holding the meeting or transacting
business at the meeting.
2.7 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS
For the purpose of determining shareholders entitled (a) to notice of or
to vote at any meeting of shareholders or any adjournment thereof, (b) to demand
a special meeting, or (c) to receive payment of any dividend, or in order to
make a determination of shareholders for any other purpose, the Board may fix a
future date as the record date for any such determination. Such record date
shall be not more than 70 days, and in case of a meeting of shareholders not
less than 10 days prior to the date on which the particular action requiring
such determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting, the
record date shall be the day immediately preceding the date on which notice of
the meeting is first given to shareholders. Such a determination shall apply to
any adjournment of the meeting unless the Board fixes a new record date, which
it shall do if the meeting is adjourned to a date more than 120 days after the
date fixed for the original meeting. If no record date is set for the
determination of shareholders entitled to receive payment of any stock dividend
or distribution (other than one involving a purchase, redemption, or other
acquisition of the corporation's shares) the record date shall be the date the
Board authorizes the stock dividend or distribution.
2.8 VOTING RECORD
At least 10 days before each meeting of shareholders, an alphabetical
list of the shareholders entitled to notice of such meeting shall be made,
arranged by voting group and by each class or series of shares therein, with the
address of and number of shares held by each shareholder. This record shall be
kept at the principal office of the corporation for 10 days prior to such
meeting, and shall be kept open at such meeting, for the inspection of any
shareholder or any shareholder's agent.
2.9 QUORUM
A majority of the votes entitled to be cast on a matter by the holders of
shares that, pursuant to the Articles of Incorporation or the Washington
Business Corporation Act, is entitled to vote and be counted collectively upon
such matter, represented in person or by proxy, shall constitute a quorum of
such shares at a meeting of shareholders. If less than a majority of such votes
is represented at a meeting, a majority of the votes so represented may adjourn
the meeting from time to time without further notice if the new date, time or
place is announced at the meeting
Page 3
<PAGE> 9
before adjournment. Any business may be transacted at a reconvened meeting that
might have been transacted at the meeting as originally called, provided a
quorum is present or represented thereat. Once a share is represented for any
purpose at a meeting other than solely to object to holding the meeting or
transacting business thereat, it is deemed present for quorum purposes for the
remainder of the meeting and any adjournment thereof (unless a new record date
is or must be set for the adjourned meeting) notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
2.10 MANNER OF ACTING
If a quorum is present, action on a matter other than the election of
Directors shall be approved if the votes cast in favor of the action by the
shares entitled to vote and be counted collectively upon such matter exceed the
votes cast against such action by the shares entitled to vote and be counted
collectively thereon, unless the Articles of Incorporation or the Washington
Business Corporation Act require a greater number of affirmative votes.
2.11 PROXIES
A shareholder may vote by proxy executed in writing by the shareholder or
by his or her attorney-in-fact or agent. Such proxy shall be effective when
received by the Secretary or other officer or agent authorized to tabulate
votes. A proxy shall become invalid 11 months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote at any reconvened meeting
following adjournment of such meeting but shall not be valid after the final
adjournment thereof.
2.12 VOTING OF SHARES
Except as provided in the Articles of Incorporation or in Section 2.13
hereof, each outstanding share entitled to vote with respect to a matter
submitted to a meeting of shareholders shall be entitled to one vote upon such
matter.
2.13 VOTING FOR DIRECTORS
Each shareholder entitled to vote at an election of Directors may vote,
in person or by proxy, the number of shares owned by such shareholder for as
many persons as there are Directors to be elected and for whose election such
shareholder has a right to vote. Unless otherwise provided in the Articles of
Incorporation, the candidates
Page 4
<PAGE> 10
elected shall be those receiving the largest number of votes cast, up to the
number of Directors to be elected.
2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING
Any action that may or is required to be taken at a meeting of the
shareholders may be taken without a meeting by unanimous consent if one or more
written consents setting forth the action so taken shall be signed by all the
shareholders entitled to vote with respect to the matter. Action may also be
taken by less than unanimous consent. Action by less than unanimous consent may
be taken if one or more written consents describing the action taken shall be
signed by shareholders holding of record or otherwise entitled to vote in the
aggregate not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
on the action were present and voted. If not otherwise fixed by the Board, the
record date for determining shareholders entitled to take action without a
meeting is the date the first shareholder consent is signed. A shareholder may
withdraw a consent only by delivering a written notice of withdrawal to the
corporation prior to the time that consents sufficient to authorize taking the
action have been delivered to the corporation. Every written consent shall bear
the date of signature of each shareholder who signs the consent. A written
consent is not effective to take the action referred to in the consent unless,
within 60 days of the earliest dated consent delivered to the corporation,
written consents signed by a sufficient number of shareholders to take action
are delivered to the corporation. Unless the consent specifies a later effective
date, actions taken by written consent of the shareholders are effective when
(a) consents sufficient to authorize taking the action are in possession of the
corporation and (b) the period of advance notice required by the Articles of
Incorporation to be given to any nonconsenting or nonvoting shareholders has
been satisfied. Any such consent shall be inserted in the minute book as if it
were the minutes of a meeting of the shareholders. (THIS SECTION AMENDED 7/10/98
BY VOTE OF THE BOARD OF DIRECTORS.)
SECTION 3. BOARD OF DIRECTORS
3.1 GENERAL POWERS
All corporate powers shall be exercised by or under the authority of, and
the business and affairs of the corporation shall be managed under the direction
of, the Board, except as may be otherwise provided in these Bylaws, the Articles
of Incorporation or the Washington Business Corporation Act.
Page 5
<PAGE> 11
3.2 NUMBER AND TENURE
The Board shall be composed of not less than one nor more than ten
Directors, the specific number to be set by resolution of the Board or the
shareholders. The number of Directors may be changed from time to time by
amendment to these Bylaws, but no decrease in the number of Directors shall have
the effect of shortening the term of any incumbent Director. Unless a Director
dies, resigns, or is removed, his or her term of office shall expire at the next
annual meeting of shareholders; provided, however, that a Director shall
continue to serve until his or her successor is elected or until there is a
decrease in the authorized number of Directors. Directors need not be
shareholders of the corporation or residents of the State of Washington, and
need not meet any other qualifications.
3.3 ANNUAL AND REGULAR MEETINGS
An annual Board meeting shall be held without notice immediately after
and at the same place as the annual meeting of shareholders. By resolution the
Board, or any committee thereof, may specify the time and place either within or
without the State of Washington for holding regular meetings thereof without
notice other than such resolution.
3.4 SPECIAL MEETINGS
Special meetings of the Board or any committee designated by the Board
may be called by or at the request of the Chairman of the Board, the President,
the Secretary or, in the case of special Board meetings, any one Director and,
in the case of any special meeting of any committee designated by the Board, by
the Chairman thereof. The person or persons authorized to call special meetings
may fix any place either within or without the State of Washington as the place
for holding any special Board or committee meeting called by them.
3.5 MEETINGS BY COMMUNICATIONS EQUIPMENT
Members of the Board or any committee designated by the Board may
participate in a meeting of such Board or committee by, or conduct the meeting
through the use of, any means of communication by which all Directors
participating in the meeting can hear each other during the meeting.
Participation by such means shall constitute presence in person at a meeting.
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3.6 NOTICE OF SPECIAL MEETINGS
Notice of a special Board or committee meeting stating the place, day and
hour of the meeting shall be given to a Director in writing or orally. Neither
the business to be transacted at, nor the purpose of, any special meeting need
be specified in the notice of such meeting.
3.6.1 PERSONAL DELIVERY
If notice is given by personal delivery, the notice shall be effective if
delivered to a Director at least two days before the meeting.
3.6.2 DELIVERY BY MAIL
If notice is delivered by mail, the notice shall be deemed effective if
deposited in the official government mail at least five days before the meeting,
properly addressed to a Director at his or her address shown on the records of
the corporation, with postage thereon prepaid.
3.6.3 DELIVERY BY PRIVATE CARRIER
If notice is given by private carrier, the notice shall be deemed
effective when dispatched to a Director at his or her address shown on the
records of the corporation at least three days before the meeting.
3.6.4 FACSIMILE NOTICE
If notice is delivered by wire or wireless equipment which transmits a
facsimile of the notice, the notice shall be deemed effective when dispatched at
least two days before the meeting to a Director at his or her telephone number
or other number appearing on the records of the corporation.
3.6.5 DELIVERY BY TELEGRAPH
If notice is delivered by telegraph, the notice shall be deemed effective
if the content thereof is delivered to the telegraph company for delivery to a
Director at his or her address shown on the records of the corporation at least
three days before the meeting.
