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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

NEXTEL COMMUNICATIONS, INC.

      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:

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

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PART I

Item 1.  Financial Statements — Unaudited.

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

      The accompanying notes are an integral part of these condensed consolidated financial statements.

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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

Condensed Consolidated Statement of Changes in Stockholders’ Equity

[Additional columns below]

[Continued from above table, first column(s) repeated]

																					Accumulated
																					Other
																					Comprehensive
																					Income (Loss)
									Treasury Stock												Unrealized				Cumulative
					Accumulated												Deferred				Gain on				Translation
					Deficit				Shares				Amount				Compensation				Investments				Adjustment				Total
Balance, January  1, 2000					$	(5,739	)			—			$	(6	)		$	(23	)		$	142			$	(138	)		$	2,574
	Net loss					(383	)																							(383	)
		Unrealized gain on available-for-sale securities, net of income tax																				37								37
		Foreign currency translation adjustment																								19				19
			Total comprehensive loss																											(327	)
	Issuance of common stock:
		Exercise of options																												46
		Employee stock purchase plan								—				1																4
		Conversion of debt securities and preferred stock																												311
	Deferred compensation, net																	(1	)											6
	Mandatorily redeemable preferred stock dividends																													(52	)
Balance, March 31, 2000					$	(6,122	)			—			$	(5	)		$	(24	)		$	179			$	(119	)		$	2,562

The accompanying notes are an integral part of these condensed consolidated financial statements.

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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Basis of Presentation.

      As used in these consolidated financial statements, references to “Nextel,” “us,” “our” or “we” are intended to include Nextel Communications, Inc. and its consolidated subsidiaries.

      Our unaudited condensed consolidated financial statements have been prepared under the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are necessary for a fair presentation of the results for the interim periods. All adjustments made were normal recurring accruals.

      You should read the condensed consolidated financial statements in conjunction with the consolidated financial statements and notes of Nextel contained in our Annual Report on Form 10-K for the year ended December 31, 1999, and Nextel International, Inc.’s Annual Report on Form 10-K for the year ended December 31, 1999, for matters related to the operations of Nextel International, an indirect, substantially wholly-owned subsidiary. You should not expect the results of operations of interim periods to be an indication of the results for a full year.

      Restricted Cash and Cash Equivalents. Nextel International and its subsidiaries held cash and cash equivalents of $74 million at March 31, 2000 and $100 million at December 31, 1999 that were not available to fund any of the cash needs of our domestic operations due to restrictions contained in the indentures related to the 10-year discount notes issued by Nextel International in March 1997 and March 1998. At December 31, 1999, restricted cash also included $1,265 million held in an irrevocable trust to effect the redemption of our 10.125% senior redeemable discount notes in January 2000 and the redemption of our 9.75% senior redeemable discount notes in February 2000. (See Note 3.)

      Supplemental Cash Flow Information.

      Digital Subscriber Unit and Accessory Sales and Related Costs. The loss generated from the sale of the subscriber units used on our digital mobile network primarily results from our subsidy of digital subscriber units and accessories and represents marketing costs. Consolidated digital subscriber unit and accessory sales and the related cost of sales, including current period order fulfillment and installation related expenses and

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

write downs of digital subscriber unit inventory and related accessories for shrinkage and obsolescence, are classified within selling, general and administrative expenses as follows (in millions):

      New Accounting Pronouncements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities by requiring that all derivatives be recognized on the balance sheet and measured at fair value. In June 1999, the FASB issued SFAS No. 137, “Deferral of the Effective Date of FASB Statement No. 133 — an Amendment of FASB Statement No. 133,” which deferred the effective date for us until January 1, 2001. We are in the process of evaluating the potential impact of this standard on our financial position and results of operations.

      Reclassifications and Other. Certain prior period amounts have been reclassified to conform to our current year presentation. During the first quarter of 2000, we changed the estimated useful lives of some of our digital mobile network and non-network assets. The effect of this change in estimate was an increase in depreciation expense of about $13 million in the first quarter of 2000.

Note 2.  Significant Transactions and Developments.

      Proposed Stock Split. On February 22, 2000, we announced a 2-for-1 common stock split to be effected in the form of a stock dividend upon stockholder approval of a proposed increase in our authorized equity capitalization at the annual stockholders meeting scheduled for May 25, 2000. Assuming receipt of required shareholder approval, we expect the new shares of common stock will be distributed on June 6, 2000 to stockholders of record as of May 26, 2000. The financial statements do not reflect the effect of the proposed stock split.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 3.  Long-Term Debt.

