SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 of or other jurisdiction of (I.R.S. Employer Identification No.)
of incorporation or organization)
201 ROUTE 17 NORTH, RUTHERFORD, NJ 07070
(Address of principal executive offices) (Zip Code)
(201) 438-1400
(Registrant's telephone number, including area code)
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 May 1, 1996
-------------- --------------------------------
Class A Common Stock, $0.001 par value 208,704,965 (including 1,950,735
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 March 31, 1996. 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1996. 4
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1996. 5
Condensed Consolidated Statement of Changes in
Stockholders' Equity - Three Months Ended
March 31, 1996. 6
Notes to Condensed Consolidated Interim Financial
Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II OTHER INFORMATION.
Item 1. Legal Proceedings. 16
Item 6. Exhibits and Reports on Form 8-K. 16
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS.
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
UNAUDITED
DECEMBER 31, MARCH 31,
1995 1996
---- ----
ASSETS
Current assets:
Cash and cash equivalents $340,826 $470,432
Marketable securities 68,443 26,276
Accounts receivable, less allowance for
doubtful accounts of $5,232 and $6,497 41,451 51,672
Radios and accessories 21,220 25,274
Other 32,721 26,933
-------- --------
Total current assets 504,661 600,587
Property, plant and equipment - net 1,192,204 1,384,324
Intangible assets - net 3,549,622 3,996,333
Other noncurrent assets 266,340 251,160
---------- ----------
$5,512,827 $6,232,404
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and other debt $363,732 $372,009
Current portion of long-termvv 1,277 1,339
-------- --------
Total current liabilities 365,009 373,348
Deferred income taxes 549,277 556,115
Long-term debt 1,653,400 2,094,892
--------- ---------
Total liabilities 2,567,686 3,024,355
--------- ---------
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 208,635,889 176 209
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 3,580,888
Accumulated deficit (579,231) (697,949)
Treasury shares - 24,860 and 1,950,735 shares (768) (1,119)
Net unrealized gain on investments 32,054 31,663
Notes receivable - incentive equity plan (1,018) (1,021)
Deferred compensation - net (3,618) (4,640)
--------- ---------
Total stockholders' equity 2,945,141 3,208,049
--------- ---------
$5,512,827 $6,232,404
========== ==========
See Notes to Condensed Consolidated Interim Financial Statements.
3
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
1995 1996
---- ----
REVENUE:
Radio service revenue $ 20,077 $ 58,098
Analog equipment sales and maintenance 9,424 10,220
---------- ---------
29,501 68,318
COSTS AND EXPENSES RELATED TO REVENUE:
Cost of radio service revenue 15,565 52,232
Cost of analog equipment sales and maintenance 7,122 7,606
---------- ---------
22,687 59,838
GROSS PROFIT 6,814 8,480
---------- ---------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general and administrative 36,591 68,750
Depreciation and amortization 40,363 86,674
---------- ---------
76,954 155,424
OPERATING LOSS (70,140) (146,944)
---------- ---------
OTHER INCOME (EXPENSE):
Interest expense (20,960) (49,420)
Interest income 6,557 6,624
---------- ---------
(14,403) (42,796)
LOSS BEFORE INCOME TAX BENEFIT (84,543) (189,740)
INCOME TAX BENEFIT 31,344 71,022
---------- ---------
NET LOSS $ (53,199) $(118,718)
========== =========
NET LOSS PER SHARE $ (.50) $ (.56)
=========== =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(including shares of non-voting common stock) 105,655,000 213,653,000
=========== ===========
See Notes to Condensed Consolidated Interim Financial Statements.
4
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(53,199) $(118,718)
Adjustment to reconcile net loss to net
cash used in operating activities (1,792) 44,320
-------- -------
Net cash used in operating activities (54,991) (74,398)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in other assets 5,564 (4,300)
Increase in intangible assets (1,273)
Payments for acquisitions, net of cash acquired (13,875) 73,152
Capital expenditures (54,617) (26,997)
Decrease in marketable securities 7,577 43,174
Net cash (used in) provided by
investing activities (56,624) 85,029
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt financing activities:
Borrowings under revolving credit agreements 18,592
Other - net (532) (300)
-------- -------
Net debt financing activities (532) 18,292
Common stock issued, options exercised 41 781
Common stock issued 99,905
Notes receivable, incentive equity plan (3)
-------- -------
Net cash (used in) provided by
financing activities (491) 118,975
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (112,106) 129,606
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 301,679 340,826
CASH AND CASH EQUIVALENTS, END OF PERIOD $189,573 $470,432
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 2,321 $ 3,930
======== =======
Taxes paid $ 218 $ 445
======== =======
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of equipment, including non-cash
capitalized interest $ 10,176 $ 9,041
======== =======
See Notes to Condensed Consolidated Interim Financial Statements.
