<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 September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-19656
NEXTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 October 31, 1997
-------------- -------------------
<S> <C>
Class A Common Stock, $0.001 par value 244,872,344
Class B Non-Voting Common Stock, 17,830,000
$0.001 par value
</TABLE>
<PAGE> 2
NEXTEL COMMUNICATIONS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements - Unaudited.
Condensed Consolidated Balance Sheets -
As of September 30, 1997 and December 31, 1996. 3
Condensed Consolidated Statements of Operations -
For the Nine Months Ended September 30, 1997 and 1996. 4
Condensed Consolidated Statements of Operations -
For the Three Months Ended September 30, 1997 and 1996. 5
Condensed Consolidated Statement of Changes in Stockholders' Equity -
For the Nine Months Ended September 30, 1997. 6
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended September 30, 1997 and 1996. 7
Notes to Condensed Consolidated Interim Financial
Statements. 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 13
PART II OTHER INFORMATION.
Item 1. Legal Proceedings. 31
Item 2. Changes in Securities. 31
Item 6. Exhibits and Reports on Form 8-K. 32
</TABLE>
- 2 -
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS - UNAUDITED.
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents (of which $294,429
is restricted as of September 30, 1997) $ 475,370 $ 139,681
Marketable securities (of which $85,121
is restricted as of September 30, 1997) 87,924 5,012
Accounts and notes receivable, less allowance for doubtful
accounts of $26,796 and $10,774 228,812 90,392
Radio and accessory inventory 67,862 45,168
Prepaid expenses and other 32,817 28,844
------------ ------------
Total current assets 892,785 309,097
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
of $477,208 and $314,808 2,687,341 1,803,739
INTANGIBLE ASSETS, net of accumulated amortization
of $728,359 and $566,327 4,414,642 4,076,300
OTHER ASSETS 467,261 283,303
------------ ------------
$ 8,462,029 $ 6,472,439
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other $ 578,206 $ 374,220
Current portion of long-term debt 12,733 1,524
------------ ------------
Total current liabilities 590,939 375,744
LONG-TERM DEBT 4,229,765 2,783,041
DEFERRED INCOME TAXES 509,052 505,516
OTHER 34,390 --
------------ ------------
Total liabilities 5,364,146 3,664,301
------------ ------------
CONTINGENCIES (NOTE 6)
SERIES D EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE 2009, 13%
cumulative annual dividend; 500,000 shares issued and
outstanding as of September 30, 1997, stated at liquidation value 512,822 --
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, 241,837,275 and 211,374,665 shares issued,
240,440,720 and 209,753,097 shares outstanding 242 211
Common stock, Class B, non-voting convertible, 17,830,000 shares
issued and outstanding 18 18
Paid-in capital 4,182,289 3,672,908
Accumulated deficit (1,923,858) (1,135,251)
Treasury shares, at cost, 1,396,555 and 1,621,568 shares (26,886) (31,400)
Unrealized gain on investments 64,163 14,993
Notes receivable from stockholders (613) (1,100)
Deferred compensation, net (10,294) (12,241)
------------ ------------
Total stockholders' equity 2,585,061 2,808,138
------------ ------------
$ 8,462,029 $ 6,472,439
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 3 -
<PAGE> 4
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Radio service revenue $ 444,590 $ 208,737
Analog equipment sales and maintenance 19,248 28,240
------------ ------------
463,838 236,977
------------ ------------
OPERATING EXPENSES
Cost of radio service revenue 183,061 166,783
Cost of analog equipment sales and maintenance 12,016 20,848
Selling, general and administrative 568,112 224,650
Depreciation and amortization 361,757 291,698
------------ ------------
1,124,946 703,979
------------ ------------
OPERATING LOSS (661,108) (467,002)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (279,901) (165,524)
Interest income 21,514 17,953
Other, net 5,486 --
------------ ------------
(252,901) (147,571)
------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (914,009) (614,573)
INCOME TAX BENEFIT 125,402 216,944
------------ ------------
NET LOSS (788,607) (397,629)
SERIES D PREFERRED DIVIDENDS (NOTE 2) (12,822) --
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (801,429) $ (397,629)
============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (3.28) $ (1.80)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 244,221,000 221,309,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 4 -
<PAGE> 5
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
REVENUES
Radio service revenue $ 201,060 $ 82,884
Analog equipment sales and maintenance 6,164 8,156
------------ ------------
207,224 91,040
------------ ------------
OPERATING EXPENSES
Cost of radio service revenue 68,495 59,075
Cost of analog equipment sales and maintenance 3,928 6,129
Selling, general and administrative 253,757 80,605
Depreciation and amortization 137,053 104,869
------------ ------------
463,233 250,678
------------ ------------
OPERATING LOSS (256,009) (159,638)
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (107,445) (58,783)
Interest income 9,228 4,744
Other, net 8,620 --
------------ ------------
(89,597) (54,039)
------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (345,606) (213,677)
INCOME TAX BENEFIT 39,472 64,794
------------ ------------
NET LOSS (306,134) (148,883)
SERIES D PREFERRED DIVIDENDS (NOTE 2) (12,822) --
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (318,956) $ (148,883)
============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1.26) $ (0.66)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 253,483,000 225,367,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
- 5 -
<PAGE> 6
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
Class A Class B Class A Class B
Preferred Stock Preferred Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 8,163,265 $300,000 82 $ -- 211,374,665 $211 17,830,000 $18
Issuance of common stock:
Exercise of options and warrants 2,007,481 2
Employee stock purchase plan
Acquisitions 13,455,129 14
Digital Radio option (Note 2) 15,000,000 15
Issuance of warrants of subsidiary in
connection with private placement
(Note 3)
Repurchase of Comcast option
Issuance of McCaw option to
purchase common stock
Consent solicitation
subscription proceeds (Note 3)
Deferred compensation
Collection of notes receivable, net of
accrued interest
Unrealized gain on investments,
net of deferred taxes
Preferred dividends (Note 2)
Net loss
--------- -------- ---- ----- ----------- ---- ---------- ----
BALANCE, September 30, 1997 8,163,265 $300,000 82 $ -- 241,837,275 $242 17,830,000 $18
========= ======== ==== ===== =========== ==== ========== ====
</TABLE>
<TABLE>
<CAPTION>
Notes
Unrealized Receivable
Paid-in Accumulated Treasury Gain on from Deferred
Capital Deficit Shares Investments Stockholders Compensation
------- ------- ------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 $3,672,908 $(1,135,251) $(31,400) $14,993 $(1,100) $(12,241)
Issuance of common stock:
Exercise of options and warrants 18,438 697
Employee stock purchase plan (1,625) 3,817
Acquisitions 207,482
Digital Radio option (Note 2) 232,471
Issuance of warrants of subsidiary in
connection with private placement
(Note 3) 14,800
Repurchase of Comcast option (25,000)
Issuance of McCaw option to
purchase common stock 24,743
Consent solicitation
subscription proceeds (Note 3) 44,266
Deferred compensation 6,628 1,947
Collection of notes receivable, net of
accrued interest 487
Unrealized gain on investments,
net of deferred taxes 49,170
Preferred dividends (Note 2) (12,822)
Net loss (788,607)
---------- ----------- -------- ------- ------- --------
BALANCE, September 30, 1997 $4,182,289 $(1,923,858) $(26,886) $64,163 $ (613) $(10,294)
========== =========== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
6
<PAGE> 7
NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (788,607) $ (397,629)
Adjustment to reconcile net loss to net
cash used in operating activities 492,170 84,981
------------ -----------
Net cash used in operating activities (296,437) (312,648)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions and purchase of licenses,
net of cash acquired (116,897) 33,665
Other investments and advances to affiliates (17,245) (14,613)
Capital expenditures (1,005,461) (46,211)
Purchases of marketable securities (145,289) --
Proceeds from maturities and sales of marketable securities 64,465 64,452
(Increase) Decrease in acquisition deposits (60,694) 15,582
Other investing activities 6,436 7,515
------------ -----------
Net cash (used in) provided by investing activities (1,274,685) 60,390
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement of debt securities 1,000,282 --
Proceeds from redeemable preferred stock issuance 500,000 --
Long-term borrowings 250,000 331,408
Revolving line of credit repayments, net (20,000) (268,704)
Other long-term repayments, net (1,149) (1,068)
Consent solicitation subscription proceeds 44,266 --
Debt issuance costs (118,267) (37,336)
Common stock and options issued 276,192 106,640
Option repurchase and other (24,513) --
------------ -----------
Net cash provided by financing activities 1,906,811 130,940
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 335,689 (121,318)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 139,681 340,826
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 475,370 $ 219,508
============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 75,977 $ 29,779
============ ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
7
<PAGE> 8
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.
Certain prior period amounts have been reclassified to conform to the
1997 presentation.
The accounts of the Company's foreign subsidiaries are consolidated as
of a date one month earlier than the accounts of the Company and its U.S.
subsidiaries to ensure timely reporting of consolidated results.
SUPPLEMENTAL CASH FLOW INFORMATION: Total cash and non-cash capital
expenditures for the nine months ended September 30, 1997 were $1,023.2 million.
Total capital expenditures includes interest capitalized in connection with the
construction and development of the Company's advanced mobile communications
systems employing digital technology with a multi-site configuration permitting
frequency reuse (the "Digital Mobile networks") of approximately $35.7 million
and $22.8 million during the nine months ended September 30, 1997 and 1996,
respectively. Under its vendor financing agreements in effect through September
30, 1996, the Company directly financed certain of its equipment purchases.
During the nine months ended September 30, 1996, the total equipment acquired
under these vendor financing agreements was $102.5 million, resulting in total
cash and non-cash capital expenditures of $171.5 million for the nine months
then ended.
RESTRICTED CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES: As of
September 30, 1997, approximately $379.6 million of cash, cash equivalents and
marketable securities held by Nextel International, Inc. ("NII," formerly known
as McCaw International, Ltd.), an indirect wholly-owned subsidiary of Nextel,
and its subsidiaries were not available to fund any of the cash needs of
Nextel's domestic Digital Mobile networks and analog specialized mobile radio
("SMR") businesses due to the restrictions contained in the indenture related to
the 10-year discount notes issued by NII in March 1997 (the "NII Indenture")
(see Note 3).
NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," ("SFAS 130") that establishes standards for
reporting and display of comprehensive income and is effective for fiscal years
beginning after December 15, 1997. Components of comprehensive income include
items such as net income and changes in value of available-for-sale securities.
The Company plans to adopt SFAS 130 in 1998.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131") that changes the standards for
reporting information about operating segments in annual
8
<PAGE> 9
financial statements and requires reporting of selected information in interim
financial reports. SFAS 131 is effective for periods beginning after December
15, 1997. The Company plans to adopt SFAS 131 in 1998.
Both SFAS 130 and SFAS 131 require additional disclosure, but will not
result in a material effect on the Company's financial position or results of
operations.
NOTE 2 - SIGNIFICANT TRANSACTIONS.
