Nextel Communications 8-K Nextel Reports Strong Third-Quarter 2004 Results

UNITED STATES

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): October 22, 2004 (October 22, 2004)

NEXTEL COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation) 0-19656
(Commission File Number) 36-3939651
(I.R.S. Employer Identification No.)

2001 Edmund Halley Drive, Reston, Virginia
(Address of Principal Executive Offices) 20191
(Zip Code)

Registrants’ Telephone Number, Including Area Code: (703) 433 – 4000

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2 (b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c))

Item 2.02.  Results of Operations and Financial Condition.

     The following information is furnished and 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 October 22, 2004, Nextel issued a press release announcing certain financial and operating results for the third quarter of 2004. A copy of the press release is furnished as Exhibit 99.1 hereto and is incorporated into Item 2.02 of this Form 8-K by reference.

Item 8.01  Other Events

     On October 22, 2004, Nextel announced certain financial and operating results for the third quarter of 2004, including the following financial and operating data:

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

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

	For the nine months ended						For the three months ended
	September 30,						September 30,
	2004			2003			2004			2003
Operating revenues
Service revenues	$	8,768		$	7,194		$	3,053		$	2,599
Handset and accessory revenues		1,022			620			345			288
		9,790			7,814			3,398			2,887
Operating expenses
Cost of service (exclusive of depreciation included below)		1,407			1,218			512			441
Cost of handset and accessory revenues		1,489			1,040			504			415
Selling and marketing		1,557			1,337			528			482
General and administrative		1,551			1,180			531			420
Depreciation and amortization		1,366			1,264			470			429
Operating income		2,420			1,775			853			700
Interest expense		(455	)		(664	)		(146	)		(220	)
Interest income		21			32			6			10
Loss on retirement of debt		(85	)		(139	)		(34	)		(132	)
Realized gain on sale of investments		26			—			—			—
Equity in loss of unconsolidated affiliates and other		8			(37	)		7			11
Income before income tax benefit (provision)		1,935			967			686			369
Income tax benefit (provision)(1)		548			(70	)		(98	)		(21	)
Net income		2,483			897			588			348
Loss on retirement of mandatorily redeemable preferred stock		—			(7	)		—			—
Mandatorily redeemable preferred stock dividends and accretion		(6	)		(55	)		(2	)		(2	)
Income available to common stockholders	$	2,477		$	835		$	586		$	346
Earnings per common share
Basic	$	2.23		$	0.81		$	0.53		$	0.33
Diluted	$	2.16		$	0.79		$	0.52		$	0.32
Weighted average number of common shares outstanding
Basic		1,110			1,030			1,114			1,050
Diluted		1,158			1,060			1,136			1,091

Selected Balance Sheet Data
(in millions)

	September 30,		December 31,
	2004		2003
Cash, cash equivalents and short-term investments	$	1,691	$	1,971
Accounts and notes receivable,net of allowance for doubtful accounts of $71 and $86		1,410		1,276
Property, plant and equipment, net		9,526		9,093
Intangible assets, net		7,216		7,038
Total assets		21,811		20,510
Long-term debt,including current portion		9,126		10,047
Capital lease obligation		—		165
Total liabilities		12,898		14,575
Zero coupon mandatorily redeemable preferred stock		105		99
Stockholders’ equity		8,808		5,836

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Other Data

	For the three months ended
	September 30,			September 30,
	2004			2003
Handsets in service, end of period(in thousands)(2)		14,452			12,329
Net handset additions(in thousands)(2)		550			646
Average monthly minutes of use per handset(3)		790			740
Bad debt expense included in general and administrative(in millions)	$	30		$	20
Bad debt expense as a percentage of operating revenues		0.9	%		0.7	%
Boost Mobile handsets in service, end of period(in thousands)		800			245
Boost Mobile net handset additions(in thousands)(4)		195			102

Capital Expenditures
(in millions)

	For the nine months ended						For the three months ended
	September 30,						September 30,
	2004			2003			2004		2003
Cash paid for capital expenditures, excluding capitalized interest	$	1,838		$	1,131		$	655	$	424
Changes in capital expenditures accrued or unpaid		(61	)		(21	)		4		(21	)
Capital expenditures, excluding capitalized interest		1,777			1,110			659		403
Capitalized interest		7			27			2		7
Total capital expenditures	$	1,784		$	1,137		$	661	$	410

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Condensed Consolidated Statements of Cash Flows
(in millions)