5
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
- - --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NET NOTES
CLASS CLASS UNREALIZED RECEIVABLE
CLASS A CLASS B A B ADDITIONAL GAIN INCENTIVE DEFEREED
PREFERRED PREFERRED COMMON COMMON PAID-IN ACCUMULATED TREASURY ON EQUITY COMPENS-
STOCK STOCK STOCK STOCK CAPITAL DEFICIT SHARES INVESTMENTS PLAN ATION TOTAL
----- ----- ----- ----- ------- ----------- ------- ----------- --------- -------- -----
<S> <C> <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) $2,945,141
Issuances under
incentive
equity plan,
warrants and 2 890 (351) 541
other
Common stock
issued for
acquisitions 23 277,869 277,892
Common stock
acquired by 8 99,897 99,905
Comcast
Deferred
compensation
and related
amortization
and collection
of notes
receivable 4,704 (3) (1,022) 3,679
Net unrealized
depreciation
on investments (391) (391)
Net loss (118,718) (118,718)
--------- -------- ------ ------ ---------- --------- ------- -------- --------- ------- ----------
BALANCE,
MARCH 31, 1996 $300,000 $ -- $ 209 $ 18 $3,580,888 $(697,949) $(1,119) $31,663 $(1,021) $(4,640) $3,208,049
========= ======== ====== ====== ========== ========= ======= ======== ========= ======= ==========
</TABLE>
See Notes to Condensed Consolidated Interim Financial Statements.
6
<PAGE>
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
MARCH 31, 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 period ended March 31, 1995 have been
reclassified to conform to the presentation for the period ended March 31, 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 Issue 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):
THREE MONTHS ENDED
MARCH 31,
-------------------------
1995 1996
---- ----
Revenue $ 59,827 $ 71,156
========= ========
Net loss $(109,243) $(126,613)
========= =========
Net loss per share $ (.51) (.57)
========= ====
7
<PAGE>
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-dilutive rights to purchase shares in connection with the
Dial Page Merger.
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 and related costs for its Digital Mobile network
operations within selling, general and administrative expenses. The loss on the
sale of Digital Mobile units results from the Company's subsidy of Digital
Mobile units sales and represents marketing costs for the Digital Mobile
network. Sales of analog units result in a contribution to gross margin that is
anticipated to continue in the foreseeable future; accordingly, sales of analog
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 ended March 31, 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
MARCH 31,
----------------------
1995 1996
Equipment sales $7,632 $25,167
Cost of equipment sales 8,180 28,409
----- ------
$ (548) $(3,242)
====== =======
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.
* * * * *
8
<PAGE>
As described in Note 3 to the Condensed Consolidated Interim Financial
Statements, the Company has reclassified equipment sales and related costs of
its Digital Mobile network operations within selling, general and administrative
expenses to conform its presentation to that of the majority of
telecommunications companies, including wireless companies. The following
unaudited consolidated statements of operations are presented on a reclassified
basis. (Dollars in Thousands, Except Per Share Amounts).
NINE MONTHS
YEAR ENDED YEAR ENDED
ENDED DECEMBER DECEMBER 31,
MARCH 31,1994 31, 1994 1995
------------- -------- ------------
(Unaudited)
REVENUE:
Radio service revenue $44,539 $50,155 $135,753
Analog equipment sales and maintenance 23,389 24,702 35,950
-------- -------- --------
67,928 74,857 171,703
--------- --------- --------
COSTS AND EXPENSES RELATED TO REVENUE:
Cost of radio service revenue 11,815 27,287 114,908
Cost of analog equipment sales and
maintenance 16,851 18,211 28,222
-------- -------- --------
28,666 45,498 143,130
-------- -------- ---------
GROSS PROFIT 39,262 29,359 28,573
-------- -------- --------
OTHER OPERATING COSTS AND EXPENSES:
Selling, general and administrative (a)
41,107 90,985 201,909
Expenses related to Corporate
Reorganization 17,372
Depreciation and amortization 58,398 94,147 236,178
-------- -------- ---------
99,505 185,132 455,459
-------- --------- ---------
OPERATING LOSS
(60,243) (155,773) (426,886)
--------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest expense (29,891) (69,491) (115,034)
Interest income 11,790 28,037 25,525
Other 3 33 (15,372)
--- ---- ---------
(18,098) (41,421) (104,881)
--------- --------- ---------
LOSS BEFORE INCOME TAX BENEFIT (78,341) (197,194) (531,767)
INCOME TAX BENEFIT 21,437 71,345 200,602
-------- -------- -------
NET LOSS $(56,904) $ (125,849) $(331,165)
========= ========== =========
NET LOSS PER SHARE $ (0.73) (1.25) (2.31)
======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(including shares of non-voting
common stock) 143,283,000 78,439,000 100,639,000
=========== ========== ===========
(a) Includes Digital Mobile network equipment sales of $8,820 and $53,515 and
related costs of $14,075 and $65,321 for the nine months ended December 31,
1994 and the year ended December 31, 1995, respectively.
