<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-26649
NEXTEL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2001 EDMUND HALLEY DRIVE, RESTON, VIRGINIA 20191
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 433-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of issuer's classes
of common stock as of the latest practicable date:
NUMBER OF SHARES OUTSTANDING
TITLE OF CLASS ON AUGUST 2, 1999
-------------- -----------------
Common Stock, no par value 36,544,293
1
<PAGE> 2
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
--------
PART I--FINANCIAL INFORMATION.
Item 1. Financial Statements--Unaudited 3
Condensed Consolidated Balance Sheets--As of
June 30, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss--For the Three Months
and Six Months Ended June 30, 1999 and 1998 5
Condensed Consolidated Statement of Stockholders'
(Deficit) Equity--For the Six Months Ended
June 30, 1999 6
Condensed Consolidated Statements of Cash Flows--For the
Six Months Ended June 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
PART II--OTHER INFORMATION.
Item 1. Legal Proceedings 25
Item 2. Changes in Securities 25
Item 6. Exhibits and Reports on Form 8-K 25
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS--UNAUDITED.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
---------- ----------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (of which $46,000
and $17,000 is restricted) $ 141,187 $ 121,116
Accounts receivable, less allowance for
doubtful accounts of $10,384 and $6,391 24,302 35,247
Subscriber equipment and accessory inventory 14,142 31,914
Prepaid and other 20,232 23,902
---------- ----------
Total current assets 199,863 212,179
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $61,234 and $25,773 508,587 530,571
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES,
at cost less equity in net losses
of $29,387 and $17,867 151,262 134,691
INTANGIBLE ASSETS, net of accumulated
amortization of $49,082 and $42,483 471,759 552,419
INVESTMENTS AND OTHER ASSETS 221,714 171,276
---------- ----------
$1,553,185 $1,601,136
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable, accrued expenses
and other $ 116,214 $ 130,585
Due to parent 8,809 --
Notes payable and current portion of
long-term debt 711 2,061
---------- ----------
Total current liabilities 125,734 132,646
LONG-TERM DEBT 1,461,447 1,254,882
DEFERRED INCOME TAXES 83,376 90,194
---------- ----------
Total liabilities 1,670,557 1,477,722
---------- ----------
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
MINORITY INTEREST 22,620 27,516
STOCKHOLDERS' (DEFICIT) EQUITY:
Series A exchangeable redeemable preferred
stock, accreted liquidation preference
of $220,153 (2,500 shares authorized,
$10.00 par value, 1,988.86 and 988.86
shares issued and outstanding, respectively) 198,886 98,886
Series B redeemable preferred stock
(5,000 shares authorized, $10.00
par value, no shares issued and outstanding) -- --
Common stock (73,000,000 shares authorized,
no par value, 36,544,293 and 36,523,679
shares issued and outstanding, respectively) 396,684 396,574
Accumulated deficit (607,832) (339,824)
Accumulated other comprehensive loss (127,730) (59,738)
----------- -----------
Total stockholders' (deficit) equity (139,992) 95,898
----------- -----------
$ 1,553,185 $ 1,601,136
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE> 5
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 21,899 $ 9,189 $ 41,760 17,747
------------ ------------ ------------ ------------
OPERATING EXPENSES
Cost of revenues 9,106 3,444 18,072 6,996
Selling, general and administrative 59,337 24,752 116,222 39,979
Depreciation and amortization 28,468 10,723 51,882 19,915
------------ ------------ ------------ ------------
96,911 38,919 186,176 66,890
------------ ------------ ------------ ------------
OPERATING LOSS (75,012) (29,730) (144,416) (49,143)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,289 5,081 2,827 9,405
Interest expense (43,526) (25,417) (82,220) (44,385)
Loss from equity method investments (6,869) (882) (11,520) (2,196)
Foreign currency transaction gain
(loss) and other, net 20,294 (3,359) (45,539) (2,161)
Minority interest 1,258 2,319 13,299 3,549
------------ ------------ ------------ ------------
(27,554) (22,258) (123,153) (35,788)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAX (provision)
benefit (102,566) (51,988) (267,569) (84,931)
INCOME TAX (provision) benefit (160) 6,178 (439) 10,552
------------ ------------ ------------ ------------
NET LOSS (102,726) (45,810) (268,008) (74,379)
OTHER COMPREHENSIVE (LOSS) INCOME:
Unrealized gain (loss) on
available-for-sale securities, net
of tax 1,956 (21,414) 42,087 (14,903)
Foreign currency translation
adjustment 29,018 (5,442) (110,079) (8,912)
------------ ------------ ------------ ------------
COMPREHENSIVE LOSS $ (71,752) $ (72,666) $ (336,000) $ (98,194)
============ ============ ============ ============
NET LOSS PER COMMON SHARE, BASIC AND
DILUTED $ (2.81) $ (1.26) $ (7.34) $ (2.04)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 36,540,870 36,500,000 36,532,377 36,500,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE> 6
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ACCUMULATED
--------------- --------------- ------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT
------ ------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1999 988.86 $98,886 -- $-- 36,523,679 $396,574 $(339,824)
Issuance of Series A preferred
stock to parent 1,000.00 100,000
Issuance of common stock upon
exercise of stock options -- -- -- -- 20,614 110 --
Unrealized gain on investments -- -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- -- --
Net loss -- -- -- -- -- -- (268,008)
-------- -------- --- --- ---------- -------- ----------
BALANCE, June 30, 1999 1,988.86 $198,886 -- $-- 36,544,293 $396,684 $(607,832)
======== ======== === === ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE (LOSS) INCOME
---------------------------
UNREALIZED
GAIN CUMULATIVE
(LOSS) ON TRANSLATION
INVESTMENTS ADJUSTMENT TOTAL
----------- ----------- -----
<S> <C> <C> <C>
BALANCE, January 1, 1999 $ (35,688) $ (24,050) $ 95,898
Issuance of Series A preferred
stock to parent 100,000
Issuance of common stock upon
exercise of stock options 110
Unrealized gain on investments 42,087 -- 42,087
Cumulative translation adjustment -- (110,079) (110,079)
Net loss -- -- (268,008)
------ ------- -------
BALANCE, June 30, 1999 $ 6,399 $(134,129) $(139,992)
====== ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
<PAGE> 7
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(268,008) $ (74,379)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 51,882 19,915
Loss on write-off of assets 6,898 --
Foreign currency transaction loss 45,864 --
Interest accretion on long-term debt,
net of capitalization 65,332 41,909
Provision for losses on accounts receivable 22,377 2,523
Loss from equity method investments 11,520 2,196
Deferred income taxes -- (12,896)
Minority interest (13,299) (3,549)
Change in current assets and liabilities:
Accounts receivable (11,432) (5,097)
Subscriber equipment inventory 17,772 (18,763)
Prepaid and other 3,670 (4,300)
Accounts payable, accrued expenses and other (31,312) 19,215
Change in other assets 7,644 (27,464)
--------- ---------
Net cash used in operating activities (91,092) (60,690)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (86,906) (217,759)
Purchase of marketable securities -- (6,812)
Proceeds from sale of marketable securities -- 131,222
Business acquisitions, net of cash acquired -- (67,251)
Investments in unconsolidated subsidiaries, net (31,584) (61,799)
--------- ---------
Net cash used in investing activities (118,490) (222,399)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net (4,769) (8,254)
Capital contributions from minority stockholders 8,513 6,164
Proceeds from issuance of preferred stock to parent 100,000 8,254
Net proceeds from issuance of and borrowings
under long-term debt 142,107 452,045
Repayment of long-term debt (16,198) (1,340)
--------- ---------
Net cash provided by financing activities 229,653 456,869
--------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 20,071 173,780
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 121,116 159,790
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 141,187 $ 333,570
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,559 $ --
========= =========
Cash paid for income taxes $ -- $ 1,685
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE> 8
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements of Nextel
International, Inc. and subsidiaries ("Nextel International" or the "Company"),
an indirect, substantially wholly owned subsidiary of Nextel Communications,
Inc. ("Nextel Communications"), included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "Commission") and reflect all adjustments that are,
in the opinion of management, necessary for a fair statement of the results for
the interim periods. All adjustments made were normal recurring accruals.
The condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998. Operating results for the interim periods are not necessarily
indicative of results for an entire year.
The accounts of the Company's consolidated foreign subsidiaries and
foreign subsidiaries accounted for under the equity method are presented
utilizing accounts as of a date one month earlier than the accounts of the
Company and its U.S. subsidiaries to ensure timely reporting of consolidated
results.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. As of June 30, 1999 and December 31, 1998, approximately $46
million and $17 million, respectively, of cash and cash equivalents were
restricted by debt covenants for required capital contributions to certain
subsidiaries.
