<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
------ ------
Indicate the number of shares outstanding of each of issuer's classes of
common stock as of the latest practicable date:
<TABLE>
<CAPTION>
Number of Shares Outstanding
Title of Class on May 1, 1997
-------------- --------------
<S> <C>
Class A Common Stock, $0.001 par value 225,533,547 (including 1,547,158
shares held in treasury)
Class B Non-Voting Common Stock, 17,830,000
$0.001 par value
</TABLE>
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NEXTEL COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements - Unaudited.
Condensed Consolidated Balance Sheets -
As of March 31, 1997 and December 31, 1996. 3
Condensed Consolidated Statements of Operations -
For the Three Months Ended March 31, 1997 and 1996. 4
Condensed Consolidated Statement of Changes in Stockholders' Equity -
For the Three Months Ended March 31, 1997. 5
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended March 31, 1997 and 1996. 6
Notes to Condensed Consolidated Interim Financial
Statements. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 9
PART II OTHER INFORMATION.
Item 1. Legal Proceedings. 20
Item 2. Changes in Securities. 20
Item 6. Exhibits and Reports on Form 8-K. 20
</TABLE>
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<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED.
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 638,215 $ 139,681
Marketable securities 5,102 5,012
Accounts and notes receivable, less allowance for doubtful
accounts of $9,667 and $10,774 132,018 90,392
Radios and accessories 47,767 45,168
Other 33,584 28,844
------------- -------------
Total current assets 856,686 309,097
PROPERTY, PLANT AND EQUIPMENT, net 1,983,014 1,803,739
INTANGIBLE ASSETS, net 4,280,604 4,076,300
OTHER ASSETS 315,348 283,303
------------- -------------
$ 7,435,652 $ 6,472,439
============= =============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, accrued expenses and other $ 412,383 $ 374,220
Current portion of long-term debt 3,335 1,524
------------- -------------
Total current liabilities 415,718 375,744
DEFERRED INCOME TAXES 514,818 505,516
MINORITY INTEREST 5,512 --
LONG-TERM DEBT 3,720,427 2,783,041
------------- -------------
Total liabilities 4,656,475 3,664,301
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, Class A convertible redeemable,
8,163,265 shares issued and outstanding 300,000 300,000
Preferred stock, Class B convertible, 82 shares issued and outstanding -- --
Common stock, Class A, 225,377,008 and 211,374,665 shares issued,
223,766,140 and 209,753,097 shares outstanding 225 211
Common stock, Class B, non-voting convertible, 17,830,000 shares
issued and outstanding 18 18
Paid-in capital 3,871,112 3,672,908
Accumulated deficit (1,356,101) (1,135,251)
Treasury shares, at cost, 1,610,868 and 1,621,568 shares (31,051) (31,400)
Unrealized gain on investments 6,148 14,993
Notes receivable from stockholders (613) (1,100)
Deferred compensation, net (10,561) (12,241)
------------- -------------
Total stockholders' equity 2,779,177 2,808,138
------------- -------------
$ 7,435,652 $ 6,472,439
============= =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
REVENUES
Radio service revenue $ 103,685 $ 58,098
Analog equipment sales and maintenance 6,991 10,220
------------- ------------
110,676 68,318
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OPERATING EXPENSES
Cost of radio service revenue 53,758 49,693
Cost of analog equipment sales and maintenance 4,403 7,606
Selling, general and administrative 132,376 65,289
Depreciation and amortization 110,203 92,674
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300,740 215,262
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OPERATING LOSS (190,064) (146,944)
------------- ------------
OTHER INCOME (EXPENSE)
Interest expense (75,267) (49,420)
Interest income 3,982 6,624
Other 1,063 --
------------- ------------
(70,222) (42,796)
------------- ------------
LOSS BEFORE INCOME TAX BENEFIT (260,286) (189,740)
INCOME TAX BENEFIT 39,436 71,022
------------- ------------
NET LOSS $ (220,850) $ (118,718)
============= ============
NET LOSS PER COMMON SHARE $ (0.93) $ (0.56)
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 237,496,000 213,653,000
============= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 5
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Class A Class B Class A
Preferred Stock Preferred Stock Common Stock
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 8,163,265 $300,000 82 $ -- 211,374,665 $211
Issuance of common stock:
Exercise of options and warrants 737,986 1
Employee stock purchase plan
Acquisitions 13,264,357 13
Warrants issued in connection with
private placement (Note 3)
Comcast option repurchase
Amortization of deferred
compensation
Collection of notes receivable, net of
accrued interest
Unrealized loss on investments
Net loss
--------- -------- ------ ------ ----------- -----
BALANCE, March 31, 1997 8,163,265 $300,000 82 $ -- 225,377,008 $225
========= ======== ====== ====== =========== =====
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Class B (Loss)
Common Stock Paid-in Accumulated Treasury Gain on
Shares Amount Capital Deficit Shares Investments
------ ------ ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 17,830,000 $18 $3,672,908 $(1,135,251) $(31,400) $14,993
Issuance of common stock:
Exercise of options and warrants 4,740 (492)
Employee stock purchase plan (361) 841
Acquisitions 203,607
Warrants issued in connection with
private placement (Note 3) 14,800
Comcast option repurchase (25,000)
Amortization of Deferred
compensation 418
Collection of notes receivable, net of
accrued interest
Unrealized loss on investments (8,845)
Net loss (220,850)
---------- ----- ---------- ----------- -------- -------
BALANCE, March 31, 1997 17,830,000 $18 $3,871,112 $(1,356,101) $(31,051) $ 6,148
========== ===== ========== =========== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Notes
Receivable
from Deferred
Stockholders Compensation
------------ ------------
<S> <C> <C>
BALANCE, January 1, 1997 $(1,100) $(12,241)
Issuance of common stock:
Exercise of options and warrants
Employee stock purchase plan
Acquisitions
Warrants issued in connection with
private placement (Note 3)
Comcast option repurchase
Amortization of deferred
compensation 1,680
Collection of notes receivable, net of
accrued interest 487
Unrealized loss on investments
Net loss
------- --------
BALANCE, March 31, 1997 $ (613) $(10,561)
======= ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 6
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (220,850) $ (118,718)
Adjustment to reconcile net loss to net
cash used in operating activities 106,611 62,909
------------ -------------
Net cash used in operating activities (114,239) (55,809)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions and purchase of licenses,
net of cash acquired (19,641) 73,152
Capital expenditures (205,919) (26,997)
Maturities of marketable securities -- 43,174
Other (15,013) (4,300)
------------ -------------
Net cash (used in) provided by investing activities (240,573) 85,029
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement 500,003 --
Long-term borrowings 389,000 --
Other long-term borrowings (repayments), net 1,586 (300)
Debt issuance costs (16,830) --
Common stock issued 4,100 100,686
Option repurchase and other (24,513) --
------------ -------------
Net cash provided by financing activities 853,346 100,386
------------ -------------
INCREASE IN CASH AND CASH EQUIVALENTS 498,534 129,606
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 139,681 340,826
------------ -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 638,215 $ 470,432
============ =============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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<PAGE> 7
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
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, 1996. Operating results for the
interim periods are not necessarily indicative of results for an entire year.
Supplemental disclosures of cash flow information and non-cash investing
activities are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
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<S> <C> <C>
Cash paid for interest $ 15,218 $ 3,930
=========== ==========
</TABLE>
For the three months ended March 31, 1997 and 1996, total interest
capitalized in connection with the construction and development of the Digital
Mobile networks was approximately $12.0 million and $6.6 million, respectively.
Certain prior period amounts have been reclassified to conform to the 1997
presentation.