9
<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 three month periods ended
March 31, 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.
The Company also has pursued various international investment and operating
relationships in wireless communications ventures. In 1994, the Company had
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 March 31, 1996 represents an
approximate 25% equity interest (representing an approximate 1.6% voting
interest). 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 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 invested approximately $10,000,000 for an
approximately 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,
of which approximately $3,300,000 was advanced in the first quarter of fiscal
year 1996.
On April 15, 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.
Final payment to the FCC and issuance of the licenses is expected to occur in
June 1996.
In markets where Digital Mobile network service has been launched, the
Company has focused and continues to focus its marketing efforts 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. The Company is implementing its
Digital Mobile networks utilizing digital technology developed by Motorola (such
technology is referred to as the "Integrated Dispatch Enhanced Network" or
"iDEN"). To date, the Company has encountered certain technology and system
performance issues that have 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. As a result of such
delays, the Company has not achieved the operating revenues from its Digital
Mobile networks at the level and on the schedule that it had previously
anticipated.
These technology and system performance issues relate primarily to the voice
transmission quality of the mobile telephone service. Until these technology and
system performance issues are resolved satisfactorily, the Company expects that
it will continue to delay aggressive, broad-scale marketing of its Digital
Mobile network multi-service and mobile telephone service offerings. The Company
and Motorola have undertaken, and continue to undertake, system enhancement
efforts to address the remaining system performance issues, particularly those
associated with voice transmission quality. The Company anticipates that such
system enhancement efforts will continue during 1996, followed by commercial
system testing and technology optimization. Additionally, independent of such
system enhancement efforts, the Company, together with Motorola, is pursuing a
significant program directed toward the development and deployment of
modification to the basic iDEN technology platform, to be known as Reconfigured
iDEN, designed principally to produce improvements in voice transmission
quality. Should system enhancements or Reconfigured iDEN result in acceptable
voice transmission quality, the Company would reassess its present system
deployment plans and implementation schedules and reevaluate its then-effective
marketing and sales programs to determine whether changes in the timing,
direction or emphasis of any or all of these areas would be warranted consistent
with the Company's then-current views of perceived market opportunities and
capital resource availability.
Nextel and Motorola have been encouraged by their experience to date in
the Reconfigured iDEN development and deployment process. Consistent with the
Company's and Motorola's experience in the prior periods, 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 originally and
agreed to by the parties. The results generated in a first stage "beta test" of
the initial Reconfigured iDEN Digital Mobile network in the Chicago market, with
a user population largely composed of Nextel and Motorola employees in the
market area, were in line with expectations. In early May 1996, Nextel embarked
on the next phase of pre-deployment testing and optimization of the Reconfigured
iDEN technology, commencing user trials in the Chicago market involving a
limited number of actual commercial customers. Such customers' experiences on
and reactions to the Reconfigured iDEN Digital Mobile network will be closely
monitored to enable Nextel and Motorola to identify and perform necessary system
and subscriber unit equipment and software refinements and optimization
activities in anticipation of a subsequent full-scale commercial launch. If the
remaining development and testing procedures and related system optimization
tasks are completed successfully within the currently anticipated schedule, the
Company anticipates that the commercial launch of the Reconfigured iDEN Digital
Mobile network in the Chicago market would occur late in the second or early in
the third quarter of fiscal year 1996. Nextel currently is engaging in various
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. Implementation of such an aggressive deployment
schedule would be based on a number of factors, including primarily the
preliminary commercial experience in the Reconfigured iDEN Digital Mobile
network in the Chicago market and the availability of necessary capital. See
also "--Future Capital Needs and Resources" and "--Forward-Looking Statements."
