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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19656
NEXTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3939651
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1505 FARM CREDIT DRIVE, MCLEAN, VA 22102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 394-3000
201 ROUTE 17 NORTH, RUTHERFORD, NJ 07070
(Former name, former address and former fiscal year,
if changed since last report)
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 1, 1996
-------------- -----------------
Class A Common Stock, $0.001 par value 209,442,111 (including 1,969,440
shares held in treasury)
Class B Non-Voting Common Stock, 17,830,000
$0.001 par value
<PAGE>
NEXTEL COMMUNICATIONS, INC.
INDEX
PAGE NO.
--------
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements - Unaudited.
Condensed Consolidated Balance Sheets -
December 31, 1995 and June 30, 1996. 3
Condensed Consolidated Statements of Operations -
Six Months Ended June 30, 1995 and 1996. 4
Condensed Consolidated Statements of Operations -
Three Months Ended June 30, 1995 and 1996. 5
Condensed Consolidated Statement of Changes in
Stockholders' Equity - Six Months Ended
June 30, 1996. 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1996. 7
Notes to Condensed Consolidated Interim Financial
Statements. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II OTHER INFORMATION.
Item 1. Legal Proceedings. 20
Item 4. Submission of Matters to a Vote of Security Holders. 20
Item 5. Other Information. 22
Item 6. Exhibits and Reports on Form 8-K. 22
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
UNAUDITED
DECEMBER 31, JUNE 30,
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $340,826 $277,514
Marketable securities 68,443 75,410
Accounts receivable, less allowance for
doubtful accounts of $5,232 and $6,746 41,451 63,491
Radios and accessories 21,220 25,446
Other 32,721 13,795
---------- ----------
Total current assets 504,661 455,656
Property, plant and equipment - net 1,192,204 1,384,368
Intangible assets - net 3,549,622 3,957,478
Other noncurrent assets 266,340 267,246
---------- ----------
$5,512,827 $6,064,748
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other $363,732 $208,182
Current portion of long-term debt 1,277 1,055
-------- --------
Total current liabilities 365,009 209,237
Deferred income taxes 549,277 479,394
Long-term debt 1,653,400 2,284,192
--------- ---------
Total liabilities 2,567,686 2,972,823
--------- ---------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Class A convertible redeemable,
shares outstanding 8,163,265 and 8,163,265 300,000 300,000
Preferred stock, Class B convertible,
shares outstanding 82 and 82 -- --
Common stock, Class A, shares outstanding
175,749,359 and 209,236,413 176 209
Common stock, Class B, non-voting convertible,
shares outstanding 17,830,000 and 17,830,000 18 18
Additional paid-in capital 3,197,528 3,589,188
Accumulated deficit (579,231) (827,977)
Treasury shares - 24,860 and 1,950,735 shares (768) (1,119)
Net unrealized gain on investments 32,054 36,580
Notes receivable - incentive equity plan (1,018) (1,035)
Deferred compensation - net (3,618) (3,939)
---------- ----------
Total stockholders' equity 2,945,141 3,091,925
---------- ----------
$5,512,827 $6,064,748
========== ==========
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
1995 1996
---- ----
REVENUE:
Radio service revenue $ 42,019 $ 125,853
Analog equipment sales and maintenance 17,659 20,084
--------- ---------
59,678 145,937
COSTS AND EXPENSES RELATED TO REVENUE:
Cost of radio service revenue 32,207 102,013
Cost of analog equipment sales and maintenance 13,466 14,719
45,673 116,732
GROSS PROFIT 14,005 29,205
--------- ---------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general and administrative 74,623 150,740
Depreciation and amortization 82,744 185,829
--------- ---------
157,367 336,569
OPERATING LOSS (143,362) (307,364)
--------- ---------
OTHER INCOME (EXPENSE):
Interest expense (43,357) (106,741)
Interest income 11,510 13,209
--------- ---------
(31,847) (93,532)
LOSS BEFORE INCOME TAX BENEFIT (175,209) (400,896)
INCOME TAX BENEFIT 65,028 152,150
--------- ---------
NET LOSS $(110,181) $(248,746)
========= =========
NET LOSS PER SHARE $ (1.03) $ (1.13)
========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 106,513,000 219,279,000
=========== ===========
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
1995 1996
---- ----
REVENUE:
Radio service revenue $ 21,942 $ 67,755
Analog equipment sales and maintenance 8,235 9,864
---------- ---------
30,177 77,619
COSTS AND EXPENSES RELATED TO REVENUE:
Cost of radio service revenue 16,642 49,781
Cost of analog equipment sales and maintenance 6,344 7,113
---------- ---------
22,986 56,894
GROSS PROFIT 7,191 20,725
---------- ---------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general and administrative 38,033 81,990
Depreciation and amortization 42,381 99,155
---------- ---------
80,414 181,145
OPERATING LOSS (73,223) (160,420)
---------- ---------
OTHER INCOME (EXPENSE):
Interest expense (22,397) (57,321)
Interest income 4,953 6,585
---------- ---------
(17,444) (50,736)
LOSS BEFORE INCOME TAX BENEFIT (90,667) (211,156)
INCOME TAX BENEFIT 33,685 81,128
---------- ---------
NET LOSS $ (56,982) $(130,028)
========== =========
NET LOSS PER SHARE $ (0.53) $ (0.58)
========== ========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 107,371,000 224,783,000
=========== ===========
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NOTES
NET RECEIVABLE
CLASS A CLASS B CLASS A CLASS B ADDITIONAL UNREALIZED - INCENTIVE DEFERRED
PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED TREASURY GAIN ON EQUITY COMPEN-
STOCK STOCK STOCK STOCK CAPITAL DEFICIT SHARES INVESTMENTS PLAN SATION
----- ----- ----- ----- ------- -------- ------- ----------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
JANUARY 1, 1996 $300,000 $ -- $ 176 $ 18 $3,197,528 $(579,231) $ (768) $32,054 $(1,018) $ (3,618)
Issuances under
incentive
equity plan,
warrants and
other 2 5,204 (351)
Common stock
issued for
acquisitions 23 281,741
Common stock
acquired by
Comcast 8 99,897
Deferred
compensation
and related
amortization
and collection
of notes
receivable 4,818 (17) (321)
Net unrealized
appreciation
on investments 4,526
Net loss (248,746)
-------- ------ ------- ----- ---------- ---------- -------- ------- -------- ----------
BALANCE,
JUNE 30, 1996 $300,000 $ -- $ 209 $ 18 $3,589,188 $(827,977) $(1,119) $36,580 $(1,035) $ (3,939)
======== ====== ====== ===== ========== ========== ======== ======= ======== =========
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(110,181) $(248,746)
Adjustment to reconcile net loss to net
cash used in operating activities 9,869 (44,989)
-------- --------
Net cash used in operating activities (100,312) (293,735)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in other assets 2,616 (18,736)
Increase in intangible assets (1,455) --
Payments for acquisitions, net of cash acquired (16,602) 58,742
Capital expenditures (83,578) (60,858)
Decrease (increase) in marketable securities 64,512 (5,960)
Net cash used in investing activities (34,507) (26,812)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving lines of credit -- 153,070
Other repayments - net (1,266) (822)
Common stock issued, options exercised 317 5,099
Common stock issued for acquisitions 12,645 99,905
Notes receivable, incentive equity plan (36) (17)
-------- --------
Net cash provided by financing activities 11,660 257,235
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (123,159) (63,312)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 301,679 340,826
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $178,520 $277,514
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 4,809 $ 10,281
======== ========
Taxes paid $ 354 $ 534
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of equipment, including non-cash
capitalized interest $ 87,182 $ 49,795
======== ========
See Notes to Condensed Consolidated Interim Financial Statements.
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The condensed consolidated interim financial statements of Nextel
Communications, Inc. and subsidiaries ("Nextel" or the "Company") included
herein have been prepared by the Company without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission (the "Commission") and
reflect all adjustments that are, in the opinion of management, necessary for a
fair statement of the results for the interim periods. All adjustments made were
normal recurring accruals.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. Operating results for the
interim periods are not necessarily indicative of results for an entire year.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of" ("SFAS 121"). There was no
material effect from the adoption of SFAS 121.