NOTE 2 - SIGNIFICANT TRANSACTIONS
In January 1997, the Company, through a wholly-owned subsidiary, purchased
additional common shares of Corporacion Mobilcom S.A. de C.V., a Mexican
specialized mobile radio ("SMR") operator ("Mobilcom") at a cost of $16.5
million, in exchange for shares of Nextel Class A Common Stock, par value
$0.001 per share ("Nextel Common Stock"). On February 21, 1997, Mobilcom
shareholders approved a $27.0 million capital call (the "Mobilcom Capital
Call"). On February 26, 1997, such subsidiary funded the pro rata share of the
Mobilcom Capital Call (approximately $10.3 million) with a cash contribution.
On April 16, 1997, such subsidiary purchased additional shares of Mobilcom by
funding the unsubscribed portion of the Mobilcom Capital Call (approximately
$11.1 million), thereby increasing the Company's equity interest in Mobilcom to
approximately 46.3%.
On January 30, 1997, Nextel acquired 81% of the outstanding shares of
Wireless Ventures of Brazil, Inc. ("WVB"), an operator of analog SMR systems in
Brazil, for a purchase price of $186,300,000, which was paid with approximately
11,964,000 shares of Nextel Common Stock, through a merger of WVB with a
wholly-owned subsidiary of Nextel. Nextel simultaneously contributed its
interest in WVB, which was renamed McCaw International (Brazil), Ltd., to McCaw
International, Ltd., an indirect wholly-owned subsidiary of Nextel ("McCaw
International").
NOTE 3 - LONG-TERM DEBT
In March 1997, McCaw International completed a private placement of
951,463 units yielding approximately $500,000,000 in gross proceeds. Each unit
is comprised of a 10-year senior discount note and a warrant to purchase
0.10616 shares of McCaw International common stock. The notes have a 13% yield
to
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<PAGE> 8
maturity, are noncallable for five years, and require no interest payments for
the first five years. The warrants are exercisable at a price of $36.45 per
share and entitle the holders to purchase, in the aggregate, approximately 1%
of McCaw International's common stock on a fully-diluted basis.
NOTE 4 - DIGITAL MOBILE NETWORK EQUIPMENT SALES AND RELATED COSTS
Equipment sales and related costs for the operation of the Company's
advanced mobile communications systems employing digital technology (the
"Digital Mobile networks") are classified within selling, general and
administrative expenses as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Equipment sales $ 43,283 $ 25,167
Cost of equipment sales 62,134 28,409
----------- -----------
$ (18,851) $ (3,242)
=========== ===========
</TABLE>
The loss generated from the sale of subscriber units used in the Digital
Mobile networks primarily results from the Company's subsidy of digital
subscriber unit and other related digital equipment sales and represents
marketing costs for the Digital Mobile networks. The cost of equipment sales
includes the cost of the digital subscriber units and other related digital
equipment, as well as current period order fulfillment and installation related
expenses.
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<PAGE> 9
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, 1996 and 1997, and certain factors that could affect Nextel's
prospective financial condition and should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
To further its objective of achieving nationwide Digital Mobile network
coverage, Nextel consummated the acquisition by merger of Dial Page, Inc. (the
"Dial Page Transaction") on January 30, 1996, following the consummation of
several acquisitions in July 1995. Also in July 1995, pursuant to a securities
purchase agreement dated as of April 4, 1995 between Nextel, Digital Radio,
L.L.C. (the "McCaw Investor") and Craig O. McCaw, Nextel received net equity
investment proceeds totaling approximately $312,645,000 (the "McCaw
Transaction"). In connection with the McCaw Transaction, Nextel issued shares
of common stock, preferred stock and stock options expiring at various dates
through July 28, 2001, to the McCaw Investor. Funds initially received in the
McCaw Transaction have been used for the implementation and operation of the
Digital Mobile networks and to satisfy Nextel's other cash requirements.
The Company's operating revenues primarily arise from its digital and
analog wireless communications businesses in the United States, particularly
the mobile telephone service and two-way radio service and, to a lesser extent,
from sales and maintenance of related equipment. The Company's business plans
and efforts are to a large extent directed toward replacing the remaining
traditional analog SMR systems that it currently operates with Digital Mobile
networks. A customer using the Company's Digital Mobile network currently is
able to access mobile telephone services, two-way dispatch, paging and
alphanumeric short-messaging service, and in the future is expected to be able
to access data transmission. The Company is implementing its Digital Mobile
networks utilizing digital technology developed by Motorola, Inc. ("Motorola")
(such technology is referred to as the "integrated Digital Enhanced Network" or
"iDEN").
Prior to the second quarter of 1996, Nextel implemented its Digital
Mobile networks in its market areas using first generation iDEN technology
developed and manufactured by Motorola. During that period, Nextel encountered
certain technology and system performance issues relating primarily to the
voice transmission quality of the mobile telephone service. In response to
these issues, Nextel and Motorola took action on several fronts to address
system performance issues in general, and voice transmission quality concerns
in particular. See, Part I, Item 1, "Business -- Nextel's Digital Mobile
Networks -- Experience with First Generation iDEN Systems Implementation," in
Nextel's Annual Report on Form 10-K for the year ended December 31, 1996. In
1995, Nextel together with Motorola, began pursuing a program directed toward
the development and deployment of modifications to the first generation iDEN
technology platform, which modifications (referred to herein as "Reconfigured
iDEN") were targeted specifically at improving the voice transmission quality
of the mobile telephone service. Nextel commenced the full-scale commercial
launch of its first Digital Mobile networks incorporating the Reconfigured iDEN
technology in the Chicago metropolitan market late in the third quarter of
1996. See, Part I, Item 1, "Business -- Nextel's Digital Mobile Networks --
Reconfigured iDEN Development and Deployment," in Nextel's Annual Report on
Form 10-K for the year ended December 31, 1996. Subsequently in 1996, Nextel
commenced full-scale commercial launches of the Reconfigured iDEN Digital
Mobile networks in the Atlanta, Boston, Denver, Detroit and Las Vegas
metropolitan market areas in each case accompanied by an aggressive, regionally
focused marketing campaign. During the first four months of 1997, Nextel
commenced commercial launches of its Reconfigured iDEN technology on the Nextel
National Network throughout the Pacific Northwest, metropolitan Washington
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<PAGE> 10
D.C. and in cities throughout North Carolina, New York, Maryland, Missouri, and
California, including Seattle, Portland, Charlotte, Raleigh/Durham, Greensboro,
Winston-Salem, New York, Baltimore, St. Louis, Los Angeles, San Francisco and
San Diego.
On October 2, 1996, Nextel entered into an Agreement of Merger and Plan
of Reorganization, as amended and restated on December 3, 1996, with
Pittencrieff Communications, Inc. ("PCI") providing for the merger of PCI with
a wholly-owned indirect subsidiary of Nextel. PCI has approximately 6,000 800
MHz SMR channels covering a total population of over 27 million people
predominantly in the states of Texas, Oklahoma, New Mexico and Arizona. PCI
stockholders will receive a maximum of 8,782,403 shares of Nextel Common Stock,
subject to certain adjustments, as a result of the merger. The merger is
subject to regulatory and PCI stockholder approval and customary closing
conditions and is expected to occur during the third quarter of 1997.
