Nextel Communications 8-K Nextel Reports Record Second Quarter 2003 Results

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 8-K

Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 16, 2003

NEXTEL COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)

Delaware	0-19656	36-3939651
(State or other jurisdiction	(Commission	(I.R.S. Employer
of incorporation)	File Number)	Identification No.)

2001 Edmund Halley Drive, Reston, Virginia	20191
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (703) 433-4000

(Former name or former address, if changed since last report)

Item 5. Other Events and Regulation FD Information.

On July 16, 2003, Nextel announced certain financial and operating results for the second quarter of 2003, including:

• a total liquidity position of about $3.7 billion as of June 30, 2003 available to fund our operations, consisting of:

• about $2.4 billion of cash, cash equivalents and short-term investments; and

• about $1.3 billion of borrowings available pursuant to the revolving loan commitment under our bank credit facility, which will be reduced by $38 million per quarter through March 31, 2004, and, will be reduced more significantly starting April 1, 2004;

• retirements of debt and mandatorily redeemable preferred stock, as further described below, for approximately $131 million in cash during the quarter;

• approximately 24.5 billion total system minutes of use on the Nextel National Network for the quarter; and

• the following financial and operating data:

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Consolidated Statements of Operations
(in millions, except per share amounts)

			For the six months ended						For the three months ended
			June 30,						June 30,
			2003			2002			2003			2002
Operating revenues
	Service revenues		$	4,595		$	3,863		$	2,385		$	2,032
	Handset and accessory revenues(1)			332			248			171			122
				4,927			4,111			2,556			2,154
Operating expenses
	Cost of service (exclusive of depreciation included below)			777			717			408			366
	Cost of handset and accessory revenues			625			524			315			219
	Selling and marketing			855			726			444			380
	General and administrative			760			742			385			373
	Restructuring and impairment charges			—			35			—			—
	Depreciation and amortization			835			787			422			405
Operating income				1,075			580			582			411
	Interest expense			(444	)		(542	)		(219	)		(269	)
	Interest income			22			31			10			16
	(Loss) gain on retirement of debt, net of debt conversion cost of
		$0, $47, $0 and $47		(7	)		139			(2	)		139
	Equity in losses of NII Holdings — pre-bankruptcy emergence			—			(226	)		—			(99	)
	Equity in losses of unconsolidated affiliates, net(2)			(48	)		(49	)		(35	)		(24	)
	Reduction in fair value of investment			(2	)		(35	)		(2	)		(35	)
	Other, net			2			(1	)		2			(1	)
Income (loss) before income tax provision				598			(103	)		336			138
	Income tax provision			(49	)		(365	)		(27	)		(15	)
Net income (loss)				549			(468	)		309			123
	(Loss) gain on retirement of mandatorily redeemable preferred stock			(7	)		264			(5	)		264
	Mandatorily redeemable preferred stock dividends and accretion			(53	)		(125	)		(23	)		(62	)
Income (loss) available to common stockholders			$	489		$	(329	)	$	281		$	325
Earnings (loss) per common share
	Basic		$	0.48		$	(0.40	)	$	0.27		$	0.39
	Diluted		$	0.47		$	(0.40	)	$	0.27		$	0.37
Weighted average number of common shares outstanding
	Basic			1,020			821			1,029			841
	Diluted			1,042			821			1,052			927

Selected Balance Sheet Data
(in millions)

	June 30,		December 31,
	2003		2002
Cash, cash equivalents and short-term investments	$	2,420	$	2,686
Accounts and notes receivable,net of allowance for doubtful accounts of $104 and $127		1,162		1,077
Property, plant and equipment, net		8,829		8,918
Intangible assets, net		6,918		6,607
Total assets		21,537		21,484
Long-term debt,including current portion		11,737		12,278
Capital lease and finance obligations,including current portion		194		272
Total liabilities		17,248		17,623
Mandatorily redeemable preferred stock		861		1,015
Stockholders’ equity		3,428		2,846