Certain amounts presented for the periods ended June 30, 1995 have been
reclassified to conform to the presentation for the periods ended June 30, 1996.
NOTE 2 - BUSINESS COMBINATIONS AND OTHER SIGNIFICANT TRANSACTIONS
Dial Page Merger. On January 30, 1996, the merger with Dial Page, Inc.
("Dial Page") was consummated (the "Dial Page Merger"), whereby the stockholders
of Dial Page received approximately 26,800,000 shares of Class A Common Stock,
par value $0.001 per share ("Class A Common Stock"), or rights to receive such
stock, having an aggregate value of approximately $277,892,000 on the contract
date, determined pursuant to Emerging Issues Task Force Issue No. 95-19.
The Dial Page Merger has been accounted for by the purchase method.
Accordingly, assets and liabilities have been reflected at fair value, which may
be subject to further refinement. The operating results of Dial Page are
included in the condensed consolidated statements of operations from the
acquisition date.
Pro Forma Operations Data. The following pro forma statements of operations
data gives effect to the Dial Page Merger, and to the completion on July 28,
1995 of the transactions with Motorola, Inc. ("Motorola") (the "Motorola
Transaction") and with OneComm Corporation ("OneComm") (the "OneComm Merger")
and the completion on July 31, 1995 of the transaction with American Mobile
Systems Incorporated ("AMS") (the "AMS Transaction"), assuming such transactions
had been consummated at the beginning of the earliest period presented (in
thousands, except per share data):
SIX MONTHS ENDED
JUNE 30,
-------------------------
1995 1996
---- ----
Revenue $ 121,507 $ 148,775
========= =========
Net loss $(217,636) $(256,641)
========= =========
Net loss per share $ (0.99) $ (1.15)
========= =========
The pro forma information is not necessarily indicative of the results that
would actually have occurred had the transactions been consummated on the dates
indicated, nor are they necessarily indicative of future operating results of
the Company.
Comcast Exercise of Purchase Rights. On February 9, 1996, Comcast FCI, Inc.,
a subsidiary of Comcast Corporation (collectively, "Comcast"), purchased
8,155,506 shares of Class A Common Stock for $99,905,000 in connection with its
exercise of its anti-dilution rights to purchase shares in connection with the
Dial Page Merger.
McCaw International Transaction. In June 1996, the Company, through its
wholly owned subsidiary, McCaw International, Ltd. ("McCaw International"),
invested $16,000,000 to obtain a 30% equity interest in Infocom Communications
Network, Inc., a wireless communications company in the Philippines ("Infocom").
This investment will be accounted for by the equity method.
NOTE 3 - DIGITAL MOBILE NETWORK EQUIPMENT SALES AND RELATED COSTS
Effective January 1, 1996, in order to conform its presentation to that of
the majority of wireless communications companies, the Company classified
equipment sales revenue from and related costs for the operation of its advanced
mobile communications systems employing digital technology (the "Digital Mobile
networks") within selling, general and administrative expenses. The loss on the
sale of subscriber units used in the Digital Mobile networks ("Digital Mobile
units") results from the Company's subsidy of sales of Digital Mobile units
sales and represents marketing costs for the Digital Mobile network. Sales of
analog subscriber units result in a contribution to gross margin that is
anticipated to continue in the foreseeable future; accordingly, sales of analog
subscriber units will continue to be classified as revenue and the associated
costs will continue to be classified as cost and expenses related to revenue.
The statement of operations for the three months and the six months ended June
30, 1995 has been reclassified to conform with this presentation.
Equipment sales and related costs of the Company's Digital Mobile network
operations are included within selling, general and administrative expenses as
follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1995 1996 1995 1996
---- ---- ---- ----
Equipment sales $12,679 $33,127 $20,311 $58,294
Cost of equipment sales 13,259 36,484 21,439 64,893
------ ------ ------ ------
$ (580) $(3,357) $(1,128) $(6,599)
======= ======= ======= =======
NOTE 4 - NET LOSS PER SHARE
The net loss per share is based on the weighted average number of voting and
non-voting common shares outstanding during the periods and does not include
common stock equivalents since their effect would be anti-dilutive.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
See Part II, Item 1 for a description of legal proceedings.
NOTE 6 - RELATED PARTIES
On June 28, 1996, the Company completed the acquisition of certain 800 MHz
trunked SMR systems, located in Hawaii, from Motorola for approximately
$5,400,000 in cash.
NOTE 7 - SUBSEQUENT EVENTS
In August 1996, McCaw International obtained 100% ownership of Com Control
Comunicasion Controlada S.A., an Argentine SMR company with licenses covering
areas of the country with a total population of more than 17 million people.
This investment will be accounted for by the equity method.
* * * * *
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
OVERVIEW
The following is a discussion of the condensed consolidated financial
condition and results of operations of Nextel for the six and three month
periods ended June 30, 1995 and 1996, and certain factors that will affect the
Company's prospective financial condition.
To further its objective of achieving nationwide Digital Mobile network
coverage, Nextel consummated the Motorola Transaction, the OneComm Merger and
the AMS Transaction in July 1995 and consummated the Dial Page Merger on January
30, 1996 (hereinafter referred to collectively as the "Acquisitions"). Also in
July 1995, pursuant to a securities purchase agreement dated as of April 4, 1995
between the Company, Digital Radio, L.L.C. (the "McCaw Investor") and Craig O.
McCaw, the Company consummated an equity investment in Nextel by the McCaw
Investor, pursuant to which Nextel received net equity investment proceeds
totaling approximately $312,645,000 (including amounts received in April 1995)
and issued shares of common and preferred stock and stock options exercisable
over the next six years (the "McCaw Transaction"). Funds received in the McCaw
Transaction are being used for the implementation and operation of the Digital
Mobile networks and to satisfy other cash requirements of the Company.
In April 1996, the Federal Communications Commission (the "FCC") concluded
its auction of 900 MHz specialized mobile radio ("SMR") frequencies. Nextel
successfully bid a total of approximately $29,079,000 for 177 ten-channel
licenses in markets throughout the United States, including Alaska and Hawaii.
The Company made final payment to the FCC for these licenses in July 1996. The
Company intends to use the newly acquired 900 MHz licenses in its ongoing
wireless communications operations, including as part of its ongoing process of
transferring its analog SMR customers from certain 800 MHz frequencies to 900
MHz or other 800 MHz frequencies.
The Company also has pursued various international investment and operating
relationships in wireless communications ventures. In 1994, the Company invested
an aggregate of approximately $18,100,000 in cash and exchanged 2,500,000 shares
of Class A Common Stock for an equity interest in Clearnet Communications Inc.
("Clearnet") that as of June 30, 1996 represented an approximate 25% equity
interest (representing an approximate 1.6% voting interest) in Clearnet.
Clearnet operates wireless communications systems in Canada and in 1995 was one
of two entities awarded a nationwide personal communications services ("PCS")
license in Canada. In 1994 and 1995, the Company invested an aggregate of
approximately $57,200,000 for an approximate 18% equity interest in Corporacion
Mobilcom S.A. de C.V. ("Mobilcom") and has options to increase its equity
ownership. Mobilcom operates wireless communications systems in Mexico.
Additionally, in 1995, the Company, through its wholly owned subsidiary McCaw
International, Ltd. ("McCaw International"), has invested approximately
$10,000,000 for an approximate 25% equity-equivalent interest and committed an
additional $13,000,000 in loan funding in the initial phase of a newly created
Group Special Mobile digital cellular telephone system operating in Shanghai,
China. McCaw International advanced a total of approximately $6,600,000 of such
loan funding to the Shanghai operations in the first half of fiscal year 1996.
In June 1996, McCaw International invested $16,000,000 for a 30% equity
interest in Infocom Communications Network, Inc., a wireless communications
company in the Philippines ("Infocom"). Infocom currently operates a nationwide
paging business and has 100 pairs of 800 MHz SMR channels in the Philippines.
