- --------------------------------------------------------------------------------
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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 JUNE 30, 1998

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: 333-26649
------------------------

NEXTEL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1191 SECOND AVENUE, SUITE 1600, SEATTLE, WA 98101
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (206) 749-8000
------------------------

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:

NUMBER OF SHARES OUTSTANDING
TITLE OF CLASS ON AUGUST 1, 1998
-------------- -----------------

Common Stock, no par value 36,500,000

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2

NEXTEL INTERNATIONAL, INC.

INDEX

PAGE NO.
--------

PART I FINANCIAL INFORMATION.
Item 1. Financial Statements--Unaudited................... 3
Condensed Consolidated Balance Sheets--As of June 30,
1998 and December 31, 1997............................ 3
Condensed Consolidated Statements of Operations--For
the Three Months Ended June 30, 1998 and 1997......... 4
Condensed Consolidated Statements of Operations--For
the Six Months Ended June 30, 1998 and 1997........... 5
Condensed Consolidated Statement of Stockholders'
Equity--For the Six Months Ended June 30, 1998........ 6
Condensed Consolidated Statements of Cash Flows--For
the Six Months Ended June 30, 1998 and 1997........... 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................................. 22
Item 6. Exhibits and Reports on Form 8-K.................. 22

2
3

PART I

ITEM 1. FINANCIAL STATEMENTS -- UNAUDITED.

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
UNAUDITED

1998 1997
---------- ----------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $33,409 is
restricted as of June 30, 1998)....................... $ 333,570 $ 159,790
Marketable securities.................................. 2,638 128,560
Accounts receivable, less allowance for doubtful
accounts of $3,033 and $1,003......................... 7,889 3,838
Subscriber equipment inventory......................... 23,596 1,749
Prepaid and other...................................... 21,692 15,884
---------- ----------
Total current assets.............................. 389,385 309,821
PROPERTY, PLANT AND EQUIPMENT, net of accumulated
depreciation of $6,978 and $1,992......................... 407,022 136,210
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less
equity in net losses of $2,195 and $7,526................. 101,777 106,489
INTANGIBLE ASSETS, net of accumulated amortization of
$28,625 and $14,664....................................... 581,296 526,000
INVESTMENTS AND OTHER ASSETS................................ 165,353 44,518
---------- ----------
$1,644,833 $1,123,038
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other........... $ 93,758 $ 76,048
Due to parent.......................................... -- 8,254
Notes payable and current portion of long-term debt.... 2,948 2,211
---------- ----------
Total current liabilities......................... 96,706 86,513
LONG-TERM DEBT.............................................. 1,111,167 597,809
DEFERRED INCOME TAXES....................................... 112,140 120,777
---------- ----------
Total liabilities...................................... 1,320,013 805,099
---------- ----------
MINORITY INTEREST........................................... 28,099 21,910
STOCKHOLDERS' EQUITY:
Series A exchangeable redeemable preferred stock (1,250
shares authorized, $10.00 par value, 988.86 shares
issued and outstanding)............................... 98,886 --
Series B redeemable preferred stock (2,500 shares
authorized, $10.00 par value, no shares issued and
outstanding).......................................... -- --
Common stock (73,000,000 shares authorized, no par
value, 36,500,000 shares issued and outstanding)...... 395,428 395,428
Accumulated deficit.................................... (177,068) (102,689)
Unrealized gain (loss) on investments.................. (11,613) 3,290
Cumulative translation adjustment...................... (8,912) --
---------- ----------
Total stockholders' equity........................ 296,721 296,029
---------- ----------
$1,644,833 $1,123,038
========== ==========