1

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

Unaudited

Other Data

	For the three months ended
	June 30,			March 31,
	2003			2003
Handsets in service, end of period(in thousands)(3)		11,683			11,092
Net handset additions(in thousands)(3)		591			480
Average monthly minutes of use per handset		720			650
Bad debt expense included in general and administrative(in millions)	$	25		$	56
Bad debt expense as a percentage of operating revenues		1.0	%		2.4	%

Capital Expenditures

(in millions)

		For the six months ended					For the three months ended
		June 30,					June 30,
		2003		2002			2003		2002
Cash paid for capital expenditures, excluding capitalized interest		$	707	$	1,016		$	332	$	429
Changes in capital expenditures accrued or unpaid			—		(94	)		70		19
	Capital expenditures, excluding capitalized interest		707		922			402		448
Capitalized interest			20		25			9		13
	Total capital expenditures	$	727	$	947		$	411	$	461

Condensed Consolidated Statements of Cash Flows

(in millions)

				For the six months ended						For the three months ended
				June 30,						June 30,
				2003			2002			2003			2002
Cash flows from operating activities
	Net income (loss)			$	549		$	(468	)	$	309		$	123
	Adjustments to reconcile net income (loss) to net cash provided by
		operating activities:
		Depreciation and amortization			835			787			422			405
		Change in accrued interest on short-term investments			(6	)		(13	)		(3	)		(6	)
		Other			138			603			(25	)		(85	)
			Net cash provided by operating activities		1,516			909			703			437
Cash flows from investing activities
	Cash paid for capital expenditures, including capitalized interest				(727	)		(1,041	)		(341	)		(442	)
	Payments for licenses, acquisitions and other, net of cash acquired				(238	)		(317	)		(24	)		(65	)
	Cash relinquished as a result of deconsolidation of NII Holdings				—			(250	)		—			—
	Net changes in short-term investments and other				(134	)		(139	)		(56	)		(76	)
			Net cash used in investing activities		(1,099	)		(1,747	)		(421	)		(583	)
Cash flows from financing activities
	Purchase and retirement of debt securities and mandatorily redeemable preferred stock				(707	)		(295	)		(137	)		(295	)
	Repayments under capital lease and finance obligations				(25	)		(49	)		(9	)		(21	)
	Repayments under long-term credit facility				(99	)		—			(50	)		—
	Borrowings under long-term credit facility				69			—			—			—
	Payment for capital lease buy-out				(54	)		—			—			—
	Mandatorily redeemable preferred stock dividends				(42	)		—			(27	)		—
	Other				35			—			25			(1	)
			Net cash used in financing activities		(823	)		(344	)		(198	)		(317	)
Net (decrease) increase in cash and cash equivalents					(406	)		(1,182	)		84			(463	)
Cash and cash equivalents, beginning of period					1,846			2,481			1,356			1,762
Cash and cash equivalents, end of period				$	1,440		$	1,299		$	1,440		$	1,299

2

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Long-Term Debt and Mandatorily Redeemable Preferred Stock Data
(dollars in millions)

				Book and
		March 31,		principal value					June 30,
		2003		of retirements		Other			2003
10.65% senior redeemable discount notes due 2007		$	691	$	15	$	—		$	676
9.75% senior serial redeemable discount notes due 2007			932		20		—			912
4.75% convertible senior notes due 2007			284		—		—			284
9.95% senior serial redeemable discount notes due 2008			1,301		8		—			1,293
12% senior serial redeemable notes due 2008, net of unamortized discount of $3 and $3			271		—		—			271
9.375% senior serial redeemable notes due 2009			1,670		—		—			1,670
5.25% convertible senior notes due 2010			607		—		—			607
9.5% senior serial redeemable notes due 2011, including a fair value hedge adjustment of $58 at March 31, 2003 and $65 at June 30, 2003			922		—		7	(a)		929
6% convertible senior notes due 2011			608		—		—			608
Bank credit facility			4,520		—		(50	)(b)		4,470
Other			17		—		—			17
	Total long-term debt, including current portion	$	11,823		43	$	(43	)	$	11,737
13% series D exchangeable preferred stock mandatorily redeemable 2009(d)		$	463		88	$	—		$	375
11.125% series E exchangeable preferred stock mandatorily redeemable 2010			392		—		—			392
Zero coupon convertible preferred stock mandatorily redeemable 2013			92		—		2	(c)		94
	Total mandatorily redeemable preferred stock	$	947		88	$	2		$	861
Total retirements				$	131