In January 1997, Nextel announced that it will not charge roaming fees to
its customers traveling anywhere on its national all-digital wireless network,
which at March 31, 1997 covered major metropolitan areas in which approximately
50% of the United States population lives or works (the "Nextel National
Network"). The Nextel National Network provides the same mobile telephone
functionality and related features offered to customers in their home markets
and eliminates the complex dialing procedures, access fees and higher
per-minute air time rates often incurred by "roaming" customers of traditional
cellular providers. Additionally, in January 1997, Nextel announced a new
billing policy, pursuant to which Nextel will bill its mobile telephone service
customers, after the first minute, based upon the actual number of seconds of
air time used. This is in contrast to the cellular industry's common practice
of rounding all calls up to the next minute. In March 1997, the Company began
a nationwide marketing campaign promoting the Nextel National Network.
On March 20, 1997, Nextel and Comcast FCI, Inc. ("CFCI"), a wholly-owned
subsidiary of Comcast Corporation ("Comcast") reached agreement regarding the
terms on which Unrestricted Subsidiary Finance Company ("USFC"), a wholly-owned
subsidiary of Nextel, purchased CFCI's rights pursuant to the Amended and
Restated Option Agreement dated September 11, 1995, among Nextel, CFCI and
Comcast (the "Comcast Option") for an aggregate purchase price of $25,000,000
in cash. The Comcast Option, which was initially entered into in connection
with the transactions pursuant to a Stock Purchase Agreement dated as of
September 14, 1992, as previously amended, among Nextel, CFCI and Comcast (the
"Stock Purchase Agreement"), granted CFCI an option to purchase up to
25,000,000 shares of Nextel Common Stock at an exercise price of $16.00 per
share. In connection with such purchase, certain rights of Comcast and CFCI
pursuant to the Stock Purchase Agreement, including anti-dilutive rights and
rights relating to the appointment of directors of Nextel, have been terminated.
On April 11, 1997, Nextel reached agreement with Option Acquisition,
L.L.C., ("Option Acquisition") an entity controlled by Craig O. McCaw, pursuant
to which Option Acquisition will acquire, for an aggregate price of
$25,000,000, an option, replacing the Comcast Option, to purchase 25,000,000
shares of Nextel Common Stock (the "New Option"), 15,000,000 of which would be
purchasable at an exercise price of $16.00 per share and the remaining
10,000,000 of which would be purchasable at $18.00 per share, in each case at
any time before July 28, 1998.
Also on April 11, 1997, Nextel reached an agreement with the McCaw
Investor, an entity also controlled by Craig O. McCaw, pursuant to which the
McCaw Investor committed to exercise in full its currently outstanding option
(the "First Option") to purchase 15,000,000 shares of Nextel Common Stock for
an aggregate purchase price of $232,500,000 (the "Option Commitment") with the
consummation thereof scheduled to occur on or before July 28, 1997 (the "Option
Closing"). In consideration for the McCaw Investor's making the Option
Commitment, Nextel agreed to issue to the McCaw Investor a contingent equity
instrument (the "CEI"), which, at any time between the Option Closing and July
28,
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<PAGE> 11
1999, may be converted, without any additional consideration, into a number of
shares of Nextel Common Stock to be determined using a formula based upon the
average closing price for a share of Nextel Common Stock during the 20 trading
days immediately preceding the Option Closing (the "Average Trading Price").
The number of shares of Nextel Common Stock into which the CEI may be converted
ranges from no shares, if the Average Trading Price is equal to $15.50 or more,
to a maximum of 1,607,143 shares, if the Average Trading Price is $14.00 or
less. The remaining options held by the McCaw Investor to purchase up to
20,000,000 additional shares of Nextel Common Stock remain in effect as
originally issued. The Option Closing is subject to certain conditions,
including, without limitation, the negotiation and execution of definitive
agreements and receipt of the consents to certain proposed amendments to the
indentures relating to Nextel's five outstanding issues of Senior Redeemable
Discount Notes (the "Nextel Indentures") by the holders of the notes issued
thereunder. In connection with the Option Commitment, the McCaw Investor also
agreed to provide up to $50,000,000 in debt financing to Nextel (the "McCaw
Investor Borrowings") (see "Future Capital Needs and Resources" and
"Forward-Looking Statements").
Nextel is currently considering adopting and implementing a newly developed,
revised business plan, that contemplates, among other things, a more
accelerated and extensive deployment of its Digital Mobile networks
incorporating the Reconfigured iDEN technology based on an anticipated
implementation schedule during 1997 and 1998 (the "Revised Business Plan"),
which it currently anticipates will involve infrastructure and other system
capital costs totaling at least $1,450,000,000, at least $1.0 billion of which
would be required to implement the Existing Business Plan, as defined below.
(For a more detailed discussion regarding Nextel's Revised Business Plan and
Existing Business Plan, see, Part I, Item 1, "Business -- Business Strategy,"
"-- Revised Business Plan," and "-- Nextel's Digital Mobile Networks --
Technology Commitments" in Nextel's Annual Report on Form 10-K for the year
ended December 31, 1996). In this regard, Nextel anticipates that purchases of
Motorola-manufactured infrastructure equipment would represent the largest
category of capital spending. During the last six months of 1996 and the first
quarter of 1997, Nextel placed orders with Motorola totaling more than
$300,000,000 and $376,000,000, respectively, of products incorporating the
Reconfigured iDEN technology, including system infrastructure equipment,
related software and the new compact Reconfigured iDEN handsets that Nextel is
marketing nationally, principally under the PowerFone(TM) brand name.
Although the Company already has taken a number of significant steps in
anticipation of implementing the Revised Business Plan, and further actions
currently are underway to reach that objective, several of the actions that
must be taken to enable the Company to implement the Revised Business Plan are
dependent on certain actions by or responses from third parties, which as yet
have not been secured. See, Part I, Item 1, "Business -- Revised Business
Plan," "Risk Factors -- Nextel to Require Additional Financing" and
"--Forward-Looking Statements" in Nextel's Annual Report on Form 10-K for the
year ended December 31, 1996.
Assuming the successful and timely completion of Nextel's build-out plan,
under either the Revised Business Plan or Nextel's current business plan (the
"Existing Business Plan"), Nextel expects that by the end of 1998, its Digital
Mobile networks would provide coverage to areas where approximately 85% of the
United States population lives or works. Implementation of the more rapid and
extensive nationwide deployment strategy contemplated pursuant to the Revised
Business Plan would significantly accelerate Nextel's use of and needs for
capital resources beyond the levels associated with the Existing Business Plan
and would therefore be dependent on, among other things, the availability of
necessary capital. In the event Nextel determines to implement the more
accelerated and extensive deployment strategy contemplated by the Revised
Business Plan, Nextel's capital expenditures and operating losses would
substantially increase over the next several years. See also "-- Future Capital
Needs and Resources" and "-- Forward-Looking Statements."
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<PAGE> 12
Nextel also has pursued various international investment and operating
relationships in wireless communications ventures, including investments made
through its wholly-owned subsidiary, McCaw International. In 1994, Nextel
invested an aggregate of approximately $18,100,000 in cash and exchanged
2,500,000 shares of Nextel Common Stock for an equity interest in Clearnet
Communications, Inc. ("Clearnet"). As of March 31, 1997, the Company
(including McCaw International) held approximately 20.9% of the outstanding
equity interest in Clearnet (representing an approximate 1.7% 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, Nextel invested an aggregate of approximately
$57,200,000 for an approximate 18.5% equity interest in Corporacion Mobilcom
S.A. de C.V., a Mexican SMR operator ("Mobilcom"), and obtained options to
increase its equity interest in Mobilcom. In August 1996, a wholly-owned
subsidiary of Nextel entered into an agreement to purchase up to an additional
19.8% equity interest in Mobilcom from certain shareholders of Mobilcom in two
tranches. In October 1996, such subsidiary completed the acquisition of the
first tranche by acquiring an additional 11.6% equity interest in Mobilcom in
exchange for 1,319,902 shares of Nextel Common Stock. In January 1997, such
subsidiary completed the second tranche by acquiring an additional approximate
8.3% equity interest in Mobilcom in exchange for 1,255,968 shares of Nextel
Common Stock. On February 21, 1997, Mobilcom shareholders approved a
$27,000,000 capital call (the "Mobilcom Capital Call"). On February 26, 1997,
such subsidiary funded the pro rata share of the Mobilcom Capital Call
(approximately $10,300,000) with a cash contribution. On April 16, 1997, such
subsidiary purchased additional shares of Mobilcom by funding the unsubscribed
portion of the Mobilcom Capital Call (approximately $11,100,000), thereby
increasing such subsidiary's equity interest in Mobilcom to approximately
46.3%.