MOBILCOM: In January 1997, the Company, through a wholly-owned
subsidiary, purchased additional common shares of Corporacion Mobilcom S.A. de
C.V., a Mexican 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"). As a result of a series of additional cash
contributions through August 31, 1997 aggregating $78.5 million, the Company
increased its equity interest in Mobilcom to approximately 76.5%. Approximately
$22.1 million of the purchase price is payable in January 1998 and is included
in accrued expenses as of September 30, 1997. The carrying amount of the
Company's investment in Mobilcom as of August 31, 1997 totaled approximately
$152.3 million and exceeded the book value of the net tangible assets of
Mobilcom by $107.8 million. The excess was allocated to licenses and goodwill
based on their preliminary estimated fair values and is being amortized over
their estimated useful lives of 20 years.
MCCAW BRAZIL: In January 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 $186.3 million which was paid with
approximately 12.0 million 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
NII.
MCCAW INVESTOR OPTION EXERCISE AND OPTION PURCHASE: As more fully
discussed in "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Recent Transactions and Developments," on
July 28, 1997 (the "Option Closing"), Digital Radio, LLC, an entity controlled
by Craig O. McCaw (the "McCaw Investor") exercised in full its option (the
"First Option") to purchase 15.0 million shares of Nextel Common Stock for an
aggregate purchase price of $232.5 million (the "McCaw Option Proceeds").
On March 20, 1997, the Company completed the purchase of an option to
acquire 25.0 million shares of Nextel Common Stock from an affiliate of Comcast
Corporation, for an aggregate purchase price of $25.0 million. In connection
with the agreements relating to the exercise of the First Option, an affiliate
of Craig O. McCaw purchased, for an aggregate purchase price of $25.0 million,
an option to purchase 25.0 million shares of Nextel Common Stock (the "New
Option").
PREFERRED STOCK ISSUANCE: As more fully described in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Transactions and Developments," on July 21, 1997, Nextel
completed a private placement of 500,000 shares of Series D Exchangeable
Preferred Stock Mandatorily Redeemable 2009 ("Series D Preferred Stock") with a
liquidation preference of $1,000 per share yielding gross proceeds of
approximately $500.0 million. Each share of Series D Preferred Stock has a
liquidation preference over shares of Nextel's Common Stock and is on a parity
with Nextel's other preferred stock (except for any mandatory dividends or other
specified contingent payments on or in respect of the Company's Class A
Convertible Redeemable Preferred Stock and Class B Convertible Preferred Stock).
The Series D Preferred Stock carries an annual cumulative dividend of 13.0% of
the liquidation preference, payable quarterly in cash or, on or prior to July
15, 2002, at the sole option of Nextel, in additional shares of Series D
Preferred Stock. At September 30, 1997, accrued but unpaid dividends on the
outstanding shares of Series D Preferred Stock were
9
<PAGE> 10
approximately $12.8 million. On October 15, 1997, Nextel elected to pay the
first quarterly dividend on the Series D Preferred Stock in kind, resulting in
the issuance of an additional 15,167 shares of Series D Preferred Stock.
NOTE 3 - LONG-TERM DEBT.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
--------------------------------
(IN THOUSANDS)
<S> <C> <C>
11.5% Senior redeemable discount notes due 2003,
net of unamortized discount of $51,116 and $89,024 $ 474,739 $ 436,831
9.75% Senior redeemable discount notes due 2004,
net of unamortized discount of $137,658 and
$205,773 988,777 920,662
10.125% Senior redeemable OneComm discount notes due
2004, net of unamortized discount of $123,019
and $151,810 286,857 258,066
12.25% Senior redeemable Dial Page discount notes due
2004, net of unamortized discount of $146,577
and $186,584 395,253 355,246
10.25% Senior redeemable Dial Page discount notes due
2005, net of unamortized discount of $37,311
and $45,192 77,853 69,973
13.0% Senior redeemable Nextel International discount
notes due 2007, net of unamortized discount of $428,726 522,737 --
10.65% Senior redeemable discount notes due 2007,
net of unamortized discount of $337,678 502,322 --
Bank credit facility, interest payable quarterly at
an adjusted rate calculated either on the prime
rate or LIBOR (7.94% to 9.75% for 1997 and 1996) 820,000 590,000
Vendor credit facility, interest payable quarterly
at 2% over the prime rate (10.5% for 1997 and 1996) 150,741 150,000
Other 23,219 3,787
------------ -------------
4,242,498 2,784,565
Less current portion 12,733 1,524
------------ -------------
$ 4,229,765 $ 2,783,041
============ =============
</TABLE>
NEXTEL INTERNATIONAL: In March 1997, NII completed a private placement
(the "NII Private Placement") of 951,463 units yielding approximately $500.0
million in gross proceeds. Each unit is comprised of a 10-year senior discount
note and a warrant to purchase 0.38748 shares of NII common stock. The notes
have a 13.0% yield to maturity, are noncallable for five years, and require no
interest payments for the first five years. The warrants are exercisable at a
price of $9.99 per share and expire in March 2007.
CONSENT SOLICITATION: As more fully discussed in "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Transactions and Developments," in June 1997 Nextel obtained the consent
from the holders of its five issues of Senior Redeemable Discount Notes
outstanding prior to 1997 (the "Old Senior Notes"), issued pursuant to
respective related indentures as in effect prior to June 13, 1997 (the "Former
Version Indentures") to certain amendments to and waivers of certain provisions
of the Former Version Indentures pursuant to a consent solicitation
10
<PAGE> 11
(the "Consent Solicitation") at a cost of approximately $67.2 million in cash
and stock. In connection with the Consent Solicitation, Nextel offered shares
of Nextel Common Stock to validly consenting holders of the Old Senior Notes.
Approximately 3.9 million of such shares were subscribed for by consenting
holders for an aggregate purchase price of approximately $63.7 million (the
"Subscription Proceeds"). Approximately $44.3 million of such Subscription
Proceeds (representing the Subscription Proceeds relating to approximately 2.7
million shares of Nextel Common Stock) were received on September 30, 1997 and
the remaining $19.4 million of such Subscription Proceeds were received by the
Company, and the issuance of the shares of Nextel Common Stock was recorded on
the Company's share transfer records, during the fourth quarter of 1997.
SEPTEMBER NOTES ISSUANCE: As more fully discussed in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Transactions and Developments," on September 17, 1997, the
Company completed a private placement of $840.0 million in principal amount at
maturity of 10.65% Senior Redeemable Discount Notes due 2007 (the "September
Notes") yielding approximately $486.0 million in net cash proceeds (the
"September Notes Proceeds").
ADDITIONAL CREDIT FACILITIES: As more fully discussed in "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Transactions and Developments," on September 4, 1997, the
Company entered into definitive agreements which increased the Company's total
secured financing capacity under its bank and vendor financing agreements to
$2.5 billion.
NOTE 4 - DIGITAL MOBILE NETWORK EQUIPMENT SALES AND RELATED COSTS.
Equipment sales and related costs for the operation of the Digital
Mobile networks are classified within selling, general and administrative
expenses as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -----------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Equipment sales $ 72,348 $ 32,059 $ 171,024 $ 90,353
Cost of equipment sales 126,586 37,228 272,902 104,277
---------- ----------- ----------- -----------
$ (54,238) $ (5,169) $ (101,878) $ (13,924)
========== =========== =========== ===========
</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 units 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 and for 1997 also reflects approximately $7.5 million in write downs to
estimated net realizable value of subscriber unit inventory utilizing first
generation iDEN (as defined below) technology.
NOTE 5 - SUBSEQUENT EVENTS.
OCTOBER NOTES ISSUANCE: As more fully discussed in "Item 2,
Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Transactions and Developments," on October 22, 1997, the
Company completed a private placement of $1,129.1 million in principal amount at
maturity of 9.75% Senior Serial Redeemable Discount Notes due 2007 (the "October
Notes") yielding approximately $682.0 million in net cash proceeds (the "October
Notes Proceeds").
11
<PAGE> 12
PCI MERGER: Nextel entered into an Agreement of Merger and Plan of
Reorganization dated as of October 2, 1996, as amended, 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. The closing of such merger
transaction occurred on November 12, 1997, resulting in the issuance (or
reservation for issuance) of a total of approximately 6.2 million shares of
Nextel Common Stock.
NOTE 6 - CONTINGENCIES.
See Part II, Item 1. "Legal Proceedings" for a discussion of certain
lawsuits and other legal matters.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW.
The following discussion of the condensed consolidated financial
condition and results of operations of Nextel for the nine months ended
September 30, 1997 and 1996, and certain factors that could affect Nextel's
prospective financial condition, should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
the Quarterly Reports on Form 10-Q for the three months ended March 31, 1997 and
June 30, 1997.
Nextel's business consists principally of providing a wide array of
digital and analog wireless communications services to its customers in the
United States, in each case utilizing frequencies licensed to its subsidiaries
by the Federal Communications Commission ("FCC"). Nextel provides a
differentiated package of integrated digital wireless communications services
under the Nextel brand name to customers of the various networks constructed and
operated by Nextel's subsidiaries in and around major metropolitan population
centers throughout the country. Collectively, Nextel's operations constitute one
of the largest integrated wireless communications networks utilizing a single
digital transmission technology currently offering commercial service in the
United States. Through its digital and analog wireless communications networks,
Nextel is the leading provider of SMR wireless communications services in nearly
all 48 states in the continental United States and in Hawaii. Nextel has
significant SMR spectrum holdings in and around every major business and
population center in the country, including all of the top 50 metropolitan
market areas in the United States.
Nextel'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 is able to access mobile telephone
services, two-way dispatch (marketed as Nextel's Direct Connect(SM) service),
paging and alphanumeric short-messaging service, and in the future is expected
to be able to access data transmission. Nextel is implementing its Digital
Mobile networks utilizing digital technology developed and manufactured by
Motorola, Inc. ("Motorola") (such technology is referred to as the "integrated
Digital Enhanced Network" or "iDEN"). As of September 30, 1997, Nextel's Digital
Mobile networks were operating in major metropolitan areas throughout the United
States in which approximately 60% of the total United States population lives or
works.
Prior to the second quarter of 1996, Nextel implemented its Digital
Mobile networks in its market areas using Motorola's first generation iDEN
technology. During that time frame, 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. Additionally,
Nextel, together with Motorola, in 1995 began pursuing a program directed toward
development and deployment of modifications to the first generation iDEN
technology platform, which modifications 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 modified iDEN technology ("Reconfigured iDEN") in the Chicago
metropolitan market late in the third quarter of 1996 and has since deployed the
Reconfigured iDEN technology throughout its Digital Mobile networks. To date,
the Company's Digital Mobile network is operational in markets in which
approximately 60% of the United States population lives or works, providing
coverage in and around major metropolitan areas, including New York, Los
Angeles, Chicago, Washington, D.C., Atlanta, Boston, Denver, Detroit,
Dallas/Fort Worth, Houston, San
13
<PAGE> 14
Francisco, Miami/Fort Lauderdale, Tampa/St. Petersburg, Orlando, Jacksonville,
Pittsburgh, Cleveland, Columbus, Salt Lake City/Provo, Phoenix, Tucson, and
Spokane. By the end of 1997, Nextel plans to expand network coverage to other
major metropolitan areas, including, Cincinnati, Dayton, San Antonio, Austin and
Charleston. Based on its current plans and construction schedules, the Company
expects that its Digital Mobile network will be operational in markets in which
approximately 85% of the United States population lives or works by the end of
1998.