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

3
4

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED

1998 1997
----------- -----------

REVENUES
Radio service revenue.................................. $ 7,238 $ 1,973
Equipment sales and maintenance........................ 1,951 531
----------- -----------
9,189 2,504
----------- -----------
OPERATING EXPENSES
Cost of radio service revenue.......................... 2,268 420
Cost of equipment sales and maintenance................ 1,176 300
Selling, general and administrative.................... 24,752 6,245
Depreciation and amortization.......................... 10,723 4,110
----------- -----------
38,919 11,075
----------- -----------
OPERATING LOSS.............................................. (29,730) (8,571)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................ 5,081 6,168
Interest expense....................................... (25,417) (16,762)
Loss from equity method investments.................... (882) (2,015)
Other, net............................................. (3,359) 310
Minority interest...................................... 2,319 910
----------- -----------
(22,258) (11,389)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (51,988) (19,960)
INCOME TAX BENEFIT.......................................... 6,178 1,622
----------- -----------
NET LOSS.................................................... $ (45,810) $ (18,338)
----------- -----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED................ $ (1.26) $ (0.50)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 36,500,000 36,500,000
=========== ===========

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

4
5

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED

1998 1997
----------- -----------

REVENUES
Radio service revenue.................................. $ 13,376 $ 3,153
Equipment sales and maintenance........................ 4,371 811
----------- -----------
17,747 3,964
----------- -----------
OPERATING EXPENSES
Cost of radio service revenue.......................... 4,767 1,013
Cost of equipment sales and maintenance................ 2,229 465
Selling, general and administrative.................... 39,979 10,296
Depreciation and amortization.......................... 19,915 6,691
----------- -----------
66,890 18,465
----------- -----------
OPERATING LOSS.............................................. (49,143) (14,501)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income........................................ 9,405 8,966
Interest expense....................................... (44,385) (22,353)
Loss from equity method investments.................... (2,196) (3,882)
Other, net............................................. (2,161) 153
Minority interest...................................... 3,549 1,347
----------- -----------
(35,788) (15,769)
----------- -----------
LOSS BEFORE INCOME TAX BENEFIT.............................. (84,931) (30,270)
INCOME TAX BENEFIT.......................................... 10,552 2,121
----------- -----------
NET LOSS.................................................... $ (74,379) $ (28,149)
----------- -----------
NET LOSS PER COMMON SHARE, BASIC AND DILUTED................ $ (2.04) $ (0.77)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING........ 36,500,000 36,500,000
=========== ===========

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

5
6

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED

SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
----------------- --------------- --------------------- ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT DEFICIT
------ -------- ------ ------ ---------- -------- -----------

BALANCE, January 1, 1998...... -- -- -- -- 36,500,000 $395,428 $(102,689)
Issuance of Series A
preferred stock........ 988.86 $98,886 -- -- -- -- --
Unrealized loss on
investments............ -- -- -- -- -- -- --
Cumulative translation
adjustment............. -- -- -- -- -- -- --
Net loss................. -- -- -- -- -- -- (74,379)
------ ------- -- -- ---------- -------- ---------
BALANCE, June 30, 1998........ 988.86 $98,886 36,500,000 $395,428 $(177,068)
====== ======= == == ========== ======== =========

ACCUMULATED OTHER
COMPREHENSIVE INCOME
----------------------------
UNREALIZED CUMULATIVE
GAIN (LOSS) ON TRANSLATION
INVESTMENTS ADJUSTMENT TOTAL
-------------- ----------- --------

BALANCE, January 1, 1998...... $ 3,290 -- $296,029
Issuance of Series A
preferred stock........ -- -- 98,886
Unrealized loss on
investments............ (14,903) -- (14,903)
Cumulative translation
adjustment............. -- $(8,912) (8,912)
Net loss................. -- -- (74,379)
-------- ------- --------
BALANCE, June 30, 1998........ $(11,613) $(8,912) $296,721
======== ======= ========