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3.6.6 ORAL NOTICE
If notice is delivered orally, by telephone or in person, the notice
shall be deemed effective if personally given to the Director at least two days
before the meeting.
3.7 WAIVER OF NOTICE
3.7.1 IN WRITING
Whenever any notice is required to be given to any Director under the
provisions of these Bylaws, the Articles of Incorporation or the Washington
Business Corporation Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice and delivered to the corporation, whether before
or after the date and time of the meeting, shall be deemed equivalent to the
giving of such notice. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the Board or any committee designated by
the Board need be specified in the waiver of notice of such meeting.
3.7.2 BY ATTENDANCE
A Director's attendance at or participation in a Board or committee
meeting shall constitute a waiver of notice of such meeting, unless the Director
at the beginning of the meeting, or promptly upon his or her arrival, objects to
holding the meeting or transacting business thereat and does not thereafter vote
for or assent to action taken at the meeting.
3.8 QUORUM
A majority of the number of Directors fixed by or in the manner provided
in these Bylaws shall constitute a quorum for the transaction of business at any
Board meeting but, if less than a majority is present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time without
further notice.
3.9 MANNER OF ACTING
If a quorum is present when the vote is taken, the act of the majority of
the Directors present at a Board meeting shall be the act of the Board, unless
the vote of a greater number is required by these Bylaws, the Articles of
Incorporation or the Washington Business Corporation Act.
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3.10 PRESUMPTION OF ASSENT
A Director of the corporation who is present at a Board or committee
meeting at which any action is taken shall be deemed to have assented to the
action taken unless (a) the Director objects at the beginning of the meeting, or
promptly upon the Director's arrival, to holding the meeting or transacting any
business thereat, (b) the Director's dissent or abstention from the action taken
is entered in the minutes of the meeting, or (c) the Director delivers written
notice of the Director's dissent or abstention to the presiding officer of the
meeting before its adjournment or to the corporation within a reasonable time
after adjournment of the meeting. The right of dissent or abstention is not
available to a Director who votes in favor of the action taken.
3.11 ACTION BY BOARD OR COMMITTEES WITHOUT A MEETING
Any action which could be taken at a meeting of the Board or of any
committee created by the Board may be taken without a meeting if one or more
written consents setting forth the action so taken are signed by each of the
Directors or by each committee member either before or after the action is taken
and delivered to the corporation. Action taken by written consent of Directors
without a meeting is effective when the last Director signs the consent, unless
the consent specifies a later effective date. Any such written consent shall be
inserted in the minute book as if it were the minutes of a Board or a committee
meeting.
3.12 RESIGNATION
Any Director may resign at any time by delivering written notice to the
Chairman of the Board, the President, the Secretary or the Board. Any such
resignation is effective upon delivery thereof unless the notice of resignation
specifies a later effective date and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.13 REMOVAL
At a meeting of shareholders called expressly for that purpose, one
or more members of the Board, including the entire Board, may be removed
with or without cause (unless the Articles of Incorporation permit removal
for cause only) by the holders of the shares entitled to elect the Director
or Directors whose removal is sought if the number of votes cast to remove
the Director exceeds the number of votes cast not to remove the Director.
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3.14 VACANCIES
Unless the Articles of Incorporation provide otherwise, any vacancy
occurring on the Board may be filled by the shareholders, the Board or, if the
Directors in office constitute fewer than a quorum, by the affirmative vote of a
majority of the remaining Directors. Any vacant office held by a Director
elected by the holders of one or more classes or series of shares entitled to
vote and be counted collectively thereon shall be filled only by the vote of the
holders of such class or series of shares. A Director elected to fill a vacancy
shall serve only until the next election of Directors by the shareholders.
3.15 EXECUTIVE AND OTHER COMMITTEES
3.15.1 CREATION OF COMMITTEES
The Board, by resolution adopted by the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws, may create standing or temporary committees,
including an Executive Committee, and appoint members thereto from its own
number and invest such committees with such powers as it may see fit, subject to
such conditions as may be prescribed by the Board, these Bylaws and applicable
law. Each committee must have two or more members, who shall serve at the
pleasure of the Board.
3.15.2 AUTHORITY OF COMMITTEES
Each committee shall have and may exercise all of the authority of the
Board to the extent provided in the resolution of the Board creating the
committee and any subsequent resolutions pertaining thereto and adopted in like
manner, except that no such committee shall have the authority to: (1) authorize
or approve a distribution except according to a general formula or method
prescribed by the Board, (2) approve or propose to shareholders actions or
proposals required by the Washington Business Corporation Act to be approved by
shareholders, (3) fill vacancies on the Board or any committee thereof, (4)
adopt, amend or repeal Bylaws, (5) amend the Articles of Incorporation pursuant
to RCW 23B.10.020, (6) approve a plan of merger not requiring shareholder
approval, or (7) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares except that the Board may authorize a
committee or a senior executive officer of the corporation to do so within
limits specifically prescribed by the Board.
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3.15.3 QUORUM AND MANNER OF ACTING
A majority of the number of Directors composing any committee of the
Board, as established and fixed by resolution of the Board, shall constitute a
quorum for the transaction of business at any meeting of such committee but, if
less than a majority is present at a meeting, a majority of such Directors
present may adjourn the meeting from time to time without further notice. Except
as may be otherwise provided in the Washington Business Corporation Act, if a
quorum is present when the vote is taken the act of a majority of the members
present shall be the act of the committee.
3.15.4 MINUTES OF MEETINGS
All committees shall keep regular minutes of their meetings and shall
cause them to be recorded in books kept for that purpose.
3.15.5 RESIGNATION
Any member of any committee may resign at any time by delivering written
notice thereof to the Chairman of the Board, the President, the Secretary or the
Board. Any such resignation is effective upon delivery thereof, unless the
notice of resignation specifies a later effective date, and the acceptance of
such resignation shall not be necessary to make it effective.
3.15.6 REMOVAL
The Board may remove any member of any committee elected or appointed by
it but only by the affirmative vote of the greater of a majority of the
Directors then in office and the number of Directors required to take action in
accordance with these Bylaws.
3.16 COMPENSATION
By Board resolution, Directors and committee members may be paid their
expenses, if any, of attendance at each Board or committee meeting, or a fixed
sum for attendance at each Board or committee meeting, or a stated salary as
Director or a committee member, or a combination of the foregoing. No such
payment shall preclude any Director or committee member from serving the
corporation in any other capacity and receiving compensation therefor.
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3.17 AUDIT COMMITTEE.
The Audit Committee shall consist of two or more Directors. The members of the
Audit Committee shall be designated and appointed by the Board. The Audit
Committee may review with the corporation's management the internal auditors and
the independent auditors the corporation's policies and procedures with respect
to internal control; review significant accounting matters, approve the audited
financial statements prior to distribution, approve any significant changes in
the corporation's accounting principles or financial reporting practices, review
independent auditor services, and recommend to the Board of Directors the firm
of independent auditors to audit the corporation's consolidated financial
statements. (THIS SECTION ADDED 11/14/97 BY VOTE OF THE BOARD OF DIRECTORS.)
3.18 PLAN ADMINISTRATION COMMITTEE.
The Plan Administration Committee shall consist of two or more Directors.
The members of the Plan Administration Committee shall be designated and
appointed by the Board. The Plan Administration Committee shall act as the Plan
Administrator of the 1997 Nextel International, Inc. Stock Option Plan and of
the Nextel International, Inc. Stock Appreciation Rights Plan, as such plans may
be amended from time to time. . (THIS SECTION ADDED 7/10/98 BY VOTE OF THE BOARD
OF DIRECTORS.)
SECTION 4. OFFICERS
4.1 APPOINTMENT AND TERM
The officers of the corporation shall be those officers appointed from
time to time by the Board or by any other officer empowered to do so. The Board
shall have sole power and authority to appoint executive officers. As used
herein, the term "executive officer" shall mean the President, any Vice
President in charge of a principal business unit, division or function or any
other officer who performs a policy-making function. The Board or the President
may appoint such other officers and assistant officers to hold office for such
period, have such authority and perform such duties as may be prescribed. The
Board may delegate to any other officer the power to appoint any subordinate
officers and to prescribe their respective terms of office, authority and
duties. Any two or more offices may be held by the same person. Unless an
officer dies, resigns or is removed from office, he or she shall hold office
until his or her successor is appointed.
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4.2 RESIGNATION
Any officer may resign at any time by delivering written notice thereof
to the corporation. Any such resignation is effective upon delivery thereof,
unless the notice of resignation specifies a later effective date, and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
4.3 REMOVAL
Any officer may be removed by the Board at any time, with or without
cause. An officer or assistant officer, if appointed by another officer, may be
removed by any officer authorized to appoint officers or assistant officers.