Infocom was recently awarded a 25-year license by the Philippine government to
provide wireless communications services throughout the Philippines. The license
allows Infocom to provide paging and SMR services, and gives Infocom the right
to seek provisional authority to operate a personal communications network
throughout the Philippines. Infocom plans to use its SMR channels to implement a
national digital network using the same Motorola-developed digital technology
deployed by Nextel in its United States Digital Mobile networks (such technology
is referred to as the "Integrated Digital Enhanced Network" or "iDEN"). In
August 1996, McCaw International obtained 100% ownership of Com Control
Comunicasion Controlada S.A. ("Com Control"), an Argentine SMR company with
licenses in areas covering more that 17 million people. Com Control will serve
Buenos Aires and the next three largest cities in Argentina. Com Control will
focus initially on providing high-quality analog SMR service and ultimately
digital service.
The Company intends to continue to investigate and pursue investment,
operating and other relationships in, with or concerning wireless communications
ventures outside the United States, to the extent the Company believes that such
opportunities present the potential to achieve attractive rates of return on
investment or to provide important strategic or other benefits to the Company.
For the most part, such activities have been, and are expected to continue to
be, pursued through subsidiaries of the Company that are classified as
"unrestricted" for purposes of the Company's public indentures. While such
classification gives those subsidiaries the flexibility to participate in and
structure transactions in ways that might not comply with certain of the
covenants in the public indentures that are applicable to the Company and its
"restricted" subsidiaries, those indentures do contain certain limitations with
respect to such "unrestricted" subsidiaries, including limits on the amount and
type of financial support that they may receive from the Company and its
"restricted" subsidiaries. Currently, the Company believes that these
"unrestricted" subsidiaries have or can obtain (in a manner consistent with the
terms of the public indentures) adequate funding to satisfy their existing and
reasonably expected commitments. The pursuit of international wireless
communications opportunities in the future by such "unrestricted" subsidiaries,
however, may be dependent on, among other factors, their ability to secure
necessary equity and/or debt financing from third parties. There can be no
assurance that such financing could be obtained or, if obtainable, would be made
available on acceptable terms. See also "--Future Capital Needs and Resources"
and "--Forward-Looking Statements."
Prior to the second quarter of 1996, the Company implemented its Digital
Mobile networks in its market areas using Motorola's "first generation" iDEN
technology. During that time frame, the Company encountered certain technology
and system performance issues relating to the "first generation" iDEN technology
that resulted in delays in the implementation of its plans to deploy its Digital
Mobile networks and in the commencement of aggressive marketing efforts with
respect to its communications products and services, particularly its mobile
telephone services. These technology and system performance issues related
primarily to the voice transmission quality of the mobile telephone service.
In response to these issues, the Company and Motorola have undertaken, and
continue to undertake, system enhancement efforts to address various
circumstances believed to adversely affect system performance and customer
satisfaction, particularly those associated with voice transmission quality. The
Company anticipates that such system enhancement efforts will be a continuing
component of the normal ongoing technology optimization process. Additionally,
independent of such system enhancement efforts, the Company, together with
Motorola, is pursuing a significant program directed toward the development and
deployment of modifications to the "first generation" iDEN technology platform,
to be known as Reconfigured iDEN, designed principally to produce improvements
in voice transmission quality.
In those markets where the Company's Digital Mobile network service was
launched utilizing the "first generation" iDEN technology platform, the Company
has focused the marketing of its products and services, in light of the
technology and system performance issues it has encountered, toward potential
customer groups primarily interested in the digital dispatch radio services and
message mail services, which generally have met customer expectations and, on a
limited basis, toward select potential customer groups primarily interested in
the full integrated package of services, including its Digital Mobile network
telephone service. Due to such technology and system performance issues, and the
related implementation delays and constricted marketing efforts, the Company has
not achieved operating revenues from its Digital Mobile networks at the level
and on the schedule that it had previously anticipated.
The Company has stated its intention to reassess its system deployment plans
and implementation schedules, and to re-evaluate its marketing and sales
programs, once the ongoing system enhancement efforts and/or Reconfigured iDEN
developments results in achievement of acceptable voice transmission quality on
the Digital Mobile networks. Nextel and Motorola have been encouraged by their
experience to date in the Reconfigured iDEN development and deployment process.
All significant technology performance benchmarks, development process targets
and key event schedules relating to the development and deployment of
Reconfigured iDEN have been achieved or satisfied to date substantially as
contemplated and originally agreed to by Nextel and Motorola. The results
generated in the pre-commercial launch testing, optimization and operational
phases of the Company's initial Reconfigured iDEN Digital Mobile network
deployed in the Chicago market, including a first stage "beta test" with a user
population composed largely of Nextel and Motorola employees in that market area
and the currently ongoing stage of user trials involving a limited number of
commercial customers, have been in line with expectations. Similar limited
numbers of commercial customers also are now engaged in user trials of
Reconfigured iDEN Digital Mobile networks that are being implemented in the
Atlanta, Boston, Denver and Detroit markets. In June 1996, Nextel placed an
order with Motorola for more than $100,000,000 of products incorporating the
Reconfigured iDEN technology, including system infrastructure equipment and
related software and 100,000 of the new compact, lightweight Reconfigured iDEN
handsets that the Company plans to market nationally under the "PowerFone"(TM)
brand name.
Nextel and Motorola are monitoring customer experiences on and reactions to
the Reconfigured iDEN Digital Mobile networks closely to enable Nextel and
Motorola to identify and perform necessary system and subscriber unit equipment
and software refinements and optimization activities in anticipation of
subsequent full-scale commercial launches. In the Chicago market, Nextel
believes that the remaining pre-launch development and testing procedures, and
related system optimization tasks, will be performed and completed successfully
during the third quarter of 1996. Nextel currently is engaging in various
planning and preparatory activities in a limited number of additional markets,
including the other four test markets, to facilitate a potential rapid
deployment of Reconfigured iDEN Digital Mobile networks in such markets.
Based on its experiences with the Reconfigured iDEN technology, including
the feedback received in customer trials and various other inputs and
considerations, the Company anticipates a full-scale commercial launch of the
Reconfigured iDEN Digital Mobile network in the Chicago market, accompanied by
the commencement of a more broadly-focused marketing campaign, during the third
quarter of 1996. The Company intends, assuming satisfactory roll-out of the
Chicago Reconfigured iDEN Digital Mobile network and continuing favorable
experiences in the user trials in the other four test markets, to proceed with
full-scale commercial launches and to initiate parallel marketing efforts in
each of those markets during the final quarter of 1996 and the first quarter of
1997. These commercial launch activities would be intended to form the initial
phases of an anticipated rapid nationwide deployment of the Reconfigured iDEN
technology in the Company's Digital Mobile networks. Under its current
nationwide build-out plan, the Company expects its Reconfigured iDEN Digital
Mobile networks to be available in areas covering approximately 85% of the U.S.
population by the end of 1998. Although Nextel has not yet committed firmly to
such an aggressive nationwide deployment schedule and marketing campaign, the
Company's management believes that such an approach is more likely to be the
course taken, rather than continuing the restrained operating mode that has
characterized the Company's experience in its "first generation" iDEN Digital
Mobile network markets. Implementation of such a rapid nationwide deployment
strategy for Reconfigured iDEN would likely significantly accelerate the
Company's use of and needs for capital resources and would therefore be
dependent on, among other things, availability of necessary capital. See also
"--Future Capital Needs and Resources" and "--Forward-Looking Statements."
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 were $145,937,000, up
144.5% from the six months ended June 30, 1995. Radio service revenue increased
199.5% to $125,853,000 and analog equipment sales and maintenance revenue
increased 13.7% to $20,084,000 for the six months ended June 30, 1996, compared
to the six months ended June 30, 1995. Digital Mobile network equipment revenue,
which is classified along with related costs within selling, general and
administrative expenses (see Note 3 to the Condensed Consolidated Interim
Financial Statements), increased 187.0% to $58,294,000 for the six months ended
June 30, 1996, compared to the six months ended June 30, 1995.
Radio Service. The increase in radio service revenue was principally a
result of an increase in analog units in service attributable to the completed
Acquisitions, the commencement of Digital Mobile network service in certain
markets during 1996 and the increased sales in markets that commenced Digital
Mobile network services in 1994 and 1995.