RESULTS OF OPERATIONS
Total revenues for the three months ended March 31, 1996 were $68,318,000,
up 132% from the three months ended March 31, 1995. Radio service revenue
increased 189% to $58,098,000 and analog equipment sales and maintenance revenue
increased 8% to $10,220,000 for the three months ended March 31, 1996, compared
to the three months ended March 31, 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 230% to $25,167,000 for the three months ended
March 31, 1996, compared to the three months ended March 31, 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 March 31, 1996 was 938,500 as
compared to 340,600 as of March 31, 1995, reflecting growth from the
Acquisitions and 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
MARCH 31,
1995 1996 CHANGE
Analog SMR service 318,000 809,400 491,400
Digital Mobile service 22,600 129,100 106,500
------ ------- -------
Total 340,600 938,500 597,900
======= ======= =======
The churn rate for the analog SMR operations for the three months ended
March 31, 1996 was 1.61% per month, up from the rate of 1.39% per month for the
three months period ended March 31, 1995 (not including, for purposes of the
three months ended March 31, 1995, the OneComm, AMS, Motorola and Dial Page
operations, for which comparable churn data for the period prior to completion
of the respective transactions is not yet 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. There is insufficient
history of customer activity on the Digital Mobile networks to derive a
meaningful churn rate for the Digital Mobile networks.
Gross profits from radio service for the three months ended March 31, 1996
was $5,866,000, up from $4,512,000 for the three months ended March 31, 1995,
due principally to the significant increase in radio service revenue from the
Digital Mobile networks. The radio service gross profit margin of 10% for the
three months ended March 31, 1996 was down from 22% for the three months ended
March 31, 1995, 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. The Company's ability to add Digital Mobile units will be
affected by, among other things, the satisfactory resolution of certain system
performance issues currently being experienced in the Digital Mobile networks.
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 three months ended
March 31, 1996 was $35,387,000, compared to $17,056,000 for the three months
ended March 31, 1995. The increase resulted principally from equipment sales
revenue from Digital Mobile unit sales. Analog equipment sales and maintenance
revenue increased by 8% to $10,220,000, 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 three
months ended March 31, 1996 was $2,614,000, compared to a gross profit of
$2,302,000 for the three months ended March 31, 1995. The related gross margin
percentage was 26% for the three months ended March 31, 1996, compared to a
gross profit margin percentage of 24% for the three months ended March 31, 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 $32,159,000 to
$68,750,000 for the three months ended March 31, 1996, compared to the three
months ended March 31, 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 $3,242,000 for the
three months ended March 31, 1996, compared to a loss of $548,000 for the three
months ended March 31, 1995. 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 part of its overall Digital Mobile
network service offering.
Depreciation and amortization increased $46,311,000 to $86,674,000 for the
three months ended March 31, 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. As the Company
anticipates that additional Digital Mobile networks may be activated during 1996
through growth and acquisitions, depreciation and amortization expense is
expected to increase significantly.
Interest income increased by $67,000 to $6,624,000 for the three months
ended March 31, 1996, compared to the three months ended March 31, 1995,
reflecting the Company's utilization of cash for the development and
implementation of its Digital Mobile networks and for acquisitions, which was
offset by cash and cash equivalents and marketable securities from the
Acquisitions, the McCaw Transaction and the exercise by Comcast of its
anti-dilutive rights. Interest expense totaled $49,420,000 for the three months
ended March 31, 1996, up $28,460,000 from the three months ended March 31, 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. 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 March 31, 1996, the Company capitalized interest of $6,624,000, compared
to $10,176,000 for the three months ended March 31, 1995.
The deferred tax benefit for the three months ended March 31, 1996 was
$71,022,000, compared to $31,344,000 for the three months ended March 31, 1995.
These benefits resulted from the utilization of net operating losses against
deferred tax liabilities.
The effect of the Acquisitions, the increase in Digital Mobile network
related costs and increased depreciation and amortization were the primary
factors in the $65,519,000 increase in net loss to $118,718,000 for the three
months ended March 31, 1996, compared to the three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had net losses of $118,718,000 and $331,165,000 for the three
months ended March 31, 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 $227,239,000
and $139,652,000 at March 31, 1996 and December 31, 1995, respectively. The
increase reflects primarily cash from the exercise of the Comcast anti-dilutive
rights and from the Dial Page Merger, partially offset by expenditures for the
Digital Mobile networks.
Vendor Financing. Pursuant to the OneComm Merger and the Motorola
Transaction, the Company's debt facilities from Motorola increased from
$260,000,000 to $685,000,000. As of March 31, 1996, $225,075,000 was outstanding
under the Motorola facilities. During the three months ended March 31, 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. See "--Future Capital Needs and Resources."