(a) Represents the non-cash increase to the fair value hedge during the quarter.
(b) Represents scheduled principal payment on term loans.
(c) Represents accretion of unamortized dividends.
(d) On July 15, 2003, we redeemed all outstanding shares of our 13% series D exchangeable preferred stock.

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Notes to Financial Data

(1) In accordance with the Securities and Exchange Commission’s Staff Accounting Bulletin, or SAB, No. 101, “Revenue Recognition in Financial Statements,” we recognize handset sales as revenues on a straight-line basis over 3.5 years, the estimated customer relationship period. Costs of handset sales are recognized over the same period in amounts equivalent to the revenues recognized from the handset sales. The handset costs in excess of the revenues (handset subsidies) generated from handset sales are expensed immediately as these amounts exceed our minimum contractual revenues. The following is a summary of handset and accessory revenues.

	For the six months ended						For the three months ended
	June 30,						June 30,
	2003			2002			2003			2002
	(in millions)						(in millions)
Current period handset and accessory sales	$	502		$	413		$	252		$	230
Net effect of SAB No. 101 handset deferrals		(170	)		(165	)		(81	)		(108	)
Handset and accessory revenues	$	332		$	248		$	171		$	122

(2) Our equity in losses of unconsolidated affiliates, net represents our proportionate share of the operating results of NII Holdings, Inc. and Nextel Partners, Inc. in accordance with the equity method of accounting based upon their preliminary operating results provided to us for the three-month and six-month periods ended June 30, 2003.

(3) Net handset additions represent gross handsets activated during the period less handsets deactivated. Net handset additions and handsets in service, end of period, does not include handsets attributable to test markets, such as the Boost Mobile program. These net handset additions reflect a customer churn rate of about 1.6% for the second quarter 2003 and about 1.9% for the first quarter 2003. The customer churn rate is an indicator of customer retention and represents the monthly percentage of the customer base that disconnects from service. Customer churn is calculated by dividing the number of handsets disconnected from commercial service during the period by the average number of handsets in commercial service during the period. Churn is not a measurement under accounting principles generally accepted in the United States and may not be similar to churn calculations of other companies.

4

Item 7. Financial Statements and Exhibits.

(a) Financial Statements of business Acquired
Not applicable

(b) Pro Forma Financial Information
Not applicable

(c) Exhibits

The following exhibit is filed with this report:

Exhibit No	Exhibit Description
99.1	Press Release, dated July 16, 2003

Item 9. Regulation FD Disclosure (Information Being Furnished Under Item 12).

     In accordance with the Securities and Exchange Commission Release No.33-8216, the following information, which is intended to be furnished under Item 12, “Results” of Operations and Financial Condition,” is instead being furnished under Item 9, “ Regulation FD Disclosure.” This information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

     On July 16, 2003 Nextel issued a press release announcing certain financial and operating results for the second quarter of 2003. A copy of the press release is filed as Exhibit 99.1 hereto and is incorporated into Item 9 of this form 8-K by reference.

SIGNATURES

     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.

Date: July 16, 2003	By:	/s/ Leonard J. Kennedy
		Leonard J. Kennedy
		Senior Vice President and General Counsel

EXHIBIT INDEX

Exhibit No	Exhibit Description
99.1	Press Release, dated July 16, 2003