      5.25% Convertible Senior Notes. In February 2000, we completed the issuance and sale in a private placement of an aggregate of $1.15 billion in principal amount of our 5.25% convertible senior notes due 2010, generating about $1.13 billion in net cash proceeds. Cash interest is payable on these notes semiannually on January 15 and July 15 of each year commencing July 15, 2000. These notes are convertible at the option of the holders into class A common stock at any time prior to redemption, repurchase or maturity at a conversion price of $148.80 per share, subject to adjustment. These notes are redeemable at our option at any time on or after January 18, 2003 at specified redemption prices plus accrued interest. These notes are senior unsecured indebtedness of ours and rank equal in right of payment with all our other unsubordinated, unsecured indebtedness. We have agreed to specific registration rights with respect to these notes. If the 5.25% convertible senior notes are not registered with the Securities and Exchange Commission by August 31, 2000, the interest on the notes will increase by 0.5% per year until the notes are registered or until specific other conditions are satisfied.

      Incremental Bank Financing. On March 15, 2000, we, along with some of our subsidiaries and some of our lenders, established the $1.0 billion incremental senior secured term loan under our existing domestic bank credit facility. As a result, the total amount of borrowings available under our bank credit facility increased

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

from $5.0 billion to $6.0 billion. We borrowed the entire amount of this incremental $1.0 billion term loan on March 15, 2000. The maturity date of this loan is March 31, 2009, although the maturity date can accelerate if our credit ratings are below specified levels and the aggregate amount of specified debt obligations that mature before June 30, 2009, and the redemption price of redeemable stock that is mandatorily redeemable before June 30, 2009, exceed specified amounts. Loans under the bank credit facility bear interest payable quarterly, at variable rates calculated based either on the U.S. prime rate or the London Interbank Offering Rate, referred to as LIBOR.

      Conversion of 4.75% Convertible Senior Notes. In late March 2000, we issued about 5 million shares of class A common stock upon the conversion of about $246 million of our 4.75% convertible senior notes, representing a conversion price of $47.308 per share. In order to induce conversion of these notes prior to redemption, we paid the note holders about $26 million in cash, representing $3 million of accrued interest and $23 million of debt conversion expense in the first quarter of 2000.

      Debt Extinguishment. During the first quarter of 2000, we utilized a portion of the proceeds from our 9.375% senior notes due 2009 to repurchase and redeem prior to final maturity all of our outstanding 10.125% senior notes and all of our outstanding 9.75% senior notes. As a result of the early retirement of these senior notes repurchased and redeemed during the first quarter of 2000, we recognized an extraordinary loss of about $104 million, representing the excess of the purchase price over the carrying values of the repurchased and redeemed notes and the write-off of associated unamortized deferred financing costs of about $26 million.

Note 4.  Contingencies.

      See Part II, Item 1. “Legal Proceedings” for a discussion of certain lawsuits and other legal matters.

Note 5.  Mandatorily Redeemable Preferred Stock.

      Conversion of Zero Coupon Convertible Preferred Stock Mandatorily Redeemable 2013. In late March 2000, we issued about 2.5 million shares of class A common stock upon the conversion of about $71 million in accreted value of our zero coupon convertible preferred stock mandatorily redeemable in 2013, representing the original stated conversion rate of 9.7441 shares of class A common stock for each share of zero coupon convertible preferred stock.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note 6.  Segment Reporting.

      We operate in two business segments: domestic and international. These reportable segments are strategic business units that are in different phases of development and that we manage and have financed separately based on the fundamental differences in their operations. We evaluate performance of these segments and allocate resources to them based on earnings (losses) before interest, taxes, depreciation and amortization and other non-recurring charges, referred to as EBITDA.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

A.  Overview.

      The following discussion of our condensed consolidated financial condition and results of operations for the three-month periods ended March 31, 2000 and 1999, and significant factors that could affect our prospective financial condition and results of operations, should be read in conjunction with our 1999 Annual Report on Form 10-K. Additional information regarding our international operations is available in Nextel International’s 1999 Annual Report on Form 10-K.

      We provide a wide array of digital wireless communications services throughout the United States. We offer a differentiated, integrated package of digital wireless communications services under the Nextel brand name, primarily to business users. Our digital mobile network constitutes one of the largest integrated wireless communications systems utilizing a single transmission technology in the United States. This digital technology, developed by Motorola, Inc., is referred to as the integrated Digital Enhanced Network or iDEN® technology.

      A customer using our digital mobile network is able to access:

	•	digital mobile telephone service;
	•	digital two-way radio dispatch service, which provides instant conferencing capabilities and is marketed as “Nextel Direct Connect®” service;

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	•	the Internet and new digital two-way mobile data services, marketed as “Nextel OnlineSM” service;
	•	paging; and
	•	short-messaging service.

      As of March 31, 2000:

	•	we provided service to about 5,056,000 digital subscriber units in the United States, adding about 540,300 net subscriber units during the quarter; and
	•	our digital mobile network or the compatible digital mobile network of Nextel Partners, Inc., a joint venture in which we are a participant, was operational in areas in and around 96 of the top 100 metropolitan statistical areas in the United States.