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

6
7

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS)
UNAUDITED

1998 1997
--------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................... $ (74,379) $(28,149)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization..................... 19,915 6,691
Interest accretion on long-term debt, net of
capitalization.................................. 41,909 21,558
Loss from equity method investments............... 2,196 3,882
Deferred income taxes............................. (12,896) (1,295)
Minority interest................................. (3,549) (1,347)
Change in current assets and liabilities:
Accounts receivable.......................... (2,574) 684
Subscriber equipment inventory............... (18,763) 34
Prepaid and other............................ (4,300) (2,418)
Accounts payable, accrued expenses and
other...................................... 19,215 (2,703)
Prepaid value added taxes and other............... (27,464) 2,205
--------- --------
Net cash used in operating activities.................. (60,690) (858)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................... (217,759) (15,524)
Purchase of marketable securities...................... (6,812) (69,962)
Proceeds from sale of marketable securities............ 131,222 --
Business acquisitions, net of cash acquired............ (67,251) --
Investments in unconsolidated subsidiaries............. (61,799) (48,990)
Other.................................................. -- (3,806)
--------- --------
Net cash used in investing activities.................. (222,399) (138,282)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net.............................. (8,254) (23,556)
Capital contributions from parent...................... -- 6,366
Capital contributions from minority stockholders....... 6,164 --
Proceeds from issuance of Series A preferred stock to
parent................................................ 8,254 --
Proceeds from issuance of warrants..................... -- 14,800
Net proceeds from issuance of long-term debt........... 452,045 467,578
Repayment of long-term debt............................ (1,340) --
--------- --------
Net cash provided by financing activities.............. 456,869 465,188
--------- --------
INCREASE IN CASH AND CASH EQUIVALENTS....................... 173,780 326,048
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 159,790 53,029
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 333,570 $379,077
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of $3,594 capitalized in
1998.................................................. $ -- $ --
========= ========
Cash paid for income taxes............................. $ 1,685 $ --
========= ========

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

7
8

NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
UNAUDITED

NOTE 1 -- BASIS OF PRESENTATION

The condensed consolidated interim financial statements of Nextel
International, Inc. and subsidiaries ("Nextel International" or the "Company"),
an indirect wholly owned subsidiary of Nextel Communications, Inc. ("Nextel
Communications"), 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
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
Operating results for the interim periods are not necessarily indicative of
results for an entire year.

The accounts of the Company's consolidated foreign subsidiaries and foreign
subsidiaries accounted for under the equity method are presented utilizing
accounts 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.

Certain prior period amounts have been reclassified to conform with the
current presentation.

SUPPLEMENTAL CASH FLOW INFORMATION: In March 1998, a wholly owned
subsidiary of Nextel Communications transferred to the Company 6,777,778 Class D
Shares of Clearnet Communications Inc. ("Clearnet") with a fair value of $90.6
million at the date of transfer in exchange for 906.32 shares of the Company's
Series A Exchangeable Redeemable Preferred Stock, $10 par value per share (the
"Series A Preferred Stock"). See Note 3.

RESTRICTED CASH AND CASH EQUIVALENTS: As of June 30, 1998, approximately
$33.4 million of cash and cash equivalents was restricted for use as equity
investments under certain of the Company's financing agreements and as equipment
purchases under certain infrastructure purchase contracts.

COMPREHENSIVE INCOME: Effective January 1, 1998, the Company adopted
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") that establishes new rules for the reporting and display
of comprehensive income and its components. Adoption of SFAS 130 requires
unrealized gains or losses on the Company's available-for-sale securities and
foreign currency translation adjustments be included in other comprehensive
income. The components of comprehensive income, net of related tax, are as
follows (dollars in thousands):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1998 1997 1998 1997
-------- -------- -------- --------

Net loss.................................... $(45,810) $(18,338) $(74,379) $(28,149)
Other comprehensive income:
Unrealized gain (loss) on investments, net
of tax................................. (21,414) 2,852 (14,903) 1,167
Foreign currency translation loss......... (5,442) -- (8,912) --
-------- -------- -------- --------
Comprehensive income........................ $(72,666) $(15,486) $(98,194) $(26,982)
======== ======== ======== ========

ESMR NETWORK EQUIPMENT SALES AND RELATED COSTS: The loss generated from the
sale of subscriber units used in the Company's digital enhanced specialized
mobile radio ("ESMR") network primarily results from the Company's subsidy of
digital subscriber units and represents marketing costs for the Company's ESMR
network. Equipment sales revenue and related cost of sales digital subscriber
units and related digital

8
9
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)

accessories, including current period order fulfillment and installation related
expenses are classified within selling, general and administrative expenses as
follows:

THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------

Equipment sales.......................................... $1,496 $1,496
Cost of equipment sales.................................. 1,865 1,865
------ ------
$ (369) $ (369)
====== ======

NEW ACCOUNTING STANDARD: In June 1998, the Financial Accounting Standard
Board issued Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133"). This statement
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that a company recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for fiscal quarters of
fiscal years beginning after June 15, 1999. The Company has not evaluated the
effects of this change on its financial position or results of operations.

NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION

NEXTEL BRAZIL: On January 30, 1997, Nextel Communications purchased 81% of
the issued and outstanding capital stock of Wireless Ventures of Brazil, Inc.
("WVB") from Telcom Ventures, Inc. and affiliates (collectively "Telcom
Ventures") in exchange for $186.3 million in Nextel Communications Class A
Common Stock. Nextel Communications' investment in WVB was simultaneously
contributed to the Company, and WVB changed its name to McCaw International
(Brazil), Ltd. ("Nextel Brazil").

MCS: On September 26, 1997, Nextel S.A., a subsidiary of Nextel Brazil
that is the indirect holder of substantially all of Nextel Brazil's specialized
mobile radio channels and related operating assets in Brazil, acquired 49% of
the capital stock of MCS Radio Telefonia, Ltda. ("MCS"), an indirect wholly
owned subsidiary of Motorola, Inc. ("Motorola"), an option to purchase the
remaining 51% of the capital stock of MCS upon receipt of the approval of the
applicable Brazilian regulatory authorities and certain assets of MCS. Upon the
approval of the Brazilian regulatory authorities, the option for the remaining
51% will be exercisable for approximately $3.2 million. In exchange, Motorola,
through a wholly owned subsidiary, acquired 5% of the outstanding capital stock
of Nextel S.A. Immediately subsequent to the acquisition, the Company, through
its 81% equity interest in Nextel Brazil and Nextel Brazil's 95% equity interest
in Nextel S.A., held a 77% equity interest in Nextel S.A.

NEXTEL MEXICO: During the year ended December 31, 1997, through a series
of transactions, the Company increased its equity interest in Comunicaciones
Nextel de Mexico S.A., de C.V. ("Nextel Mexico") from 30.1% to 100% for
consideration equal to approximately $132.2 million.

NEXTEL ARGENTINA: On May 6, 1997, the Company contributed its 100%
ownership interest in Nextel Argentina S.R.L. ("Nextel Argentina") into Nextel
International (Argentina), Ltd. (the "Argentina Joint Venture"), a joint venture
between the Company and Wireless Ventures of Argentina, L.L.C. ("WVA"). WVA's
contribution included all of the outstanding common stock of a paging company
and two companies that own SMR licenses in Argentina (collectively the "WVA
Entities"). During 1997, Nextel Argentina and the WVA Entities were merged, with
Nextel Argentina being the surviving entity (the merged entities are herein
collectively referred to as "Nextel Argentina" subsequent to the formation of
the Argentina Joint Venture). The Company had a 50% voting interest, shared
equally in the profits and losses of the Argentina Joint Venture, and accounted
for its investment in the Argentina Joint Venture under the equity method of
accounting.

9
10
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
On January 30, 1998, the Company acquired the remaining 50% interest in the
Argentina Joint Venture from WVA for a purchase price of $46 million in cash. As
a result of the purchase, the Company increased its effective ownership interest
in Nextel Argentina from 50% to 100%. The acquisition is accounted for as a
purchase and, accordingly, the Company consolidated the accounts of Nextel
Argentina commencing February 1, 1998. The carrying value of the Company's
investment in Nextel Argentina as of January 30, 1998 was approximately $63.0
million and was allocated to the net assets acquired based on their preliminary
estimated fair values, including licenses and goodwill, which are being
amortized over their estimated useful lives of 20 years.