4.4 CONTRACT RIGHTS OF OFFICERS
The appointment of an officer does not itself create contract rights.
4.5 CHAIRMAN OF THE BOARD
If appointed, the Chairman of the Board shall perform such duties as
shall be assigned to him or her by the Board from time to time and shall preside
over meetings of the Board and shareholders unless another officer is appointed
or designated by the Board as chairman of such meetings. In the absence of the
Chairman of the Board, the Vice Chairman (or the President if no Vice Chairman
has been appointed) shall perform the duties of the Chairman of the Board.
4.6 PRESIDENT
If appointed, the President shall be the chief executive officer of the
corporation unless some other officer is so designated by the Board, shall
preside over meetings of the Board and shareholders in the absence of the
Chairman of the Board and Vice Chairman, and, subject to the Board's control,
shall supervise and control all of the assets, business and affairs of the
corporation. In general, the President shall perform all duties incident to the
office of President and such other duties as are prescribed by the Board from
time to time. If no Secretary has been appointed, the President shall have
responsibility for the preparation of minutes of meetings of the Board and
shareholders and for authentication of the records of the corporation.
4.7 VICE PRESIDENT
In the event of the death of the President or his or her inability to
act, the Vice President who is designated by the Board as the successor to the
President, or if no
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Vice President is so designated, the Vice President first elected to office,
shall perform the duties of the President, except as may be limited by
resolution of the Board, with all the powers of and subject to all the
restrictions upon the President. Vice Presidents shall perform such other duties
as from time to time may be assigned to them by the President or by or at the
direction of the Board.
4.8 SECRETARY
If appointed, the Secretary shall be responsible for preparation of
minutes of the meetings of the Board and shareholders, maintenance of the
corporation records and stock registers, and authentication of the corporation's
records and shall in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him or
her by the President or by or at the direction of the Board. In the absence of
the Secretary, an Assistant Secretary may perform the duties of the Secretary.
4.9 TREASURER
If appointed, the Treasurer shall have charge and custody of and be
responsible for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in banks,
trust companies or other depositories selected in accordance with the provisions
of these Bylaws, and in general perform all of the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
or her by the President or by or at the direction of the Board. In the absence
of the Treasurer, an Assistant Treasurer may perform the duties of the
Treasurer. If required by the Board, the Treasurer or any Assistant Treasurer
shall give a bond for the faithful discharge of his or her duties in such amount
and with such surety or sureties as the Board shall determine.
4.10 SALARIES
The salaries of the officers shall be fixed from time to time by the
Board or by any person or persons to whom the Board has delegated such
authority. No officer shall be prevented from receiving such salary by reason of
the fact that he or she is also a Director of the corporation.
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SECTION 5. CERTIFICATES FOR SHARES AND THEIR TRANSFER
5.1 ISSUANCE OF SHARES
No shares of the corporation shall be issued unless authorized by the
Board, or by a committee designated by the Board to the extent such committee is
empowered to do so.
5.2 CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be signed,
either manually or in facsimile, by any two officers of the corporation and
shall include on their face written notice of any restrictions which may be
imposed on the transferability of such shares. All certificates shall be
consecutively numbered or otherwise identified.
5.3 STOCK RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of each person to whom certificates for shares are issued,
together with the class and number of shares represented by each such
certificate and the date of issue thereof, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
5.4 RESTRICTION ON TRANSFER
Except to the extent that the corporation has obtained an opinion of
counsel acceptable to the corporation that transfer restrictions are not
required under applicable securities laws, or has otherwise satisfied itself
that such transfer restrictions are not required, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate, or
on the reverse of the certificate if a reference to the legend is contained on
the face, which reads substantially as follows:
"The securities evidenced by this certificate have not been
registered under the Securities Act of l933, as amended, or
any applicable state law, and no interest therein may be
sold, distributed, assigned, offered, pledged or otherwise
transferred unless (a) there is an effective registration
statement under such Act and applicable state securities laws
covering any such
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transaction involving said securities or (b) this corporation
receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this
corporation) stating that such transaction is exempt from
registration or this corporation otherwise satisfies itself
that such transaction is exempt from registration."
5.5 TRANSFER OF SHARES
The transfer of shares of the corporation shall be made only on the stock
transfer books of the corporation pursuant to authorization or document of
transfer made by the holder of record thereof or by his or her legal
representative, who shall furnish proper evidence of authority to transfer, or
by his or her attorney-in-fact authorized by power of attorney duly executed and
filed with the Secretary of the corporation. All certificates surrendered to the
corporation for transfer shall be cancelled and no new certificate shall be
issued until the former certificates for a like number of shares shall have been
surrendered and cancelled.
5.6 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new
certificate may be issued therefor upon such terms and indemnity to the
corporation as the Board may prescribe.
SECTION 6. BOOKS AND RECORDS
The corporation shall:
(a) Keep as permanent records minutes of all meetings of its
shareholders and the Board, a record of all actions taken by the shareholders
or the Board without a meeting, and a record of all actions taken by a committee
of the Board exercising the authority of the Board on behalf of the corporation.
(b) Maintain appropriate accounting records.
(c) Maintain a record of its shareholders, in a form that permits
preparation of a list of the names and addresses of all shareholders, in
alphabetical order by class of shares showing the number and class of shares
held by each; provided, however, such record may be maintained by an agent of
the corporation.
(d) Maintain its records in written form or in another form capable of
conversion into written form within a reasonable time.
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(e) Keep a copy of the following records at its principal office:
1. the Articles of Incorporation and all amendments thereto as
currently in effect;
2. the Bylaws and all amendments thereto as currently in
effect;
3. the minutes of all meetings of shareholders and records of
all action taken by shareholders without a meeting, for the
past three years;
4. the financial statements described in Section 23B.16.200(1)
of the Washington Business Corporation Act, for the past three
years;
5. all written communications to shareholders generally within
the past three years;
6. a list of the names and business addresses of the current
Directors and officers; and
7. the most recent annual report delivered to the Washington
Secretary of State.
SECTION 7. SEAL
The Board may provide for a corporate seal which shall consist of the
name of the corporation, the state of its incorporation and the year of its
incorporation.
SECTION 8. INDEMNIFICATION
8.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to
or is otherwise involved (including, without limitation, as a witness) in
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative and whether formal or
informal (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a Director or officer of the corporation or, that being or having
been such a Director or officer or an employee of the corporation, he or she
is or was serving at the request of the corporation as a Director, officer,
partner, trustee, employee or agent of another corporation or of a
partnership, joint venture, trust, employee benefit plan or other enterprise
(hereinafter
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an "indemnitee"), whether the basis of a proceeding is alleged action in an
official capacity as such a Director, officer, partner, trustee, employee or
agent or in any other capacity while serving as such a Director, officer,
partner, trustee, employee or agent, shall be indemnified and held harmless
by the corporation against all expense, liability and loss (including
counsel fees, judgments, fines, ERISA excise taxes or penalties and amounts
to be paid in settlement) actually and reasonably incurred or suffered by
such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a Director, officer,
partner, trustee, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators. Except as provided in
subsection 8.2 of this Section with respect to proceedings seeking to
enforce rights to indemnification, the corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if a proceeding (or part thereof) was authorized or
ratified by the Board. The right to indemnification conferred in this
Section shall be a contract right.
8.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts
or omissions of the indemnitee finally adjudged to be intentional misconduct
or a knowing violation of law, for conduct of the indemnitee finally
adjudged to be in violation of Section 23B.08.310 of the Washington Business
Corporation Act, for any transaction with respect to which it was finally
adjudged that such indemnitee personally received a benefit in money,
property or services to which the indemnitee was not legally entitled or if
the corporation is otherwise prohibited by applicable law from paying such
indemnification, except that if Section 23B.08.560 or any successor
provision of the Washington Business Corporation Act is hereafter amended,
the restrictions on indemnification set forth in this subsection 8.2 shall
be as set forth in such amended statutory provision.
8.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include
the right to be paid by the corporation the expenses incurred in defending
any proceeding in advance of its final disposition (hereinafter an
"advancement of expenses"). An advancement of expenses shall be made upon
delivery to the corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision
from which there is no further right to appeal that such indemnitee is not
entitled to be indemnified for such expenses under this subsection 8.3.