In August 1996, McCaw International obtained 100% ownership of Com
Control Comunicacion Controlada S.A. (renamed McCaw Argentina S.A., "McCaw
Argentina"), an Argentine SMR company with 800 MHz SMR licenses in areas
covering more than 17 million people. In February 1997, McCaw Argentina
launched commercial SMR service in Buenos Aires. On May 6, 1997, McCaw
International entered into a joint venture with Wireless Ventures of Argentina,
L.L.C. ("WVA") pursuant to which McCaw International contributed its interest
in McCaw Argentina to the joint venture in exchange for a 50% interest in the
joint venture. Through this joint venture, McCaw International doubled its
spectrum position in Argentina, became the largest SMR holder in Argentina and
became the holder of a nationwide paging business which had approximately 4,000
subscribers at such date.
On January 30, 1997, Nextel acquired 81% of the outstanding shares of WVB, an
operator of analog SMR systems in Brazil, for a purchase price of $186,300,000,
which was paid with approximately 11,964,000 shares of Nextel Common Stock,
through a merger of WVB with a wholly-owned subsidiary of Nextel. Nextel
simultaneously contributed its interest in WVB, which was renamed McCaw
International (Brazil), Ltd., to McCaw International.
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<PAGE> 13
Nextel 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 Nextel
believes that such opportunities present the potential to achieve attractive
rates of return on investment or to provide important strategic or other
benefits to Nextel. For the most part, such activities have been and are
expected to continue to be pursued through subsidiaries of Nextel that are
classified as "unrestricted" for purposes of the Nextel Indentures, including
McCaw International. While such classification gives those subsidiaries the
flexibility to participate in and structure transactions in ways that comply
with the covenants in the Nextel Indentures that are applicable to Nextel and
its "restricted" subsidiaries, the Nextel 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 Nextel
and its "restricted" subsidiaries. Currently, Nextel believes that these
"unrestricted" subsidiaries have or can obtain (in a manner consistent with the
terms of the Nextel Indentures) adequate funding to satisfy their existing and
reasonably expected commitments. The pursuit of international wireless
communications opportunities in the future by "unrestricted" subsidiaries, such
as McCaw International and its subsidiaries, however, may be dependent on,
among other factors, their ability to secure necessary equity and/or debt
financing from third parties, which in the case of certain debt financing
would be subject to certain limitations contained in the indentures relating to
the notes issued by McCaw International. 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."
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 VS. THREE MONTHS ENDED MARCH 31, 1996
Total revenues for the three months ended March 31, 1997 increased 62% to
$110,676,000, as compared to the three months ended March 31, 1996. Radio
service revenue for the three months ended March 31, 1997 increased 78% to
$103,685,000, as compared to the three months ended March 31, 1996. The
increase in radio service revenue was principally a result of an increase in
digital subscriber units in service attributable to the commencement of
commercial launches in the Atlanta, Boston, Chicago, Denver, Detroit and Las
Vegas metropolitan market areas during the second half of 1996 and the
full-scale commercial launch in 1997 of Digital Mobile network service in the
Pacific Northwest, metropolitan Washington, D.C., and in cities throughout
North Carolina, New York, Maryland, Missouri and California.
The total number of digital subscriber units in service as of March 31,
1997 was approximately 422,900, as compared to 129,100 digital subscriber units
in service as of March 31, 1996. This increase primarily reflects the
continued national expansion of the Company's Digital Mobile networks.
The average churn rate for the Digital Mobile networks operation was
approximately 1% per month for the three months ended March 31, 1997. There
was insufficient history of customer activity on the Digital Mobile networks to
derive a meaningful churn rate for the three months ended March 31, 1996.
Total analog equipment sales and maintenance revenue for the three months
ended March 31, 1997 decreased 32% to $6,991,000, as compared to the three
months ended March 31, 1996. The decrease in Nextel's analog SMR unit sales is
expected to continue 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.
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<PAGE> 14
Cost of radio service revenue for the three months ended March 31, 1997
increased 8% to $53,758,000, compared to the three months ended March 31, 1996,
primarily as a result of an increase in digital subscriber units in service
attributable to the commencement of Digital Mobile network service in certain
markets during 1997 and the second half of 1996. There are certain direct
costs associated with the Digital Mobile networks, such as site rental and
telephone expenses, which are expected to increase as additional networks are
placed into service.
Selling, general and administrative expenses for the three months ended
March 31, 1997 increased 103% to $132,376,000, as compared to the three months
ended March 31, 1996. Selling expenses increased primarily due to increased
sales and marketing labor costs and related commission expenses. Also
contributing to the increase were the rollout of aggressive national and
regional marketing campaigns associated with the full-scale commercial launch
of the Digital Mobile networks incorporating the Reconfigured iDEN technology
in certain markets in 1997 and in late 1996. The increase in general and
administrative expenses is primarily related to increased staffing and other
activities supporting implementation and operation of the Digital Mobile
networks. The Company includes the loss generated from the sale of digital
subscriber units in selling, general and administrative expenses, as the loss
primarily results from the Company's subsidy of digital subscriber unit and
other related digital equipment sales and represents marketing costs for the
Digital Mobile networks. The loss on Digital Mobile equipment sales for the
three months ended March 31, 1997 increased by $15,609,000 to $18,851,000, as
compared to the three months ended March 31, 1996, primarily reflecting the
continued effect of customer subsidies or discounts on increased sales of
digital subscriber units and other related digital equipment during the first
quarter of 1997 as compared to the first quarter of 1996 and the effect of
migrating customers from traditional analog SMR systems to Digital Mobile
network systems. The Company anticipates that it will continue to offer
customers subsidies or discounts in connection with the sale and installation
of digital subscriber units.
Depreciation and amortization for the three months ended March 31, 1997
increased 19% to $110,203,000, as compared to the three months ended March 31,
1996, reflecting the effect of the activation of additional Digital Mobile
networks or the expansion of existing Digital Mobile networks and the effect of
certain business and license acquisitions in 1996. System assets relating to
the development of Digital Mobile networks represent the largest portion of
capital expenditures during the period. Depreciation 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 1997 and the second half of 1996, 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.
Interest expense for the three months ended March 31, 1997 increased 52%
to $75,267,000, as compared to the three months ended March 31, 1996,
reflecting interest expense attributable to increased borrowings under the
Company's bank and vendor credit facilities to fund capital expenditures,
acquisitions and operations, as well as the assumption in early 1996 of the
Dial Call Senior Redeemable Discount Notes due 2004 and 2005 and the completion
of the McCaw International private placement offering of high-yield securities
on March 3, 1997.
Interest income for the three months ended March 31, 1997 decreased 40%
to $3,982,000, as compared to the three months ended March 31, 1996. The
decrease relates to the utilization of cash for the development and
implementation of the Company's Digital Mobile networks and to fund operating
activities.