ESMR NETWORK EQUIPMENT AND ACCESSORY SALES AND RELATED COSTS: The loss
generated from the sale or lease of subscriber units used in the Company's
digital enhanced specialized mobile radio ("ESMR") network business primarily
results from the Company's subsidy of digital subscriber units and represents a
marketing cost. Equipment sales revenue and related cost of sales of digital
subscriber units and related accessories, including current period order
fulfillment and installation related expenses, are classified within selling,
general and administrative expenses as follows (dollars in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Equipment sales $ 10,388 $ 1,496 $ 4,229 $ 1,496
Cost of equipment sales 23,854 1,865 11,546 1,865
-------- -------- -------- --------
$(13,466) $ (369) $ (7,317) $ (369)
======== ======== ======== ========
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION: For the six months ended June 30,
1999, the Company purchased $9.3 million of infrastructure equipment financed
through its vendor credit facilities.
REVENUE RECOGNITION: The Company recognizes revenue for airtime and
other services over the period earned, net of credits and adjustments and
revenue from sales of equipment when the equipment is delivered. The cost of
customer discounts and rebates are recorded when the related revenues are
recognized. The company establishes an allowance for doubtful accounts
sufficient to cover probable losses.
NOTE 2--SIGNIFICANT EVENTS AND TRANSACTIONS
BRAZIL CURRENCY CHANGE: During the quarter ended March 31, 1999, the
Brazilian currency devalued relative to the U.S. dollar, resulting in the
Company recording a pre-tax charge of approximately $45.1 million on its
Consolidated Statement of Operations for the quarter ended March 31, 1999.
During the quarter ended June 30, 1999, the value of the Brazilian currency
strengthened relative to the U.S. dollar, as compared to the value of the
Brazilian currency in the quarter ended March 31, 1999. Because of this
strengthening, the Company recorded a pre-tax gain of approximately $20.8
million on its Consolidated Statement of Operations for the quarter ended June
30, 1999. Additionally, the Company recorded a positive cumulative translation
adjustment on its Balance Sheet as of June 30, 1999 related to the strengthening
of the
8
<PAGE> 9
Brazilian currency during the quarter ended June 30, 1999, of approximately
$28.8 million based on the exchange rate as of the end of the second quarter of
1999, which is reflected as an adjustment to the cumulative translation
adjustment account within stockholders' deficit on the Company's Balance Sheet.
During the quarter ended March 31, 1999, the Company recorded a negative
cumulative translation adjustment within stockholder's deficit on its Balance
Sheet of $136.1 million.
INTERNATIONAL MOTOROLA FINANCING FACILITY: In February 1999, the
Company and Motorola Credit Corporation ("Motorola Credit") entered into
definitive agreements that established the terms and conditions under which
Motorola Credit agreed to provide equipment financing to the Company and certain
Operating Companies (the "International Motorola Financing Facility"). On June
18, 1999, the Company made a $23.8 million drawdown under the International
Motorola Financing Facility to repay the $14.7 million outstanding under the
previously existing facility (the "Philippines Motorola Financing") between
Motorola Credit and Infocom Communications Network, Inc. ("Nextel Philippines")
and to reimburse the Company $8.6 million for having repaid the bridge financing
facility (the "Philippines Motorola Bridge Financing") between Motorola Credit
and the Company for the benefit of Nextel Philippines in February 1999. The
availability of borrowings under the International Motorola Financing Facility
are subject to the satisfaction or waiver of certain applicable borrowing
conditions. As of June 30, 1999, approximately $133.2 million had been borrowed
under the International Motorola Financing Facility, including the entire $100.0
million of reimbursement loans relating to the purchase of equipment and related
services by or for the benefit of certain Operating Companies, and $91.8 million
remained available for borrowing.
ARGENTINA CREDIT FACILITY: On May 12, 1999, Nextel Argentina and the
lenders under the Argentina Credit Facility agreed to certain amendments to the
Argentina Credit Facility modifying certain covenants for future quarters (the
"Argentina Amendments"). The Argentina Amendments became effective on May 26,
1999.
As a result of the Argentina Amendments, the Company has entered into a
new capital subscription agreement that requires equity of $83.5 million to be
contributed to Nextel Argentina during 1999, $85 million during 2000, $19.5
million during 2001 and $49.5 million during the first nine months of 2002.
Concurrently with the execution of the Argentina Amendments, Motorola Credit
agreed to provide up to $50 million in loans to Nextel Argentina as incremental
loans under the Argentina Credit Facility for purchases of qualifying iDEN(R)
equipment and related services (the "Motorola Argentina Incremental Facility").
ISSUANCE OF PREFERRED STOCK: On May 13, 1999, the Company received $100
million in proceeds from the issuance of 1,000 shares of its Series A
Exchangeable Redeemable Preferred Stock, par value $10.00 per share (the "Series
A Preferred Stock") to a wholly owned subsidiary of Nextel Communications.
MOTOROLA INCREMENTAL FACILITY COMMITMENT: On May 3, 1999, Nextel
Communications, Nextel International and Motorola Credit entered into a
memorandum of understanding and term sheet (the "Motorola Incremental Facility
Commitment") regarding the terms and conditions under which Motorola Credit will
provide a $56.6 million secured credit facility to the Company (the
"International Motorola Incremental Facility").
Under the Motorola Incremental Facility Commitment, Motorola Credit
agreed to provide up to $56.6 million in incremental term loans to the Company
for working capital purposes. Loans under the International Motorola Incremental
Facility will mature December 31, 2001 and will bear interest at variable rates
based upon either the U.S. prime rate or LIBOR. Loans under the International
Motorola Incremental Facility will be secured by a pledge of all of the shares
of stock of Clearnet Communications, Inc. held by the Company.
The availability of the loans under the International Motorola
Incremental Facility is subject to a number of conditions, including the
negotiation, execution and delivery of definitive agreements and the completion
by Motorola Credit of its due diligence review of the Company. The parties
currently contemplate entering into definitive agreements implementing the terms
of the Motorola Incremental Facility Commitment during the third quarter of
1999.
BRAZIL OWNERSHIP: On January 30, 1997, the Company purchased 81% of the
outstanding capital stock of McCaw International (Brazil) Ltd. ("MIBL") from
Telcom Ventures, LLC and various affiliated and unaffiliated investors
(collectively, the "Founders Group"). MIBL owns 95% of the ownership interest in
Nextel, S.A. (Brazil) ("Nextel Brazil"), the principal Operating Company in
Brazil. Pursuant to the definitive agreements entered into in connection with
the Company's original investment in MIBL, the Company was required to fund 100%
of MIBL's capital requirements until April 29, 1999, at which time the Founders
Group, acting through Telcom Ventures, LLC, was required either to contribute
its pro rata share of capital contributions made to MIBL (plus accrued interest)
since the Company's original investment, or to accept the resulting dilution of
its ownership interest. The Founders Group did not make payment of such pro rata
share of capital contributions as provided in the definitive agreements.
Consequently, the Company's capital contributions to MIBL through April 29, 1999
have increased the Company's ownership interest in MIBL to approximately 92% of
contributed capital and have diluted the ownership interest of the Founders
Group in MIBL to approximately 8% of contributed capital. This, in turn, has
increased the Company's ownership interest in Nextel Brazil (through MIBL) to
approximately 88%. Telcom Ventures, LLC has disputed its reduction in ownership
interest in MIBL.
9
<PAGE> 10
NOTE 3--SEGMENT INFORMATION
Nextel International has four reportable operating segments: 1) McCaw
International (Brazil), Ltd. ("Nextel Brazil"), 2) Nextel Argentina, 3) Nextel
Mexico and 4) Nextel Peru. The operations of all other businesses that fall
below the reporting thresholds are included in the "Corporate and Other" segment
below and include all corporate entities, including those holding equity
investments in Nextel Philippines and Nexnet.
The Company's reportable segments reflect the Company's geographic
focus and are defined as operating segments immediately subsequent to the
Company obtaining a controlling interest in the entity. Management evaluates
performance of these segments based on EBITDA, which is calculated as earnings
before interest, taxes, depreciation and amortization and other non-recurring
charges. The accounting policies for each segment are the same as those
described in the summary of significant accounting policies. Intercompany
eliminations have been included in Corporate and Other.