Since December 31, 1994, the number of subscriber units in service on
Nextel's Digital Mobile network has increased significantly, reflecting the
commencement of Digital Mobile network service in certain markets, increased
sales in markets in which Digital Mobile network services are provided, and, to
a limited extent, acquisitions. As a result, the number of subscriber units in
service on Nextel's Digital Mobile network increased from 13,500 at December 31,
1994, to 85,000 at December 31, 1995, to 300,300 at December 31, 1996 and to
946,600 at September 30, 1997. Nextel's business and marketing strategy for its
Digital Mobile networks continues to be based on, and reflect, a principal focus
on multi-service business users in its markets with Digital Mobile networks.
During 1996 and 1997, Nextel significantly expanded its business
activities to include operations and investments involving wireless
communications service providers outside of the United States, which are
conducted under or are coordinated by or through NII. With the exception of the
equity interests held by Nextel and by NII in Clearnet Communications, Inc.
("Clearnet"), a major provider of analog and digital SMR wireless communications
services throughout Canada, and the holder of one of the two nationwide 30 MHz
personal communications services ("PCS") licenses awarded in Canada, NII's
subsidiaries or other entities in which NII holds equity or equivalent interests
own and operate wireless communications systems in Latin America and Asia. NII's
operating companies currently provide a variety of analog or digital wireless
communications services in certain major metropolitan areas in Argentina,
Brazil, Mexico, the Philippines and Shanghai, China.
The ability of Nextel to continue to add increasing numbers of
subscribers on its Digital Mobile network is dependent on a variety of factors.
Among the more important of such factors is Nextel's ability to successfully
plan for additional system capacity in its market areas at levels adequate to
accommodate anticipated new subscribers and the related increases in system
usage. One important factor influencing system capacity is the amount of
spectrum available to Nextel in a particular market area. Although Nextel
intends to continue to pursue opportunities to acquire additional SMR spectrum
in its market areas, Nextel believes that its present holdings of 800 MHz
spectrum are generally adequate for the current and reasonably foreseeable
operation of its Digital Mobile network.
Additionally, Nextel requires that a sufficient quantity of cell sites,
system infrastructure equipment and subscriber units, of the appropriate models
and types, be available to meet the demands and preferences of potential
subscribers to the Digital Mobile network. To date, Nextel has been able to
secure sufficient cell sites at appropriate locations in its markets to meet
planned system coverage and capacity targets, and also has been able to obtain
adequate quantities of base radios and other system infrastructure equipment
from Motorola and other suppliers, and adequate volumes and mix of subscriber
units and related accessories from Motorola, to meet subscriber and system
loading rates. Although Nextel does not currently foresee (based on, among other
factors, its scheduled system construction and expansion activities and its
anticipated rates of customer and service usage growth) any significant supply
problems in the near term, Motorola is the sole supplier of subscriber units and
certain system infrastructure equipment and most of the related equipment
required by the Company to construct and operate its Digital Mobile network, and
there can be no assurance that such supply problems or related issues will not
occur in the future.
14
<PAGE> 15
Nextel's ability to successfully add customers on its Digital Mobile
networks also depends upon the adequacy and efficiency of its information
systems, business processes and related support functions. Nextel relies on its
own fulfillment processes and related information system resources to
accomplish tasks necessary to initiate service for prospective customers, such
as identifying and provisioning from inventory appropriate subscriber units and
desired accessories, programming subscriber units to support desired functions
and features, registering subscriber units to appropriate authorized users of
the Digital Mobile network and setting up appropriate customer accounts and
other billing records and data. There can be no assurance that the back-office
and support systems and processes discussed above will achieve levels of
capacity, or improvements in speed and efficiency, sufficient to meet actual or
anticipated customer and network growth and demands, or will be able to do so
on a timely basis. Any inability of the Company to timely meet Digital Mobile
network capacity needs, to have access to suitable cell sites and
infrastructure and subscriber equipment in any one or more of its market areas,
or to develop, when and as required, improvements or expansions to its systems
and processes that are adequate to meet desired levels of customer activation
and demand for wireless services on the Digital Mobile network could decrease
or postpone subscriber growth, thereby adversely affecting Nextel's revenues,
business and prospects.
The Company recognized an aggregate of $17.0 million in bad debt
expense during the quarter ended September 30, 1997. The amount of bad debt
recognized by the Company during the third quarter was significantly higher as a
percent of revenue compared to previous quarters as a result of a number of
factors, including delays in the billing of amounts due on purchases of
subscriber equipment, institution of aggressive collection activities with
respect to non-current receivables and a more conservative recognition of bad
debt expense associated with non-current receivables by the Company during the
third quarter of 1997. The amount of bad debt recognized by the Company during
the third quarter should not be viewed as indicative of either the amount or
level, or of any impact on the amount or level, of bad debt expense that the
Company may recognize in future periods. See "-- Forward Looking Statements."
Nextel is implementing its revised business plan, which contemplates an
accelerated deployment during 1997 and 1998 of the Reconfigured iDEN technology
platform throughout markets in the United States in which the Company intends to
establish Digital Mobile networks, (including primary connecting routes between
certain markets) in its domestic markets during 1997 and 1998. Nextel believes
that the implementation of the accelerated build-out contemplated by its
business plan will better position Nextel both to achieve its strategic
objectives relating to its United States operations and to prepare for emerging
competition in the wireless communications industry, especially from certain
current operators that, on their existing cellular frequencies or on PCS
frequencies, are in the process of converting their wireless communications
systems to digital technology formats and are moving to provide "nationwide
coverage" on the resulting systems. Nextel believes that a significant strategic
advantage may exist in being "first to market," particularly in comparison to
the new "entrepreneur block" PCS licensees and other existing or potential
regional wireless communications service providers, which may encounter
significant financial and other challenges in replicating or overtaking Nextel's
industry position assuming Nextel successfully concludes its nationwide Digital
Mobile network build-out plan and develops a sufficient customer base in its
markets. Nextel already has taken a number of significant steps to implement
this business plan (including obtaining modifications to certain terms contained
in the Former Version Indentures to provide the flexibility required
to assemble and utilize the necessary financing for such business plan), and
further actions currently are underway to reach that objective. Nextel's ability
to implement its business plan will depend, among other things, on certain
actions by third parties, which cannot be assured. See "-- Future Capital Needs
and Resources" and "-- Forward Looking Statements."
15
<PAGE> 16
RECENT TRANSACTIONS AND DEVELOPMENTS.
TRANSACTIONS SUBSEQUENT TO SEPTEMBER 30, 1997
PCI MERGER. Nextel entered into an Agreement of Merger and Plan of
Reorganization dated as of October 2, 1996, as amended, with 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. The closing of such merger transaction occurred on November 12, 1997,
resulting in the issuance (or reservation for issuance) of approximately 6.2
million shares of Nextel Common Stock.
OCTOBER NOTES ISSUANCE. On October 22, 1997, Nextel completed the sale
of $1,129.1 million in principal amount at maturity of Senior Serial Redeemable
Discount Notes due 2007. The issue price of the October Notes, which mature on
October 31, 2007, was $619.96 per $1,000 principal amount at maturity
(generating approximately $700.0 million in aggregate gross proceeds),
representing a yield to maturity of 9.75% computed on a semi-annual bond
equivalent basis from the date of issuance. Nextel received approximately $682.0
million in net cash proceeds from the sale of the October Notes.
Cash interest will not accrue on the October Notes prior to October 31,
2002 and will be payable on April 30 and October 31 of each year, commencing
April 30, 2003, at a rate of 9.75% per annum. The October Notes are redeemable,
at the option of Nextel at any time, in whole or in part, on or after October
31, 2002, at specified redemption prices plus accrued and unpaid interest. In
addition, in the event of one or more sales by Nextel prior to October 31, 2000
of at least $125.0 million of its capital stock, a portion of the October Notes
not to exceed a maximum of 33-1/3% of the aggregate accreted value of the
outstanding October Notes may be redeemed at Nextel's option within 180 days
after such sale from the net cash proceeds thereof at 109.75% of such accreted
value on the date of redemption. The October Notes are senior unsecured
indebtedness of Nextel and rank pari passu in right of payment with all
unsubordinated, unsecured indebtedness of Nextel, including indebtedness
evidenced by the Old Senior Notes and the September Notes, and will be senior in
right of payment to all subordinated indebtedness of Nextel.
The October Notes were issued in a private placement transaction and
have not been registered with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"), and may not be sold absent registration or an
applicable exemption from the registration requirements. In connection with the
issuance of the October Notes, Nextel has agreed to use its best efforts to file
with the Commission and cause to become effective a registration statement with
respect to a registered offer to exchange the then outstanding October Notes for
notes of equal value that have been registered pursuant to the Securities Act
(the "October Notes Exchange Offer"). In the event that the October Notes
Exchange Offer is not consummated prior to specified dates, additional
incremental interest on the accreted value of the October Notes will accrue
until the October Notes Exchange Offer is consummated or certain other
requirements are met.
The terms of the October Notes are set forth in the related indenture
(the "October Indenture") which has been filed with the Commission and is
incorporated by reference herein.
TRANSACTIONS DURING THE QUARTER ENDED SEPTEMBER 30, 1997
SEPTEMBER NOTES ISSUANCE. On September 17, 1997, Nextel completed the
sale of $840.0 million in principal amount at maturity of Senior Redeemable
Discount Notes due 2007. The issue price of the September Notes, which mature on
September 15, 2007, was $595.57 per $1,000 principal amount at maturity
(generating approximately $500.3 million in aggregate gross proceeds),
16
<PAGE> 17
representing a yield to maturity of 10.65% computed on a semi-annual bond
equivalent basis from the date of issuance. Nextel received approximately $486.0
million in net cash proceeds from the sale of the September Notes.
Cash interest will not accrue on the September Notes prior to September
15, 2002 and will be payable on March 15 and September 15 of each year,
commencing March 15, 2003, at a rate of 10.65% per annum. The September Notes
are redeemable, at the option of Nextel at any time, in whole or in part, on or
after September 15, 2002, at specified redemption prices plus accrued and unpaid
interest. In addition, in the event of one or more sales by Nextel prior to
September 15, 2000 of at least $125.0 million of its capital stock, a portion of
the September Notes not to exceed a maximum of 33 1/3% of the aggregate accreted
value of the outstanding September Notes may be redeemed at Nextel's option
within 180 days after such sale from the net cash proceeds thereof at 110.65% of
such accreted value on the date of redemption. The September Notes are senior
unsecured indebtedness of Nextel and rank pari passu in right of payment with
all unsubordinated, unsecured indebtedness of Nextel, including indebtedness
evidenced by the Old Senior Notes and by the October Notes, and will be senior
in right of payment to all subordinated indebtedness of Nextel.
The September Notes were issued in a private placement transaction and
have not been registered with the Commission under the Securities Act, and may
not be sold absent registration or an applicable exemption from the registration
requirements. In connection with the issuance of the September Notes, Nextel has
agreed to use its best efforts to file with the Commission and cause to become
effective a registration statement with respect to a registered offer to
exchange the then outstanding September Notes for notes of equal value that have
been registered pursuant to the Securities Act (the "September Notes Exchange
Offer"). In the event that the September Notes Exchange Offer is not consummated
prior to specified dates, additional incremental interest on the accreted value
of the September Notes will accrue until the September Notes Exchange Offer is
consummated or certain other requirements are met.