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8.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 8.1 or 8.3 of this Section is not paid in
full by the corporation within sixty days after a written claim has been
received by the corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
days, the indemnitee may at any time thereafter bring suit against the
corporation to recover the unpaid amount of the claim. If successful in
whole or in part, in any such suit or in a suit brought by the corporation
to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. The indemnitee shall be presumed to be
entitled to indemnification under this Section upon submission of a written
claim (and, in an action brought to enforce a claim for an advancement of
expenses, where the required undertaking has been tendered to the
corporation) and thereafter the corporation shall have the burden of proof
to overcome the presumption that the indemnitee is so entitled.
8.5 PROCEDURES EXCLUSIVE
Pursuant to Section 23B.08.560(2) or any successor provision of the
Washington Business Corporation Act, the procedures for indemnification and
advancement of expenses set forth in this Section are in lieu of the
procedures required by Section 23B.08.550 or any successor provision of the
Washington Business Corporation Act.
8.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses
conferred in this Section shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, provision of the
Articles of Incorporation or Bylaws of the corporation or the parent company
of this corporation (if any), general or specific action of the Board,
contract or otherwise.
8.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect
itself and any Director, officer, partner, trustee, employee or agent of the
corporation or another corporation, partnership, joint venture, trust or
other enterprise against any expense, liability or loss, whether or not the
corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act.
The corporation may enter into contracts with any Director, officer,
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partner, trustee, employee or agent of the corporation in furtherance of the
provisions of this Section and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of
credit) to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Section.
8.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to
indemnification and advancement of expenses to employees and agents or any
class or group of employees and agents of the corporation (i) with the same
scope and effect as the provisions of this Section with respect to the
indemnification and advancement of expenses of Directors and officers of the
corporation; (ii) pursuant to rights granted pursuant to, or provided by,
the Washington Business Corporation Act; or (iii) otherwise consistent with
law.
8.9 PERSONS SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the
corporation, is or was serving (a) as a Director or officer of another
foreign or domestic corporation of which a majority of the shares entitled
to vote in the election of its Directors is held by the corporation or (b)
as a partner, trustee or otherwise in an executive or management capacity in
a partnership, joint venture, trust or other enterprise of which the
corporation or a wholly owned subsidiary of the corporation is a general
partner or has a majority ownership shall be deemed to be so serving at the
request of the corporation and entitled to indemnification and advancement
of expenses under subsections 8.1 and 8.3 of this Section.
SECTION 9. AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may
be adopted by the Board, except that the Board may not repeal or amend any
Bylaw that the shareholders have expressly provided, in amending or
repealing such Bylaw, may not be amended or repealed by the Board. The
shareholders may also alter, amend and repeal these Bylaws or adopt new
Bylaws. All Bylaws made by the Board may be amended, repealed, altered or
modified by the shareholders.
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EXHIBIT 10.9
NEXTEL INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
(RESTATED AS OF SEPTEMBER 16, 1998)
SECTION 1. PURPOSE
The purpose of this Nextel International, Inc. 1997 Stock Option Plan
(this "Plan") is to provide a means whereby selected employees, directors,
officers, consultants, agents, advisors and independent contractors of Nextel
International, Inc., a Washington corporation (the "Company"), and its
Subsidiaries (as defined in Section 4) may be granted options to purchase shares
of the common stock of the Company (the "Common Stock") and thereby share in any
future appreciation in the value of the Common Stock (Amended 7/10/98).
SECTION 2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the Company
(the "Board") or a committee designated by the Board in its discretion, which
must include two or more members of the Board. If and so long as the Common
Stock is registered under Section 12(b) or 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Board shall consider in selecting
the Plan Administrator and the membership of any committee acting as Plan
Administrator, with respect to any persons subject or likely to become subject
to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and (b) "nonemployee directors" as contemplated
by Rule 16b-3 under the Exchange Act. The Board may delegate the responsibility
for administering this Plan with respect to designated classes of eligible
persons to different committees consisting of two or more members of the Board,
subject to such limitations, as the Board deems appropriate. Committee members
shall serve for such term as the Board may determine, subject to removal by the
Board at any time. The Board (or the designated committee, if applicable) shall
hereinafter be referred to as the "Plan Administrator." The Board may also
authorize a senior executive officer of the Company to administer this Plan
within limits specifically prescribed by the Board. Except for the terms and
conditions explicitly set forth in this Plan, the Plan Administrator shall have
the authority, in its discretion, to determine all matters relating to the
options to be granted under this Plan, including selection of the individuals to
be granted options, the number of options to be granted, and all other terms and
conditions of the options. The options granted under this Plan need not be
identical in any respect, even when made simultaneously.
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The Plan Administrator shall be responsible for interpreting and
construing the terms and provisions of this Plan, any options issued hereunder,
or any rule or regulation promulgated in connection with this Plan and
associated options. All actions of the Plan Administrator shall, to the maximum
extent permitted under law, be determined in its good faith discretion, and
subject to appeal or dispute only as to its failure to adhere to such good faith
discretion standard. Any party disagreeing with the Plan Administrator's
interpretation or decision may request the Plan Administrator to reexamine its
action. A request for a reexamination must be made in writing within 60 days of
the Plan Administrator's decision or action, and must specify the reasons why
the Plan Administrator's decision or action was wrong or inappropriate. Within
90 days of its receipt of a request to reexamine a decision or action, the Plan
Administrator will respond in writing to the disputing party. The Plan
Administrator's response shall either reverse or reconfirm its initial decision
or action. If the response reconfirms the initial decision or action, the Plan
Administrator shall state why it disagrees with the points raised by the
disputing party.
A continuing dispute between the Plan Administrator and a recipient of
options about the proper interpretation of this Plan or the Stock Purchase
Agreement to be entered into between the Company and the holder of an option
upon exercise of an option (the "Stock Purchase Agreement"), or the correct
amount of benefits available under this Plan or the Stock Purchase Agreement
shall be settled in Seattle, Washington, or such other location reasonably
selected by the Company, by arbitration in accordance with the procedures
utilized by Commercial Arbitration Rules of the American Arbitration Association
(the "AAA Rules"). The arbitrator shall be either selected by the mutual
agreement of the parties or chosen in accordance with the AAA Rules. Judgment
upon the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof. Notwithstanding anything in the AAA Rules to the contrary,
the prevailing parties shall not be entitled to costs, expenses or attorneys'
fees.
SECTION 3. STOCK SUBJECT TO THIS PLAN
3.1 AUTHORIZED NUMBER OF SHARES
Subject to adjustment from time to time as provided in Section 7, a
maximum of 1,975,000 shares of Common Stock shall be available for issuance
under this Plan. Shares issued under this Plan shall be drawn from authorized
and unissued shares or shares now held or subsequently acquired by the Company.
(Amended 7/10/98)
3.2 REUSE OF SHARES
Any shares of Common Stock that have been made subject to an option that
cease to be subject to the option (other than by reason of exercise of the
option to the extent it is exercised for shares) shall again be available for
issuance in connection with future grants of options under this Plan.
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SECTION 4. ELIGIBILITY
An option may be granted to any employee, director, officer, consultant,
agent, advisor or independent contractor of the Company or its Subsidiaries that
the Plan Administrator from time to time selects. For purposes of this Plan,
except as provided below, the term "Subsidiary" means any entity that is
directly or indirectly controlled by the Company or in which the Company has a
significant ownership interest, as determined by the Plan Administrator. In
addition, an option may be granted to any person who was granted a stock
appreciation right under the Company's Stock Appreciation Rights Plan and who is
an employee of Nextel Communications, Inc. ("Nextel") on the date of grant.
Anyone to whom an option is granted under this Plan shall be referred to
hereinafter as an "Optionee."
Notwithstanding anything in this Plan to the contrary, the Plan
Administrator may grant options under this Plan in substitution for awards
issued under other plans, or assume under this Plan awards issued under other
plans, if the other plans are or were plans of other acquired entities
("Acquired Entities") (or the parent of the Acquired Entity) and the new option
is substituted, or the old award is assumed, by reason of a merger,
consolidation, acquisition of property or of stock, reorganization or
liquidation (the "Acquisition Transaction"). In the event that a written
agreement pursuant to which the Acquisition Transaction is completed is approved
by the Board and said agreement sets forth the terms and conditions of the
substitution for or assumption of outstanding awards of the Acquired Entity,
said terms and conditions shall be deemed to be the action of the Plan
Administrator without any further action by the Plan Administrator, except as
may be required for compliance with Rule 16b-3 under the Exchange Act, and the
persons holding such awards shall be deemed to be Optionees.
SECTION 5. TERMS AND CONDITIONS OF OPTIONS
The Plan Administrator shall have the authority, in its sole discretion,
to determine the awards to be made under this Plan. Such awards shall consist of
incentive stock options that are intended to qualify under Section 422 of the
Code or nonqualified stock options.