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ------ --------- ------------
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 16,043 $ 15,874 $ 8,862 $ 981 $ 0 $ 41,760
======== ======== ======== ========= ======== =========
EBITDA $(39,242) $(23,792) $(15,037) $ (6,501) $ (7,962) $ (92,534)
Depreciation and amortization 19,699 13,383 12,313 2,135 4,352 51,882
-------- -------- -------- -------- -------- ---------
Operating loss $(58,941) $(37,175) $(27,350) $ (8,636) $(12,314) $(144,416)
======== ======== ======== ========= ======== =========
Capital expenditures $ 24,353 $ 39,270 $ 15,096 $ 10,352 $ 7,111 $ 96,182
======== ======== ======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ------ --------- ------------
(DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS ENDED
JUNE 30, 1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 6,841 $ 3,642 $ 6,269 $ 995 $ 0 $ 17,747
======== ======== ======== ======== ======== =========
EBITDA $(14,629) $ (8,746) $ (246) $ (488) $ (5,119) $ (29,228)
Depreciation and amortization 8,716 3,371 6,997 424 407 19,915
-------- -------- -------- -------- -------- ---------
Operating loss $(23,345) $(12,117) $ (7,243) $ (912) $ (5,526) $ (49,143)
======== ======== ======== ======== ======== =========
Capital expenditures $ 68,024 $ 89,609 $ 60,088 $ 9,568 $ 10,759 $ 238,048
======== ======== ======== ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ------ --------- ------------
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED
JUNE 30, 1999
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 7,491 $ 8,864 $ 5,021 $ 523 $ 0 $ 21,899
======== ======== ========= ======== ======== =========
EBITDA $(18,176) $(13,655) $ (6,599) $ (3,367) $ (4,747) $ (46,544)
Depreciation and amortization 11,015 6,961 6,366 1,538 2,588 28,468
-------- -------- --------- -------- -------- ---------
Operating loss $(29,191) $(20,616) $ (12,965) $ (4,905) $ (7,335) $ (75,012)
======== ======== ========= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ------ --------- ------------
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTHS ENDED
JUNE 30, 1998
-------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 3,307 $ 2,209 $ 3,121 $ 552 $ 0 $ 9,189
======== ======== ======== ======== ======== =========
EBITDA $ (8,590) $ (6,637) $ (406) $ (488) $ (2,886) $ (19,007)
Depreciation and amortization 4,512 1,991 3,601 294 325 10,723
------- -------- -------- -------- -------- ---------
Operating loss $(13,102) $ (8,628) $ (4,007) $ (782) $ (3,211) $ (29,730)
======== ======== ======== ======== ======== =========
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ---- --------- ------------
(DOLLARS IN THOUSANDS)
AS OF JUNE 30, 1999
- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Long-lived assets 215,055 130,786 109,694 49,734 3,318 508,587
Total Assets 405,776 244,948 373,918 71,390 457,153 1,553,185
</TABLE>
<TABLE>
<CAPTION>
NEXTEL NEXTEL NEXTEL NEXTEL CORPORATE
BRAZIL ARGENTINA MEXICO PERU AND OTHER CONSOLIDATED
------ --------- ------ ---- --------- ------------
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31, 1998
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Long-lived assets 497,914 200,808 342,120 40,825 282,496 1,364,163
Total assets 579,429 237,542 377,952 62,434 343,779 1,601,136
</TABLE>
NOTE 4--SUBSEQUENT EVENTS
SHANGHAI, PEOPLE'S REPUBLIC OF CHINA: In September 1998, China United
Telecommunications Limited ("Unicom") advised Shanghai CCT McCaw
Telecommunications Systems Co., Ltd. ("Shanghai CCT McCaw") and Shanghai CCT
McCaw's shareholders that, pursuant to a new policy of the Chinese government,
Unicom was no longer permitted to enter into any new contracts for projects if
financing for that project involved indirect investments by foreign investors.
Shanghai CCT McCaw received a letter dated July 26, 1999 from Unicom
(the "Unicom Letter") which generally referenced, among other things,
"applicable Chinese laws and regulations" and advised Shanghai CCT McCaw that it
had been requested by the Chinese regulatory authorities to terminate the
cooperative project with Shanghai CCT McCaw because it utilized a certain
financing structure and requested that the parties commence negotiations to deal
with matters related to such prospective termination. The Company is analyzing
the Unicom Letter and conferring with its partners in Shanghai CCT McCaw as to
an appropriate response and course of action. The ultimate resolution may change
the relationships among the parties and/or may impose restrictions on the
Company pursuant to any new, as yet unpublished regulations, any of which 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 carrying value of its minority interest in Shanghai CCT McCaw is
approximately $13.7 million as of June 30, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion of the consolidated financial condition and
results of operations of Nextel International, Inc. ("Nextel International" or
the "Company"), an indirect, substantially wholly owned subsidiary of Nextel
Communications, Inc. ("Nextel Communications"), for the six-month and
three-month periods ended June 30, 1999 and 1998 should be read in conjunction
with the Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in Part I of this report and with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998 ("1998 Form
10-K").
Nextel International, through its operating subsidiaries and
affiliates, provides wireless communications services in five of the largest
cities in Latin America and three of the largest cities in Asia. As of June 30,
1999, the Company's markets covered approximately 373 million people,
approximately 131 million of which were in Latin America. On a proportionate
basis, based on the Company's ownership interests as of June 30, 1999, the
Company's markets covered approximately 180 million people, approximately 120
million of which were in Latin America. Nextel International is the largest
specialized mobile radio ("SMR") service provider in Brazil and Mexico, and also
holds the largest SMR channel position in Argentina.
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<PAGE> 12
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 uses "iDEN(R)"
(integrated Digital Enhanced Network) technology developed by Motorola, Inc.
("Motorola") to provide its ESMR services. The Company, through its operating
subsidiaries or affiliates, launched commercial ESMR service under the brand
name "Nextel(TM)" in Sao Paulo and Buenos Aires in the second quarter of 1998,
Rio de Janeiro, Manila and Mexico City in the third quarter of 1998 and Rosario,
Argentina in the fourth quarter of 1998. Additionally, the Company's Japanese
affiliate, Nexnet Co., Ltd. ("Nexnet," formerly J-Com Co., Ltd., an entity
organized under the laws of Japan), introduced a multi-functional commercial
ESMR service under the brand name "NEXNET(TM)" in the Kanto region of Japan
(which includes Tokyo) in the second half of 1998. On June 25, 1999, the Company
launched commercial ESMR service in Lima, Peru after receiving interconnect
approval from local regulators. See 1998 Form 10-K, Part I, Item 1, "The
Company's Operations and Investments."
The Company owns majority controlling interests in wireless
communications services companies in Brazil, Mexico, Argentina and Peru and owns
equity interests and participates in the management of wireless communications
services companies in the Philippines and Japan. In addition, the Company owns
approximately 15.4% of the equity interest in Clearnet Communications Inc., a
Canadian wireless communications services company ("Clearnet"), and has a
contractual right through its Chinese joint venture to receive approximately
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 in which it has
interests 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.
As of June 30, 1999, Nextel's proportionate share of international
digital subscriber units in service, based on its ownership interests in the
Operating Companies, was estimated to be approximately 248,700, 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 June
30, 1999, total international digital subscriber units in service for the
Operating Companies was estimated to be approximately 852,500.
FISCAL QUARTER TRANSACTIONS AND DEVELOPMENTS
INTERNATIONAL MOTOROLA FINANCING FACILITY. In February 1999, the
Company and Motorola Credit Corporation ("Motorola Credit") entered into
definitive agreements that established the terms and conditions under which
Motorola Credit agreed to provide equipment financing to the Company and certain
Operating Companies (the "International Motorola Financing Facility"). On June
18, 1999, the Company made a $23.8 million drawdown under the International
Motorola Financing Facility to repay the $14.7 million outstanding under the
previously existing facility (the "Philippines Motorola Financing") between
Motorola Credit and Infocom Communications Network, Inc. ("Nextel Philippines")
and to reimburse the Company $8.6 million for having repaid the bridge financing
facility (the "Philippines Motorola Bridge Financing") between Motorola Credit
and the Company for the benefit of Nextel Philippines in February 1999. The
availability of borrowings under the International Motorola Financing Facility
are subject to the satisfaction or waiver of certain applicable borrowing
conditions. See "--Nextel International's Forward-Looking Statements are Subject
to a Variety of Factors that Could Cause Actual Results to Differ Materially
from Current Beliefs."
BRAZIL CURRENCY CHANGE. During the quarter ended March 31, 1999, the
Brazilian currency devalued relative to the U.S. dollar, resulting in the
Company recording a pre-tax charge of approximately $45.1 million on its
Consolidated Statement of Operations for the quarter ended March 31, 1999.