The total number of units in service as of June 30, 1996 was approximately
985,000, compared to 351,000 as of June 30, 1995, reflecting growth primarily
from the Acquisitions and, to a lesser extent, the commencement of Digital
Mobile network service in certain markets and increased sales in markets that
commenced Digital Mobile network service in 1994 and 1995. The following table
summarizes the overall growth:
UNITS IN SERVICE AS OF
JUNE 30,
----------------------------
1995 1996 CHANGE
---- ---- ------
Analog SMR service 314,000 809,000 495,000
Digital Mobile Network service 37,000 176,000 139,000
------- ------- -------
Total 351,000 985,000 634,000
======= ======= =======
The churn rate for the analog SMR operations for the six months ended June
30, 1996 was 1.7% per month, up from the rate of 1.4% per month for the six
months ended June 30, 1995 (not including, for purposes of the six months ended
June 30, 1995, the OneComm, AMS, Motorola and Dial Page operations, for which
consolidated and consistent churn data for the period prior to completion of the
respective transactions is not available). The increase was due principally to
reductions in analog capacity resulting from the migration of frequencies from
the analog SMR systems to Digital Mobile networks and higher churn rates
experienced in certain of the Acquisitions. The churn rate for the Digital
Mobile networks operation was less than 1% per month for the six months ended
June 30, 1996. There is insufficient history of customer activity on the Digital
Mobile networks to derive a meaningful churn rate for the six months ended June
30, 1995.
Gross profits from radio service for the six months ended June 30, 1996 was
$23,840,000, up from $9,812,000 for the six months ended June 30, 1995, due
principally to the significant increase in radio service revenue from the
Digital Mobile networks. The radio service gross profit margin of 18.9% for the
six months ended June 30, 1996 was down from 23.4% for the six months ended June
30, 1995, primarily reflecting the costs associated with the Digital Mobile
networks. The direct costs associated with the Digital Mobile networks, such as
site rental and telephone expenses, will continue to increase as networks are
placed into service.
Equipment Sales and Maintenance Revenue. Total equipment sales and
maintenance revenue (before the reclassification described in note 3 to the
Condensed Consolidated Interim Financial Statements) for the six months ended
June 30, 1996 was $78,378,000, compared to $37,970,000 for the six months ended
June 30, 1995. The increase resulted principally from equipment sales revenue
from Digital Mobile unit sales. Analog equipment sales and maintenance revenue
increased 13.7% to $20,084,000, primarily due to increased maintenance revenue
associated with analog SMR units acquired in the Motorola Transaction. Nextel's
analog SMR unit sales are expected to decrease as a result of the Company's
continuing focus away from the sale of analog SMR radios and migration of analog
SMR customers to the Digital Mobile network service in the markets in which
Digital Mobile networks have begun operating.
The gross profit from analog equipment sales and maintenance for the six
months ended June 30, 1996 was $5,365,000, compared to a gross profit of
$4,193,000 for the six months ended June 30, 1995. The related gross margin
percentage was 26.7% for the six months ended June 30, 1996, compared to a gross
profit margin percentage of 23.7% for the six months ended June 30, 1995. The
increase in the gross profit percentage resulted primarily from higher margins
generated by operations acquired in the Motorola Transaction.
Selling, general and administrative expenses increased by $76,117,000 to
$150,740,000 for the six months ended June 30, 1996, compared to the six months
ended June 30, 1995. The increase related to the Acquisitions and increased
staffing and other activities to support the implementation and operation of the
Digital Mobile networks. Selling, general and administrative expenses include a
loss on Digital Mobile equipment sales of $6,599,000 for the six months ended
June 30, 1996, compared to a loss of $1,128,000 for the six months ended June
30, 1995, reflecting, in part, the effect of customer subsidies or discounts.
The Company anticipates that it will continue to offer customers subsidies or
discounts in connection with the sale and installation of Digital Mobile units
as a part of its overall Digital Mobile network service offering.
Depreciation and amortization increased $103,085,000 to $185,829,000 for the
six months ended June 30, 1996, reflecting the effect of the Acquisitions and
the activation of the Digital Mobile networks. System assets relating to the
development of Digital Mobile networks represent the largest portion of capital
expenditures during the period. Depreciation and amortization of such assets
begins upon commencement of commercial service in each market. The Company
anticipates that depreciation and amortization expense will continue to increase
as a result of the activation of additional Digital Mobile networks during 1996
and 1997, the deployment of additional depreciable assets in markets where
commercial service has commenced and as "first generation" iDEN Digital Mobile
networks are converted to the Reconfigured iDEN technology platform over the
next several years.
Interest income increased by $1,699,000 to $13,209,000 for the six months
ended June 30, 1996, compared to the six months ended June 30, 1995, reflecting
an increase in cash and cash equivalents and marketable securities from the
Acquisitions, the McCaw Transaction and the exercise by Comcast of its
anti-dilution rights, offset in part by the Company's utilization of cash for
the development and implementation of its Digital Mobile networks and for
acquisitions. Interest expense totaled $106,741,000 for the six months ended
June 30, 1996, up $63,384,000 from the six months ended June 30, 1995,
reflecting increased interest expense attributable to the assumption of
OneComm's Senior Redeemable Discount Notes due 2004 and the Dial Call Senior
Redeemable Discount Notes due 2004 and 2005 assumed in the Acquisitions and
interest expense attributable to increased borrowings under the Company's vendor
financing facilities. The increase in interest expense was offset partially by
capitalized interest relating to construction in progress of Digital Mobile
networks. During the six months ended June 30, 1996, the Company capitalized
interest of $12,753,000, compared to $20,187,000 for the six months ended June
30, 1995.
The deferred tax benefit for the six months ended June 30, 1996 was
$152,150,000, compared to $65,028,000 for the six months ended June 30, 1995.
These benefits resulted from the utilization of net operating losses against
deferred tax liabilities.
THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED JUNE 30, 1995
Total revenues for the three months ended June 30, 1996 were $77,619,000, up
157.2% from the three months ended June 30, 1995. The increase was principally a
result of an increase in analog units in service attributable to the completed
Acquisitions, the commencement of Digital Mobile network service in certain
markets during 1996 and the increased sales in markets that commenced Digital
Mobile network services in 1994 and 1995. The gross profit for the three months
ended June 30, 1996 was $20,725,000, compared to a gross profit of $7,191,000
for the three months ended June 30, 1995. The related gross margin percentage
was 26.7% for the three months ended June 30, 1996, compared to a gross profit
margin percentage of 23.8% for the three months ended June 30, 1995. The
increase in the gross profit percentage resulted primarily from higher margins
generated by operations acquired in the Motorola Transaction.
Selling, general and administrative expenses increased by $43,957,000 to
$81,990,000 for the three months ended June 30, 1996, compared to the three
months ended June 30, 1995. The increase related to the Acquisitions and
increased staffing and other activities to support the implementation and
operation of the Digital Mobile networks. Selling, general and administrative
expenses include a loss on Digital Mobile equipment sales of $3,357,000 for the
three months ended June 30, 1996, compared to a loss of $580,000 for the three
months ended June 30, 1995, reflecting, in part, the effect of customer
subsidies or discounts. The Company anticipates that it will continue to offer
customers subsidies or discounts in connection with the sale and installation of
Digital Mobile units as a part of its overall Digital Mobile network service
offering.
Depreciation and amortization increased $56,744,000 to $99,155,000 for the
three months ended June 30, 1996, reflecting the effect of the Acquisitions and
the activation of the Digital Mobile networks.
Interest income increased by $1,632,000 to $6,585,000 for the three months
ended June 30, 1996, compared to the three months ended June 30, 1995,
reflecting an increase in cash and cash equivalents and marketable securities
from the Acquisitions, the McCaw Transaction and the exercise by Comcast of its
anti-dilution rights, offset in part by the Company's utilization of cash for
the development and implementation of its Digital Mobile networks and for
acquisitions. Interest expense totaled $57,321,000 for the three months ended
June 30, 1996, up $34,924,000 from the three months ended June 30, 1995,
reflecting increased interest expense attributable to the OneComm Senior
Redeemable Discount Notes due 2004 and the Dial Call Senior Redeemable Discount
Notes due 2004 and 2005 assumed in the Acquisitions and interest expense
attributable to increased borrowings under the Company's vendor financing
facilities. The increase in interest expense from such notes was partially
offset by capitalized interest relating to construction in progress of Digital
Mobile networks. During the three months ended June 30, 1996, the Company
capitalized interest of $6,129,000, compared to $10,011,000 for the three months
ended June 30, 1995.