Options granted under this Plan shall be evidenced by individual written
agreements ("option letter agreements"), which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and consistent with this Plan. Notwithstanding the foregoing, all
options shall include or incorporate by reference the following terms and
conditions, except as provided otherwise in the applicable option letter
agreement:
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5.1 NUMBER OF OPTIONS AND EXERCISE PRICE
At the time a grant of an option is made, the Plan Administrator shall
establish the maximum number of shares of Common Stock subject to the option
contained in the grant. Also at the time an option is granted, the corresponding
option letter agreement shall designate the exercise price for shares purchased
under the option, which shall be as determined by the Plan Administrator, but
shall not be less than 100% of the fair market value (as determined below) of a
single share of Common Stock on the date of grant with respect to incentive
stock options.
5.2 DETERMINATION OF FAIR MARKET VALUE
The per share fair market value shall be established by the Plan
Administrator as follows:
5.2.1
Within 90 days following the close of the Company's fiscal year, the Plan
Administrator shall establish the fair market value of a share of the Common
Stock for purposes of this Plan, based on financial data dated as of the end of
the most recently closed fiscal year, and shall deliver written notice of such
value to each Optionee within a reasonable period of time of determining such
value (the "Year-End Valuation Notice"). In setting such per share fair market
value, the Plan Administrator shall attempt, in good faith, to establish the
Company's fair market value, consistently using formulas and other valuation
techniques generally used in purchasing and selling businesses similar to the
Company. For purposes of determining the per share fair market value of the
Common Stock at the date of grant and/or exercise of an option that occurs at a
time other than during the first Semi-Annual Exercise Period (as defined in
Section 5.4 below) each year, the per share fair market value shall be
determined by the Plan Administrator after taking into account such factors as
the Plan Administrator shall deem appropriate.
5.2.2
Notwithstanding the other paragraphs of Section 5.2, for purposes of
determining the per share fair market value at the date of exercise of certain
put rights to sell to the Company shares acquired upon exercise of an option (a
"Put Right") as described in Section 13.2 that occurs at a time other than
during the first Semi-Annual Exercise Period (as defined in Section 5.4) each
year, the Plan Administrator shall at its election either (i) use the year-end
financial information for the Company's most recently ended fiscal year and
determine the per share fair market value as of that year-end, and then adjust
that value forward at the Applicable Rate to the date of exercise, which
adjusted amount shall be the applicable per share fair market value, or (ii) use
month-end financial information for the Company's most recently ended month and
determine the per share fair market value as of that month-end, which such
determined amount shall be the
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applicable per share fair market value; provided, however, unless a material
transaction has occurred within the three-month period following the most recent
determination of per share fair market value, such per share fair market value
shall be applicable during such period; and provided, further, that, (x) if a
Put Right is exercised during the last 45 days of the Company's fiscal year,
then the Company shall wait and use the year-end financial information for that
fiscal year to determine per share fair market value and (y) immediately prior
to a material transaction the Plan Administrator shall establish the per share
fair market value applicable immediately prior to (and disregarding any value
impact associated with) such transaction; and provided, further that in no event
shall such per share fair market value for an exercise date during any fiscal
year be lower than the per share fair market value stated in the Year-End
Valuation Notice for that year. The Plan Administrator shall, within 90 days
following the close of the second fiscal quarter of the Company's fiscal year,
establish the per share fair market value of the Common Stock, based on either
of the methodologies described in clause (i) or (ii) above and shall deliver
written notice of such value to each Optionee (the "Six-Month Valuation Notice")
(the Year-End Valuation Notice and the Six-Month Valuation Notice are each a
"Valuation Notice"). For purposes of this Plan, "Applicable Rate" shall mean an
annual rate equal to the prime rate (adjusted quarterly) announced from time to
time by Seattle-First National Bank plus 2%.
5.2.3
Notwithstanding the preceding paragraphs of this Section 5.2, in the
event the grant and/or exercise of options or the exercise of a Put Right occurs
in connection with the sale of the Company, an initial public offering, merger,
or other similar event that utilizes or produces a purchase value for the
Company or for individual shares of the Common Stock, then that value shall be
used for computing the per share fair market value under this Plan. Otherwise,
in setting the per share fair market value in connection with the granting or
exercising of options or the exercise of a Put Right, the determination of the
Plan Administrator acting in good faith and using formulas and other valuation
techniques generally used in purchasing and selling businesses similar to the
Company shall be conclusive and binding on all parties; provided, in the event
of a dispute over the valuation, the arbitration process discussed in Section 2
shall not affect or alter the Plan Administrator's determination if the
arbitrator concludes the Plan Administrator (i) acted in good faith and (ii)
based its determination on formulas and other valuation techniques generally
used in the purchase and sale of businesses similar to the Company.
5.2.4
Notwithstanding the foregoing, if the Common Stock is listed on the
NASDAQ National Market, the per share fair market value shall be the average of
the high and low per share sales prices for the Common Stock as reported by the
NASDAQ National Market for a single trading day or, if the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange, the per
share fair market value shall be the
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average of the high and low per share sales prices for the Common Stock as such
price is officially quoted in the composite tape of transactions on such
exchange for a single trading day. If there is no such reported price for the
Common Stock for the date in question, then such price on the last preceding
date for which such price exists shall be determinative of the per share fair
market value.
5.3 TERM AND VESTING
The term of each option shall be ten years from the date of grant, unless
the Plan Administrator establishes a different term and set forth in the option
letter agreement issued to the individual Optionee. The Plan Administrator may,
in its discretion, extend the term period of an option. In addition, the term of
an option shall expire, if earlier than ten years or the different term
specified in the option letter agreement, earlier in accordance with the
provisions of Section 5.8 if the Optionee's employment or service relationship
with the Company terminates before the end of ten years from the date of grant
or the different term specified in the option letter agreement. To the extent
not exercised within the applicable time period provided herein, options shall
become null and void.
To ensure that the Company achieves the purpose and receives the benefits
contemplated in this Plan, any option granted to any person hereunder shall,
unless the condition of this sentence is waived or modified by the Plan
Administrator in the individual option letter agreement or at any later time,
vest on a monthly basis over a four-year period, with the Optionee becoming
vested in 1/48th of the option grant after the completion of each full calendar
month of employment or service relationship with the Company following the date
as of which the option was granted.
5.4 EXERCISE
After an Optionee becomes at least 50% vested with respect to any single
option grant, the Optionee may exercise vested options included in that grant;
provided that, an Optionee may not exercise more than 20% of the options
conveyed in a specific grant in a single fiscal year of the Company. This 50%
threshold shall apply separately to each separate grant of options. The Plan
Administrator may in its discretion increase the percentage of options, which
may be exercised. To the extent options are exercised upon a termination of
employment or service relationship with the Company (as described in Section
5.8), the preceding 50% and 20% limits shall not apply. During an Optionee's
lifetime, any options granted under this Plan are personal to him or her and may
be exercised solely by such Optionee except as permitted under Section 5.7.
To the extent that the right to purchase shares has accrued thereunder,
an option may be exercised only during a Semi-Annual Exercise Period by
delivering during such Semi-Annual Exercise Period written notice to the
Company, in accordance with procedures established by the Plan Administrator,
setting forth the number of shares with
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respect to which the option is being exercised and accompanied by payment in
full as described below. "Semi-Annual Exercise Periods" means the 30-day periods
commencing each year on each of (a) the date the Plan Administrator delivers to
the Optionee the Year-End Valuation Notice pursuant to Section 5.2.1 and (b) the
date the Plan Administrator delivers to the Optionee the Six-Month Valuation
Notice pursuant to Section 5.2.2, during which periods an Optionee is entitled
to exercise his or her options pursuant to the terms hereof.
The limitations on exercisability contained in this Section 5.4 shall not
apply at any time during which the Common Stock is registered under Section
12(b) or 12(g) of the Exchange Act. The Plan Administrator may determine at any
time that an option may not be exercised as to less than 100 shares at any one
time (or the lesser number of remaining shares covered by the option).