The terms of the September Notes are set forth in the related indenture
(the "September Indenture" and together with the October Indenture, the "New
Indentures") which has been filed with the Commission and is incorporated by
reference herein.
ADDITIONAL CREDIT FACILITIES. Nextel, Nextel Finance Company, a wholly
owned subsidiary of Nextel ("NFC"), and certain subsidiaries of Nextel have
entered into definitive agreements which became effective on September 4, 1997
with respect to $500.0 million in additional financing, increasing Nextel's
total secured financing capacity under its bank and vendor financing agreements
to $2,500.0 million. These agreements provided for (i) amendments to the
existing secured credit facility with certain banks (as so amended, the "Bank
Credit Facility") pursuant to which $250.0 million in additional term loans (the
"Additional Bank Borrowings") were made to the Company, (ii) amendments to the
existing secured credit facility with Motorola, NTFC Capital Corporation and
certain other lenders (as so amended, the "Vendor Credit Facility") pursuant to
which $50.0 million in additional term loans (the "Additional Vendor
Borrowings") will be made available to the Company, subject to the satisfaction
or waiver of applicable borrowing conditions, and (iii) a new credit facility
pursuant to which up to $200.0 million in additional secured term loans (that
are to be second in ranking to the borrowings made pursuant to the Bank Credit
Facility and the Vendor Credit Facility) will be made available to the Company
by Motorola through March 31, 1999 (the "Second Secured Borrowings"), subject to
the satisfaction or waiver of applicable borrowing conditions. Borrowings under
the Bank Credit Facility and the Vendor Credit Facility (together, the "Bank and
Vendor Credit Facilities") are ratably secured by liens on assets of Nextel's
domestic operating subsidiaries. The Second Secured Borrowings are secured (on a
second priority basis) by the same collateral package securing amounts
outstanding under the Bank and Vendor Credit Facilities.
17
<PAGE> 18
Giving effect to these amendments and to the agreement relating to
Second Secured Borrowings (the "Second Vendor Financing Agreement"), the
agreement related to the Bank Credit Facility (the "Bank Credit Agreement")
provides for up to $1,905.0 million of secured financing (consisting of a
$1,085.0 million revolving loan and $820.0 million in term loans), the agreement
related to the Vendor Credit Facility (the "Vendor Credit Agreement") provides
for up to $395.0 million of secured financing (consisting of a $195.0 million
revolving loan and $200.0 million in term loans), and the Second Vendor
Financing Agreement provides for up to $200.0 million of Second Secured
Borrowings, for a total of up to $2,500.0 million in secured financing. The
indebtedness incurred upon issuance of the October Notes may, under certain
circumstances described elsewhere herein, limit the Company's ability to incur
indebtedness otherwise available for incurrence pursuant to the Bank Credit
Facility, the Vendor Credit Facility and/or the Second Vendor Financing
Agreement. See "-- Future Capital Needs and Resources. "
PREFERRED STOCK ISSUANCE. On July 21, 1997, Nextel completed the sale
of 500,000 shares of its Series D Preferred Stock with a liquidation preference
of $1,000 per share. Nextel received approximately $482.0 million in net cash
proceeds from the sale of the Series D Preferred Stock (the "Preferred Stock
Proceeds").
Dividends on the Series D Preferred Stock accrue at an annual rate of
13% of the liquidation preference, are cumulative from the date of issuance and
are payable quarterly in cash or, on or prior to July 15, 2002, at the sole
option of Nextel, in additional shares of Series D Preferred Stock. Nextel
elected to pay the first quarterly dividend on the Series D Preferred Stock in
kind, resulting in the issuance of an additional 15,167 shares of Series D
Preferred Stock on October 15, 1997. The Series D Preferred Stock is mandatorily
redeemable on July 15, 2009 at the liquidation preference plus accrued and
unpaid dividends, and is redeemable in whole or in part, at the option of
Nextel, at any time after December 15, 2005, at a price equal to the liquidation
preference plus accrued and unpaid dividends, and, in certain circumstances,
after July 15, 2002 at specified redemption prices. Up to 35% of the Series D
Preferred Stock may be redeemed on or prior to July 15, 2000, in whole or in
part, at the option of Nextel, in certain circumstances, at 113% of the
liquidation preference plus accrued and unpaid dividends from the proceeds of
one or more sales of Nextel Common Stock. The Series D Preferred Stock is also
exchangeable, in whole but not in part, at the option of Nextel, at any time
after December 15, 2005 and in certain circumstances sooner, into Nextel
subordinated debentures.
The shares of Series D Preferred Stock were initially issued in a
private placement transaction that was not registered with the Commission under
the Securities Act, and may not be sold absent registration or an applicable
exemption from the registration requirements. On November 4, 1997, Nextel filed
with the Commission a registration statement with respect to a registered offer
to exchange the then outstanding Series D Preferred Stock for an equal number of
shares of 13% Series D Exchangeable Preferred Stock that have been registered
pursuant to the Securities Act (the "Preferred Stock Exchange Offer") and such
registration statement was declared effective by the Commission on November 12,
1997. In the event that the Preferred Stock Exchange Offer is not consummated
prior to specified dates, the dividend accrual rate applicable to the Series D
Preferred Stock will increase by specified amounts until the Preferred Stock
Exchange Offer is consummated or certain other requirements are met.
Terms of the Series D Preferred Stock are set forth in the related
Certificate of Designation, which has been filed with the Commission and is
incorporated herein by reference.
CONSENT SOLICITATION. Under the terms of the Former Version Indentures
relating to the Old Senior Notes, Nextel and its subsidiaries that are
"restricted subsidiaries" for purposes of such indentures (the "restricted
subsidiaries") could not have incurred debt (other than certain categories of
"permitted debt" (as defined in such indentures)) unless certain tests were met.
Because such terms of the Former
18
<PAGE> 19
Version Indentures could have had the effect of limiting Nextel's ability to
borrow the funds necessary to implement its business plan, Nextel sought the
consent of the holders of the Old Senior Notes to certain amendments to the
Former Version Indentures pursuant to the Consent Solicitation. On June 13,
1997, Nextel obtained the consent of the requisite number of holders of the Old
Senior Notes to certain amendments and waivers to specific provisions of the
Former Version Indentures. Also on that date, Nextel and the trustee under such
Former Version Indentures executed supplemental indentures (the "Supplemental
Indentures") to each of the Former Version Indentures implementing such
amendments and waivers. The Former Version Indentures, as amended and modified
by their respective Supplemental Indentures, are referred to herein as the "Old
Indentures" and are referred to collectively with the New Indentures as the
"Nextel Indentures." The Old Senior Notes are referred to collectively with the
New Senior Notes as the "Nextel Notes." The amendments implemented by the
Supplemental Indentures include, among other things, certain modifications to
the debt incurrence limitations of the Former Version Indentures to allow Nextel
to incur additional indebtedness, by (i) increasing the amount of permitted debt
by $350.0 million and providing additional flexibility to allocate the total
amount of permitted debt among the existing categories of permitted debt, (ii)
allowing Nextel to incur indebtedness in excess of such permitted debt, in the
period prior to January 1, 2000, based on the amount and timing of any net cash
proceeds received by Nextel from new equity issuances (such proceeds of new
equity issuances include the Preferred Stock Proceeds, but exclude equity funds
from several identified sources, including most significantly the McCaw Option
Proceeds and the Subscription Proceeds), and (iii) making Nextel's ability to
incur additional indebtedness on and after January 1, 2000 a function of
satisfaction of a new interest coverage ratio test. The Supplemental Indentures
also authorize Nextel to transfer to its unrestricted subsidiary group the
equity interest in Clearnet currently held directly by Nextel and implemented
certain technical amendments.
In connection with the Consent Solicitation, Nextel made consent
payments totaling approximately $67.2 million to validly consenting holders of
the Old Senior Notes (the "Consenting Holders"). On August 8, 1997, the
Commission declared effective Nextel's registration statement on Form S-3
relating to the offering of approximately 4.2 million shares of Nextel Common
Stock exclusively to Consenting Holders at a per share price of $16.14.
Approximately 3.9 million of such shares were subscribed for by Consenting
Holders for an aggregate purchase price of approximately $63.7 million.
The foregoing statements relating to the Old Indentures are summaries
of the relevant provisions and do not purport to be complete. Where reference is
made to particular provisions of the Old Indentures, such provisions, including
the definitions of certain terms, are incorporated by reference as part of such
summaries, and are qualified in their entirety by such reference. Each of the
Former Version Indentures and the Supplemental Indentures has previously been
filed with the Commission, and each of the Former Version Indentures, as
amended and supplemented by the appropriate Supplemental Indenture is
incorporated herein by reference.
MCCAW INVESTOR OPTION EXERCISE. On July 28, 1997 the McCaw Investor
exercised in full the First Option to purchase 15.0 million shares of Nextel
Common Stock for an aggregate purchase price of $232.5 million (the "McCaw
Option Proceeds"). The remaining options held by the McCaw Investor to purchase
up to 20.0 million additional shares of Nextel Common Stock (not including the
New Option, which is described below) remain in effect as originally issued. In
connection with the arrangements relating to exercise of the First Option and
issuance of the New Option, the McCaw Investor also agreed to provide up to
$50.0 million in debt financing (subject to certain conditions) to Nextel (the
"McCaw Investor Borrowings"). See "-- Future Capital Needs and Resources." At
the present time, however, Nextel is not taking steps to meet the conditions to
access the McCaw Investor Borrowings.
19
<PAGE> 20
On March 20, 1997, Nextel completed the purchase from an affiliate of
Comcast Corporation of an option to acquire 25.0 million shares of Nextel Common
Stock, at an exercise price of $16.00 per share (the "Comcast Option"), for an
aggregate purchase price of $25.0 million. In connection with the agreements
relating to the commitment to exercise the First Option, Nextel reached an
agreement with an affiliate of Mr. McCaw (such affiliate, the "Purchaser"),
pursuant to which the Purchaser acquired, for an aggregate purchase price of
$25.0 million, an option, in replacement of the Comcast Option, to purchase 25.0
million shares of Nextel Common Stock (the "New Option"), 15.0 million of which
are purchasable at an exercise price of $16.00 per share and the remaining 10.0
million of which are purchasable at an exercise price of $18.00 per share, at
any time through July 28, 1998. The New Option, and any shares of Nextel Common
Stock issued upon exercise thereof, are transferable, subject to certain
limitations. In addition, one direct transferee of the Purchaser will be
entitled to designate one nominee for election to Nextel's Board of Directors,
provided that such party (i) has exercised the transferred portion of the New
Option and continues to own at least 10.0 million shares of Nextel Common Stock
obtained on such exercise, (ii) is not an affiliate of Mr. McCaw and (iii) does
not hold a 5% or greater equity ownership interest in any entity that provides
terrestrial-based wireless communications services in competition with Nextel in
any of its markets. Shares issuable upon exercise of the New Option will be
entitled to certain demand and piggyback registration rights, which would be
assignable to transferees in certain circumstances. There can be no assurance
that the Purchaser or any transferee will elect to exercise the New Option. The
arrangements pertinent to the New Option, the exercise of the First Option and
the McCaw Investor Borrowings are set forth in definitive agreements entered
into among the relevant parties, which definitive agreements have been filed
with the Commission and are incorporated herein by reference.