The income tax benefit for the three months ended March 31, 1997
decreased 44% to $39,436,000, as compared to the three months ended March 31,
1996. These benefits were derived from the
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<PAGE> 15
recognition of net operating losses which can be utilized against existing
deferred tax liabilities. The effective tax rate for the three months ended
March 31, 1997 of 15.2% decreased from 37.4% for the three months ended March
31, 1996. In certain circumstances, Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," limits the recognition of
income tax benefits for net operating losses to the amount of deferred tax
liabilities that are expected to reverse within the statutory carryforward
period. This limitation resulted in a substantial reduction in the Company's
effective tax rate for 1997 as compared to its effective tax rate for 1996.
The decrease is not expected to have an impact on the Company's ability to
utilize its net operating losses for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Nextel had net losses of $220,850,000 and $118,718,000 for the three
months ended March 31, 1997 and 1996, respectively. The operating expenses
associated with developing and operating the Digital Mobile networks have more
than offset digital service revenues and the operating earnings of the analog
SMR operations, and are expected to continue to offset such operating earnings
for the next several years. Nextel 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, Nextel anticipates using its existing cash and
investments 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 as of March 31, 1997 increased to $440,968,000, compared
to ($66,647,000) at December 31, 1996. The increase in working capital is
primarily a result of the increase in cash and cash equivalents resulting from
the net proceeds of $482,000,000 generated by the McCaw International private
placement.
BANK AND VENDOR CREDIT FACILITY. Effective September 30, 1996, Nextel,
Nextel Finance Company a wholly-owned subsidiary of Nextel ("NFC") and certain
subsidiaries of Nextel entered into definitive agreements with respect to a
secured credit facility arranged by Chase Securities, Inc., J.P. Morgan
Securities, Inc. and Toronto-Dominion Securities (USA), Inc. (the "Bank Credit
Facility"). Concurrently therewith, Nextel, NFC and certain subsidiaries of
Nextel entered into definitive agreements with respect to the amendment,
restatement and consolidation of the previously existing financing arrangements
with Motorola and NTFC Capital Corporation ("NTFC") (the "Vendor Credit
Facility"; and collectively with the Bank Credit Facility, the "Bank and Vendor
Credit Facilities"). The Credit Agreement relating to the Bank Credit Facility
(the "Bank Credit Agreement") provides for up to $1,655,000,000 of secured
financing, consisting of a $1,085,000,000 revolving loan and $570,000,000 in
term loans. The Vendor Credit Facility (the "Vendor Credit Agreement")
provides for up to $345,000,000 of secured financing, consisting of a
$195,000,000 revolving loan and $150,000,000 in term loans. Borrowings under
the Bank and Vendor Credit Facilities are ratably secured by liens on assets
of Nextel's subsidiaries that are "restricted" subsidiaries under the terms of
the Nextel Indentures. At March 31, 1997, Nextel had drawn approximately
$979,000,000 of its available financing under the Bank Credit Facility, leaving
an aggregate of approximately $676,000,000 available for borrowing under such
facility, and had drawn $150,000,000 of its available financing under the
Vendor Credit Facility, leaving an aggregate of approximately $195,000,000
available for borrowing under such facility, subject in each case to the
satisfaction or waiver of applicable borrowing conditions. The Bank Credit
Agreement contemplates that Nextel, with the consent of the lenders under the
Bank Credit Agreement and the Vendor Credit Agreement, may borrow up to an
additional $250,000,000 (subject to certain limitations) under the Bank Credit
Facility (the "Additional Bank Borrowings"). The Bank Credit Agreement also
contemplates that borrowings under the Vendor Credit Facility may be increased
by up to $50,000,000 (subject to certain limitations) (the "Additional Vendor
Borrowings").
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<PAGE> 16
Nextel is currently taking steps to obtain additional sources of funding
in addition to the amounts currently available under the Bank and Vendor Credit
Facilities, including the Additional Bank Borrowings and Additional Vendor
Borrowings. Availability of the Additional Bank Borrowings is subject, among
other things, to the approval of a majority of the lenders under the Bank
Credit Agreement and the Vendor Credit Agreement. There are currently no
legally binding agreements or understandings with any lenders with respect to
the terms (other than the provisions contained in the Bank Credit Agreement
that would permit such additional borrowing with majority approval of the
lenders thereunder) on which such Additional Bank Borrowings may be made
available.
ADDITIONAL MOTOROLA FINANCING. On March 27, 1997, Nextel and Motorola
reached agreement on certain terms and conditions, pursuant to which Nextel
could access up to an additional $450,000,000 of equipment financing to be made
available by Motorola (the "Additional Motorola Financing") which is more fully
described below (see "-- Future Capital Needs and Resources"). In order to
access such Additional Motorola Financing, Nextel would be required to procure
certain consents, waivers and/or participation commitments from a number of
third parties, and to obtain modifications to the terms of the Bank and Vendor
Credit Facilities, the related security documents and the Nextel Indentures and
to satisfy certain other conditions. Nextel is in the process of seeking
certain of such consents, waivers, commitments and other actions to obtain
access to a portion of the Additional Motorola Financing, but there can be no
assurance that Nextel will be successful in this regard, or that other
conditions to access such Additional Motorola Financing, including those that
Nextel is not currently seeking to fulfill, will be satisfied or otherwise will
be dealt with in a timely fashion.
MCCAW INTERNATIONAL PRIVATE PLACEMENT. As more fully described above,
McCaw International completed a private placement of 951,463 units yielding
approximately $500,000,000 in gross proceeds. See Note 3 to Notes to Condensed
Consolidated Interim Financial Statements.
CASH FLOWS. Net cash used in operating activities for the three months
ended March 31, 1997 was $114,239,000 as compared to $55,809,000 for the three
months ended March 31, 1996. This increase is primarily attributable to the
increase in costs related to the implementation and operation of the Digital
Mobile networks. Net cash used in investing activities was $240,573,000 for
the three months ended March 31, 1997, which is primarily related to a
$205,919,000 use of cash for system capital expenditures primarily for the
build-out of the Digital Mobile networks. Financing activities during the
three months ended March 31, 1997 consisted primarily of net borrowings of
$373,756,000, as well as proceeds from the McCaw International private
placement of $500,003,000, offset by a $25,000,000 cash payment to purchase the
Comcast Option. As a result of the above activities, cash and cash equivalents
increased $498,534,000 during the three months ended March 31, 1997.
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 the anticipated conversion
of its existing Digital Mobile networks to utilize the Reconfigured iDEN
technology platform), operating expenses relating both to the Digital Mobile
networks and to Nextel's analog SMR networks, potential acquisitions (including
the acquisition of rights to spectrum through the contemplated 800 MHz spectrum
auction process) and corporate expenditures. Nextel anticipates that its cash
utilization for capital expenditures and other investing activities and
operating losses will continue to exceed its cash flows from operating
activities over the next several years. During the ongoing start-up phase of
its Digital Mobile networks, Nextel expects that it will need to utilize its
existing cash and funding from outside sources to meet its cash needs resulting
from such activities and losses.