	For the nine months ended						For the three months ended
	September 30,						September 30,
	2004			2003			2004			2003
Cash flows from operating activities
Net income	$	2,483		$	897		$	588		$	348
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,366			1,264			470			429
Change in accrued interest on short-term investments		1			(9	)		7			(3	)
Net tax benefit from the release of valuation allowance		(901	)		—			(175	)		—
Other		42			242			96			104
Net cash provided by operating activities		2,991			2,394			986			878
Cash flows from investing activities
Cash paid for capital expenditures, including capitalized interest		(1,845	)		(1,158	)		(657	)		(431	)
Payments for licenses, acquisitions, investments and other, net of cash acquired		(341	)		(263	)		(98	)		(25	)
Proceeds from sale of investments		77			—			—			—
Net changes in short-term investments		461			(179	)		302			(45	)
Net cash used in investing activities		(1,648	)		(1,600	)		(453	)		(501	)
Cash flows from financing activities
Repayments under long-term credit facility		(1,620	)		(148	)		(1,481	)		(49	)
Borrowings under long-term credit facility		1,000			69			1,000			—
Purchase and retirement of debt securities and mandatorily redeemable preferred stock		(827	)		(2,466	)		—			(1,759	)
Proceeds from issuance of debt securities		494			1,983			—			1,983
Proceeds from issuance of stock		129			605			25			569
Repayments under capital lease obligation		(9	)		(34	)		—			(9	)
Payment for capital lease buy-out		(156	)		(54	)		—			—
Mandatorily redeemable preferred stock dividends		—			(57	)		—			(15	)
Purchase of treasury stock		(141	)		—			(141	)		—
Debt issue costs and other		(31	)		(3	)		(30	)		(2	)
Net cash (used in) provided by financing activities		(1,161	)		(105	)		(627	)		718
Net increase (decrease) in cash and cash equivalents		182			689			(94	)		1,095
Cash and cash equivalents, beginning of period		806			1,846			1,082			1,440
Cash and cash equivalents, end of period	$	988		$	2,535		$	988		$	2,535

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

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

			Retirements and		Debt for debt
	June 30,		repayments of		exchange			September 30,
	2004		principal		and other			2004
9.375% senior serial redeemable notes due 2009(a)	$	1,273			$	(450	)(c)	$	823
5.25% convertible senior notes due 2010		607							607
9.5% senior serial redeemable notes due 2011, including a deferred premium of $27 and $24		715				(70	)(c)		645
6.875% senior serial redeemable notes due 2013, including a deferred premium of $0 and $3 and net of unamortized discount of $16 and $48		697				521	(c)		1,218
5.95% senior serial redeemable notes due 2014, net of unamortized discount of $6 and $6		494							494
7.375% senior serial redeemable notes due 2015, net of unamortized discount of $3 and $3		2,134							2,134
Bank credit facility(b)		3,665		1,481		1,000			3,184
Other		22		1		—			21
Total long-term debt, including current portion	$	9,607	$	1,482	$	1,001		$	9,126
Zero coupon convertible preferred stock mandatorily redeemable 2013	$	103	$	—	$	2		$	105

(a)	On November 15, 2004, we will redeem the entire outstanding aggregate principal amount of our 9.375% senior notes at a redemption price equal to 104.688% of the then-outstanding principal amount.
(b)	During the third quarter 2004, we amended our bank credit facility to provide for a new $4,000 million revolving credit facility that replaced our then-existing revolving credit facility and one of our existing term loans. We immediately drew down $1,000 million of this new facility and used $476 million of cash on hand to repay the entire outstanding balance of one of our existing term loans in the amount of $1,360 million and our outstanding revolving loan in the amount of $116 million. We also made scheduled principal repayment of $5 million on our other existing term loan.
(c)	During the third quarter 2004, we exchanged $450 million in principal amount of our 9.375% senior notes and $67 million in principal amount of our 9.5% senior notes for a total of $550 million in principal amount of new 6.875% senior notes issued at a $33 million discount to their principal amount. As a result, the $3 million of the deferred premium associated with the 9.5% senior notes is now associated with the 6.875% senior notes and will be recognized as an adjustment to interest expense over the remaining life of the 6.875% senior notes.

NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited

Notes to Financial Data

1)	For the three months ended September 30, 2004, our income tax provision was $98 million consisting of an income tax provision of $273 million net of a benefit of $175 million. The benefit is derived primarily from the release of the portion of the tax valuation allowance attributable to the estimated utilization of capital loss carryforwards prior to their expiration. For the nine months ended September 30, 2004, the income tax benefit was $548 million consisting of an income tax provision of $353 million net of a $901 million benefit for the release of the tax valuation allowance.
2)	Handsets in service, end of period, and net handset additions do not include handsets attributable to Boost Mobile branded service. Net handset additions represents gross handsets activated during the period less handsets deactivated. These net handset additions reflect a customer churn rate of about 1.5% for the third quarter 2004 and about 1.4% for the third 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.
3)	Average monthly minutes of use per handset do not include minutes attributable to Boost Mobile branded service.
4)	Boost Mobile net handset additions represents gross Boost Mobile handsets activated during the period less Boost Mobile handsets deactivated.

Item 9.01  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 furnished with this Form 8-K pursuant to Item 2.02.

Exhibit No.	Exhibit Description
99.1	Press Release, dated October 22, 2004

     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.
/s/ Gary D. Begeman
By:	Gary D. Begeman
	Vice President and Deputy General Counsel

Date: October 22, 2004

EXHIBIT INDEX

Exhibit No.	Exhibit Description
99.1	Press Release, dated October 22, 2004