RESULTS OF OPERATIONS.
The following discussions compare the results of operations for the
nine and three month periods ended September 30, 1997 to the nine and three
month periods ended September 30, 1996. The operating results of these periods
are not necessarily indicative of operating results in future periods. The
following comparative information should be read in conjunction with the
Condensed Consolidated Financial Statements and accompanying Notes for each
period discussed, as well as the information presented elsewhere herein.
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased
96% to $463.8 million, as compared to $237.0 million for the nine months ended
September 30, 1996. Radio service revenue for the nine months ended September
30, 1997 increased 113% to $444.6 million, as compared to $208.7 million for the
nine months ended September 30, 1996. The increase in radio service revenue is
primarily attributable to the increase in digital subscriber units in service
from approximately 228,000 at September 30, 1996 to approximately 946,600 at
September 30, 1997, reflecting the commencement of Digital Mobile network
service in certain markets and increased sales in markets in which Digital
Mobile network services are provided. Additionally, average revenue per digital
unit increased from approximately $52.00 to approximately $65.00 for the nine
months ended September 30, 1996 and 1997, respectively.
The average churn rate for the Digital Mobile networks operation has
increased from less than 1% per month for the nine months ended September 30,
1996 to slightly in excess of 1% per month for the nine months ended September
30, 1997.
Total analog equipment sales and maintenance revenue for the nine
months ended September 30, 1997 decreased 32% to $19.2 million, as compared to
$28.2 million for the nine months ended September 30, 1996. Analog SMR
subscriber units in service also decreased from approximately
20
<PAGE> 21
816,000 at September 30, 1996 to approximately 618,700 at September 30, 1997.
The decrease in analog SMR unit sales and the decrease in analog SMR subscriber
units in service is a result of the Company's focus on digital unit sales, the
declining competitiveness of analog SMR services and related subscriber
equipment utilizing analog technology, the recapture by the Company of its
analog SMR frequencies for use in the operation of its Digital Mobile networks
and the related migration of analog subscriber units to the Digital Mobile
networks.
Cost of radio service revenue for the nine months ended September 30,
1997 increased 10% to $183.1 million as compared to $166.8 million for the nine
months ended September 30, 1996, primarily resulting from an increase in digital
subscriber units placed in service attributable to the commencement of Digital
Mobile network service in certain markets during 1997. Radio service costs as a
percentage of revenue have decreased from 80% for the nine months ended
September 30, 1996 to 41% for the nine months ended September 30, 1997,
primarily as a result of economies of scale achieved due to the increase in
digital subscriber units in service.
Selling, general and administrative expenses for the nine months ended
September 30, 1997 increased 153% to $568.1 million as compared to $224.7
million for the nine months ended September 30, 1996. The increase in general
and administrative expenses is primarily related to increased staffing and other
back-office activities supporting overall growth in the implementation and
operation of the Digital Mobile networks. Selling expenses increased primarily
due to increased sales and marketing labor costs and related commission
expenses. Also contributing to the increase was the rollout of aggressive
national and regional marketing campaigns to increase awareness of Nextel's
products and services associated with the full-scale commercial launch of the
Digital Mobile networks incorporating the Reconfigured iDEN technology beginning
in March 1997. Selling and marketing expenses are expected to increase as the
Company continues to expand its presence in existing markets and expands the
geographic coverage of its 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 represents marketing costs for
the Digital Mobile networks. The loss on Digital Mobile equipment sales for the
nine months ended September 30, 1997 increased by $88.0 million or 632% to
$101.9 million as compared to the loss for the nine months ended September 30,
1996. The increase primarily reflects the continued effect of customer subsidies
and discounts on increased sales of digital subscriber units and other related
digital equipment and the expenses associated with programs designed to
stimulate the orderly migration of customers from the Company's traditional
analog SMR systems to its new Digital Mobile network systems, as well as the
$7.5 million write down to estimated net realizable value of subscriber unit
inventory utilizing first generation iDEN technology during the third quarter of
1997. The Company anticipates that it will continue to offer customers subsidies
and/or discounts in connection with the sale and installation of digital
subscriber units.
Depreciation and amortization for the nine months ended September 30,
1997 increased 24% to $361.8 million as compared to $291.7 million for the nine
months ended September 30, 1996, reflecting the effect of the activation of
additional Digital Mobile networks, the expansion of existing Digital Mobile
networks and the effect of certain asset and license acquisitions during 1997.
System assets relating to the development of Digital Mobile networks represent
the largest portion of capital expenditures during the nine months ended
September 30, 1997. 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 additional Digital Mobile
networks are activated and as existing and additional Digital Mobile networks
are expanded.
Interest expense for the nine months ended September 30, 1997 increased
69% to $279.9 million, as compared to $165.5 million for the nine months ended
September 30, 1996. The increase reflects higher debt balances primarily
attributable to additional borrowings under the Company's Bank and
21
<PAGE> 22
Vendor Credit Facilities. Interest expense also has increased as a result of the
completion of the NII Private Placement and the issuance of the September Notes.
Interest income for the nine months ended September 30, 1997 increased
20% to $21.5 million, as compared to $18.0 million for the nine months ended
September 30, 1996. The increase reflects higher average cash balances available
for investment during the nine months ended September 30, 1997 as compared to
the prior year primarily as a result of the capital raised from the NII Private
Placement.
The income tax benefit for the nine months ended September 30, 1997
decreased 42% to $125.4 million as compared to $216.9 million for the nine
months ended September 30, 1996. These benefits were derived from the
recognition of net operating losses which can be utilized against existing
deferred tax liabilities. The effective tax rate of 13.7% for the nine months
ended September 30, 1997 decreased from 35.3% for the nine months ended
September 30, 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 carry forward
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.
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS ENDED SEPTEMBER 30, 1996.
Total revenues for the three months ended September 30, 1997 increased
128% to $207.2 million, as compared to $91.0 million for the three months ended
September 30, 1996. Radio service revenue for the three months ended September
30, 1997 increased 143% to $201.1 million, as compared to $82.9 million for the
three months ended September 30, 1996. The increase in radio service revenue is
primarily attributable to the increase in digital subscriber units in service
from approximately 228,000 at September 30, 1996 to 946,600 at September 30,
1997, reflecting the commencement of Digital Mobile network service in certain
markets and increased sales in markets in which Digital Mobile network services
are provided. Such increase was also attributable to the increase in average
revenue per unit from approximately $56.00 to approximately $70.00 for the three
months ended September 30, 1996 and 1997, respectively.
The average churn rate for the Digital Mobile networks operation has
increased from less than 1% per month for the three months ended September 30,
1996 to in excess of 1% for the three months ended September 30, 1997.
Total analog equipment sales and maintenance revenue for the three
months ended September 30, 1997 decreased 24% to $6.2 million as compared to
$8.2 million for the three months ended September 30, 1996. Analog SMR
subscriber units in service also decreased from approximately 816,000 at
September 30, 1996 to approximately 618,700 at September 30, 1997. The decrease
in analog SMR unit sales and the decrease in analog SMR subscriber units in
service is a result of the Company's focus on digital unit sales, the declining
competitiveness of analog SMR services and related subscriber equipment
utilizing analog technology, the recapture by the Company of its analog SMR
frequencies for use in the operation of its digital Mobile networks and the
related migration of analog subscriber units to the Digital Mobile networks.
Cost of radio service revenue for the three months ended September 30,
1997 increased 16% to $68.5 million, compared to $59.1 million for the three
months ended September 30, 1996, primarily resulting from an increase in digital
subscriber units in service attributable to the commencement of Digital Mobile
network service in certain markets during 1997. Radio service costs as a
percentage of revenue have decreased from 71% for the three months ended
September 30, 1996 to 34% for the three
22
<PAGE> 23
months ended September 30, 1997, primarily as a result of economies of scale
achieved due to the increase in digital subscriber units in service.
Selling, general and administrative expenses for the three months ended
September 30, 1997 increased 215% to $253.8 million, as compared to $80.6
million for the three months ended September 30, 1996. The increase in general
and administrative expenses is primarily related to increased staffing and other
back-office activities supporting overall growth in the implementation and
operation of the Digital Mobile networks. Selling expenses increased primarily
due to increased sales and marketing labor costs and related commission
expenses. Also contributing to the increase was the rollout of aggressive
national and regional marketing campaigns to increase awareness of Nextel's
products and services associated with the full-scale commercial launch of the
Digital Mobile networks incorporating the Reconfigured iDEN technology beginning
in March 1997. Selling and marketing expenses are expected to increase as the
Company continues to expand its presence in existing markets and expand the
geographic coverage of its 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 represents marketing costs for
the Digital Mobile networks. The loss on Digital Mobile equipment sales for the
three months ended September 30, 1997 increased by $49.1 million or 949% to
$54.2 million as compared to the loss for the three months ended September 30,
1996. The increase primarily reflects the continued effect of customer subsidies
and discounts on increased sales of digital subscriber units and other related
digital equipment and the expenses associated with programs designed to
stimulate the orderly migration of customers from the Company's traditional
analog SMR systems to its new Digital Mobile network systems, as well as the
$7.5 million write down to estimated net realizable value of subscriber unit
inventory utilizing first generation iDEN technology during the third quarter of
1997. The Company anticipates that it will continue to offer customers subsidies
and/or discounts in connection with the sale and installation of digital
subscriber units.
Depreciation and amortization for the three months ended September 30,
1997 increased 31% to $137.1 million as compared to $104.9 million for the three
months ended September 30, 1996, reflecting the effect of the activation of
additional Digital Mobile networks, the expansion of existing Digital Mobile
networks and the effect of certain asset and license acquisitions during 1997.
System assets relating to the development of Digital Mobile networks represent
the largest portion of capital expenditures during the quarter ended September
30, 1997. 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 additional Digital Mobile
networks are activated and as existing and additional Digital Mobile networks
are expanded.
Interest expense for the three months ended September 30, 1997
increased 83% to $107.4 million, as compared to $58.8 million for the three
months ended September 30, 1996. The increase reflects higher debt balances
primarily attributable to additional borrowings under the Company's Bank and
Vendor Credit Facilities. Interest expense has also increased as a result of the
completion of the NII Private Placement and the issuance of the September Notes.
Interest income for the three months ended September 30, 1997 increased
95% to $9.2 million as compared to $4.7 million for the three months ended
September 30, 1996. The increase reflects higher average cash balances available
for investment during the quarter primarily as a result of the capital raised
from the NII Private Placement.
The income tax benefit for the three months ended September 30, 1997
decreased 39% to $39.5 million, as compared to $64.8 million for the three
months ended September 30, 1996. These benefits were derived from the
recognition of net operating losses which can be utilized against existing
deferred tax liabilities. The effective tax rate of 11.4% for the three months
ended September 30, 1997 decreased from 30.3% for the three months ended
September 30, 1996. In certain circumstances, Statement of
23
<PAGE> 24
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 $788.6 million and $397.6 million for the nine
months ended September 30, 1997 and 1996, respectively. Total 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 digital service
revenues and analog SMR 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
intends to use 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.