During the quarter ended June 30, 1999, the value of the Brazilian currency
strengthened as compared to the value of the Brazilian currency during the
quarter ended March 31, 1999. Because of this strengthening, the Company
recorded a pre-tax gain of approximately $20.8 million on
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<PAGE> 13
its Consolidated Statement of Operations for the quarter ended June 30, 1999.
Additionally, the Company recorded a positive cumulative translation adjustment
on its Balance Sheet as of June 30, 1999, primarily related to the strengthening
of the Brazilian currency during the quarter ended June 30, 1999, of
approximately $28.8 million based on the exchange rate as of the end of the
second quarter of 1999, which is reflected as an adjustment to the cumulative
translation adjustment account within stockholders' deficit on the Company's
Balance Sheet. During the quarter ended March 31, 1999, the Company recorded a
negative cumulative translation adjustment within stockholders' deficit on its
Balance Sheet of $136.1 million.
The Company cannot predict what other effects the volatility of the
Brazilian currency will have on its results of operation and the value of its
investments in Brazil. Currency fluctuations could have significant effects on
the Company's results of operations due to, among other things, (i) a change in
the amount in the Brazilian currency 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 U.S. dollar-converted revenue stream from its
Brazilian subsidiaries; and (iii) the impact of currency fluctuations on the
Brazilian economy, and on the economies of the other Latin American countries in
which the Operating Companies conduct business. See "--Nextel International's
Forward-Looking Statements are Subject to a Variety of Factors that Could Cause
Actual Results to Differ Materially from Current Beliefs" and 1998 Form 10-K,
Item 1, "Business--Risk Factors--Nextel is subject to fluctuations in currency
rates."
ARGENTINA CREDIT FACILITY. On May 12, 1999, Nextel Argentina and the
lenders under the Argentina Credit Facility agreed to certain amendments to the
Argentina Credit Facility modifying certain covenants for future quarters (the
"Argentina Amendments"). The Argentina Amendments became effective on May 26,
1999.
As a result of the Argentina Amendments, the Company has entered into a
new capital subscription agreement that requires equity of $83.5 million to be
contributed to Nextel Argentina during 1999, $85 million during 2000, $19.5
million during 2001 and $49.5 million during the first nine months of 2002.
Concurrently with the execution of the Argentina Amendments, Motorola Credit
agreed to provide up to $50 million in loans to Nextel Argentina as incremental
loans under the Argentina Credit Facility for purchases of qualifying iDEN(R)
equipment and related services (the "Motorola Argentina Incremental Facility").
ISSUANCE OF PREFERRED STOCK. On May 13, 1999, the Company received $100
million in proceeds from the issuance of 1,000 shares of its Series A
Exchangeable Redeemable Preferred Stock, par value $10.00 per share (the "Series
A Preferred Stock"), to a wholly owned subsidiary of Nextel Communications (the
"Preferred Stock Issuance").
MOTOROLA INCREMENTAL FACILITY COMMITMENT. On May 3, 1999, Nextel
Communications, Nextel International and Motorola Credit entered into a
memorandum of understanding and term sheet (the "Motorola Incremental Facility
Commitment") regarding the terms and conditions under which Motorola Credit will
provide a $56.6 million secured credit facility to the Company (the
"International Motorola Incremental Facility").
Under the Motorola Incremental Facility Commitment, Motorola Credit
agreed to provide up to $56.6 million in incremental term loans to the Company
for working capital purposes. Loans under the International Motorola Incremental
Facility will mature December 31, 2001 and will bear interest at variable rates
based upon either the U.S. prime rate or LIBOR. Loans under the International
Motorola Incremental Facility will be secured a pledge of all of the shares of
stock of Clearnet Communications, Inc. held by the Company.
The availability of the loans under the International Motorola
Incremental Facility is subject to a number of conditions, including the
negotiation, execution and delivery of definitive agreements and the completion
by Motorola Credit of its due diligence review of the Company. The parties
currently contemplate negotiating and entering into definitive agreements
implementing the terms of the Motorola Incremental Facility Commitment during
the third quarter of 1999. See "--Nextel International's Forward-Looking
Statements are Subject to a Variety of Factors that Could Cause Actual Results
to Differ Materially from Current Beliefs."
13
<PAGE> 14
SHANGHAI, PEOPLE'S REPUBLIC OF CHINA: In September 1998, China United
Telecommunications Limited ("Unicom") advised Shanghai CCT McCaw
Telecommunications Systems Co., Ltd. ("Shanghai CCT McCaw") and Shanghai CCT
McCaw's shareholders that, pursuant to a new policy of the Chinese government,
Unicom was no longer permitted to enter into any new contracts for projects if
financing for that project involved indirect investments by foreign investors.
Shanghai CCT McCaw received a letter dated July 26, 1999 from Unicom
(the "Unicom Letter") which generally referenced, among other things,
"applicable Chinese laws and regulations" and advised Shanghai CCT McCaw that it
had been requested by the Chinese regulatory authorities to terminate the
cooperative project with Shanghai CCT McCaw because it utilized a certain
financing structure and requested that the parties commence negotiations to deal
with matters related to such prospective termination. The Company is analyzing
the Unicom Letter and conferring with its partners in Shanghai CCT McCaw as to
an appropriate response and course of action. The ultimate resolution may change
the relationships among the parties and/or may impose restrictions on the
Company pursuant to any new, as yet unpublished regulations, any of which 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 carrying value of its minority interest in Shanghai CCT McCaw is
approximately $13.7 million as of June 30, 1999.
BRAZIL OWNERSHIP: On January 30, 1997, the Company purchased 81% of the
outstanding capital stock of McCaw International (Brazil) Ltd. ("MIBL") from
Telcom Ventures, LLC and various affiliated and unaffiliated investors
(collectively, the "Founders Group"). MIBL owns 95% of the ownership interest in
Nextel, S.A. (Brazil) ("Nextel Brazil"), the principal Operating Company in
Brazil. Pursuant to the definitive agreements entered into in connection with
the Company's original investment in MIBL, the Company was required to fund 100%
of MIBL's capital requirements until April 29, 1999, at which time the Founders
Group, acting through Telcom Ventures, LLC, was required either to contribute
its pro rata share of capital contributions made to MIBL (plus accrued interest)
since the Company's original investment, or to accept the resulting dilution of
its ownership interest. The Founders Group did not make payment of such pro rata
share of capital contributions as provided in the definitive agreements.
Consequently, the Company's capital contributions to MIBL through April 29, 1999
have increased the Company's ownership interest in MIBL to approximately 92% of
contributed capital and have diluted the ownership interest of the Founders
Group in MIBL to approximately 8% of contributed capital. This, in turn, has
increased the Company's ownership interest in Nextel Brazil (through MIBL) to
approximately 88%. Telcom Ventures, LLC has disputed its reduction in ownership
interest in MIBL.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1999 vs. Six Months Ended June 30, 1998
Revenues for the six months ended June 30, 1999 increased $24 million
to $41.8 million from $17.8 million in the first six months of 1998. At June 30,
1999, the Company saw proportionate subscribers grow to approximately 64,000 in
Brazil, approximately 45,000 in Argentina, approximately 28,000 in Mexico and
approximately 20,000 total proportionate subscribers in Peru, Philippines and
Japan. The higher average subscriber base for the first six months of 1999
compared to the same period in 1998, in addition to operations in Argentina and
Peru not commencing until February 1998, primarily led to the 135% increase in
revenues period over period. For the six months ended June 30, 1999, costs and
expenses related to revenues increased $11.1 million to $18.1 million from the
same period in 1998.
Revenues and costs and expenses related to revenues are expected to
continue to increase as sales and marketing opportunities relating to the
ongoing build-out of ESMR services in most of the Operating Companies' markets
continue to grow. In addition, the Company received approvals on June 25, 1999
that allow the Company to offer full commercial ESMR service in Peru.
Selling, general and administrative ("SG&A") expenses for the six
months ended June 30, 1999 increased $76.2 million to $116.2 million compared to
the same period in 1998. Higher SG&A costs during the first six months of 1999
relate to full ESMR service in Brazil, Argentina and Mexico during the full six
months of 1999.
SG&A expenses are expected to increase as the Company aggressively
markets their ESMR services in the target markets served by its controlled
Operating Companies with resulting increases in sales staff and administrative
support activities to support the expansion of its commercial ESMR services. In
addition, the Company includes the loss resulting from the sale of digital
subscriber units in SG&A expense, because the equipment subsidy primarily
represents marketing costs for the commercial ESMR services. The Company expects
to continue to offer partial subsidies and discounts on its sale of digital
subscriber units in programs designed to stimulate both new subscriber growth
and the migration of subscribers from the Company's existing analog specialized
mobile radio systems to its ESMR networks.