5.5 PAYMENT OF THE EXERCISE PRICE
The exercise price for shares purchased under an option shall be paid in
full to the Company by delivery of consideration equal to the product of the
option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
any of the following alternative forms: (a) tendering (either actually or, if
and so long as the Common Stock is registered under Section 12(b) or 12(g) of
the Exchange Act, by attestation) Common Stock already owned by the Optionee for
at least six months (or any shorter period necessary to avoid a charge to the
Company's earnings for financial reporting purposes) having a fair market value
on the day prior to the exercise date equal to the aggregate option exercise
price; (b) if and so long as the Common Stock is registered under Section 12(b)
or 12(g) of the Exchange Act, delivery of a properly executed exercise notice,
together with irrevocable instructions, to (i) a brokerage firm designated by
the Company to deliver promptly to the Company the aggregate amount of sale or
loan proceeds to pay the option exercise price and any withholding tax
obligations that may arise in connection with the exercise and (ii) the Company
to deliver the certificates for such purchased shares directly to such brokerage
firm, all in accordance with the regulations of the Federal Reserve Board; or
(c) surrendering to the Company a portion of a particular grant equal to or less
than the result of dividing the total exercise price of the options being
exercised by the fair market value of one share of Common Stock and receiving
from the Company in whole shares the difference between the total shares of the
option grant and the number of whole option shares surrendered. In addition, to
the extent permitted by the Plan Administrator in its sole discretion, the price
for shares purchased under an option may be paid, either singly or in
combination with one or more of the alternative forms of payment authorized by
this Section 5.5, by (y) a promissory note delivered pursuant to Section 12 or
(z) such other consideration as the Plan Administrator may permit.
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5.6 STOCK PURCHASE AGREEMENT
Prior to and as a condition to the exercise of an option, the Optionee
shall become a party to and agree to the terms of a Stock Purchase Agreement,
which agreement provides terms and conditions regarding the ownership and
disposition of the Common Stock issued upon the exercise of an option. A copy of
the Stock Purchase Agreement, in its substantial form, shall be provided to the
Optionee upon the grant of an option to the Optionee.
5.7 NON-TRANSFERABILITY OF OPTIONS
(a) Except as provided in Section 5.7(b) below, options granted under
this Plan and the rights and privileges conferred thereby may not be
transferred, assigned, pledged or hypothecated in any manner (whether by
operation of law or otherwise) other than by will or by the applicable laws of
descent and distribution, and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this Plan or of any right or privilege
conferred thereby, contrary to the provisions hereof, or upon the sale or levy
or any attachment or similar process upon the options or rights and privileges
conferred thereby, such option shall terminate and become null and void (Amended
9/16/98)
(b) Notwithstanding the provisions of Section 5.7(a), and to the extent
permitted by Section 422 of the Code, (i) an Optionee may designate a
beneficiary to exercise an option after the Optionee's death, and (ii) options
shall be transferable by an Optionee, without payment of consideration therefor
by the transferee, to any one or more members of the Optionee's Immediate Family
(or to one or more trust established for the exclusive benefit of one or more
members of the Optionee's Immediate Family or to any other entities owned solely
by members of the Optionee's Immediate Family); provided, however, that (y) no
such transfer shall be effective unless reasonable prior notice thereof is
delivered to the Company and such transfer is thereafter effected in accordance
with any terms and conditions that shall have been made applicable thereto by
the Plan Administrator and (z) any such transferee shall be subject to the same
terms and conditions hereunder as the Optionee. "Immediate Family" shall have
the meaning ascribed thereto in Form S-8 as promulgated and amended from time to
time by the Securities and Exchange Commission under the Securities Act, or any
successor form to the same effect. (Added 9/16/98)
5.8 TERMINATION OF EMPLOYMENT OR SERVICE RELATIONSHIP WITH THE COMPANY
If the Optionee terminates his or her employment or service relationship
with the Company for any reason (including retirement, death, disability or
otherwise), the Optionee may exercise the vested portion of his or her options,
as governed by the vesting schedule defined in Section 5.3. The unvested portion
of his or her options shall
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be forfeited. In addition, an Optionee whose employment or service relationship
with the Company is terminated for cause shall forfeit all outstanding options,
including vested and unvested portions. A termination shall be considered for
"cause" if the Plan Administrator determines that the Optionee's termination of
employment or service relationship with the Company was for one of the following
reasons: (a) proven embezzlement by the Optionee of the Company's assets, or
other crimes by the Optionee against or directly involving the Company's
property; (b) material violation by the Optionee, whether or not an employee, of
the policies applicable to employees of the Company; (c) the Optionee acting in
any fashion as an independent consultant or employee, for himself or herself or
any other business or employer other than the Company, in any endeavor that in
any way competes with the Company; or (d) the Optionee's willful engaging in
conduct that is materially injurious to Nextel, the Company or their
subsidiaries, financially or otherwise. For purposes of this Section 5.8, no
act, or failure to act, on the Optionee's part shall be considered "willful"
unless done, or omitted to be done, by the Optionee not in good faith and
without reasonable belief that such action or omission was in the best interest
of Nextel, the Company or their subsidiaries.
The portion of the Optionee's options that are vested and nonforfeitable
on the date of the Optionee's termination of employment or service relationship
with the Company for any reason other than total disability or death may be
immediately exercised for a period of 90 days following the Optionee's
termination of employment or service relationship with the Company. If
termination of employment or service relationship with the Company is due to an
Optionee's total disability (as defined in Section 5.12.5), then the right to
exercise the Optionee's vested and nonforfeitable options under this Section 5.8
shall extend to one year from the date of termination of employment or service
relationship. If termination of employment or service relationship with the
Company is due to an Optionee's death (or the Optionee dies within 90 days
following a termination of employment or service relationship with the Company,
but prior to exercising his or her options), then the right to exercise the
Optionee's vested and nonforfeitable options under this Section 5.8 shall pass
to the Optionee's personal representative or estate, and the period for exercise
shall extend to one year from the date of death. The Plan Administrator, may, in
its discretion, waive or extend these exercise periods. Following these exercise
periods, any remaining unexercised options shall automatically terminate and be
forfeited.
For purposes of this Section 5.8, employment or service relationship with
the Company shall be deemed to continue while the Optionee is on military leave,
sick leave or other bona fide leave of absence (as determined by the Plan
Administrator). The foregoing notwithstanding, employment or service
relationship with the Company shall not be deemed to continue beyond the first
90 days of such leave, unless the Optionee's reemployment rights are guaranteed
by statute or contract.
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5.9 CONTINUATION OF EMPLOYMENT OR SERVICE RELATIONSHIP WITH THE COMPANY
Nothing in this Plan or in any options granted pursuant to this Plan
shall confer upon any Optionee any right to continue in the employment or
service relationship of the Company or of any Subsidiary, or to interfere in any
way with the right of the Company or of any Subsidiary to terminate the
Optionee's employment or other relationship with the Company or the Subsidiary
at any time.
5.10 MODIFICATION AND AMENDMENT OF OPTIONS
Subject to the terms and conditions and within the limitations of this
Plan, the Plan Administrator may modify or amend outstanding options granted
under this Plan. Except as expressly provided under the terms of this Plan as in
effect at the time of granting the relevant option, the modification or
amendment of an outstanding option shall not, without the consent of the
Optionee, impair or diminish any of his or her options that have been granted,
or any of the obligations of the Company under such options.
5.11 BUYOUT PROVISIONS
The Plan Administrator may at any time offer to buy out for a payment in
cash an option previously granted and held by an Optionee whose employment or
service relationship with the Company has been terminated, based on such terms
and conditions as the Plan Administrator shall establish and communicate to the
Optionee at the time such offer is made.
5.12 INCENTIVE STOCK OPTION LIMITATIONS
To the extent required by Section 422 of the Code, incentive stock
options shall be subject to the following additional terms and conditions:
5.12.1 DOLLAR LIMITATION
To the extent the aggregate fair market value (determined as of the grant
date) of Common Stock with respect to which incentive stock options held by an
individual Optionee are exercisable for the first time during any calendar year
(under this Plan and all other stock option plans of the Company) exceeds
$100,000, such portion in excess of $100,000 shall be treated as a nonqualified
stock option. In the event an Optionee holds two or more such options that
become exercisable for the first time in the same calendar year, such limitation
shall be applied on the basis of the order in which such options are granted.
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5.12.2 10% SHAREHOLDERS
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
incentive stock option shall not be less than 110% of the fair market value of
the Common Stock on the grant date and the option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
5.12.3 ELIGIBLE EMPLOYEES
Individuals who are not employees of the Company or one of its subsidiary
corporations or parent corporations may not be granted incentive stock options.
For purposes of this Section 5.12.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for the purposes
of Section 422 of the Code.
5.12.4 TERM
The term of an incentive stock option shall not exceed ten years.