The deferred tax benefit for the three months ended June 30, 1996 was
$81,128,000, compared to $33,685,000 for the three months ended June 30, 1995.
These benefits resulted from the utilization of net operating losses against
deferred tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net losses of $248,746,000 and $331,165,000 for the six
months ended June 30, 1996 and the year ended December 31, 1995, respectively.
The costs of developing and operating the Digital Mobile networks have offset
the operating earnings of the analog SMR operations, including those acquired in
the Acquisitions, and are expected to continue to offset such operating earnings
for the next several years. The Company has consistently used external sources
of funds, primarily from equity issuances and the incurrence of debt, to fund
operations, acquisitions, capital expenditures and other non-operating needs.
For the next several years, the Company anticipates using its existing cash and
investments, cash flow from analog SMR operations, and externally generated
funds from debt and equity sources as discussed below to cover future needs,
including the design, implementation and operation of the Digital Mobile
networks.
Working capital (current assets less current liabilities) was $246,419,000
and $139,652,000 at June 30, 1996 and December 31, 1995, respectively. The
increase is primarily a result of a decrease in accounts payable resulting from
the financing of payables due to Motorola (see "Vendor Financing").
Vendor Financing. Pursuant to the terms of the OneComm Merger and the
Motorola Transaction, the Company's equipment financing facilities from Motorola
increased from $260,000,000 to $685,000,000 (the "Motorola Financing Facility").
In June 1996, Nextel and Motorola reached an understanding regarding certain
basic terms of the financing arrangements expected to be associated with the
Company's nationwide deployment of its Digital Mobile networks. Nextel and
Motorola agreed in principle to make the Motorola Financing Facility available
to Nextel for purchases on a nationwide basis. The existing Motorola Financing
Facility is available currently for purchases in selected Nextel markets. The
expanded financing availability would be paired with an expansion of the
collateral pool securing the Motorola Financing Facility to encompass Nextel's
nationwide Digital Mobile networks. Motorola has agreed to share this expanded
collateral pool ratably, with other prospective lenders who may provide
financing to Nextel in the future, up to a maximum of $2,000,000,000. Nextel's
public indentures contain provisions that may operate to limit Nextel's ability
to incur debt beyond certain amounts, characterized as "permitted debt" under
such indentures. Nextel and Motorola contemplate negotiating and entering into a
definitive agreement implementing the concepts and approach summarized above.
During the six months ended June 30, 1996, borrowings under the Motorola
Financing Facility increased from $225,075,000 as of December 31, 1995 to
$360,000,000 as of June 30, 1996.
During the six months ended June 30, 1996, the Company increased its
borrowings under the NTFC Capital Corporation ("NTFC") $40,000,000 debt facility
from $10,000,000 as of December 31, 1995 to $28,592,000 as of June 30, 1996. See
"--Future Capital Needs and Resources."
Cash Flows. Net cash used in operating activities for the six months ended
June 30, 1996 was $293,735,000, compared to net cash used in operating
activities of $100,312,000 for the six months ended June 30, 1995. The primary
reason for the increase was the increase in costs incurred during the six months
ended June 30, 1996 related to the Acquisitions and increased staffing and other
activities to support the implementation and operation of the Digital Mobile
networks. Net cash used in investing activities was $26,812,000 for the six
months ended June 30, 1996, which includes a $60,858,000 use of cash for capital
expenditures primarily for the build out of the Digital Mobile networks, an
increase in marketable securities of $5,960,000, offset primarily by net cash
obtained from acquisitions totaling $58,742,000. Financing activities during the
six months ended June 30, 1996 consisted primarily of the $99,905,000 cash
received in connection with the exercise of the Comcast anti-dilution rights and
the additional borrowings of $153,070,000 under the Company's revolving lines of
credit. The resulting decrease in cash and cash equivalents from December 31,
1995 was $63,312,000 to $277,514,000 at June 30, 1996.
FUTURE CAPITAL NEEDS AND RESOURCES
Nextel anticipates that, for the foreseeable future, it will be utilizing
significant amounts of its available cash for capital expenditures for the
construction of Digital Mobile networks (including conversion of existing "first
generation" iDEN Digital Mobile networks to the Reconfigured iDEN technology
platform), operating expenses relating both to Digital Mobile network and to the
Company's analog SMR systems, potential acquisitions (including the acquisition
of rights to spectrum through the 900 MHz spectrum auction process (see
"--Overview") and the contemplated 800 MHz spectrum auction process and
investment in various potential international wireless communications business
opportunities) and other expenditures. Nextel anticipates that its cash
utilization for investment activities and operating losses will continue to
exceed its cash flows from operating activities over the next several years
during the start-up phase of its Digital Mobile networks and that it will be
necessary for Nextel to utilize its existing cash and funding from outside
sources to meet its cash needs resulting from such activities and losses.
Nextel's aggregate cash, cash equivalents and marketable securities at June
30, 1996 totaled approximately $352,924,000. At June 30, 1996, Nextel had drawn
approximately $378,592,000 of its available financing under facilities in place
with Motorola and NTFC, leaving an aggregate of approximately $336,000,000
available for borrowing under the Motorola and NTFC facilities (subject to
satisfaction or waiver of applicable borrowing conditions).
Nextel believes that it has sufficient funds currently available or
reasonably expected to be accessible to it under its existing financing
facilities to meet its cash needs for at least the remainder of the current
fiscal year, in light of its current (and currently committed) business and
investment activities. Nextel anticipates that it will likely be seeking
additional debt or equity financing, either in the public capital markets or
through privately negotiated investment or loan arrangements, prior to mid-1997
to obtain the funding necessary to permit both the full-scale implementation of
its nationwide Digital Mobile networks and the pursuit of its other strategic
objectives, including additional spectrum acquisition activities and
international investment opportunities.
Nextel currently is exploring potential bank credit facility arrangements
with a number of financial institutions to secure funds to help meet its
anticipated capital expenditure, working capital, investment and other needs
over the next several years. Such credit facility, if obtained, would likely
contemplate borrowings on a revolving and/or term basis, secured, to the extent
permitted under the terms of the Company's public indentures, by liens on assets
of the Company's "restricted" subsidiaries, and also would require satisfactory
accommodations and coordination between the credit facility lending group and
the Company's current providers of vendor financing regarding both availability
of financing from those sources and sharing of the related collateral package.
Although the Company has reached certain preliminary understandings with
Motorola to facilitate structuring and obtaining such a credit facility, there
can be no assurance that the Company will be able to reach binding agreements
with all necessary parties to allow such financing arrangements to be put in
place, or, if such agreements are reached, on what terms such financing might be
made available. Moreover, the terms of the Company's public indentures may limit
the Company's ability to incur borrowings pursuant to any such credit facility
under certain circumstances. See "--Liquidity and Capital Resources--Vendor
Financing" and "--Forward-Looking Statements."
For a detailed discussion of certain of the factors and considerations that
could have a material effect on the timing and/or amount of future funding
required by the Company, see Part II, Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Future Capital Needs
and Resources," in the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995.