On March 27, 1997, Nextel and Motorola reached an understanding regarding
the terms and conditions on which Motorola will provide the Additional Motorola
Financing to fund Nextel's purchases of equipment and services provided by
Motorola. The Additional Motorola Financing contemplates up
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<PAGE> 17
to an additional $450,000,000 in secured financing available to Nextel
consisting of (i) $50,000,000 in Additional Vendor Borrowings pursuant to the
Vendor Credit Facility, (ii) up to $200,000,000 in secured borrowings that are
to be second in ranking to the borrowings made pursuant to both the Vendor
Credit Facility and Nextel's existing Bank Credit Facility (the "Second Secured
Borrowings") and (iii) up to an additional $200,000,000 in borrowings that
would be required to be ratably secured on an equal ranking with borrowings
pursuant to the Vendor Credit Facility and such existing Bank Credit Facility
(the "Senior Secured Borrowings"). Availability of the Additional Motorola
Financing is subject to a number of conditions including, among others, with
respect to the Second Secured Borrowings and the Senior Secured Borrowings, the
prior borrowing of all amounts available under the Vendor Credit Agreement
(including the $50,000,000 in Additional Vendor Borrowings pursuant thereto
described above) and pursuant to Nextel's existing Bank Credit Facility
(including, with respect to the second $100,000,000 of the Second Secured
Borrowings and all of the Senior Secured Borrowings, the borrowing of
$250,000,000 in Additional Bank Borrowings contemplated by such Bank Credit
Facility), Nextel's receipt of $232,500,000 in equity contributions from the
exercise of the First Option by the McCaw Investor, and the receipt of the
approval of the lenders and secured parties under the Vendor Credit Facility
and the Bank Credit Facility (in the case of the Second Secured Borrowings) and
all such lenders and secured parties (in the case of the Senior Secured
Borrowings).
The availability of the Senior Secured Borrowings is also conditioned
upon Nextel raising $250,000,000 in additional unsubordinated debt financing
and Nextel's receipt of the McCaw Investor Borrowings on terms equivalent to
such Senior Secured Borrowings (which lending commitment was included in the
understanding reached between Nextel and the McCaw Investor relating to the
Option Commitment). The availability of all of such additional financing is
also subject to Nextel's satisfying certain requirements under the Nextel
Indentures or obtaining waivers or amendments of such requirements. See, Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operation -- Future Capital Needs and Resources" in Nextel's Annual
Report on Form 10-K for the year ended December 31, 1996 and "--
Forward-Looking Statements." Nextel and Motorola contemplate negotiating and
entering into a definitive agreement implementing the terms of the financing
agreements described above. Except for the understanding regarding the
Additional Motorola Financing with Motorola and the McCaw Investor Borrowings
with the McCaw Investor, Nextel does not yet have any legally binding agreement
or commitment from third parties relating to, or that may be required to
satisfy conditions to implement all or any portion of, the proposed financing
pursuant to such Additional Motorola Financing and/or the McCaw Investor
Borrowings.
Nextel believes that it has sufficient funds currently available pursuant
to the Bank and Vendor Credit Facilities currently in place (but excluding any
amounts that would be available to it through the Additional Bank Borrowings,
the Additional Vendor Borrowings, the Second Secured Borrowings, the Senior
Secured Borrowings and the McCaw Investor Borrowings, the availability of each
of which is subject to certain conditions, including those described herein)
and pursuant to the assumed exercise of the currently outstanding warrants and
options to acquire shares of Nextel Common Stock to meet its cash needs for the
remainder of 1997 and into early 1998, based on continuation of its first stage
nationwide Digital Mobile networks build out approach consistent with its
Existing Business Plan, in light of its current (and currently committed)
business and investment activities and assuming a conservative ramp up in
Digital Mobile systems subscriber growth. To fully complete its first stage
nationwide Digital Mobile networks build out in 1998 as envisioned in the
Existing Business Plan, and to adopt and implement the Revised Business Plan,
Nextel would need to obtain additional amounts of debt or equity financing
beyond that available under the Bank and Vendor Facilities currently in place
(excluding amounts constituting Additional Bank Borrowings, Additional Vendor
Borrowings, Second Secured Borrowings, Senior Secured Borrowings and McCaw
Investor Borrowings) and equity proceeds of $232,500,000 associated with an
assumed exercise in full of the First Option by the McCaw Investor. The
additional financing that would be required to carry out the Existing Business
Plan activities through
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<PAGE> 18
1998 would primarily consist of equity or debt funding to substitute for the
proceeds that would have been received upon an exercise in full of the Comcast
Option which was repurchased by Nextel in a transaction consummated on March
20, 1997. If Nextel consummates the issuance of the New Option to the McCaw
Investor, as described previously, and such New Option is exercised in full
(each of which occurrences are subject to numerous significant conditions and
cannot be assured), Nextel would receive gross proceeds from such exercise
aggregating $420,000,000 prior to the expiration of the New Option, described
below, on July 28, 1998. However, to the extent such additional financings
were in the form of debt rather than equity, it is likely that changes to the
terms of the Nextel Indentures would be required to permit Nextel the needed
flexibility to incur such debt. See, Part I, Item 1, "Business -- Post Fiscal
Year-End Transactions and Developments -- Consent Solicitation" in Nextel's
Annual Report on Form 10-K for the year ended December 31, 1996 and "--
Forward-Looking Statements." Significant additional financing beyond that
required to complete implementation of the Existing Business Plan, as discussed
above, would be required to adopt and implement the Revised Business Plan. As
indicated above, Nextel is currently investigating and taking a variety of
actions directed to obtain access to significant additional amounts of debt
financing. Assuming (i) that Nextel obtains the relief it is seeking from the
holders of the Nextel notes issued pursuant to the Nextel Indentures (the
"Nextel Notes"), especially the changes in the provisions of the Nextel
Indentures that relate to "Permitted Debt," (as defined therein) and (ii) that
Nextel secures access to all of the available funds under the existing Bank and
Vendor Credit Facilities, and is able to structure satisfactory arrangements to
make the additional $200,000,000 in Second Secured Borrowings from Motorola
available (including obtaining access to the $250,000,000 in Additional Bank
Borrowings and to the $50,000,000 in Additional Vendor Borrowings), Nextel
estimates that it would have sufficient financing available to meet its cash
needs through 1998 for implementation and completion of the Existing Business
Plan. Nextel estimates that approximately $500,000,000 in financing in
addition to the amounts described in the preceding sentence would be required
to meet Nextel's anticipated cash needs through 1998, assuming implementation
and completion of the Revised Business Plan. In all of such financing
scenarios, Nextel has assumed that all of the funds currently available
pursuant to the Bank and Vendor Credit Facilities may be borrowed thereunder
and that certain currently outstanding warrants and options to acquire shares
of Nextel Common Stock (but not including the New Option) will be exercised in
full before their respective currently scheduled expiration dates. See "--
Forward-Looking Statements."
Other than the arrangements summarized above, which are subject to a
number of conditions, there are currently no commitments or understandings with
third parties to obtain funding required to meet such funding shortfall.
Moreover, there can be no assurance that the Additional Bank Borrowings,
Additional Vendor Borrowings, Second Secured Borrowings, Senior Secured
Borrowings or McCaw Investor Borrowings will be available or that the
outstanding warrants and options, including the First Option, will be
exercised, nor that the issuance of the New Option will be consummated or, if
consummated, that such New Option will be exercised in whole or in part. Both
the Bank and Vendor Credit Facilities and the Nextel Indentures contain
provisions that operate to limit the amount of borrowings that may be incurred
by Nextel. Nextel is seeking the consent of the holders of the Nextel Notes to
certain amendments to the Nextel Indentures that would, among other things,
permit Nextel to incur additional indebtedness to meet the funding requirements
associated with completion of its Existing Business Plan and implementation of
its Revised Business Plan. See Part I, Item 1 "Business -- Post Fiscal
Year-End Transactions and Developments -- Nextel/Motorola Agreements", in
Nextel's Annual Report on Form 10-K for the year ended December 31, 1996. In
addition, Nextel's capital needs, and its ability to adequately address those
needs through debt or equity funding sources, are subject to a variety of
factors that cannot presently be predicted with certainty, such as the
commercial success of Nextel's Digital Mobile networks incorporating the
Reconfigured iDEN technology, the amount and timing of Nextel's capital
expenditures and operating losses and the market price of Nextel Common Stock.