Cash Flows. Net cash used in operating activities for the three months
ended March 31, 1996 was $74,398,000, compared to net cash used in operating
activities of $54,991,000 for the three months ended March 31, 1995. The primary
reason for the increase was the increase in costs incurred during the three
months ended March 31, 1996 related to the operation of the Digital Mobile
networks. Net cash provided by investing activities was $85,029,000 for the
three months ended March 31, 1996, which includes a $43,174,000 decrease in
marketable securities and net cash obtained from acquisitions totaling
$73,152,000, offset by capital expenditures for the build-out of the Digital
Mobile networks. Financing activities during the three months ended March 31,
1996 consisted primarily of the $99,905,000 cash received in connection with the
exercise of the Comcast purchase rights and the additional borrowings of
$18,592,000 under the NTFC debt facility. The resulting increase in cash and
cash equivalents from December 31, 1995 was $129,606,000 to $470,432,000 at
March 31, 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, operating expenses relating both to
Digital Mobile network and to the Company's traditional 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 March
31, 1996 totaled approximately $496,708,000. At March 31, 1996, Nextel had drawn
approximately $253,667,000 of its available financing under facilities in place
with Motorola and NTFC, leaving an aggregate of approximately $471,333,000
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.
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 of the Reconfigured iDEN technology in
the Chicago market 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 a rapid
roll-out of additional Reconfigured iDEN Digital Mobile networks in other
markets were to be 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 would 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)
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 satisfactorily address 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 providers
of cellular and PCS service, 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.
15
<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). There have been no
material changes in the status of those proceedings during the quarter ended
March 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
Exhibit No. Exhibit Description
27* Financial Data Schedule
(b) Reports on Form 8-K.
(i) The Company filed a report on Form 8-K on February 6, 1996
reporting under Item 2 thereof the completion of the Dial Page
Merger on January 30, 1996. Such report included the following
financial statements:
a) Financial Statements of business acquired (Dial Page):
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1993 and 1994.
Consolidated Statements of Operations for the years ended
December 31, 1992, 1993 and 1994.
Consolidated Statements of Stockholders'/Partners' Equity
(Deficit) for the years ended December 31, 1992, 1993 and
1994.
Consolidated Statements of Cash Flows for the years ended
December 31, 1992, 1993 and 1994.
Notes to Consolidated Financial Statements.
Consolidated Statements of Operations for the nine months
September 30, 1995 and 1994 (unaudited).
Consolidated Balance Sheet as of September 30, 1995
(unaudited).
Consolidated Statements of Cash Flows for the three and nine
months ended September 30, 1995 and 1994 (unaudited).
Notes to Consolidated Financial Statements (unaudited).
16
<PAGE>
b) Pro forma financial information of Nextel:
Pro forma Condensed Consolidated Balance Sheets as of
September 30, 1995.
Pro forma Condensed Consolidated Statements of Operation
for the nine months ended September 30, 1995 and the
twelve months ended December 31, 1994.
Notes to Pro forma Condensed Consolidated Financial
Statements.
- - --------------
* Submitted only with the electronic filing of this document pursuant to the
EDGAR rules.
17
<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.
Date: May 13, 1996 By: STEVEN M. SHINDLER
-------------------
Steven M. Shindler
Senior Vice President and
Chief Financial Officer
18
<PAGE>
- - - EXHIBIT INDEX
Exhibit No. Exhibit Description
27* Financial Data Schedule
- - --------------
* Submitted only with the electronic filing of this document pursuant to the
EDGAR rules.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1996 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Three Months Ended March
31, 1996 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 470,432
<SECURITIES> 26,276
<RECEIVABLES> 58,169
<ALLOWANCES> 6,497
<INVENTORY> 25,274
<CURRENT-ASSETS> 600,587
<PP&E> 1,551,831
<DEPRECIATION> 167,507
<TOTAL-ASSETS> 6,232,404
<CURRENT-LIABILITIES> 373,348
<BONDS> 1,839,799
0
300,000
<COMMON> 227
<OTHER-SE> 2,907,822
<TOTAL-LIABILITY-AND-EQUITY> 6,232,404
<SALES> 68,318
<TOTAL-REVENUES> 68,318
<CGS> 59,838
<TOTAL-COSTS> 59,838
<OTHER-EXPENSES> 155,424
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,420
<INCOME-PRETAX> (189,740)
<INCOME-TAX> 71,022
<INCOME-CONTINUING> (118,718)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,718)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
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