As discussed herein in "--Overview," the Company has commenced
pre-deployment testing and optimization, together with limited commercial usage,
of the Reconfigured iDEN Digital Mobile networks in several markets and is
engaging in planning and preparatory activities in a limited number of
additional markets to facilitate a potential rapid deployment of Reconfigured
iDEN Digital Mobile networks in such markets. If, as the Company anticipates
currently, a rapid roll-out of additional Reconfigured iDEN Digital Mobile
networks in other markets is pursued, it is likely that the timing and amount of
the Company's capital expenditures and requirements relating to the Digital
Mobile networks in the current fiscal year and into 1997 will accelerate
significantly.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statements under the Private Securities Litigation Reform Act
of 1995. A number of the matters and subject areas discussed in the foregoing
Management's Discussion and Analysis of Financial Condition and Results of
Operations (including the related discussions referred to above that are
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995, as amended by Form 10-K/A filed with the Commission on April 26, 1996
and Form 10-K/A2 filed with the Commission on May 17, 1996) that are not
historical or current facts deal with potential future circumstances and
developments. The discussion of such matters and subject areas is qualified by
the inherent risks and uncertainties surrounding future expectations generally,
and such discussion also may materially differ from Nextel's actual future
experience involving any one or more of such matters and subject areas. Nextel
has attempted to identify, in context, certain of the factors that it currently
believes may cause actual future experiences and results to differ from Nextel's
current expectations regarding the relevant matter or subject area. The
operation and results of Nextel's wireless communications business also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified elsewhere in the foregoing Management's
Discussion and Analysis of Financial Condition and Results of Operations,
including, but not limited to, general economic conditions in the geographic
areas and occupational market segments (such as construction, delivery, and real
estate management services) that Nextel is targeting for its Digital Mobile
network service, the availability of adequate quantities of system
infrastructure and subscriber equipment and components to meet Nextel's service
deployment and marketing plans and customer demand, the success of efforts to
improve and address satisfactorily issues relating to Digital Mobile network
performance, the successful development, testing and deployment of the
Reconfigured iDEN technology, the ability to achieve market penetration and
average subscriber revenue levels sufficient to provide financial viability to
the Digital Mobile network business, access to sufficient debt or equity capital
to meet Nextel's operating and financial needs, the quality and price of similar
or comparable wireless communications services offered or to be offered by
Nextel's competitors, including cellular and PCS operators, future legislative
or regulatory actions relating to SMR services, other wireless communications
services or telecommunications generally and other risks and uncertainties
described from time to time in Nextel's reports filed with the Commission.
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in legal proceedings that are described in its
Annual Report on Form 10-K for the year ended December 31, 1995 (as amended by
Form 10-K/A filed with the Commission on April 26, 1996 and Form 10-K/A2 filed
with the Commission on May 17, 1996). There were no material changes in the
status of those proceedings during the quarter ended June 30, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders (the "Annual Meeting") was held on June
18, 1996 at 10:00 a.m. in Rosemont, Illinois. At the Annual Meeting, pursuant to
the proxy statement mailed to stockholders on or about May 20, 1996, the
stockholders were asked:
(1) To elect a total of four directors of the Company, each to hold
office for a three-year term ending on the date of the third
succeeding Annual Meeting of Stockholders of the Company and until
their respective successors shall have been duly elected and
qualified;
(2) To consider and vote upon a proposal to approve the adoption of the
Company's Associate Stock Purchase Plan;
(3) To consider and vote upon a proposal to approve an amendment to the
Company's Amended and Restated Incentive Equity Plan to increase the
aggregate number of shares of the Company's Class A Common Stock
that may be sold upon exercise of stock options and other equity
awards granted under such plan from 14,000,000 to 24,000,000; and
(4) To ratify the appointment of Deloitte & Touche LLP as the firm of
independent auditors to audit the consolidated financial statements
of the Company and its subsidiaries for fiscal year 1996.
Only holders of record of the Company's Class A Common Stock and the
Company's Class A Convertible Redeemable Preferred Stock, par value $0.01 per
share (the "Class A Preferred Stock") on May 10, 1996 (the "Record Date") were
entitled to vote at the Annual Meeting. Each holder of record of Class A Common
Stock at the close of business on the Record Date was entitled to one vote per
share on each matter voted upon by the stockholders at the Annual Meeting other
than the election of the director nominated by the holder of the Class A
Preferred Stock (the "Class A Preferred Director"). The holder of record of the
Class A Preferred Stock at the close of business on the Record Date was entitled
to one vote per share of Class A Common Stock into which its shares of Class A
Preferred Stock were convertible on the Record Date. The holder of Class A
Preferred Stock, in its capacity as such, was entitled to vote together with the
holders of Class A Common Stock on each matter voted upon at the Annual Meeting
other than the election of directors. The holder of the Class A Preferred Stock
was entitled, in its capacity as such, to vote as a separate class on the
election of the Class A Preferred Director. As of the Record Date, there were
206,920,514 shares of Class A Common Stock (excluding treasury shares) issued
and outstanding and 8,163,265 shares of Class A Preferred Stock (convertible
into 24,489,795 shares of Class A Common Stock) issued and outstanding.
Set forth below is information regarding the 189,083,632 shares of Class A
Common Stock voted for the election of the directors other that the Class A
Preferred Director (91% of the total number of shares of Class A Common Stock
entitled to vote on such matter at the Annual Meeting) and the 8,163,265 shares
of Class A Preferred Stock voted for the election of the Class A Preferred
Director (100% of the Class A Preferred Stock entitled to vote on such matter at
the Annual Meeting).
Proposal 1
----------
Director-nominee: Daniel F. Akerson*
Votes FOR 187,442,698
Votes WITHHELD 1,640,934
Director-nominee: Robert Cooper*
Votes FOR 187,563,781
Votes WITHHELD 1,519,851
Director-nominee: Timothy M. Donahue*
Votes FOR 187,382,127
Votes WITHHELD 1,701,505
Director-nominee: Dennis M. Weibling**
Votes FOR 8,163,265
Votes WITHHELD 0
- ---------------
* Director-nominees elected by the holders of the Class A Common Stock, voting
as a separate class.
** Director-nominee elected by the holder of the Class A Preferred Stock, voting
as a separate class.
Set forth below is information regarding the 213,573,427 aggregate common
stock equivalents, representing shares of Class A Common Stock and Class A
Preferred Stock, voted for each of the proposals other than the election of
directors (92% of the total number of shares entitled to vote on such matters at
the Annual Meeting). The aggregate number of shares voted was comprised of
189,083,632 shares of Class A Common Stock plus the shares of Class A Preferred
Stock (convertible into 24,489,795 shares of Class A Common Stock).
Proposal 2
----------
Votes FOR 176,281,162
Votes AGAINST 2,099,290
Votes ABSTAINED 2,667,911
Non-Votes 32,525,064
Proposal 3
----------
Votes FOR 170,783,401
Votes AGAINST 9,594,032
Votes ABSTAINED 763,403
Non-Votes 32,432,591
Proposal 4
----------
Votes FOR 213,112,220
Votes AGAINST 222,287
Votes ABSTAINED 238,920
Non-Votes 0
ITEM 5. OTHER INFORMATION.
In August 1996, the Company completed the relocation of its principal
executive offices from Rutherford, New Jersey to McLean, Virginia. The Company's
principal executive offices are now located at 1505 Farm Credit Drive, McLean,
Virginia 22102, and its telephone number at that location is (703) 394-3000. The
Company leases approximately 80,000 square feet of office space at that location
for its principal executive offices under a ten-year lease expiring in July
2006, with a renewal option.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
<S> <C> <C>
10.1* Amendment 004 to Enhanced Specialized Mobile Radio System Purchase Agreement, dated as of April
28, 1996, between Nextel Communications, Inc. and Motorola, Inc. (filed on July 5, 1996 as
Exhibit 99.1 to Nextel's Current Report on Form 8-K dated July 5, 1996 and incorporated herein
by reference).
10.2 Amendment dated as of April 26, 1996 to Warrant Agreement between Motorola and Nextel
Communications, Inc. (f/k/a Fleet Call, Inc.).
10.3 Nextel Communications, Inc. Amended and Restated Incentive Equity Plan (filed on June 21, 1996
as Exhibit 4.3 to Nextel's Registration Statement No. 333-06521 on Form S-8 and incorporated
herein by reference).
10.4 Nextel Communications, Inc. Associate Stock Purchase Plan (filed on June 21, 1996 as Exhibit
4.3 to Nextel's Registration Statement No. 333-06523 on Form S-8 and incorporated herein by
reference).
27** Financial Data Schedule.
----------------
* Confidential portions of this exhibit have been omitted and filed separately with the Commission.
** Submitted only with the electronic filing of this document with the Commission pursuant to
Regulation S-T under the Securities Act of 1933, as amended.
</TABLE>
(b) Reports on Form 8-K.
(i) The Company filed a Current Report on Form 8-K/A dated April 24,
1996 with the Commission on April 26, 1996 amending Item 7(b) of
the Current Report on Form 8-K dated February 6, 1996 and filed
with the Commission on February 7, 1996. Such amended report
included the following financial statements:
a) Financial Statements of business acquired (Dial Page):
Independent Auditors' Report
Consolidated Balance Sheet as of December 31, 1995.