Since December 31, 1996 working capital has increased by $368.5 million
to $301.8 million as of September 30, 1997. The increase in working capital is
primarily a result of the remaining net cash proceeds generated from the NII
Private Placement and the Preferred Stock Proceeds and September Notes Proceeds
remaining after the application of such proceeds to reduce outstanding
borrowings under the Bank and Vendor Credit Facilities. Proceeds of the NII
Private Placement are primarily used to finance international activities. The
Company's construction and operation of its domestic Digital Mobile networks
have been and continue to be principally financed by incurring long-term debt.
CASH FLOWS. Net cash used in operating activities for the nine months
ended September 30, 1997 was $296.4 million as compared to $312.6 million for
the nine months ended September 30, 1996. The cash flows used in operations
resulted from net losses, increases in receivables and inventories, offset in
part by increases in accounts payable.
Net cash used in investing activities was $1,274.7 million for the nine
months ended September 30, 1997 principally comprised of cash paid for capital
expenditures of $1,005.5 million (used primarily for the build-out of the
Digital Mobile networks), cash paid for the acquisition of additional spectrum
of approximately $116.9 million, and, to a lesser extent, net cash used to
purchase marketable securities.
Net cash provided by financing activities during the nine months ended
September 30, 1997 of $1,906.8 million consisted primarily of net borrowings of
$230.0 million under the Bank and Vendor Credit Facilities, as well as the
receipt of approximately $482.0 million in proceeds from the NII Private
Placement; $482.0 million in Preferred Stock Proceeds; $486.0 million in
September Notes Proceeds; and $276.2 million in proceeds from stock issuances
and option exercises. As a result of the above activities, cash and cash
equivalents increased by a net amount of $335.7 million during the nine months
ended September 30, 1997.
BANK AND VENDOR CREDIT FACILITY; SECOND VENDOR FINANCING AGREEMENT.
Effective September 30, 1996, Nextel, NFC and certain subsidiaries of Nextel
entered into definitive agreements with respect to the Bank Credit Facility.
Concurrently therewith, Nextel, NFC and certain subsidiaries of Nextel entered
into definitive agreements with respect to the Vendor Credit Facility. The Bank
Credit
24
<PAGE> 25
Agreement currently provides for up to $1,905.0 million of secured financing,
consisting of a $1,085.0 million revolving loan and $820.0 million in term
loans. The Vendor Credit Agreement currently provides for up to $395.0 million
of secured financing, consisting of a $195.0 million revolving loan and $200.0
million 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 September
30, 1997, Nextel had drawn $820.0 million of its available financing under the
Bank Credit Facility, leaving an aggregate of $1,085.0 million available for
borrowing under such facility, and had drawn $150.0 million of its available
financing under the Vendor Credit Facility, leaving an aggregate of $245.0
million available for borrowing under such facility, subject in each case to the
satisfaction or waiver of applicable borrowing conditions. The Second Vendor
Financing Agreement currently provides for up to $200.0 million in secured term
loans available through March 31, 1999. The Second Secured Borrowings are
secured (on a second priority basis) by the same collateral package securing
amounts outstanding under the Bank and Vendor Credit Facilities. As of September
30, 1997, no amounts were outstanding thereunder (to the extent the amounts so
repaid are available for reborrowing thereunder).
NEXTEL SERIES D EXCHANGEABLE PREFERRED STOCK PRIVATE PLACEMENT. As more
fully described above, Nextel completed a private placement of 500,000 shares of
its Series D Preferred Stock on July 21, 1997, yielding approximately $482.0
million in net proceeds. See "-- Recent Transactions and Developments".
NEXTEL SENIOR REDEEMABLE DISCOUNT NOTES DUE SEPTEMBER 2007. As more
fully described above, Nextel completed the offering in a private placement
transaction of $840.0 million in principal amount at maturity of the September
Notes on September 17, 1997, yielding approximately $486.0 million in net
proceeds. See "-- Recent Transactions and Developments". Such proceeds were
principally used to repay a portion of outstanding borrowings under the Bank
Credit Facility and the Vendor Credit Facility with the remaining being
available for general corporate purposes.
NEXTEL SENIOR SERIAL REDEEMABLE DISCOUNT NOTES DUE OCTOBER 2007. As
more fully described above, Nextel completed the offering in a private placement
transaction of $1,129.1 million in principal amount at maturity of the October
Notes on October 22, 1997, yielding approximately $682.0 million in net
proceeds. See "-- Recent Transactions and Developments". Such proceeds may be
used for general corporate purposes, including principally either to refinance a
portion of the indebtedness outstanding under the Old Notes (which the Company
may effect through repurchases, by way of a tender offer, open market or
privately negotiated purchases, redemption of the Old Notes pursuant to their
terms or any combination thereof) or to refinance a portion of the cost of
implementing its business plan that otherwise would have been funded by
borrowings pursuant to the Bank Credit Facility, the Vendor Credit Facility
and/or the Second Vendor Financing Agreement.
CONSENT SOLICITATION. As more fully described above, in connection
with the Consent Solicitation, approximately 3.9 million shares of Nextel
Common Stock were subscribed for by Consenting Holders for an aggregate
purchase price of approximately $63.7 million.
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
the Digital Mobile networks and to the analog SMR networks, potential
acquisitions (including the acquisition of rights to spectrum through the FCC's
800 MHz spectrum auction process), debt service requirements and other general
corporate purposes. Nextel anticipates that its cash utilization for capital
expenditures and other investing activities and operating losses will
25
<PAGE> 26
continue to exceed its cash flows from operating activities over the next
several years. During fiscal year 1996, Nextel's average monthly cash
utilization rate for investing activities (principally attributable to capital
expenditures for the build-out of the Digital Mobile networks) was approximately
$33.4 million, and its average monthly operating losses (exclusive of non-cash
items ) was approximately $20.4 million. Such average monthly amounts are not
necessarily representative of Nextel's anticipated experience in such areas and
are expected to increase during 1997 and 1998 in connection with the
implementation of Nextel's business plan and the related accelerated
construction of its Digital Mobile networks. 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. Nextel's aggregate cash, cash equivalents and
marketable securities at September 30, 1997 totaled approximately $563.3
million; however, approximately $379.6 million of such amount represents cash,
cash equivalents and marketable securities held by NII and its subsidiaries,
which are not available to fund any of the cash needs of Nextel's domestic
Digital Mobile and analog SMR businesses, due to restrictions contained in the
provisions of the NII Indenture.
The Company is currently implementing its business plan to accelerate
and expand the deployment of its Digital Mobile networks in domestic markets
during 1997 and 1998. Nextel has estimated that the external funding required to
meet the cash needs of its domestic business activities during the period from
March 31, 1997 through the end of 1998, including principally the funding of
anticipated capital expenditures and potential acquisitions (including potential
acquisitions of licenses in the FCC's 800 MHz spectrum auction) and operating
losses, will be approximately $2,500.0 million, which includes approximately
$1,450.0 million of system infrastructure and other system capital costs that
are expected to be incurred during the period. Such estimates were based on a
number of significant assumptions. The Company currently is in the process of
developing its capital and operating budgets for 1998, and as part of such
process will be reviewing a number of such matters in light of its experience
with respect to the Digital Mobile system construction and commercialization
efforts during 1997. Nextel currently expects that the 1998 budgeting process
will not be finalized until late December 1997 or early 1998. However, based on
the results of that process to date, the Company anticipates that both its
aggregate domestic business cash needs and its domestic capital expenditure
requirements will be in excess of those previously estimated amounts. Such
expected increase likely will be necessary to accommodate increased system
capacity requirements resulting from the Company's rapid subscriber growth
(which exceeded the levels of assumed growth used in developing the prior
estimates) and increased demand for the Company's wireless services and to make
improvements to existing Digital Mobile system infrastructure to expand and
improve systems coverage and performance to address competitive pressures faced
by the Company. Because such budgeting process is not yet completed, the Company
is not currently able to estimate the extent of the impact that these factors or
any other factors may have on its level of domestic system capital expenditures
and/or overall domestic financing requirements during 1998. See "-- Forward
Looking Statements."
To fully implement an accelerated deployment of its Digital Mobile
networks in the period between March 31, 1997 and December 31, 1998, as
described above, Nextel would need to obtain additional amounts of debt or
equity financing beyond that available under the Bank and Vendor Credit
Facilities and the Second Vendor Financing Agreement currently in place. (See
"-- Liquidity and Capital Resources"). At September 30, 1997, Nextel had drawn
$820.0 million of its available financing under the Bank Credit Facility, and
had drawn $150.0 million of its available financing under the Vendor Credit
Facility. Prior to September 30, 1997, Nextel applied the aggregate of
approximately $1,494.8 million in Preferred Stock Proceeds, the September Notes
Proceeds, the McCaw Option Proceeds, the Subscription Proceeds, and proceeds
of the Additional Bank Borrowings to repay a portion of the borrowings
outstanding under the Bank and Vendor Credit Facilities (to the extent the
amounts so repaid would be available for future borrowings thereunder) with the
balance of such aggregate net proceeds remaining available for other corporate
purposes. Disregarding any limitations
26
<PAGE> 27
imposed pursuant to the Old Indentures on the Company's ability to incur debt
under the Bank and Vendor Credit Facilities and/or the Second Vendor Financing
Agreement by reason of the indebtedness incurred upon issuance of the October
Notes, as of September 30, 1997 a total of $1,530.0 million (giving effect to
the repayment of all revolving, but no term, loan amounts outstanding under the
Bank and Vendor Credit Facilities) of such $2,500.0 million in aggregate
availability would be available for future borrowings by Nextel. The remaining
funds available for borrowings under the Bank and Vendor Credit Facilities may
be drawn upon prior to the final maturity date of such facilities in 2003,
although the amount available under such facilities will be reduced to reflect
scheduled amortization commencing in 2001. The $200.0 million in additional
funds available under the Second Vendor Financing Agreement may be drawn as term
loans prior to March 31, 1999 and will mature in 2003.
Nextel also has reached an understanding with Motorola regarding the
terms and conditions pursuant to which Nextel could access up to an additional
$200.0 million in borrowings that would be required to be ratably secured on an
equal ranking with borrowings pursuant to the Vendor Credit Agreement and the
Bank Credit Agreement (the "Senior Secured Borrowings"). The availability of the
Senior Secured Borrowings is subject to a number of additional conditions,
including the unanimous approval of the secured parties under the Bank Credit
Agreement and the Vendor Credit Agreement. Nextel is not currently taking steps
to meet such additional conditions, and accordingly, Nextel has assumed for
planning purposes that none of the funds constituting the Senior Secured
Borrowings will be available during 1997 and 1998.
The availability of all of the above-described existing and additional
financing is subject to Nextel's satisfying certain requirements under the Old
Indentures, which require Nextel to issue new equity for cash as a condition to
obtaining access to all amounts not constituting "permitted debt" (as such term
is defined in the Old Indentures) under the Bank Credit Facility, the Vendor
Credit Facility and the Second Vendor Financing Agreement referred to above.