See "-- Forward-Looking Statements."
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<PAGE> 19
For a more 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 year ended December 31, 1996.
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 Nextel's Annual Report on Form 10-K for the year ended December
31, 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 in accordance with
Nextel's currently contemplated nationwide Digital Mobile network build-out
plan, 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.
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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, 1996. There were no
material changes in the status of those proceedings during the three months
ended March 31, 1997.
ITEM 2. CHANGES IN SECURITIES
(a) Inapplicable
(b) Inapplicable
(c) Recent Issues of Unregistered Securities. Nextel sold
securities that were not registered under the Securities Act
of 1933, as amended (the "Securities Act") in the following
transaction during the first quarter of 1997:
On January 24, 1997, the Company issued 1,255,968 shares of
Nextel Common Stock to certain stockholders of Mobilcom valued
at $16,478,218 in exchange for shares of Mobilcom common stock
in a transaction exempted by Section 4(2) of the Securities
Act and Rule 506 of Regulation D thereunder, in reliance upon
such stockholders' representations that they were accredited
investors and their agreement to resell such securities only
pursuant to a registration statement or in a transaction
exempt from the registration requirements of such act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
Exhibit No. Exhibit Description
10.1* Nextel/Motorola Agreement (relating to equipment
purchase): dated March 27, 1997.
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.
(b) Reports on Form 8-K.
(i) Current Report on Form 8-K dated and filed March 18,
1997 with the Commission.
(ii) Current Report on Form 8-K dated and filed February 7,
1997 with the Commission.
(iii) Current Report on Form 8-K dated and filed January 21,
1997 with the Commission.
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<PAGE> 21
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: /s/STEVEN M. SHINDLER
-------------------------------------------
Date: May 15, 1997 Steven M. Shindler
Vice President and Chief Financial Officer
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<PAGE> 22
EXHIBIT INDEX
Exhibit No. Exhibit Description
10.1* Nextel/Motorola Agreement (relating to equipment purchase):
dated March 27, 1997
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.
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<PAGE> 1
Exhibit 10.1
NEXTEL/MOTOROLA AGREEMENT
March 27, 1997
The x x x Nextel Business Plan (the "Plan") presented to x x x
concluded with Pages 19 and 20. Page 19 of the Plan quantified Motorola Fixed
Network Equipment and Handsets for the x x x plus x x x . Page 20 of the
Plan offered Nextel suggested solutions toward accomplishing the Plan. This
document establishes the joint commitments and agreements between Motorola and
Nextel with respect to Nextel's desire to rapidly expand and grow its United
States business as well as establish international business operations.
Joint Commitments of Nextel and Motorola
A. Nextel agrees to place orders by x x x , and take delivery in x x x
of at least x x x , x x x , and x x x of Motorola iDEN
infrastructure and x x x Motorola iDEN subscriber units of which at
least x x x are to be x x x units. All infrastructure equipment
and subscriber units shipped to date in x x x prior to execution of
this agreement will count towards the overall purchased and shipped
commitments in x x x . Motorola will insure sufficient manufacturing
capacity to produce and ship the quantities of equipment and
subscriber units specified in this paragraph in x x x .
Purchase orders for infrastructure may be issued with generic
quantities of sites and base radios provided that 90 days prior to
shipment configurations are determined that are within (10% of exact
configurations which must be established 30 days prior to scheduled
shipment). Configurations for longer lead time items, such as x x x
and x x x , must be established based on normal manufacturing lead
times from Motorola vendors. The parties jointly commit to develop an
x x x throughout x x x and x x x .
It is understood that requirements to manufacture and ship subscriber
units will be x x x. However, the parties agree to establish a x x x
forecast for subscriber units so that units produced and shipped
within the beginning and end period of the short term step will be x x
x.
B. Nextel agrees to the x x x of iDEN technology for a period of x x x
in all x x x . Furthermore, Nextel agrees to place major
infrastructure orders with Motorola for shipments in x x x for x x
x and the x x x , and in x x x to place major infrastructure
orders with Motorola for x x x and x x x .
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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Nextel agrees to include Motorola Network Services as a partner in the
x x x opportunity, or buy out Network Services interests at fair
market value. Motorola and Nextel agree to use best efforts to arrive
at a fair market value agreement for Network Services interest in x x
x .
In consideration of Nextel's desire to aggressively enter the
integrated services business in international markets x x x,
Motorola's LMPS International Network Services Group and iDEN Group
will agree to meet quarterly with McCaw International to discuss plans
and opportunities where there may be mutual benefit and to give Nextel
appropriate notice prior to selling or transferring Motorola's owned
SMR channels to give McCaw International the opportunity to consider
purchase of such SMR channels.
Motorola will agree not to x x x rights to purchase or use x x x in
international markets (other than x x x and x x x where previously
granted rights expire in x x x ) or enter into other arrangements
that would prohibit Motorola from x x x to MIL for x x x such other
international markets. However, if MIL expresses no interest in
certain international markets where other customers have expressed
conditional firm interest in x x x , Motorola will entertain
specific customer requests to insure an equipment sale.
C. International Pricing
The following sets forth the basic framework for international pricing
on both infrastructure and subscriber purchases by McCaw International
(MIL) or its affiliates.
Infrastructure Pricing
- If MIL commits to x x x per year of aggregate net discounted
EBTS shipments in markets with either (i) x x x and x x x
or (ii) in markets with at least x x x , Motorola will match
x x x .
- Motorola will count x x x of net discounted EBTS shipments
up to x x x in value in non-controlled markets towards the
x x x annual commitment.
- If EBTS shipments in a calendar year are less than x x x ,
prices will be x x x higher than x x x . ( x x x )
- Installation/optimization and other unique costs will be
determined by country/project and billed separately.
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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Subscriber Pricing
- If MIL commits to x x x aggregate units per year of iDEN
subscriber shipments in markets with either (i) x x x and x
x x or (ii) in markets with at least x x x , Motorola will
x x x for subscriber products and accessories. The x x x
will not be applicable to international subscriber units
loading.
- If subscriber shipments are less than x x x per year,
prices for subscriber units and accessories will be x x x
higher than x x x . ( x x x )
- Type approval and other unique or additional costs associated
with doing business internationally will be determined by
country/project and billed separately.
In markets where MIL has less than x x x and x x x , prices for
both subscriber and infrastructure will be mutually negotiated
between the relevant parties.
D. Nextel agrees the x x x x x x program is a x x x program. x x
x of infrastructure and/or subscriber equipment is not permitted, nor
are international purchases counted toward the U.S. x x x in any
year.
E. Motorola will price its infrastructure at the appropriate x x x ( x
x x ) and the subscriber units per the x x x .
For years x x x and x x x , Motorola will agree to an
infrastructure x x x program. The x x x will be an infrastructure
x x x for each x x x , x x x and x x x subscriber unit x x x
onto x x x as described below. Motorola agrees that it will x x x
if, due to no fault of Nextel, it is unable to ship the minimum
infrastructure quantities specified for x x x and x x x in Section
A and on Page 18 of the Plan.
Year x x x Infrastructure x x x Program
x x x , x x x
Motorola will provide a x x x plus provide x x x (or x x
x if package other than x x x package is ordered) of x x x
respectively.