Consolidated Statements of Operations for the year ended
December 31, 1995.
Consolidated Statement of Changes in Stockholders' Equity
(Deficit) for the year ended December 31, 1995.
Consolidated Statement of Cash Flows for the year ended
December 31, 1995.
Notes to Consolidated Financial Statements.
b) Pro forma financial information of Nextel:
Selected Financial Data.
Pro forma Condensed Consolidated Balance Sheets as of
December 31, 1995.
Pro forma Condensed Consolidated Statements of Operations
for the year ended December 31, 1995.
Notes to Proforma Condensed Consolidated Financial Statements.
<PAGE>
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 COMMUNICATIONS, INC.
By: STEVEN M. SHINDLER
----------------------------------
Date: August 12, 1996 Steven M. Shindler
Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Description
<S><C> <C>
10.1* Amendment 004 to Enhanced Specialized Mobile Radio System Purchase Agreement, dated as of April 28,
1996, between Nextel Communications, Inc. and Motorola, Inc. (filed on July 5, 1996 as Exhibit 99.1 to
Nextel's Current Report on Form 8-K dated July 5, 1996 and incorporated herein by reference).
10.2 Amendment dated as of April 26, 1996 to Warrant Agreement between Motorola and Nextel Communications,
Inc. (f/k/a Fleet Call, Inc.).
10.3 Nextel Communications, Inc. Amended and Restated Incentive Equity Plan (filed on June 21, 1996 as
Exhibit 4.3 to Nextel's Registration Statement No. 333-06521 on Form S-8 and incorporated herein by
reference).
10.4 Nextel Communications, Inc. Associate Stock Purchase Plan (filed on June 21, 1996 as Exhibit 4.3 to
Nextel's Registration Statement No. 333-06523 on Form S-8 and incorporated herein by reference).
27** Financial Data Schedule.
- ----------------
* Confidential portions of this exhibit have been omitted and filed separately with the Commission.
** Submitted only with the electronic filing of this document with the Commission pursuant to Regulation S-T
under the Securities Act of 1933, as amended.
</TABLE>
AMENDMENT DATED AS OF APRIL 26, 1996 TO
WARRANT AGREEMENT DATED AS OF NOVEMBER 1, 1991 BY AND BETWEEN
MOTOROLA, INC. AND NEXTEL COMMUNICATIONS, INC. (F/K/A FLEET CALL, INC.)
This Amendment ("Amendment") is entered into as of this 26th day of
April, 1996 by and among Motorola, Inc., a Delaware corporation with offices at
1301 E. Algonquin Road, Schaumburg, Illinois 60196 (hereinafter "Motorola,"
which term shall also mean, where the context requires, Motorola subsidiaries),
Nextel Communications, Inc., a Delaware corporation with its principal place of
business at 201 Route 17 North, Rutherford, New Jersey 07070 (hereinafter
"Nextel" or the "Company"), Van Kampen Merritt Prime Rate Income Trust ("Van
Kampen"), Nomura Securities International, Inc. ("Nomura"), Applied
Telecommunications Technologies, Inc. ("ATTI"), Estate of Peter C. Zeytoonjian
("Zeytoonjian"), Bruce W. Everitt ("Everitt") and Frank W. Haydu, III ("Haydu,"
and together with Van Kampen, Nomura, ATTI, Zeytoonjian and Everitt,
collectively referred to herein as the "Warrant Assignees").
WHEREAS, Motorola and Nextel have previously entered into a Warrant
Agreement dated as of November 1, 1991 (the "Warrant Agreement"), pursuant to
which Nextel granted to Motorola warrants for the purchase of its Class A common
stock, par value $0.001 per share (the "Common Stock"), pursuant to the terms
set forth therein;
WHEREAS, Motorola has agreed to assign a portion of the warrants
granted to it by Nextel under the Warrant Agreement to the Warrant Assignees and
desires to obtain Nextel's consent to such assignment;
WHEREAS, the Company consents to the assignment of warrants to the
Warrant Assignees as provided herein;
WHEREAS, Motorola and the Company desire to confirm the dates of
Commercial Service of the Los Angeles, San Francisco and Chicago Systems, which
also constitute the dates of vesting of the warrants relating to each such
system;
WHEREAS, the Warrant Assignees agree to be bound by the terms of the
Warrant Agreement by signing this Amendment and the accompanying Certificate of
Investor; and
WHEREAS, capitalized terms used herein without definition shall have
the meanings ascribed thereto in the Warrant Agreement;
NOW THEREFORE, in consideration of the premises, and other goods and
valuable consideration, the sufficiency and receipt of which is hereby
acknowledged the parties hereby agrees as follows:
1. Nextel previously granted to Motorola warrants to purchase 3,000,000
shares of Common Stock of Nextel ("Warrant Shares") in the amounts and becoming
exercisable as described in the Warrant Agreement. (The 3,000,000 shares were
increased from 300,000 following the effectiveness of a 10:1 stock split. All
amounts of Warrant Shares set forth reflect the 10:1 stock split).
2. Of the warrants for 700,000 Warrant Shares relating to the Los
Angeles System, Motorola hereby assigns warrants for an aggregate of 110,000
Warrant Shares to the Warrant Assignees as follows:
(a) Van Kampen: 60,000 Warrant Shares;
(b) Nomura: 30,833 Warrant Shares;
(c) ATTI: 2,313 Warrant Shares;
(d) Zeytoonjian: 6,552 Warrant Shares;
(e) Everitt: 6,552 Warrant Shares; and
(f) Haydu: 3,750 Warrant Shares.
The Company hereby acknowledges such assignment and agrees to issue
warrant certificates to each Warrant Assignee for the respective number of
Warrant Shares set forth above and to issue a replacement warrant certificate to
Motorola for the 590,000 Warrant Shares retained by Motorola, each warrant
certificate to be in the form set forth in Exhibit A hereto, concurrently with
the execution of this Amendment.
3. The Company hereby acknowledges that all of the warrants relating to
the Los Angeles system vested on October 1, 1994 following first Commercial
Service of the System for Los Angeles. The Company further acknowledges that the
warrants relating to the San Francisco system (which warrants have not been
transferred by Motorola), likewise vested on October 1, 1994 following first
Commercial Service of the System for San Francisco, and the warrants relating to
the Chicago system (which warrants have not been transferred by Motorola),
vested on October 10, 1994, following first Commercial Service of the System for
Chicago. Finally, the Company acknowledges that the warrants relating to the New
York system (which warrants have not been transferred by Motorola) vested on
December 20, 1995 following first Commercial Service of the System for New York.
4. The Company and Motorola acknowledge that the registration rights
provisions of the Warrant Agreement have been superseded and replaced in their
entirety by the registration rights provisions of that certain Registration
Rights Agreement dated July 28, 1995 between Nextel and Motorola (the
"Registration Rights Agreement"). The Company and Motorola further agree that
the registration rights set forth in Section 2 of the Registration Rights
Agreement with respect to the Registrable Securities (as defined in the
Registration Rights Agreement) issuable upon exercise of the warrants covered by
this Agreement are not transferable by Motorola; provided however that with
respect to the warrants transferred to the Warrant Assignees, the Piggyback
Registration rights pursuant to Section 2.1 of the Registration Rights Agreement
shall be transferred to the Warrant Assignees.
5. The definition of "Holder" as used in the Warrant Agreement is
hereby amended to include all of the Warrant Assignees, as fully as if they were
originally parties to the Warrant Agreement, and each of such Warrant Assignees,
by executing this Amendment in the spaces provided below, agrees to be bound by
the terms of the Warrant Agreement in all respects as if such Warrant Assignee
had executed the Warrant Agreement, except that:
(a) the warrant amounts and vesting provisions set forth
in Section 1 of the Warrant Agreement shall not apply to the Warrant Assignees
and shall apply only to Motorola;
(b) the Warrant Assignees shall have no Requested
Registration rights pursuant to Section2.2 of the Registration Rights Agreement;
and
(c) the Piggyback Registration rights pursuant to Section
2.1 of the Registration Rights Agreement are not transferable by the Warrant
Assignees.