The Company recognized approximately $22.4 million in bad debt expense
for the six months ended June 30, 1999 compared to $2.5 million for the six
months ended June 30, 1998. Nextel Brazil and Nextel Argentina recognized $9.9
million and $11.7 million in bad debt expense, respectively, for the six months
ended June 30, 1999. Bad debt expense recognized during 1999 was a result of the
Company's concerted program to aggressively take action on delinquent paying
customers. The Company believes that it is pursuing appropriate activities and
has taken a number of measures
14
<PAGE> 15
that it expects to result in the improvement of its billing and accounts
receivable collection effectiveness going forward. The Company has implemented a
strict credit policy in its markets and in cases where creditworthiness is not
ascertainable, the Company has implemented certain procedures intended to
minimize credit risk, such as requiring deposits, requesting banking statements
and/or requesting current credit references from prospective customers.
Additionally, the Company is actively suspending and/or deactivating non-paying
customers. The Company anticipates that the dollar amount of bad debt expense
and the percentage of bad debt expense as compared to total revenues will
decrease during the second half of 1999. See "--Nextel International's
Forward-Looking Statements are Subject to a Variety of Factors that Could Cause
Actual Results to Differ Materially from Current Beliefs."
Depreciation and amortization expense increased $32 million to $51.9
million for the six months ended June 30, 1999 compared to $19.9 million for the
six months ended June 30, 1998. Over the last twelve months, the Company has
invested heavily in the build-out of its ESMR networks in its various geographic
markets. The Company expects depreciation and amortization expense to increase
in future periods due to depreciation of new fixed assets placed in service to
expand and improve the coverage and capacity of the Operating Companies'
networks.
Interest income decreased $6.6 million to $2.8 million for the six
months ended June 30, 1999 compared to $9.4 million for the six months ended
June 30, 1998. The decrease is due to lower overall average cash balances and
lower interest rates during the first six months of 1999 compared to the first
six months of 1998.
For the six months ended June 30, 1999, the Company incurred interest
expense of $82.2 million compared to $44.4 million incurred in the six months
ended June 30, 1998. The higher interest expense relates to interest accretion
recorded on the Company's senior discount notes issued in March 1998 (the "1998
Notes") and interest expense related to increases in borrowings on bank and
vendor credit facilities.
Loss from equity method investments amounted to $11.5 million for the
six months ended June 30, 1999 compared to a loss of $2.2 million for the first
six months of 1998. The greater relative loss of $9.3 million for the six-month
period ended June 30, 1999 relates to the increased ownership interest and
increased operating losses incurred by Nextel Philippines during such period
compared to the six-month period ended June 30, 1998 and operating losses
associated with the Company's investment in Nexnet during the six months ended
June 30, 1999 (the Company acquired its investment in Nexnet in March 1998).
Foreign currency transaction loss and other, net increased from $2.2
million for the six months ended June 30, 1998 to $45.5 million for the similar
period ended 1999. The increase of $43.3 million relates almost entirely to the
devaluation of the Brazilian currency during the first quarter of 1999 offset
somewhat by the strengthening of this currency during the second quarter of
1999. The Company currently does not hedge its foreign currency balance sheet
exposure.
Minority interest increased to $13.3 million in the six months ended
June 30, 1999 from $3.5 million during the comparable period in 1998. The
increase is attributable primarily to the minority shareholders' share of larger
relative losses in the first six months of 1999 compared to the first six months
of 1998 in Brazil and Peru.
Income tax (provision) benefit decreased $11 million for the six months
ended June 30, 1999 compared to $10.6 million for the six months ended June 30,
1998. The provision primarily relates to a change in statutory tax rates in
Argentina and Mexico and alternative minimum taxes, including taxes on assets,
incurred by certain of the Operating Companies.
Three Months Ended June 30, 1999 vs. Three Months Ended June 30, 1998
Revenues increased $12.7 million to $21.9 million for the three months
ended June 30, 1999, compared to $9.2 million for the three months ended June
30, 1998. The increase in revenues is primarily attributable to a higher average
subscriber base for the quarter ended June 30, 1999. Of the
15
<PAGE> 16
$12.7 million increase in revenue, $4.1 million related to Nextel Brazil, $6.7
million to Nextel Argentina and $1.9 million to Nextel Mexico.
Costs and expenses related to revenues increased $5.7 million to $9.1
million for the three months ended June 30, 1999, compared to $3.4 million for
the three months ended June 30, 1998. Higher costs for the second quarter 1999
are attributable primarily to higher site and switch expense, and professional
and other staff costs incurred in 1999 relating to the relatively more extensive
network operations in the Operating Companies' markets.
Selling, general and administrative expenses increased $34.5 million to
$59.3 million for the three months ended June 30, 1999, compared to $24.8
million for the three months ended June 30, 1998. The increase is attributable
to higher digital subscriber unit subsidies along with higher sales and
administrative costs in Brazil, Argentina, Mexico and Peru.
The Company recognized an aggregate of approximately $15.0 million in
bad debt expense for the three months ended June 30, 1999, compared to $2.5
million for the three months ended June 30, 1998. Nextel Brazil and Nextel
Argentina recognized $5.8 million and $8.9 million in bad debt expense,
respectively, for the three months ended June 30, 1999. Bad debt expense
recognized by the Company during the three months ended June 30, 1999 was a
result of the Company's concerted program to aggressively review and take action
on delinquent paying customers. The Company believes that it is pursuing
appropriate activities and has taken a number of measures that it expects to
result in the improvement of its billing and accounts receivable collection
effectiveness going forward. The Company has implemented a strict credit policy
in its markets and in cases where creditworthiness is not ascertainable, the
Company has implemented certain procedures intended to minimize credit risk,
such as requiring deposits, requesting banking statements and/or requesting
current credit references from prospective customers. Additionally, the Company
is actively suspending and/or deactivating non-paying customers in a timely
manner. The Company anticipates that the dollar amount of bad debt expense and
the percentage of bad debt expense as compared to total revenues will decrease
during the second half of 1999. See "--Nextel International's Forward-Looking
Statements are Subject to a Variety of Factors that Could Cause Actual Results
to Differ Materially from Current Beliefs."
Depreciation and amortization costs increased $17.7 million to $28.5
million for the three months ended June 30, 1999, compared to $10.7 million for
the three months ended June 30, 1998. The increase is due to the Company's
ongoing network build-out supporting the Operating Companies' ESMR businesses in
Brazil, Argentina, Mexico and Peru.
Interest income decreased $3.8 million to $1.3 million for the three
months ended June 30, 1999, compared to $5.1 million for the three months ended
June 30, 1998. The decrease is attributable primarily to lower average
outstanding cash, cash equivalents and marketable securities balances and lower
interest rates during the quarter ended June 30, 1999.
Interest expense increased $18.1 million to $43.5 million for the three
months ended June 30, 1999, compared to $25.4 million for the three months ended
June 30, 1998. The increase is attributable primarily to interest accretion
recorded on the Company's 1998 Notes and interest expense related to increases
in borrowings on bank and vendor credit facilities.
Loss from equity method investments increased $6.0 million to $6.9
million for the three months ended June 30, 1999, compared to $0.9 million for
the three months ended June 30, 1998. The increase is attributable to increased
ownership interest in and increased operating losses incurred by Nextel
Philippines subsequent to the commercial launch of ESMR service in Manila in the
third quarter of 1998 and the operating losses associated with the Company's
investment in Nexnet (acquired in March 1998).
Foreign currency transaction net gain (loss) and other, improved by
$23.7 million to $20.3 million for the three months ended June 30, 1999,
compared to $(3.4) million for the three months ended June 30, 1998. The gain is
due primarily to the strengthening of the Brazilian currency during the quarter
ended June 30, 1999.
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<PAGE> 17
Minority interest decreased $1.1 million to $1.2 million for the three
months ended June 30, 1999, compared to $2.3 million for the three months ended
June 30, 1998. The decrease is attributable primarily to reduced allocation of
losses in Brazil to minority interests.