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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x x x unit volume counts toward x x x and x x x unit volume. x
x x does not qualify for any x x x . In the event the combined x x
x , x x x and x x x purchase and shipped volume exceeds x x x in
x x x thus qualifying for a x x x on all x x x , the x x x x x
x will also be x x x on all x x x .
x x x
Motorola expects Nextel to order a minimum of x x x x x x units
and will offer a x x x x x x up to these quantities and will
provide x x x of the applicable x x x (or x x x if package
ordered other than x x x package is ordered) for all units
purchased. After that volume, Motorola will increase the x x x x x
x by x x x to x x x for all units in excess of x x x . This x
x x increased x x x applies only to the x x x between x x x and
x x x . At x x x and above, a x x x , the x x x returns to x x
x .
1. An additional x x x of x x x is available for each one
percentage point increase in the x x x x x x .
2. Per Nextel's request, infrastructure x x x will begin with x x
x as of x x x and will continue through x x x . In order to
continue throughout the full year, the full infrastructure program
( x x x , x x x and x x x ) must be ordered by x x x for
shipment in x x x . If the commitment beyond the x x x
"Existing Plan" is not received by that time, then the x x x
beginning x x x will be reduced by x x x per x x x and x x
x . The x x x x x x will be eliminated completely.
During the year Motorola and Nextel recognize that business and
other considerations may affect the buildout commitment by Nextel.
As such, Motorola and Nextel will mutually agree to make x x x
adjustments to the above x x x if the x x x x x x .
In any event, a x x x x x x program will be available only if
the infrastructure volume exceeds Motorola's initial x x x
infrastructure plan of x x x , x x x and x x x .
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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3. The x x x will be x x x based upon the x x x , x x x and x x x
x x x onto x x x . Motorola will, at Nextel's option, issue an
infrastructure x x x for the amount of the x x x .
For purposes of determining the x x x and associated x x x in each
calendar month, the following procedure will be used:
x x x :
The x x x between x x x and x x x will be used to determine
the x x x amount. x x x is used as the starting date due to
sales activity carryover from x x x .
x x x :
The x x x between the last day of the prior month and last day
of the current month will determine the x x x amount.
x x x :
The x x x between the last day of x x x and x x x will
determine the x x x amount. The x x x date is used to
compensate for sales made in x x x that are not counted until x
x x .
The parties agree to develop mutually an acceptable auditable method
of determining the number of x x x during each payout period.
x x x Infrastructure x x x Program
In order for Nextel in the United States only to continue to receive x x x x
x x prices on x x x , x x x , and x x x in x x x as will be x x x ,
Nextel agrees to commit to purchase and accept shipment of x x x of
infrastructure equipment in the year x x x for both its domestic and
international markets plus commit to the purchase and shipment of x x x
subscriber units for the U.S. markets in the year x x x . Quantities of * **,
x x x , x x x and other equipment which total to an estimated cost of x x x
will be mutually agreed upon between the parties prior to the end of x x x .
In order to kick off the x x x x x x program, Nextel agrees to place
purchase orders for such equipment by x x x . Any x x x infrastructure
quantities that the parties mutually agree to ship in x x x will be x x x
towards the x x x infrastructure shipments commitment in x x x .
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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x x x , x x x , x x x
Motorola will provide a x x x x x x per x x x , * ** or x x x
purchased and x x x plus x x x of the applicable x x x (or x x
x if x x x package is ordered) for each unit type based on the
appropriate x x x price point of the x x x schedule.
The maximum x x x to be made in x x x will be capped at x
x x .
1. An additional x x x of x x x is available for each x x x
in the x x x x x x .
2. x x x will begin as of x x x and extend through x x x .
During the year Motorola and Nextel recognize that business
and other considerations may affect the buildout commitment by
Nextel. As such, Motorola and Nextel will mutually agree to
make x x x adjustments to the above x x x if the x x x
x x x commitments fall below the infrastructure commitment of
x x x in shipments and subscriber commitment of x x x .
3. The x x x will be x x x at the end of x x x based upon
the x x x , x x x , and x x x x x x onto x x x.
Motorola will, at Nextel's option, issue an infrastructure x
x x for the amount of the x x x .
For purposes of determining the x x x in each calendar
month, the following procedure will be used:
x x x :
The x x x x x x between x x x and x x x will be
used to determine the x x x amount.
x x x :
The x x x x x x between the x x x and x x x of
the x x x will determine the x x x amount.
x x x :
The x x x between the x x x and x x x will
determine the x x x amount.
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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The parties agree to develop a mutually acceptable auditable
method of determining the number of x x x x x x during
each payment period.
F. Antenna Site Rental
Motorola and Nextel agree to the following plan which will apply to
Nextel site contract payments valid through and including the x x x .
This pricing plan will supersede the existing master site agreement
pricing plans currently being negotiated between Motorola and Nextel
through the x x x . All other elements of the master site agreement
will remain in full force before and after x x x as stipulated in
the master agreement.
- A x x x discount from x x x on Motorola owned, leased
and managed x x x to be used by Nextel for x x x . ( x x
x additional discount to the x x x discount Nextel
already receives.)
- A x x x discount from x x x on Motorola owned x x x,
and a x x x discount from x x x on Motorola leased
and managed x x x to be used by Nextel for x x x.
- Where, Nextel assumes its required and incremental capital
improvements, fuel and utility costs on all sites.
- On Motorola managed or leased sites, Motorola will agree
to an annual rental increase percent x x x for a site.
Motorola will x x x .
- On Motorola owned sites, Motorola will agree at the time
of a lease renewal to CAP any increases in the x x x at
an amount that will not exceed the x x x for the x x x
.
G. Alternative Infrastructure and Subscriber Equipment Manufacturer
Arrangements
Section IV of the Second Amendment to Purchase Agreements dated April
4, 1995, established a concept of "Licensing" alternate supply sources
for both iDEN infrastructure and subscriber units. Nextel and
Motorola agree to update the agreement as promptly as practicable to
establish a revised framework of agreement for potential third party
iDEN infrastructure and subscriber equipment manufacturers.
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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H. x x x Market Opportunity
Motorola LMPS and Nextel personnel are actively addressing the
opportunity to provide an optimal solution for x x x . Motorola
believes opportunities of this type may be served through a proposed x
x x arrangement with Nextel. The parties agree to mutually work
together to establish such an arrangement.
I. Motorola (and Nextel) senior management tied to Nextel Performance
Motorola will tie its LMPS Senior Management and it is expected Nextel
will tie its Senior Management to a mutually agreed to set of Nextel
performance items, one-half on x x x and one-half on some combination
of X X X, X X X, x x x and x x x.
J. Nextel and Motorola agree that the contents of this agreement are
strictly confidential and that neither party will disclose any of the
contents without the mutual consent of the other party.
Agreed to:
MOTOROLA, INC. NEXTEL COMMUNICATIONS, INC.
Name /s/ Fred Wright Name /s/ Thomas J. Sidman
Date March 27, 1997 Date March 27, 1997
x x x CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at March 31, 1997 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Three Months Ended March
31, 1997 (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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 638,215
<SECURITIES> 5,102
<RECEIVABLES> 141,685
<ALLOWANCES> 9,667
<INVENTORY> 47,767
<CURRENT-ASSETS> 856,686
<PP&E> 1,983,014
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,435,652
<CURRENT-LIABILITIES> 415,718
<BONDS> 3,720,427
0
300,000
<COMMON> 243
<OTHER-SE> 2,478,934
<TOTAL-LIABILITY-AND-EQUITY> 7,435,652
<SALES> 0
<TOTAL-REVENUES> 110,676
<CGS> 0
<TOTAL-COSTS> 58,161
<OTHER-EXPENSES> 110,203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,267
<INCOME-PRETAX> (260,286)
<INCOME-TAX> (39,436)
<INCOME-CONTINUING> (220,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,850)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
</TABLE>