5.12.5 EXERCISABILITY
To qualify for incentive stock option tax treatment, an option designated
as an incentive stock option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such option must be
exercised within one year after such termination. Employment shall not be deemed
to continue beyond the first 90 days of a leave of absence unless the Optionee's
reemployment rights are guaranteed by statute or contract. For purposes of this
Section 5.12, "total disability" shall mean a mental or physical impairment of
the Optionee that is expected to result in death or that has lasted or is
expected to last for a continuous period of 12 months or more and that causes
the Optionee to be unable, in the opinion of the Company and two independent
physicians, to perform his or her duties for the Company and to be engaged in
any substantial gainful activity. Total disability shall be deemed to have
occurred on the first day after the Company and the two independent physicians
have furnished their opinion of total disability to the Plan Administrator.
5.12.6 TAXATION OF INCENTIVE STOCK OPTIONS
In order to obtain certain tax benefits afforded to incentive stock
options under Section 422 of the Code, the Optionee must hold the shares issued
upon the exercise of an incentive stock option for two years after the grant
date of the incentive stock option and one year from the date of exercise. An
Optionee may be subject to the alternative minimum tax at the time of exercise
of an incentive stock option. The Plan Administrator may require an Optionee to
give the Company prompt notice of any disposition of shares
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acquired by the exercise of an incentive stock option prior to the expiration of
such holding periods.
5.12.7 PROMISSORY NOTES
The amount of any promissory note delivered pursuant to Section 12 in
connection with an incentive stock option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 6. STATUS AS SHAREHOLDERS
Neither the Optionee nor any person or persons to whom the Optionee's
options and related privileges under this Plan may pass shall be or have any of
the rights and privileges of a shareholder of the Company except to the extent
that shares are acquired upon exercise of an option, and provided that nothing
in this Plan prohibits or prevents an Optionee from otherwise becoming a
shareholder of the Company.
SECTION 7. CAPITALIZATION CHANGES
The aggregate number and kind of securities subject to this Plan as set
forth in Section 3, the number and kind of securities subject to any outstanding
options granted under this Plan and the per share option exercise price (without
any change in the aggregate exercise price to be paid therefor) shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or other similar capital adjustment, or the payment of any stock
dividend, or any other increase or decrease in the number of shares of Common
Stock of the Company without the Company's receipt (or release) of
consideration, proportionately equivalent to the added or eliminated shares. In
the event of any adjustment in the number of such securities, any fractional
shares of Common Stock resulting from the adjustment shall be disregarded.
SECTION 8. AMENDMENT AND TERMINATION
The Board may at any time suspend, amend or terminate this Plan;
provided, however, to the extent required for compliance with any applicable law
or regulation, shareholder approval will be required for any amendment that will
(a) increase the total number of shares as to which options may be granted under
this Plan, (b) modify the class of persons eligible to receive options, or (c)
otherwise require shareholder approval under any applicable law or regulation.
No option may be granted after such termination, or during any suspension of
this Plan. No incentive stock option may be granted more than ten years after
this Plan's adoption by the Board. The amendment or termination of this Plan
shall not, without the consent of the Optionee, alter or impair any options or
obligations under any option previously granted under this Plan.
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SECTION 9. GOVERNING LAW
The provisions of this Plan shall be construed and interpreted according
to the laws of the State of Washington, without regard to its conflicts of laws
principles.
SECTION 10. VALIDITY
In case any provision of this Plan is deemed illegal or invalid for any
reason, the illegal or invalid portion shall not affect the remaining parts of
this Plan, and this Plan shall be construed and enforced as if the illegal or
invalid provision had never been inserted.
SECTION 11. TAXES AND WITHHOLDING
The Company may withhold from any payment under this Plan or require the
Optionee to pay in cash any and all employment and income taxes that are
required to be withheld under applicable law. Subject to this Plan and
applicable law, the Plan Administrator may, in its sole discretion, permit the
Optionee to satisfy withholding obligations, in whole or in part, by paying
cash, by electing to have the Company withhold shares of Common Stock or by
transferring shares of Common Stock to the Company, in such amounts as are
equivalent to the fair market value of the withholding obligation. The Company
shall have the right to withhold from any shares of Common Stock issuable
pursuant to an option or from any cash amounts otherwise due or to become due
from the Company to the Optionee an amount equal to such taxes. The Company may
also deduct from any option any other amounts due from the Optionee to the
Company or a Subsidiary.
SECTION 12. LOANS, INSTALLMENT PAYMENTS AND LOAN GUARANTEES
To assist an Optionee (including an Optionee who is an officer or
director of the Company) in acquiring shares of Common Stock pursuant to an
option granted under this Plan, the Plan Administrator, in its sole discretion,
may authorize, either at the grant date or at any time before the acquisition of
Common Stock pursuant to the option, (a) the extension of a loan to the Optionee
by the Company, (b) the payment by the Optionee of the purchase price, if any,
of the Common Stock in installments, or (c) the guarantee by the Company of a
loan obtained by the Optionee from a third party. The terms of any loans,
installment payments or loan guarantees, including the interest rate and terms
of repayment, will be subject to the Plan Administrator's discretion. Loans,
installment payments and loan guarantees may be granted with or without
security. The maximum credit available is the purchase price, if any, of the
Common Stock acquired, plus the maximum federal and state income and employment
tax liability that may be incurred in connection with the acquisition.
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SECTION 13. FIRST REFUSAL AND PUT RIGHTS; MARKET STAND-OFF
13.1 FIRST REFUSAL RIGHTS
Until the date on which the initial registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the
Company shall have the right of first refusal with respect to any proposed sale
or other disposition by the holder of any shares of Common Stock issued pursuant
to an option granted under this Plan. Such right of first refusal shall be
exercisable in accordance with the terms and conditions established by the Plan
Administrator and set forth in the Stock Purchase Agreement evidencing such
right.
13.2 PUT RIGHTS
Until the date on which the initial registration of the Common Stock
under Section 12(b) or 12(g) of the Exchange Act first becomes effective, the
shares of Common Stock issued pursuant to the exercise of an option shall be
entitled to certain put rights by the Optionee to compel the purchase of the
shares by the Company pursuant to the terms and conditions established by the
Plan Administrator and set forth in the Stock Purchase Agreement.
13.3 MARKET STAND-OFF
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act of 1933, as amended (the "Securities Act"), including the
Company's initial public offering, a person shall not sell, or make any short
sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to, any shares issued pursuant to an
option granted under this Plan without the prior written consent of the Company
or its underwriters. Such limitations shall be subject to the terms and
conditions established by the Plan Administrator and set forth in the Stock
Purchase Agreement.
SECTION 14. REGISTRATION
The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, this
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
PAGE 14
<PAGE> 15
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
As a condition to the exercise of an option, the Company may require the
Optionee to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Optionee's own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the Company,
a stop-transfer order against any such shares may be placed on the official
stock books and records of the Company, and a legend indicating that such shares
may not be pledged, sold or otherwise transferred, unless an opinion of counsel
is provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Optionee as may from time to
time be necessary to comply with the federal and state securities laws.
SECTION 15. CALIFORNIA RESIDENTS
Persons who are residents of the State of California shall be subject to
the additional terms and conditions set forth in Appendix A to the Plan. (Added
7/10/98)
SECTION 16. EFFECTIVENESS OF THIS PLAN
This Plan shall become effective upon adoption by the Board, so long as
it is approved by the Company's shareholders at any time within 12 months of
such adoption. (Renumbered 7/10/98)
Approved by the Board on June 23, 1997.
Approved by the shareholder on January 5, 1998.
PAGE 15
<PAGE> 16
PLAN ADOPTION AND AMENDMENTS/ADJUSTMENTS
<TABLE>
<CAPTION>
Date of
Adoption/
Amendment/
Adjustment Section Effect of Amendment Date of Shareholder Approval
---------- ------- ------------------- ----------------------------
<S> <C> <C> <C>
7/10/98 Section 1 Name of Plan changed to Nextel 7/10/98
International, Inc 1997 Stock Option
Plan
7/10/98 Section 3.1 Number of shares of Common Stock 7/10/98
reserved for issuance increased to
1,975,000
7/10/98 Section 15 New Section 15 added regarding 7/10/98
California residents
7/10/98 Appendix A Added regarding California residents 7/10/98
9/16/98 Section 5.7 Provisions added permitting transfers
for estate planning purposes
</TABLE>
PAGE 1
<PAGE> 17
NEXTEL INTERNATIONAL, INC.
APPENDIX A
TO
1997 STOCK OPTION PLAN
FOR CALIFORNIA RESIDENTS
This Appendix to the Nextel International, Inc. 1997 Stock Option Plan
(the "Plan") shall have application only to optionees who are residents of the
State of California. NOTWITHSTANDING ANY PROVISION CONTAINED IN THE PLAN TO THE
CONTRARY, THE FOLLOWING TERMS AND CONDITIONS SHALL APPLY TO ANY OPTIONS GRANTED
UNDER THE PLAN TO RESIDENTS OF THE STATE OF CALIFORNIA, TO THE EXTENT STATED
ABOVE AND REQUIRED BY APPLICABLE LAW:
1. Nonqualified stock options shall have an exercise price that is
not less than 85% of the fair value of the stock at the time the option is
granted, as determined by the Board, except that the exercise price shall be
110% of the fair value in the case of any person who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or its parent or subsidiary corporations.