Income tax benefit (provision) decreased $6.3 million to $(0.2) million
for the three months ended June 30, 1999, compared to $6.2 million for the three
months ended June 30, 1998. The provision is primarily attributable to changes
in statutory tax rates in Argentina and Mexico and alternative minimum taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred cumulative net losses of approximately $607.8
million from January 1, 1995 through June 30, 1999. These losses resulted from
expenditures required to support the Company's wireless communications networks
and other start-up costs incurred by the Operating Companies. The Company's
activities have been financed primarily with the net proceeds of the Company's
securities offerings in 1997 and 1998, and to a lesser extent from vendor and
bank financing, including the existing financing facilities obtained from
Motorola and the Argentina Credit Facility, and equity contributions. Although
the Company's parent elected to make an additional cash equity investments of
approximately $82.5 million in March 1998 and of $100 million in May 1999 in the
Company, it is not obligated to provide any additional funding to the Company.
Net cash used in operating activities for the six months ended June 30,
1999 was approximately $91.1 million. Net cash used in investing activities for
the six months ended June 30, 1999 was approximately $118.5 million. Net cash
provided by financing activities for the six months ended June 30, 1999 was
approximately $229.7 million. Working capital as of June 30, 1999 increased to
$74.1 million. The cash used in operating activities during the six months ended
June 30, 1999 primarily represented cash used to fund operating losses. The cash
used in investing activities during the six months ended June 30, 1999 primarily
represented capital expenditures related to the purchase of infrastructure
equipment to build-out the Company's ESMR networks in Brazil, Argentina, Mexico
and Peru and, to a lesser extent, to fund the Company's investment in Nextel
Philippines. The cash provided by financing activities during the six months
ended June 30, 1999 is primarily a result of the additional equity investment of
$100 million by the Company's parent and net borrowings by the Company under the
International Motorola Financing Facility of approximately $133.2 million. As a
result of the above activities, cash and cash equivalents increased
approximately $20.1 million to approximately $141.2 million during the six
months ended June 30, 1999.
The Company currently estimates its remaining cash expenditures for its
fiscal year ending December 31, 1999 to be approximately $200 million. This
amount consists of cash to fund operations, capital expenditures for the
construction and enhancement of its ESMR networks, including contributions to
affiliates for those purposes, working capital requirements and debt interest
payments. See 1998 Form 10-K, Part III, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Future Capital Needs
and Resources."
As of June 30, 1999, the Company and certain of its Operating Companies
had entered into the following financing facilities: (i) the International
Motorola Financing Facility, which provides for up to $225 million in
incremental term loans to the Company to finance the purchase of equipment and
related services by the Borrowing Affiliates and the refinancing of certain
indebtedness to Motorola Credit (including the Philippines Motorola Financing);
(ii) the vendor financing agreement between Nextel Brazil and Motorola Credit
(the "Brazil Motorola Financing"), which provides for up to $125 million in term
loans to Nextel Brazil to finance the purchase of equipment and related
services; and (iii) the Argentina Credit Facility, which provides for up to $100
million in term loans to Nextel Argentina to finance the cost of capital goods,
capital expenditures related to the development, expansion and upgrade of Nextel
Argentina's network, permitted spectrum acquisitions and general working capital
needs and $50 million in incremental term loans to Nextel Argentina under the
Motorola Argentina Incremental Facility, which can be used to fund purchases of
qualifying iDEN(R) equipment and services. The terms and conditions of the
International Motorola Financing Facility, the Philippines Motorola Financing,
the Brazil Motorola Financing
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<PAGE> 18
and the Argentina Credit Facility are described in the 1998 Form 10-K, Part III,
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources--Motorola Financings and
Argentina Credit Facility."
As of June 30, 1999, approximately $133.2 million has been borrowed
under the International Motorola Financing Facility and approximately $91.8
million remained available for future borrowings under such facility.
Additionally, as of June 30, 1999, approximately $103.8 million has been
borrowed under the Brazil Motorola Financing, with the remaining $21.2 million
available for future borrowings, and all of the $100 million available under the
Argentina Credit Facility had been borrowed and none of the Motorola Argentina
Incremental Facility had been borrowed. On June 18, 1999, the Company made a
$23.8 million drawdown under the International Motorola Financing Facility to
repay the $14.7 million Philippines Motorola Financing and to reimburse the
Company $8.6 million for having repaid the Philippines Motorola Bridge Financing
in February 1999. The availability of the remaining borrowings under each of the
International Motorola Financing Facility, the Brazil Motorola Financing and the
Argentina Incremental Facility Loans is subject to the satisfaction or waiver of
certain applicable borrowing conditions under each facility and is limited to
borrowings used to finance the purchase of Motorola equipment and services. See
"--Nextel International's Forward-Looking Statements are Subject to a Variety of
Factors that Could Cause Actual Results to Differ Materially from Current
Beliefs."
In May 1999, the Company completed the Preferred Stock Issuance to its
parent Company, pursuant to which the Company received proceeds of $100 million.
Additionally, in May 1999, the Company entered into the Motorola Incremental
Facility Commitment, pursuant to which Motorola Credit agreed to provide up to
$56.6 in incremental term loans to the Company for working capital purposes. The
Company contemplates negotiating and entering into definitive agreements with
Motorola Credit implementing the terms of the Motorola Incremental Facility
Commitment during the third quarter of 1999. 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. In
particular, the Company has prioritized and expects to continue to prioritize
its expenditures to focus on its key markets in Latin America and anticipates
that it will not provide any significant funding to Nexnet for the Shanghi GSM
System in 1999. See "--Nextel International's Forward-Looking Statements are
Subject to a Variety of Factors that Could Cause Actual Results to Differ
Materially from Current Beliefs."
Based on the Company's current estimate of its funding requirements for
1999, the Company believes that it has adequate funding to continue its
operations at least through December 31, 1999. The Company estimates that it
will have approximately $210 million in unutilized funding sources available at
December 31, 1999 including (1) $163 million available only for the purchase of
Motorola equipment and services; and (2) $18 million in an escrow account for
Nextel Argentina consistent with the requirements of the Argentina Credit
Agreement. Such assessment is based on the Company's assumed utilization of its
current available cash and cash equivalents (including the proceeds of the
Preferred Stock Issuance) and the assumed availability of funds under the
International Motorola Financing Facility, the International Motorola
Incremental Facility, the Brazil Motorola Financing and the Argentina
Incremental Facility Loans to meet its projected cash needs (including
reasonably foreseeable capital expenditures, funding of operating losses and any
debt service obligations) during such period. There can be no assurance that
such resources will be sufficient to fund the Company's obligations through the
end of 1999. Additionally, if the Company's plans change, its assumptions
regarding its funding needs associated with any further build-out, expansion and
enhancement of its ESMR network at the Operating Company level prove to be
inaccurate, it experiences growth in its business or subscriber base greater
than or less than that which is currently anticipated, it experiences
unanticipated costs or competitive pressures, the Company and/or the Operating
Companies are unable to access funds under the International Motorola Financing
Facility, the International Motorola Incremental Facility, the Brazil Motorola
Financing and/or the Argentina Incremental Facility Loans, or any other funds
available to the Company and the Operating Companies or any other borrowings
otherwise prove to be insufficient to meet cash needs, the Company may be
required to seek additional capital or curtail its operations significantly. See
"--Nextel International's Forward-Looking Statements are Subject to a Variety of
Factors that Could Cause Actual Results to Differ Materially from Current
Beliefs."
18
<PAGE> 19
After December 31, 1999, the Company will require significant
additional capital to fund the build-out of the Operating Companies' ESMR
networks in their licensed markets and any significant further expansion and
enhancement of those existing ESMR networks, and will need to rely on external
sources of financing to fund its operating losses and for other general
corporate purposes until its operations begin to generate positive cash flows.
The Company is currently assessing its capital needs and exploring potential
financing sources to meet such needs. The Company anticipates that it will be
required to seek additional capital from public or private equity or debt
markets to fund such future capital needs. The Company may seek to obtain
financing from various sources, including vendor financing provided by equipment
suppliers, project financing from commercial banks and other sources. To the
extent the Company issues debt, its leverage and debt service obligations will
increase. Additionally, the Company and certain of the Operating Companies may
incur indebtedness only in compliance with the terms of covenants contained in
the indentures governing the Company's senior discount notes due 2007 and the
1998 Notes and the covenants contained in the existing financing arrangements.
There can be no assurance that the Company will be able to raise any such
capital on satisfactory terms, if at all. If the Company is unable to obtain
such additional capital, or to obtain it on acceptable terms and in a timely
manner, the Company would be required to curtail its operations significantly
and to reduce the scope of the expansion and enhancement of the Operating
Companies' ESMR networks. Any such actions would have a material adverse effect
on the Company's financial condition and results of operations, including its
ability to meet its debt service and working capital requirements. See "--Nextel
International's Forward-Looking Statements are Subject to a Variety of Factors
that Could Cause Actual Results to Differ Materially from Current Beliefs."