Nextel's receipt of the $482.0 million in Preferred Stock Proceeds and option
and warrant exercise proceeds in the period from June 1, 1997 enabled Nextel to
issue the September Notes and still have access to the full $2,500.0 million in
funding available under the Bank Credit Facility, the Vendor Credit Facility and
the Second Vendor Financing Agreement under the limitations contained in the Old
Indentures. However, under such limitations the issuance of the October Notes
will restrict the Company's ability to access, on approximately a dollar for
dollar basis, the amount of additional funding that would be available under the
Bank and Vendor Credit Facilities and the Second Vendor Financing Agreement
unless either (i) the proceeds from the issuance of the October Notes are
applied to refinance a portion of the Old Senior Notes in accordance with the
Old Indentures (in which case the indebtedness under the October Notes, to the
extent the proceeds thereof are applied to effect such refinancing, would
constitute "permitted debt" under the Old Indentures that would not reduce the
amounts available under the Bank and Vendor Credit Facilities or the Second
Vendor Financing Agreement) or (ii) the Company issues additional equity for
cash that would support the incurrence of additional debt under the Old
Indentures. In the event the proceeds from the issuance of the October Notes are
not applied to refinance a portion of the Old Senior Notes, such proceeds may be
utilized to meet the Company's funding requirements for the implementation of
its business plan to replace a portion of the borrowings available under the
Bank and Vendor Credit Facilities and/or the Second Vendor Financing Agreement,
to the extent such borrowings would be limited by the Old Indentures.
To the extent any of the aforementioned proceeds from equity issuances
or financing arrangements are not available or are not sufficient to meet
Nextel's funding needs, it will be necessary for Nextel to obtain alternate
sources of financing. Subject to the determination of the potential impact on
financing requirements associated with an increase in the Company's overall
domestic cash needs, including its domestic capital expenditures as described
above, assuming (i) that Nextel secures access to all of the available funds
under the Bank Credit Facility, the Vendor Credit Facility and the
27
<PAGE> 28
Second Vendor Financing Agreement (or such funds are replaced with October Notes
Proceeds, as described above) and (ii) that the New Option is exercised and
Nextel receives the $420.0 million in proceeds therefrom (the "New Option
Proceeds"), the Company believes that such amounts, coupled with the Company's
available cash and cash equivalents (including the Preferred Stock Proceeds, the
McCaw Option Proceeds, the September Notes Proceeds and the Subscription
Proceeds), will provide funds that in the aggregate are expected to be
sufficient to implement the Company's business plan and meet the other currently
anticipated cash needs of its domestic business activities through the end of
1998. Thereafter, Nextel may require substantial additional financing. See
"-- Forward Looking Statements."
The availability of borrowings pursuant to the Bank and Vendor Credit
Facilities and the Second Vendor Financing Agreement is subject to certain
conditions, and there can be no assurance that such conditions will be met.
Moreover, there can be no assurance that the New Option will be exercised and
that Nextel will receive the proceeds therefrom, or that any of the other
outstanding options will be exercised. The Bank Credit Facility, the Vendor
Credit Facility, the Second Vendor Financing Agreement, the Nextel Indentures
and the terms of the Certificate of Designation relating to the Series D
Preferred Stock contain and will continue to contain provisions that operate to
limit the amount of borrowings that may be incurred by Nextel. 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 the Nextel Common Stock. See "-- Forward Looking
Statements."
Nextel currently is aware of numerous factors and considerations, any
one or more of which could have a material effect on the timing and/or amount of
the future funding to be required by Nextel, but the Company cannot currently
quantify with precision either the magnitude or the certainty of the effects
associated with any such factors. These factors include: (i) the 800 MHz
spectrum auction process (which commenced the bidding phase on October 28,
1997), and the amounts required to be bid to acquire any or all of the available
spectrum blocks in the major metropolitan market areas where Nextel currently
operates, or currently plans to operate, its Digital Mobile networks and the
amounts that may be required to accomplish retuning or acquisition of 800 MHz
incumbent channels in spectrum blocks that may be acquired by Nextel in the 800
MHz spectrum auction process; (ii) the uncertainty with respect to the success
and/or timing of the continuing development and deployment activities relating
to the Reconfigured iDEN technology format and assuming successful and timely
completion of such efforts, the uncertainty with respect to the success of
commercial introduction and customer acceptance of Nextel's Digital Mobile
network services in new market areas using such technology; (iii) the potential
commercial opportunities and risks associated with implementation of Nextel's
accelerated business plan; and (iv) the net impact on Nextel's capital budget of
certain developments currently expected to increase capital needs (e.g., the
additional capital needed if Nextel acquires for cash additional spectrum in
certain markets to increase the capacity and/or efficiency of Nextel's operating
Digital Mobile networks in such markets, the additional capital needed for more
extensive construction of Digital Mobile networks in additional market areas
acquired or that may be acquired in the future, and the expenditures associated
with analog SMR station construction requirements under the currently effective
FCC 800 MHz channel licensing approach) that may be offset (whether wholly or
partially) by other developments anticipated to (or to have the potential to)
reduce capital needs (e.g., co-location of antenna and/or transmitter sites with
other providers of wireless services in the relevant markets, reductions in
infrastructure and subscriber unit prices obtained from Motorola pursuant to the
Second Equipment Agreement Amendment and an agreement entered into on March 27,
1997, alternative and more economical Means for increasing system capacity,
other than constructing additional cell sites and/or installing additional base
radios, such as use of so-called "smart antennas," mini-cells and
28
<PAGE> 29
software-driven and/or system design performance enhancements). Many of the
foregoing involve elements wholly or partially beyond Nextel's control or
influence. Other considerations in addition to the factors identified above may
significantly affect Nextel's decisions to seek additional financing, including
general economic conditions, conditions in the telecommunications and/or
wireless communications industry and the feasibility and attractiveness of
structuring particular financings for specific purposes (e.g., separate
capital-raising activities with respect to international activities and
opportunities). See "-- Forward Looking Statements."
Nextel has had and may in the future have discussions with third
parties regarding potential equity investments and debt financing arrangements
to satisfy actual or anticipated financing needs. Nextel has agreed, under
certain circumstances, not to grant superior governance rights to any
third-party investor without Motorola's consent, which may make securing equity
investments more difficult. The ability of Nextel to incur additional
indebtedness (including, in certain circumstances, indebtedness incurred under
the Bank Credit Agreement, the Vendor Credit Agreement and/or the Second Vendor
Financing Agreement) is and will be limited by the terms of the Nextel
Indentures, the Certificate of Designation relating to the Series D Preferred
Stock, the Bank Credit Agreement, the Vendor Credit Agreement and the Second
Vendor Financing Agreement. The Bank Credit Agreement, the Vendor Credit
Agreement and the Second Vendor Financing Agreement also require Nextel and its
relevant subsidiaries at specified times to maintain compliance with certain
financial covenants or ratios including certain covenants and ratios
specifically related to leverage.
At present, other than the existing equity or debt financing
arrangements that have been consummated and/or disclosed Nextel has no
commitments or understandings with any third parties to obtain any material
amount of additional equity or debt financing. Moreover, no assurances can be
made that Nextel will be able to obtain any such financing in the amounts or at
the times such financing would be required, or that, if obtained, any such
financing would be on acceptable terms. Nextel also anticipates that it will
continue to experience significant operating losses and negative net cash flows
during the ongoing start up phase of the Digital Mobile networks over the next
several years. Accordingly, there can be no assurances as to whether or when the
operations of Nextel will become profitable. As a result of Nextel's anticipated
continuing losses, the uncertainty regarding the exercise of options and
warrants, the availability of financing under the Bank and Vendor Credit
Facilities and the Second Vendor Financing Agreement and the impact of
Reconfigured iDEN and other matters discussed above, there can be no assurance
that Nextel will have adequate capital to implement the nationwide build-out of
its Digital Mobile networks in accordance with its business plan. Failure to
obtain such financing could result in the delay or abandonment of some or all of
the Company's acquisition, development and expansion plans and expenditures,
which could have a material adverse effect on its business prospects and limit
the Company's ability to make payments of cash dividends on, or to pay the
mandatory redemption price of, the Series D Preferred Stock, or to make
principal and interest payments on its indebtedness, including the amounts from
time to time outstanding under the Bank and Vendor Credit Facilities and the
Second Vendor Financing Agreement and amounts due on or in respect of any or all
of the Nextel Notes. See" -- Forward Looking Statements."
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.
29
<PAGE> 30
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 and the Quarterly Reports on Form 10-Q for the quarters ended June 30
and March 31, 1997) 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 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 or referred to elsewhere in the
foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section, including, but not limited to, general economic
conditions in the geographic areas and occupational market segments that Nextel
is targeting for its Digital Mobile system 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 nationwide 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, Nextel's ability to timely and successfully
accomplish required scale-up of its billing, customer care and similar back-room
operations to keep pace with customer growth and increased system usage rates,
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.
30
<PAGE> 31
PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in certain legal proceedings that are described
in its Annual Report on Form 10-K for the year ended December 31, 1996. During
the three months ended September 30, 1997, there were no material changes in the
status of or developments regarding those legal proceedings other than as
discussed below.
On July 23, 1997, in the lawsuit titled In Re Nextel Communications
Securities Litigation, the United States District Court for the District of New
Jersey declined to grant Nextel's motions to dismiss, pursuant to Federal Rule
of Civil Procedure Rules 12(b)(6) and (9)(b), substantially all of the causes of
action alleged in the plaintiffs' complaint filed in that lawsuit.
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 in the following transactions
during the third quarter of 1997.
(i) On July 21, 1997, Nextel completed the sale of 500,000 shares of its
Series D Preferred Stock with a liquidation preference of $1,000 per share
to qualified institutional buyers and a limited number of institutional
accredited investors. Nextel received approximately $482.0 million in net
Preferred Stock Proceeds. Morgan Stanley Dean Witter and Donaldson, Lufkin
& Jenrette Securities Corporation acted as placement agents and received
$17.5 million in fees.
(ii) On July 28, 1997, the McCaw Investor exercised in full the First
Option to purchase 15.0 million shares of Nextel Common Stock for an
aggregate purchase price of $232.5 million. In connection with such
transaction and as previously reported in the Company's quarterly report
for the period ended June 30, 1997, an affiliate of Craig O. McCaw
acquired for an aggregate purchase price of $25.0 million an option to
purchase 25.0 million shares of Nextel Common Stock, 15.0 million of which
are purchasable at an exercise price of $16.00 per share and 10.0 million
of which are purchasable at an exercise price of $18.00 per share at any
time through July 28, 1998.
(iii) On September 17, 1997, Nextel completed the sale of $840.0 million
in principal amount at maturity of the September Notes to qualified
institutional buyers and a limited number of institutional accredited
investors. The issue price of the September Notes, which mature on
September 15, 2007, was $595.57 per $1,000 principal amount at maturity
(generating approximately $500.3 million in aggregate gross proceeds),
representing a yield to maturity of 10.65% computed on a semi-annual bond
equivalent basis from the date of issuance. Nextel received approximately
$486.0 million in net September Notes Proceeds. Merrill Lynch & Co., TD
Securities, Lehman Brothers, Morgan Stanley Dean Witter and NationsBanc
Capital Markets acted as placement agents and received $13.8 million in
fees.