2. Options shall have a term of not more than 10 years from the date
the option is granted.
3. Options shall be nontransferable other than by will or the laws
of descent and distribution.
4. Options shall become exercisable at the rate of at least 20% per
year over 5 years from the date the option is granted, subject to reasonable
conditions such as continued employment. However, in the case of an option
granted to officers, directors or consultants of the Company or any of its
affiliates, the option may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company or any of its affiliates.
5. Unless employment is terminated for "cause" as defined by the
Plan, the right to exercise an option in the event of termination of employment,
to the extent that the optionee is otherwise entitled to exercise on the date
employment terminates, shall be:
a. at least 6 months from the date of termination of employment
if termination was caused by death or disability; and
PAGE 2
<PAGE> 18
b. at least 30 days from the date of termination if termination
of employment was caused by other than death or disability;
c. but in no event later than the remaining term of the option.
6. No option may be granted to a resident of California more than
ten years after the earlier of the date of adoption of the Plan and the date the
Plan is approved by the shareholders.
7. Any option exercised before shareholder approval is obtained
shall be rescinded if shareholder approval is not obtained within 12 months
before or after the Plan is adopted. Such shares shall not be counted in
determining whether such approval is obtained.
8. The Company shall provide annual financial statements of the
Company to each California resident holding an outstanding option under the
Plan. Such financial statements need not be audited and need not be issued to
key employees whose duties at the Company assure them access to equivalent
information.
(Added 7/10/98)
PAGE 3
<PAGE> 1
EXHIBIT 21
NEXTEL INTERNATIONAL, INC.
LIST OF SUBSIDIARIES
March 31, 1999
<TABLE>
<CAPTION>
COMPANY % INTEREST
- ------- ----------
<S> <C>
McCaw International (Brazil), Ltd. (Virginia) 81%
Airfone Holdings, Inc. (Delaware) 100%
Nextel S.A. (Brazil) 77%
Trunkline Telecomunicacoes e Servicos Ltda. (Brazil) 0%(1)
Trunking do Brasil Servicos de Telecomunicacoes Ltda. (Brazil) 0%(2)
Promobile Telecomunicacoes Ltda. (Brazil) 100% (3)
Telemobile Telecomunicacoes Ltda. (Brazil) 100%(4)
Air-fone Participacoes e Empreendimentos S/C Ltda. (Brazil) 100%
SOW Comercio e Servicos de Radiofonia Movel Ltda. (Brazil) 100%
Nextel Telecomunicacoes Ltda. (Brazil) 100%
Master-Tec Industria e Comercio de Produtos Electronicos Ltda. (Brazil) 100%(5)
Via Radio Administacao e Participacoes Ltda. (Brazil)
Via Radio-1 Telecomunicacoes Ltda. (Brazil) 100%
Comercial Telecar Ltda. (Brazil) 100%
Telemovel Servicos Ltda. (Brazil) 100%
ATG-Telecomunicacoes e Comercio Ltda. (Brazil) 100%
Car-Tel Telefonia Movel S/C Ltda. (Brazil) 100%
Comercial Teleservice Ltda. (Brazil) 100%
Radio Telecomunicacoes do Brasil Ltda. (Brazil) 100%
MCS Radio Telefonia Ltda. (Brazil) 100%(6)
LMP Consultoria e Representacoes e Representacoes Ltda. (Brazil) 100%(7)
Telecomunicacoes Brastel S/C Ltda. (Brazil) 100%(8)
Butler Gorge International Corporation (British Virgin Islands) 100%
Art Consult International S.A. (British Virgin Islands) 100%
</TABLE>
- ----------
(1) McCaw International (Brazil), Ltd. has an option to purchase 99%.
(2) McCaw International (Brazil), Ltd. has an option to purchase 99%.
(3) 51% conditionally transferred to Butler Gorge International Corporation,
conditioned on approval of Anatel.
(4) 51% conditionally transferred to Butler Gorge International Corporation,
conditioned on approval of Anatel.
(5) 51% conditionally transferred to McCaw International (Brazil), Ltd.,
conditioned on approval of Anatel.
(6) Nextel S.A. also owns option to purchase remaining 51%.
(7) 51% conditionally transferred to McCaw International (Brazil), Ltd.,
conditioned on approval of Anatel.
(8) 51% conditionally transferred to McCaw International (Brazil), Ltd. and
Butler Gorge International Corporation, conditioned on approval of the
Anatel.
<PAGE> 2
<TABLE>
<CAPTION>
COMPANY % INTEREST
- ------- ----------
<S> <C>
Nextel International (Services), Ltd. (Delaware) 100%
Nextel International (Delaware), Ltd. (Delaware) 100%
Nextel International (Mexico), Ltd. (Delaware) 100%
Comunicaciones Nextel de Mexico S.A. de C.V. (Mexico) 100%
Sistemas de Comunicaciones Troncales, S.A. de C.V. 100%
Comercializadora Protel S.A. de C.V. 100%
Servicios de Radiocomunicacion Movil de Mexico, S.A. de C.V. 100%
Nextel de Mexico, S.A. de C.V. 100%
Arendadora de Equipos Para Telecomunicaciones, S.A. de C.V. 100%
Radiophone S.A. de C.V. 100%
Fonotransportes Nacionales, S.A. de C.V. 100%
Comunicacion Integral San Luis S.A. de C.V. 100%
Teletransportes Nacionales, S.A. de C.V. 100%
Multifon, S.A. de C.V. 100%
Servicos Protel, S.A. de C.V. 100%
Telecomunicaciones Globales S.A. de C.V. (Mexico) 3%
Clearnet Communications Inc. (Canada) 15.48%
Nextel International (Holdings), Ltd. (Cayman Islands) 100%
Nextel International (Argentina) LLC (Cayman Islands) 99%(9)
Nextel International (Argentina), Ltd. (Cayman Islands) 100%
Nextel Argentina S.R.L. (Argentina) 100%
Nextel International Indonesia LLC (Cayman Islands) 99%(10)
Nextel International (Peru) LLC (Cayman Islands) 99%(11)
Nextel del Peru S.A. (Peru) 62.06%
Nextel International (Philippines) LLC (Cayman Islands) 99%(12)
Top Mega Enterprises, Ltd. (Hong Kong) 100%
Infocom Communications Network, Inc. (Philippines) 30%
Nextel International Investment Company (Delaware) 100%
Nextel International (Japan), Ltd. (Delaware) 100%
J-Com Co., Ltd. 21%
Shanghai CCT - McCaw Telecommunications System Co., Ltd. (Shanghai) 30%
</TABLE>
- -----------
(9) Remaining 1% owned by Nextel International (Delaware), Ltd.
(10) Remaining 1% owned by Nextel International (Delaware), Ltd.
(11) Remaining 1% owned by Nextel International (Delaware), Ltd.
(12) Remaining 1% owned by Nextel International (Delaware), Ltd.
2
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-63845 of Nextel International, Inc. Form S-8 of our report dated February
10, 1999 (March 26, 1999 as to Notes 7 and 17), appearing in this Annual Report
on Form 10-K of Nextel International, Inc. for the year ended December 31, 1998
DELOITTE & TOUCHE
Seattle, Washington
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at December 31, 1998 and the Consolidated Statement
of Operations for the Year Ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 121,116
<SECURITIES> 0
<RECEIVABLES> 41,638
<ALLOWANCES> 6,391
<INVENTORY> 31,914
<CURRENT-ASSETS> 212,179
<PP&E> 556,344
<DEPRECIATION> 25,773
<TOTAL-ASSETS> 1,601,136
<CURRENT-LIABILITIES> 132,646
<BONDS> 1,254,882
0
98,886
<COMMON> 396,574
<OTHER-SE> (339,824)
<TOTAL-LIABILITY-AND-EQUITY> 1,601,136
<SALES> 7,929
<TOTAL-REVENUES> 42,488
<CGS> 5,828
<TOTAL-COSTS> 20,085
<OTHER-EXPENSES> 56,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,824
<INCOME-PRETAX> (259,493)
<INCOME-TAX> (22,358)
<INCOME-CONTINUING> (237,135)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (237,135)
<EPS-PRIMARY> (6.05)
<EPS-DILUTED> (6.05)
</TABLE>