      On April 25, 2000, we commercially launched our Nextel Online service offering in 43 major markets, including more than 750 cities across the United States, for Internet capable subscriber units developed and manufactured by Motorola, the “i1000plus™,” the “i500plus™,” and the “i700plus™.” These new subscriber units are the first in a product line that incorporates micro-browsers and enables wireless Internet services, by supplying web-based applications and content directly to our subscribers.

      On April 3, 2000, we launched our Nextel Worldwide^SM service offering with the introduction of the i2000™ subscriber unit. The i2000, being manufactured by Motorola, is a dual mode subscriber unit that operates on both the iDEN technology used by Nextel and the Global System for Mobile Communications, referred to as GSM, digital wireless technology that has been established as the current digital cellular communications standard in Europe and elsewhere. The i2000 currently allows digital roaming in more than 65 countries worldwide with the convenience of one phone, one number and one bill.

      In addition to our domestic operations, we have ownership interests in international wireless companies through our substantially wholly owned subsidiary, Nextel International. Nextel International, through its subsidiaries and affiliates, provides wireless communications services in and around various major metropolitan market areas in Latin America, Asia and Canada. As of March 31, 2000, along with Nextel International, we provided our service in ten of the world’s 25 largest cities.

      As of March 31, 2000, Nextel International’s proportionate share of international digital subscriber units in service, based on its ownership interests in its subsidiaries and affiliates, was estimated to be about 497,200, which includes total international digital subscriber units on networks in operation in Argentina, Brazil, Canada, Japan, Mexico, Peru, the Philippines and Shanghai, People’s Republic of China. As of March 31, 2000, an estimated 1,474,400 international digital subscriber units were in service on the commercial networks then being operated by Nextel International’s subsidiaries and affiliates. Nextel International currently is pursuing a number of transactions that would impact its ownership interests in affiliates in Brazil, Peru and China. If all of these transactions had occurred as of March 31, 2000, Nextel International’s subsidiaries and affiliates would have had a total of about 1,054,300 digital subscriber units in service, on a proforma basis, and Nextel International’s share, based on its proforma proportionate ownership interest, would have been 462,100 digital subscriber units in service. Assuming that the transactions that Nextel International currently is pursuing are consummated during the second quarter, Nextel International intends to report its digital subscriber unit net additions during the second quarter using the proforma first quarter ending digital subscriber units in service as the starting reference point.

B.  First Quarter Transactions and Developments.

      1.  5.25% Convertible Senior Notes. In February 2000, we completed the issuance and sale in a private placement of an aggregate of $1.15 billion in principal amount of our 5.25% convertible senior notes due 2010, generating about $1.13 billion in net cash proceeds. Cash interest is payable on these notes semiannually on January 15 and July 15 of each year commencing July 15, 2000. These notes are convertible at the option of the holders into class A common stock at any time prior to redemption, repurchase or maturity at a conversion price of $148.80 per share, subject to adjustment. These notes are redeemable at our option at any time on or after January 18, 2003 at specified redemption prices plus accrued interest. These notes are senior unsecured

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      Because these notes were issued in a private placement, they may not be offered or sold in the United States absent an effective registration statement or an applicable exemption from the registration requirements of the Securities Act of 1933. In the event that these notes are not registered with the Securities and Exchange Commission prior to August 31, 2000, additional incremental interest on the principal amount of these notes will accrue until they are registered or other requirements are met.

      2.  Proposed Stock Split. On February 22, 2000, we announced a 2-for-1 common stock split to be effected in the form of a stock dividend upon stockholder approval of a proposed increase in our authorized equity capitalization at the annual stockholders meeting scheduled for May 25, 2000. Assuming receipt of required shareholder approval, we expect the new shares of common stock will be distributed on June 6, 2000 to stockholders of record as of May 26, 2000.

      3.  Incremental Bank Financing. On March 15, 2000, we, along with some of our subsidiaries and some of our lenders, established the $1.0 billion incremental senior secured term loan under our existing domestic bank credit facility. As a result, the total amount of borrowings available under our bank credit facility increased from $5.0 billion to $6.0 billion. We borrowed the entire amount of this incremental $1.0 billion term loan on March 15, 2000. The maturity date of this loan is March 31, 2009, although the maturity date can accelerate if our credit ratings are below specified levels and the aggregate amount of specified debt obligations that mature before June 30, 2009, and the redemption price of redeemable stock that is mandatorily redeemable before June 30, 2009, exceed specified amounts. Loans under the bank credit facility bear interest payable quarterly, at variable rates calculated based either on the U.S. prime rate or LIBOR.