Each of the foregoing transactions were effected pursuant to the exemption
of Section 4(2) of the Securities Act (and in the case of the transactions
described in (i) and (iii), Rule 144A thereunder) in reliance upon
representations of the relevant purchasers 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.
31
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<S> <C>
4.1 Amendment No. 3 dated as of August 20, 1997 amending
the Credit Agreement dated as of September 27, 1996
between Nextel Communications, Inc., Nextel Finance
Company, the other Restricted Companies party
thereto, the Lenders party thereto, Toronto Dominion
(Texas), Inc., as Administrative Agent and The Chase
Manhattan Bank, as Collateral Agent (the "Bank Credit
Agreement") (filed on September 5, 1997 as Exhibit
99.1 to Nextel's Current Report on Form 8-K dated
September 5, 1997 (the "September 5 Form 8-K") and
incorporated herein by reference).
4.2 Amendment No. 3 dated as of August 29, 1997 amending
the Amended, Restated and Consolidated Credit
Agreement, dated as of September 27, 1996 between
Nextel Communications, Inc., Nextel Finance Company,
the other Restricted Companies party thereto,
Motorola, Inc. and NTFC Capital Corporation (the
"Vendor Credit Agreement") (filed as Exhibit 99.2 to
the September 5 Form 8-K and incorporated herein by
reference).
4.3 Second Secured Vendor Financing Agreement dated as of
August 29, 1997 among Nextel Communications, Inc.,
Nextel Finance Company and the other Restricted
Companies party thereto and the Vendor Lenders party
thereto (the "Second Secured Vendor Financing
Agreement") (filed on September 5, 1997 as Exhibit
99.3 to the September 5 Form 8-K and incorporated
herein by reference).
4.4 Indenture dated September 17, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings
Bank, as Trustee, relating to Nextel's Senior
Redeemable Discount Notes due 2007 (filed on
September 22, 1997 as Exhibit 4.1 to Nextel's Current
Report on Form 8-K dated September 22, 1997 (the
"September 22 Form 8-K") and incorporated herein by
reference).
4.5 Amendment No. 4 dated as of September 10, 1997, to
the Bank Credit Agreement (filed on September 22,
1997 as Exhibit 4.2 to the September 22 Form 8-K and
incorporated herein by reference).
4.6 Amendment No. 4 dated as of September 10, 1997 to the
Vendor Credit Agreement (filed on September 22, 1997
as Exhibit 4.3 to the September 22 Form 8-K and
incorporated herein by reference).
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<S> <C>
4.7 Amendment No. 1 dated as of September 10, 1997 to the
Second Secured Vendor Financing Agreement (filed on
September 22, 1997 as Exhibit 4.4 to the September 22
Form 8-K and incorporated herein by reference).
4.8 Indenture dated as of October 22, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings
Bank, as Trustee, relating to Nextel's Senior Serial
Redeemable Discount Notes due 2007 (filed on October
23, 1997 as Exhibit 4.1 to Nextel's Current Report on
Form 8-K dated October 23, 1997(the "October 23 Form
8-K") and incorporated herein by reference).
4.9 Amendment No. 5 dated as of October 9, 1997 to the
Bank Credit Agreement (filed on October 23, 1997 as
Exhibit 4.2 to the October 23 Form 8-K and
incorporated herein by reference).
4.10 Amendment No. 5 dated as of October 9, 1997 to the
Vendor Credit Agreement, (filed on October 23, 1997
as Exhibit 4.3 to the October 23 Form 8-K and
incorporated herein by reference).
4.11 Amendment No. 2 dated as of October 9, 1997, to the
Second Secured Vendor Financing Agreement (filed on
October 23, 1997 as Exhibit 4.4 to the October 23
Form 8-K and incorporated herein by reference).
99.1 Press Release dated August 25, 1997 (filed on October
23, 1997 as Exhibit 99.4 to the September 5 Form 8-K
and incorporated herein by reference).
99.2 Press Release dated September 8, 1997 (filed on
September 9, 1997 as Exhibit 99.1 to Nextel's Current
Report on Form 8-K dated September 9, 1997 and
incorporated herein by reference).
99.3 Press Release, dated October 15, 1997 (filed on
October 23, 1997 as Exhibit 99.1 to the October 23
Form 8-K and incorporated herein by reference).
27** Financial Data Schedule.
----------------
** Submitted only with the electronic filing of this
document with the Commission pursuant to Regulation
S-T under the Securities Act.
</TABLE>
(b) Reports on Form 8-K.
(i) Current Report on Form 8-K dated and filed September 22, 1997
with the Commission reporting under Item 5 the issuance of the
September Notes.
(ii) Current Report on Form 8-K dated and filed September 9, 1997
with the Commission reporting under Item 5 the proposed
offering of the September Notes.
(iii) Current Report on Form 8-K dated and filed September 5, 1997
with the Commission reporting under Item 5 the execution of
amendments to the Bank Credit Facility, the Vendor Credit
Facility and of the Second Vendor Secured Financing Agreement.
(iv) Current Report on Form 8-K dated and filed July 22, 1997 with
the Commission reporting under Item 5 the issuance of the
Series D Preferred Stock.
33
<PAGE> 34
(v) Current Report on Form 8-K dated and filed July 16, 1997 with
the Commission reporting under Item 5 the execution of a
commitment letter related to the amendment of the Bank Credit
Facility.
(vi) Current Report on Form 8-K dated and filed July 9, 1997 with
the Commission reporting under Item 5 the exercise of the
First Option and the purchase of the New Option by affiliates
of Craig O. McCaw, the proposed offering of the Series D
Preferred Stock and the proposed implementation of the
Company's business plan and its then existing sources of
funding.
34
<PAGE> 35
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/WILLIAM G. ARENDT
-----------------------------------------
Date: November 14, 1997 William G. Arendt
Vice President and Controller
(Principal Accounting Officer)
35
<PAGE> 36
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<S> <C>
4.1 Amendment No. 3 dated as of August 20, 1997, amending the
Credit Agreement dated as of September 27, 1996 between Nextel
Communications, Inc., Nextel Finance Company, the other
Restricted Companies party thereto, the Lenders party thereto,
Toronto Dominion (Texas), Inc., as Administrative Agent and
The Chase Manhattan Bank, as Collateral Agent (the "Bank
Credit Agreement") (filed on September 5, 1997 as Exhibit 99.1
to Nextel's Current Report on Form 8-K dated September 5, 1997
(the "September 5 Form 8-K") and incorporated herein by
reference).
4.2 Amendment No. 3 dated as of August 29, 1997 amending the
Amended, Restated and Consolidated Credit Agreement, dated as
of September 27, 1996 between Nextel Communications, Inc.,
Nextel Finance Company, the other Restricted Companies party
thereto, Motorola, Inc. and NTFC Capital Corporation (the
"Vendor Credit Agreement) (filed on September 5, 1997 as
Exhibit 99.2 to the September 5 Form 8-K and incorporated
herein by reference).
4.3 Second Secured Vendor Financing Agreement dated as of August
29, 1997 among Nextel Communications, Inc., Nextel Finance
Company and the other Restricted Companies party thereto and
the Vendor Lenders party thereto (the "Second Secured Vendor
Financing Agreement") (filed on September 5, 1997 as Exhibit
99.3 to the September 5 Form 8-K and incorporated herein by
reference).
4.4 Indenture dated September 17, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings Bank, as
Trustee, relating to Nextel's Senior Redeemable Discount Notes
due 2007 (filed on September 22, 1997 as Exhibit 4.1 to
Nextel's Current Report on Form 8-K dated September 22, 1997
(the "September 22 Form 8-K") and incorporated herein by
reference).
4.5 Amendment No. 4 dated as of September 10, 1997, to the Bank
Credit Agreement (filed on September 22, 1997 as Exhibit 4.2
to the September 22 Form 8-K and incorporated herein by
reference).
4.6 Amendment No. 4 dated as of September 10, 1997, to the Vendor
Credit Agreement (filed on September 22, 1997 as Exhibit 4.3
to the September 22 Form 8-K and incorporated herein by
reference).
4.7 Amendment No. 1 dated as of September 10, 1997 to the Second
Secured Vendor Financing Agreement (filed on September 22,
1997 as Exhibit 4.4 to the September 22 Form 8-K and
incorporated herein by reference).
4.8 Indenture dated as of October 22, 1997 between Nextel
Communications, Inc. and Harris Trust and Savings Bank, as
Trustee, relating to Nextel's Senior Serial Redeemable
Discount Notes due 2007 (filed on October 23, 1997 as Exhibit
4.1 to Nextel's Current Report on Form 8-K dated October 23,
1997(the "October 23 Form 8-K") and incorporated herein by
reference).
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
-------------- -------------------
<S> <C>
4.9 Amendment No. 5 dated as of October 9, 1997 to the Bank Credit
Agreement (filed on October 23, 1997 as Exhibit 4.2 to the
October 23 Form 8-K and incorporated herein by reference).
4.10 Amendment No. 5 dated as of October 9, 1997 to the Vendor
Credit Agreement (filed on October 23, 1997 as Exhibit 4.3 to
the October 23 Form 8-K and incorporated herein by reference).
4.11 Amendment No. 2 dated as of October 9, 1997 to the Second
Secured Vendor Financing Agreement (filed on October 23, 1997
as Exhibit 4.4 to the October 23 Form 8-K and incorporated
herein by reference).
99.1 Press Release dated August 25, 1997 (filed on October 23, 1997
as Exhibit 99.4 to the September 5 Form 8-K and incorporated
herein by reference).
99.2 Press Release dated September 8, 1997 (filed on September 9,
1997 as Exhibit 99.1 to Nextel's Current Report on Form 8-K
dated September 9, 1997 and incorporated herein by reference).
99.3 Press Release, dated October 15, 1997 (filed on October 23,
1997 as Exhibit 99.1 to the October 23 Form 8-K and
incorporated herein by reference).
27** Financial Data Schedule.
----------------
** Submitted only with the electronic filing of this document
with the Commission pursuant to Regulation S-T under the
Securities Act.
</TABLE>
37
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet at September 30, 1997 (Unaudited) and the
Condensed Consolidated Statement of Operations for the Nine Months Ended
September 30, 1997 (Unaudited) and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 475,370
<SECURITIES> 87,924
<RECEIVABLES> 255,608
<ALLOWANCES> 26,796
<INVENTORY> 67,862
<CURRENT-ASSETS> 892,785
<PP&E> 3,164,549
<DEPRECIATION> 477,208
<TOTAL-ASSETS> 8,462,029
<CURRENT-LIABILITIES> 590,939
<BONDS> 4,229,765
512,822
300,000
<COMMON> 260
<OTHER-SE> 2,284,801
<TOTAL-LIABILITY-AND-EQUITY> 8,462,029
<SALES> 0
<TOTAL-REVENUES> 463,838
<CGS> 0
<TOTAL-COSTS> 195,077
<OTHER-EXPENSES> 361,757
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,901
<INCOME-PRETAX> (914,009)
<INCOME-TAX> (125,402)
<INCOME-CONTINUING> (788,607)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (788,607)
<EPS-PRIMARY> (3.28)
<EPS-DILUTED> (3.28)
</TABLE>