As of June 30, 1999, the Company owned 100% of each of Nextel Mexico
and Nextel Argentina, approximately 88% of Nextel Brazil and 62.1% of Nextel
Peru. The Company's other non-cash assets consist primarily of minority
ownership interests in Nextel Philippines and Nexnet and passive minority
investment stakes in the Shanghai GSM System and Clearnet. Even though the
Company is involved in the day-to-day operations 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 financing 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 and the Argentina Credit Facility restrict the
payment of dividends to the Company by the Operating Companies that have debt
outstanding thereunder. Any future vendor or bank financings are likely to
include similar covenants restricting the payment of dividends. See 1998 Form
10-K, Part I, Item 1, "Business--Risk Factors--2. Nextel International will
need substantial amounts of financing over the next several years."
YEAR 2000 READINESS
GENERAL. As is the case with most other businesses using computers in
their operations, Nextel International is in the process of evaluating and
addressing the Year 2000 readiness of its computer systems. Such Year 2000
readiness efforts are designed to identify, address and resolve issues that may
be created by computer programs being written using two digits rather than four
to define the applicable year. Any of Nextel International's computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations that result in disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Many of the Company's administrative and accounting services are
performed for the Company by Nextel Communications. Additionally, many of the
Company's third party vendors are also vendors to Nextel Communications.
Accordingly, in these instances the Company has coordinated its assessment of
its Year 2000 readiness with Nextel Communications.
STATE OF READINESS. Nextel International and Nextel Communications have
had a program in place since February 1998 to address Year 2000 readiness in
their critical business areas related to products, networks, information
management systems, non-information systems with embedded technology, suppliers
and customers. The Company has taken and will continue to take actions that are
designed to advance its progress toward becoming substantially Year 2000 ready
by the end of the third quarter of 1999. The Company's Year 2000 readiness goal
focuses on the ability of the Company to perform its business functions and to
process information in an unambiguous manner under various date conditions.
To ensure the continued progress and success in managing all of Nextel
Communications', and the Company's, systems' Year 2000 readiness requirements, a
special steering committee that includes members of senior management of Nextel
Communications responsible for the information technology and network systems
was formed to oversee this effort. Internal employees, as well as outside
contractors, staff the Year 2000 readiness program. Members include employees
across functional and divisional departments who are responsible for assisting
in the identification, assessment and remediation of Year 2000 readiness
challenges. In addition, the representatives from some of the material third
parties identified below participate in this project.
Nextel Communications has identified five phases that assist it and the
Company in defining the status of progress toward Year 2000 readiness. The
five phases are:
- Awareness--locating, listing and prioritizing specific
technology used in Nextel Communications' 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' or
the Company's systems through inquiry, research and testing;
19
<PAGE> 20
- Remediation--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;
- Testing--evaluating and reviewing results to monitor and
assess completeness of the 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 July 15, 1999, with respect to any non-IT devices and/or systems
containing embedded circuitry, that are not yet Year 2000 ready, the Company is,
for the most part, in or has completed the remediation phase. Several major
systems have been validated by the respective vendors and are now in the
implementation phase. The Company's local markets have created plans for or have
begun testing critical IT systems for Year 2000 readiness. The assessment phase
has been completed and all markets are in various stages of remediation,
testing and implementation phases.
The Company's ability to reach its Year 2000 readiness goal, however,
depends and will continue to depend on the parallel efforts of Nextel
Communications and significant third party vendors, suppliers, subcontractors to
and business partners of Nextel Communications and the Company. The Company
monitors the progress of these third parties towards Year 2000 readiness. 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 informed Nextel Communications that all subscriber
unit models manufactured after June 1, 1998 are Year 2000
ready. All other digital subscriber units are Year 2000 ready
with the exception of the short message service feature on
these phones, which is not expected to cause a material
disruption in Nextel's or the Company's service offerings.
With regard to the ESMR network equipment and other network
components obtained through Motorola, Motorola has indicated
that the following system infrastructure components 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
20
<PAGE> 21
3) voice mail system components have passed Year 2000
readiness testing.
- Motorola Communications Israel Ltd. ("MCIL"), an affiliate of
Motorola for software for front-end order entry and
provisioning systems. MCIL has notified Nextel Communications
that its software is Year 2000 ready.
- LHS Communications, Inc. ("LHS") for certain customer care
support and billing systems. LHS informed Nextel
Communications that the software currently in use in the
Company's 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.
- The Vantive Corporation ("Vantive") for trouble tracking and
sales order tracking. Vantive provided information to Nextel
Communications that it has successfully tested the Year 2000
readiness of the software that will be used to develop Year
2000 ready customer care systems for the Company's operations.
- 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, has advised
Nextel Communications that the software that supports the
Company's human resources and financial function is Year 2000
ready in conjunction with recommended upgrades. The Company
has installed these upgrades, and they are currently being
tested.
- Hewlett-Packard, Inc., for computer hardware and UNIX
operating systems. Hewlett-Packard has provided Nextel
Communications with sufficient information and instruction
regarding how to remediate and implement Year 2000 readiness
solutions to all Hewlett-Packard software and hardware
products. Hewlett-Packard is not expected to participate
directly in these remediation activities.
The Company has begun conducting an end-to-end system integrated Year
2000 test utilizing Motorola's laboratories. The purpose of the test is to
validate the Year 2000 readiness of the Company's essential system elements that
are integrated with Motorola's iDEN network. This end-to-end test is expected to
provide the Company guidance regarding the Year 2000 readiness issues of crucial
customer-oriented systems where modifications to address Year 2000 readiness
have been made and to assist the Company in planning for any related business
contingency issues.
THE COSTS TO ADDRESS THE COMPANY'S YEAR 2000 READINESS CHALLENGES.
Based on information developed to date as a result of the Company's assessment
efforts, the Company believes that the costs of upgrading or replacing its
systems and equipment or modification of certain software applications will not
have a material effect on the Company's liquidity, financial condition or
results of operation. The Company currently estimates expenditures in
21
<PAGE> 22
connection with these efforts during 1999 will not exceed $5 million. This cost
estimate does not include parallel Year 2000 issues readiness expenses incurred
by Nextel Communications relating to common or shared systems or components, for
which the Company may be required to provide appropriate reimbursement to Nextel
Communications. To date, the Company has not deferred any specific projects,
goals or objectives relating to its operations as a result of implementing the
Company's Year 2000 readiness efforts.
THE RISKS OF THE COMPANY'S YEAR 2000 READINESS CHALLENGES. In light of
the progress made to date, the Company does not anticipate any significant
delays and postponements in finalizing and implementing Year 2000 readiness
resolutions by the end of the third quarter of 1999. Until the Company's
remediation and testing phases are substantially complete, however, the Company
cannot fully and accurately estimate any uncertainty in the timely resolution of
Year 2000 readiness challenges or in finalizing and implementing related Year
2000 readiness resolutions. Additionally, any failure by Nextel Communications
or by third parties that have a material relationship with the Company to
achieve full Year 2000 readiness may be a potential risk if such failure
adversely impacts the ability of such parties to provide any products or
services that are critical to the Company's operations. Finally, where the
Company cannot validate or certify that technology provided by third parties is
fully Year 2000 ready, the Company is seeking to obtain assurances from such
third parties that their systems are or will be Year 2000 ready no later than
the end of the third quarter of 1999. If these third parties fail to address
Year 2000 readiness issues appropriately, there could be a materially adverse
effect on the Company's financial condition and results of operations.
These risks include, but are not limited to:
- inability of subscribers to make or receive phone calls;
- inability of sites, switches and other interfaces to
accurately record call details of subscriber phone calls; and
- inability of billing systems to report and bill subscribers
accurately for phone usage.
Other risks associated with the failure of the Company or material
third parties to develop and deploy Year 2000 readiness solutions in a timely
and successful manner may involve or result in conditions that could preclude
the Company from:
- obtaining equity or debt financing;
- deploying an alternative technology that is Year 2000 ready;
- commencing commercial service in new markets, expanding
service in existing markets or introducing new services in
existing markets; and
- pursuing additional business opportunities.