      4.  Conversion of 4.75% Convertible Senior Notes. In late March 2000, we issued about 5 million shares of class A common stock upon the conversion of about $246 million of our 4.75% convertible senior notes representing a conversion price of $47.308 per share. In order to induce conversion of these notes prior to redemption, we paid the note holders about $26 million in cash, representing $3 million of accrued interest and $23 million of debt conversion expense in the first quarter of 2000.

      5.  Conversion of Zero Coupon Convertible Preferred Stock Mandatorily Redeemable 2013. In late March 2000, we issued about 2.5 million shares of class A common stock upon the conversion of about $71 million in accreted value of our zero coupon convertible preferred stock mandatorily redeemable in 2013, representing the original stated conversion rate of 9.7441 shares of class A common stock for each share of zero coupon convertible preferred stock.

      6.  Purchase of Motorola International’s Common Equity Shares in Companies in Brazil, Peru and Chile. On March 31, 2000, Nextel International entered into a term sheet agreement with Motorola International Development Corporation regarding the terms and conditions under which Nextel International, or some of its subsidiaries, would purchase, for about $78 million in cash, all of Motorola International’s shares in the following companies:

	•	Nextel del Peru, S.A.;
	•	Nextel S.A. (Brazil); and
	•	three SMR companies wholly owned by Motorola International and operating in Chile.

      Consummation of the transactions contemplated by this term sheet agreement is subject to various conditions, including the receipt of all necessary governmental and regulatory approvals. If these transactions are completed, Nextel International would acquire SMR licenses in Chile and increase its equity ownership interest in Nextel del Peru from about 64% to about 95% and in Nextel’s Brazilian operating subsidiary from about 88% to about 92%. We cannot predict whether or when Nextel International and Motorola International will enter into any definitive agreements for the purchase of these shares or whether or when consummation of any of those contemplated purchases might occur.

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C.  Results of Operations.

      The following discussion compares our condensed consolidated financial condition and results of operations for the three-month periods ended March 31, 2000 and 1999, and describes significant factors that could affect our prospective financial condition and results of operations.

      Historical results may not indicate future performance. See “F. Our Forward Looking Statements Are Subject to a Variety of Factors that Could Cause Actual Results to Differ Materially From Current Beliefs.”

      1.  Operating Revenues.

      Operating revenues include service revenues, which consist primarily of charges for airtime usage and monthly network access fees from providing mobile wireless services.

      Domestic operating revenues increased principally as a result of a 60% increase in end-of-period domestic digital subscriber units in service from about 3,152,900 at March 31, 1999 to about 5,056,000 at March 31, 2000. In addition, we experienced an 85% increase in total system minutes of use along with an increase in the average monthly revenue per digital subscriber unit from about $71 during the first quarter of 1999 to about $72 during the first quarter of 2000. The growth in digital subscriber units in service is the result of a number of factors, principally:

	•	expanded network coverage and capacity;
	•	differentiated products and services including instant conferencing capabilities;
	•	the increased number of indirect distribution channels;
	•	increased consumer awareness and acceptance of wireless communications;
	•	pricing plans targeted at particular market segments; and
	•	increased sales force and marketing staff.

      Operating revenues for our international operations increased primarily as a result of a 167% increase in end-of-period digital subscriber units in service for our consolidated international entities, primarily in Brazil and Mexico, from 134,600 at March 31, 1999 to 359,400 at March 31, 2000.

      2.  Cost of Revenues.

      Cost of revenues consists primarily of network operating costs, including site rent and utilities, and interconnection fees assessed by local exchange carriers.

      Domestic cost of revenues increased primarily as a result of a 77% increase in the number of digital switches in service and a 46% increase in digital cell sites and related equipment placed in service from March 31, 1999 to March 31, 2000, as well as increases in airtime usage. Increased airtime usage resulted

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      The increase in international cost of revenues is attributable primarily to an increase in the number of cell sites placed in service from March 31, 1999 to March 31, 2000, as well as increases in international expenses associated with increased airtime usage resulting from additional subscriber units in service.

      3.  Selling, General and Administrative Expenses.

      The increase in selling, general and administrative expenses consisted of an increase in domestic expenses of $162 million and an increase in international expenses of $9 million.

      The increase in selling and marketing expenses primarily reflects increased costs incurred in connection with higher consolidated sales of digital subscriber units including:

	•	$49 million of increased consolidated advertising and marketing expenses, including $8 million relating to international operations, due to aggressive marketing campaigns directed at growing the customer base;
	•	$45 million of increased domestic commissions and residuals earned by indirect dealers and distributors as a result of increased digital subscriber unit sales through, and increased reliance on, indirect distribution channels; and
	•	$10 million of increased losses generated from increased consolidated sales of digital subscriber units and related accessories, including increased losses of $7 million relating to international digital subscriber unit sales.