6. Whenever any notice is to be given to a Holder in accordance with
the terms of the Warrant Agreement or the Registration Rights Agreement, such
notice shall be given to Motorola and to the Warrant Assignees at the addresses
provided below their respective signatures in this Amendment or at such address
as the Warrant Assignees shall provide to the Company in writing, in each case
in accordance with the terms of the Registration Rights Agreement.
7. Motorola may, at its option, extend the exercise period of any
warrant issued pursuant to the Warrant Agreement and outstanding as of the date
of this Amendment by delivering a written notice of extension ("Extension
Notice") to the Company no later than the expiration date and time for the
exercise of such warrant. Motorola may extend the exercise period of any such
warrant for an additional two years (to begin at the expiration date of the
warrant), so that such warrant shall expire five years from the date of first
Commercial Service for the Area to which such warrant relates. Upon receipt of
an Extension Notice in substantially the form set forth in Exhibit B hereto, the
Company shall deliver to the Holder of the respective warrant a replacement
warrant reflecting the extended exercise period. The rights set forth in this
Section 7 shall be exercisable solely by Motorola and shall not be assignable or
transferable by Motorola.
8. The Warrant Agreement, as amended by this Amendment, and the warrant
certificates constitute the entire understanding of the parties with respect to
the subject matter of the Warrant Shares and supersedes all prior discussions,
agreements and representations, whether oral or written, and whether or not
executed by Motorola and Nextel.
9. It is understood and agreed that the new warrant certificates being
issued concurrently with this Amendment replace the warrant certificates issued
to Motorola by Nextel pursuant to the Warrant Agreement and that the original
warrant certificates shall be returned by Motorola to Nextel simultaneously with
the delivery of the new warrant certificates. It is further understood that the
warrant certificates for the warrants that have not yet vested will be issuable
to Motorola upon first Commercial Service of the remaining systems, pursuant to
the terms of the Warrant Agreement.
10. Nothing herein contained shall in any way alter, waive, annul, vary
or affect any terms, conditions or provisions of the Warrant Agreement, except
as specifically provided herein or in the Certificate of Investor, it being the
intent of the parties hereto that all of the terms, conditions, and provision of
the Warrant Agreement shall continue in full force and effect, except as hereby
amended.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their proper and duly executed officers or
representatives as of the day and year first above written.
MOTOROLA, INC. NEXTEL COMMUNICATIONS, INC.
By: GARY B. TATJE By: THOMAS J. SIDMAN
------------------------------- -------------------------------
Name: Gary Tatje Name: Thomas J. Sidman
Title: Director, Worldwide Financing Title: Vice President
and Treasury
NOMURA SECURITIES VAN KAMPEN MERRITT
INTERNATIONAL, INC. PRIME RATE INCOME TRUST
By: LEE STERN By: JEFFREY MAILLET
------------------------------- -------------------------------
Name: Lee Stern Name: Jeffrey Maillet
Title: Managing Director Title: Senior V.P. -
Portfolio Manager
Address: Address:
2 World Financial Center - Bldg. 8 One Parkview Plaza
New York, NY 10281-1198 Oakbrook Terrace, Illinois 60181
Attention: Jeffrey W. Maillet
APPLIED TELECOMMUNICATIONS ESTATE OF PETER C. ZEYTOONJIAN
TECHNOLOGIES, INC.
By: DENNIS CAMERON By: VIVIAN ZEYTOONJIAN
------------------------------- -------------------------------
Name: Dennis Cameron Name: Vivian Zeytoonjian
Title: President Title: Executrix
Address: Address:
20 William Street c/o Vivian Zeytoonjian, Executrix
Wellesley, MA 02181 of the Estate of Peter C.
Zeytoonjian
10 Raleigh Road
Dover, MA 02030
FRANK W. HAYDU, III BRUCE W. EVERITT
- ------------------------------------- ----------------------------------
FRANK W. HAYDU, III BRUCE W. EVERITT
Address: Address:
P.O. Box 514 17 Glen Oak Drive
Dover, MA 02030 Wayland, MA 01778
<PAGE>
EXHIBIT A
to Amendment to Warrant Agreement by and among
Nextel Communications, Inc., Motorola, Inc., Van Kampen Merritt Prime Rate
Income Trust, Nomura Securities International, Inc.,
Applied Telecommunications Technologies, Inc., Estate of Peter
C. Zeytoonjian, Bruce W. Everitt and Frank W. Haydu, III
FORM OF WARRANT CERTIFICATES
<PAGE>
[FORM OF WARRANT CERTIFICATES FOR L.A. SYSTEM]
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES
ISSUABLE UPON THE EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OF THE UNITED STATES OF AMERICA. SUCH SECURITIES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
Identifying number: W-LA
Warrant date: __________, 1996
WARRANT FOR COMMON STOCK
THIS CERTIFIES THAT for value received, ________________, the
registered holder hereof (the "Holder"), is the owner of this Warrant, which
entitles the Holder to purchase, subject to the provisions set forth below, o
fully-paid and nonassessable shares ("Warrant Shares") of Class A Common Stock,
$0.001 par value (the "Common Stock") (for an exercise price and subject to
adjustments as determined in accordance with the Warrant Agreement referred to
below), of Nextel Communications, Inc., a Delaware corporation (the "Company").
The Terms and Conditions governing this Warrant and the rights of the
Holder are set forth in the Warrant Agreement dated as of November 1, 1991 by
and between Motorola, Inc. and the Company, as amended by the Amendment to the
Warrant Agreement dated as of _______, 1996 by and among the Company, Motorola,
Inc. and the Warrant Assignees named therein, which Terms and Conditions are
hereby incorporated herein by reference.
The Warrant issued hereunder is a portion of the Warrants pertaining
to the Los Angeles System, and is exercisable until 5:00 P.M. (New York time)
on October 1, 1997.
This Warrant, together with other Warrants issued concurrently
herewith, replaces the Warrant dated November 1, 1991, previously issued by the
Company to Motorola, Inc.
IN WITNESS WHEREOF, the company has caused this Warrant to be signed by
its Vice President and attested to by its Assistant Secretary.
NEXTEL COMMUNICATIONS, INC.
By: THOMAS J. SIDMAN
------------------------
Name: Thomas J. Sidman
Title: Vice President
Attest:
THOMAS D. HICKEY
- ---------------------------
Name: Thomas D. Hickey
Title: Assistant Secretary
<PAGE>
EXHIBIT B
to Amendment to Warrant Agreement by and among
Nextel Communications, Inc., Motorola, Inc., Van Kampen Merritt Prime Rate
Income Trust, Nomura Securities International, Inc.,
Applied Telecommunications Technologies, Inc., Estate of Peter
C. Zeytoonjian, Bruce W. Everitt and Frank W. Haydu, III
FORM OF EXTENSION NOTICE
<PAGE>
[FORM OF EXTENSION NOTICE]
Pursuant to Section 7 of the Amendment dated as of April 19, 1996 to
the Warrant Agreement dated as of November 1, 1991 by and between Motorola, Inc.
and Nextel Communications, Inc. (f/k/a Fleet Call, Inc.), Motorola, Inc. hereby
extends the exercise period of Warrant Number ______ relating to the _______
system for an additional two-year period, so that such warrant shall expire five
years from the date of first Commercial Service of the System for __________ and
shall be exercisable until 5:00 P.M. (New York time) on ______________.
Date:_____________________ MOTOROLA, INC.
By:__________________________________
Name:_____________________________
Title:____________________________
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at June 30, 1996 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Six Months Ended June
30, 1996 (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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 277,514
<SECURITIES> 75,410
<RECEIVABLES> 70,237
<ALLOWANCES> 6,746
<INVENTORY> 25,446
<CURRENT-ASSETS> 455,656
<PP&E> 1,384,368
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,064,748
<CURRENT-LIABILITIES> 209,237
<BONDS> 2,284,192
0
300,000
<COMMON> 227
<OTHER-SE> 2,791,698
<TOTAL-LIABILITY-AND-EQUITY> 6,064,748
<SALES> 0
<TOTAL-REVENUES> 145,937
<CGS> 0
<TOTAL-COSTS> 116,732
<OTHER-EXPENSES> 185,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 106,741
<INCOME-PRETAX> (400,896)
<INCOME-TAX> (152,150)
<INCOME-CONTINUING> (248,746)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (248,746)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