Significantly, the Company cannot independently assess the impact of
Year 2000 readiness risks, and compliance activities and programs involving
operators of public switched telecommunications networks ("PSTNs") or other
22
<PAGE> 23
service providers (such as electric utilities). The Company, therefore, must
rely on the respective PSTN's and utility provider's estimates of its own Year
2000 readiness and the status of such PSTN's related Year 2000 readiness
activities and programs in the Company's own Year 2000 readiness assessment
process. The Company has considered that certain of its customers, suppliers and
operations located in foreign countries may not be at the same advanced level of
awareness or assessment of Year 2000 readiness as their U.S. counterparts,
consequently resulting in delays and lag in remediation efforts. Because the
Operating Companies' systems are or will be interconnected with PSTNs in their
respective countries and are or will be dependent upon the systems of other
service providers, any disruption of operations in the computer programs of such
PSTNs or service providers would likely have an impact on the Company's network.
Moreover, there can be no assurance that such impact will not have a materially
adverse effect on the Company's operations.
THE COMPANY'S CONTINGENCY PLANS. Nextel Communications and the Company
have not completed all systems and software testing for critical systems, nor
have they been advised of the completion of such activities by all third-party
providers of critical products and services. As a result, neither Nextel
Communications nor the Company has fully assessed its exposure from potential
Year 2000 non-readiness. 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 Nextel Communications' and the Company's testing of critical systems,
both will evaluate and create alternative plans designed to address various
potential business interruptions that may occur as a result of non-readiness.
Additionally, because contingency plans may also be provided by third parties,
the Company will have to assess the development of appropriate alternative
solutions presented by any relevant third party to determine their effectiveness
and likely impact on the Company's Year 2000 readiness risk profile.
NEXTEL INTERNATIONAL'S FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A VARIETY OF
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM CURRENT
BELIEFS.
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995. A number of the statements made in the foregoing "Management's
Discussion and
23
<PAGE> 24
Analysis of Financial Condition and Results of Operations" and elsewhere in this
report are not historical or current facts, but deal with potential future
circumstances and developments. Those statements are qualified by the inherent
risks and uncertainties surrounding expectations generally, and also may differ
materially from the Company's actual experience involving any one or more of
these matters and subject areas. The Company has attempted to identify, in
context, some of the factors that it currently believes may cause actual
experience and results to differ from current expectations regarding the
relevant matter or subject area. The operation and results of the Company's and
of the Operating Companies' wireless communications businesses also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified in the 1998 Form 10-K, Part I, Item 1,
"Business--Risk Factors," including, but not limited to:
- general economic conditions in Latin America and Asia and in the
market segments that the Company is targeting for its services;
- the effect of valuation changes affecting the Brazilian
currency on the economies of the other Latin American
economies in which the Operating Companies conduct business;
- the impact of the changes in the relative valuation of currencies in
Brazil and the rest of Latin America in general as compared to the
U.S. dollar;
- substantive terms of any international financial aid package
that may be made available to any country in which the
Operating Companies conduct business, including, without
limitation, Brazil;
- future legislation or regulation by governmental entities in the
markets in which the Operating Companies conduct their business;
- the availability of adequate quantities of system network and
subscriber equipment and components to meet the Company's business
plans and anticipated customer demand;
- the impact of the economic conditions in Latin America and
Asia and other market conditions on the volatility and
availability of equity and debt financing in domestic and
international capital markets and the Company's access to
sufficient debt and equity financing to meet its operating and
financial needs;
- the successful deployment and performance of Motorola's iDEN(R)
technology in the Company's wireless communications networks;
- the ability to achieve market penetration and average
subscriber revenue levels sufficient to provide financial
viability to the Company's wireless communications business;
- the Company's ability to accomplish required scale-up of its
billing, collection, customer care and similar administrative
support systems timely and successfully to keep pace with
anticipated customer growth and increased system usage;
- the quality and price of similar or comparable wireless
communications services offered or to be offered by the
Company's competitors, including providers of cellular, PCS,
other wireless communications services or telecommunications
generally;
- satisfactory completion of Year 2000 software and hardware revisions
by the Company and the entities with which the Company does business;
and
- other risks and uncertainties described from time to time in
the Company's reports filed with the Securities and Exchange
Commission (the "Commission").
23
<PAGE> 25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A significant portion of Nextel International's operations are financed
through senior discount notes and bank and vendor credit facilities that are
payable in U.S. dollars. These financial instruments expose the Company to
certain market risks, including interest rate risk and foreign currency exchange
risk as described below. Because the Company's debt does not require any
significant principal payments in the near term, the Company has not entered
into any hedging activities to protect itself from foreign currency exchange or
interest rate risks.
To the extent that these financial instruments provide for variable
rates of interest, the Company is exposed to interest rate risk, primarily
related to potential fluctuations in the U.S. prime rate and LIBOR. These rates
are used to determine the interest rates that are applicable to borrowings under
the Company's bank and vendor credit facilities.
The Company's debt is denominated in U.S. dollars, while the Company's
revenues are denominated in foreign currencies. Fluctuations in exchange rates
relative to the U.S. dollar, primarily that related to the Brazilian currency,
expose the Company to foreign exchange risk. In order to manage such risks, the
Company attempts to protect its revenues and earnings from foreign currency
exchange risks by periodically adjusting prices in local currencies and, in some
cases, setting such prices in direct relation to the U.S. dollar.
The Company also holds an available-for-sale investment in shares of
Clearnet Communications, Inc., a publicly traded company, which had a common
equivalent fair value of $113.6 million at June 30, 1999. The investment in
shares of Clearnet is reported at its common equivalent market value in the
Company's financial statements. Negative fluctuations in the stock price of
Clearnet expose the Company to equity price risks. A 10% decline in the stock
price would result in a $11.4 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 June 30, 1999.
<TABLE>
<CAPTION>
YEAR OF MATURITY
----------------
TOTAL DUE AT
2000 2001 2002 2003 2004 THEREAFTER MATURITY FAIR VALUE
---- ---- ---- ---- ---- ---------- -------- ----------
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt:
Fixed rate $1,681,463 $1,681,463 $950,150
Average interest
rate 12.6% 12.6%
Variable rate $30,751 $74,045 $84,420 $114,420 $35,014 $338,650 $338,650
Average interest
rate 9.4% 9.7% 9.7% 9.5% 9.7% 9.7%
</TABLE>
24
<PAGE> 26
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company and/or the Operating Companies are involved in certain
legal proceedings as described in the Company's 1998 Form 10-K. During the three
months ended June 30, 1999, there were no material changes in the status of or
developments regarding such legal proceedings.
ITEM 2. CHANGES IN SECURITIES.
On May 13, 1999, the Company issued 1,000 shares of its Series A
Preferred Stock to a wholly owned subsidiary of Nextel Communications in a
transaction exempt from registration under Section 4(2) of the Securities Act of
1933. The Company received $100 million in proceeds from the issuance of such
shares.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
10 Amendment No. 2, dated May 12, 1999, among Nextel Argentina
S.R.L., the Lenders named therein and the Chase Manhattan Bank
as Administrative Agent (filed on June 11, 1999 as Exhibit 99.1
to the Company's Current Report on Form 8-K and incorporated
herein by reference).
*27 Financial Data Schedule.
* Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.
(b) Reports on Form 8-K.
The Company filed the following Current Report on Form 8-K during the
quarter ended June 30, 1999:
Current Report on Form 8-K, dated and filed with the Commission on June
11, 1999.
25
<PAGE> 27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXTEL INTERNATIONAL, INC.
BY: /s/Byron R. Siliezar
Byron R. Siliezar
Vice President and Chief Financial Officer
August 16, 1999
26
<PAGE> 28
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
10 Amendment No. 2, dated May 12, 1999, among Nextel Argentina
S.R.L., the Lenders named therein and the Chase Manhattan Bank
as Administrative Agent (filed on June 11, 1999 as Exhibit
99.1 to the Company's Current Report on Form 8-K and
incorporated herein by reference).
*27 Financial Data Schedule.
* Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act of 1933.
27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,
1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 141,187
<SECURITIES> 0
<RECEIVABLES> 34,686
<ALLOWANCES> 10,384
<INVENTORY> 14,142
<CURRENT-ASSETS> 199,863
<PP&E> 569,821
<DEPRECIATION> 61,234
<TOTAL-ASSETS> 1,553,185
<CURRENT-LIABILITIES> 125,734
<BONDS> 0
0
198,886
<COMMON> 396,684
<OTHER-SE> (735,562)
<TOTAL-LIABILITY-AND-EQUITY> 1,553,185
<SALES> 0
<TOTAL-REVENUES> 41,760
<CGS> 0
<TOTAL-COSTS> 18,072
<OTHER-EXPENSES> 51,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82,220
<INCOME-PRETAX> (267,569)
<INCOME-TAX> (439)
<INCOME-CONTINUING> (268,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,008)
<EPS-BASIC> (7.34)
<EPS-DILUTED> (7.34)
</TABLE>