NEXTEL PERU: On January 29, 1998, the Company acquired a 70.1% interest in
Comunicaciones Nextel del Peru S.A. ("Nextel Peru," formerly known as Valorcom
S.A.), a Peruvian wireless telecommunications company, for $27.9 million, which
was paid in the form of capital contributions from January 29, 1998 to July 30,
1998. Nextel Peru, through its subsidiaries, holds licenses to operate 138 SMR
channels in the greater Lima area. Motorola, through an indirect wholly owned
subsidiary, holds a 19.9% interest in Nextel Peru. The acquisition is accounted
for as a purchase and, accordingly, the Company consolidated the accounts of
Nextel Peru commencing February 1, 1998. The purchase price was allocated to the
net assets acquired based on their preliminary estimated fair values, including
licenses and goodwill, which are being amortized over their estimated useful
lives of 20 years. Nextel Peru's historical operations are insignificant
relative to the results of the Company.

NEXTEL PHILIPPINES: In February 1998, the Company reached an agreement in
principle with the three groups of local shareholders of Infocom Communications
Network, Inc. ("Nextel Philippines"), including the Gotesco group (the "Gotesco
Group" and together with the other local shareholders, the "Philippines
Shareholders"), and finalized such agreements in April 1998 (the "Philippines
Partner Agreements"). Pursuant to the Philippines Partner Agreements (i) the
Philippines Shareholders agreed to vote for the election of new, professional
senior management of Nextel Philippines; (ii) the Company purchased existing
shareholder loans of the Philippines Shareholders totaling approximately $19.6
million, which loans bear interest at 18% per annum and are convertible into
equity of Nextel Philippines; (iii) the Company may, at its option, fund Nextel
Philippines' future capital needs, estimated to be $50 million for fiscal year
1998, pursuant to loans that, at the option of the Company, may be converted
into equity of Nextel Philippines; (iv) the Gotesco Group obtained the right to
put its 20% interest to the Company for approximately $9.4 million, beginning in
January 1999 (the "Gotesco Put"); and (v) the Company has the right to call the
Gotesco Group's 20% interest for approximately $11.6 million, if the Gotesco
Group does not exercise the Gotesco Put. The ability of the Company to convert
shareholders loans into equity, satisfy the Gotesco Put or call the Gotesco
Group's 20% interest is subject to applicable Philippines foreign ownership
rules.

10
11
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- SIGNIFICANT TRANSACTIONS; PRO FORMA INFORMATION -- (CONTINUED)
in discussion with several Philippine groups regarding the purchase of an equity
interest in Nextel Philippines, including the purchase of the shares covered by
the Gotesco Put and the Gotesco Put Acceleration Agreement. Pursuant to the
Gotesco Put Acceleration Agreement, the Gotesco Group pledged its shares of
Nextel Philippines to the Company, delivered such shares to an escrow agent and
granted irrevocable proxies covering the voting rights on such shares to third
parties selected mutually by the Company and the Gotesco Group. As of July 31,
1998 the Company had made the two payments of $500,000 to the Gotesco Group due
upon execution and delivery of the Gotesco Put Acceleration Agreement and upon
the conclusion of the Nextel Philippines annual shareholders meeting.

J-COM: On March 17, 1998, the Company purchased a 21% equity interest in
J-Com Co., Ltd., an ESMR provider in Japan ("J-Com"), for a purchase price of
Y77.2 million (approximately $593,000 based on the exchange rate on the date of
purchase) (the "Japan Acquisition"). The Company also provided a shareholder
loan of Y4.1 billion (approximately $31.5 million based on the exchange rate on
the date of purchase) to J-Com. J-Com has a contractual right to provide service
in Japan under a sublicense covering more than 125 million people. DJSMR
Business Partnership, a Japanese partnership in which an affiliate of Motorola
is the majority partner, holds a 49% equity interest in J-Com. J-Com's
historical operations are insignificant relative to the results of the Company.
The Company's investment in J-Com is accounted for under the equity method.

PRO FORMA INFORMATION: The following summarized pro forma (unaudited)
information assumes the Nextel Brazil, MCS, Nextel Mexico and Nextel Argentina
transactions had occurred on January 1, 1997 (dollars in thousands, except for
share data).

THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1997 1997
------------ -----------

Revenues................................................... $ 6,437 $ 12,317
=========== ===========
Net loss................................................... $ (20,792) $ (35,882)
=========== ===========
Net loss per share......................................... $ (0.57) $ (0.98)
=========== ===========
Weighted average shares outstanding........................ 36,500,000 36,500,000
=========== ===========

The above amounts consolidate the historical results of Nextel Brazil, MCS,
Nextel Mexico and Nextel Argentina prior to the acquisitions and reflect
adjustments for the recognition of the minority ownership interests and the
amortization of licenses and goodwill. Pro forma information for the three and
six months ended June 30, 1998 does not differ materially from historical
results. The pro forma information is not necessarily indicative of the results
that would actually have occurred had the transactions been consummated on the
date indicated, nor is it necessarily indicative of future operating results of
the Company.

NOTE 3 -- FINANCING ARRANGEMENTS

MARCH 1998 OFFERING: On March 12, 1998, the Company completed a private
placement offering (the "March 1998 Offering") of its 12 1/8% Senior Discount
Notes due 2008 (the "March 1998 Notes"). The March 1998 Offering generated
aggregate net proceeds to the Company of approximately $387 million. The March
1998 Notes are noncallable for five years and require no cash interest payments
for the first five years. On August 4, 1998, the Company commenced an exchange
offer (the "Exchange Offer") for the March 1998 Notes pursuant to a registration
statement declared effective by the Commission on such date. The Exchange Offer
is scheduled to expire on September 2, 1998 and the exchange is expected to be
consummated as soon as

11
12
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- FINANCING ARRANGEMENTS -- (CONTINUED)
practicable thereafter. The Exchange Offer is intended to satisfy the Company's
obligations under a registration rights agreement entered into between the
Company and the initial purchasers of the March 1998 Notes on behalf of the
holders of the March 1998 Notes.

ISSUANCE OF PREFERRED STOCK: On March 12, 1998, in connection with the
March 1998 Offering, a wholly owned subsidiary of Nextel Communications
transferred to the Company 6,777,778 Class D Shares of Clearnet in exchange for
906.32 shares of the Company's Series A Preferred Stock. As a result of such
transaction (the "Clearnet Transaction"), the Company currently owns 583,104
Class A Shares and 7,790,741 Class D Shares of Clearnet (each Class D Share is
convertible at the option of the holder into one Class A Share). Additionally,
the Company issued 82.54 shares of Series A Preferred Stock to a wholly owned
subsidiary of Nextel Communications for consideration of $8,254,000.

The Series A Preferred Stock was issued at an original liquidation
preference of $100,000 per share and thereafter the liquidation preference on
the Series A Preferred Stock accretes at an annual rate equal to 13.625%. At
June 30, 1998, the accreted liquidation preference on the Series A Preferred
Stock totaled $103,003,000. Except as required by law, the holders of the Series
A Preferred Stock are not entitled to receive dividends or other distributions.
The Company has the right at any time to redeem the Series A Preferred Stock in
full (or with the consent of the holder of the affected shares of Series A
Preferred Stock, in part) at a redemption price equal to 100% of the accreted
liquidation preference thereof on the redemption date and under certain
circumstances, the holders of the Series A Preferred Stock have the right to
exchange the Series A Preferred Stock for shares of the Company's Series B
Redeemable Preferred Stock, par value $10.00 per share (the "Series B Preferred
Stock"), having a liquidation preference equal to the accreted liquidation
preference of the Series A Preferred Stock so exchanged.

The Series B Preferred Stock to be issued in exchange for shares of Series
A Preferred Stock will have an initial annual dividend rate equal to 13.625%,
increasing to 18.00% as of March 13, 2010. The Series B Preferred Stock will
have terms substantially similar to those of the Series A Preferred Stock,
except for the right to elect one director to the Company's Board of Directors
and the accrual of cumulative dividends payable quarterly in cash. In addition,
the Company may not issue shares of Series B Preferred Stock, except in exchange
for shares of Series A Preferred Stock, without the consent of the holders of a
majority of the outstanding shares of Series A Preferred Stock and Series B
Preferred Stock, voting together as a class.

ARGENTINA CREDIT FACILITY: As of February 27, 1998, Nextel Argentina
entered into an $83 million senior secured credit facility (the "Argentina
Credit Facility") with The Chase Manhattan Bank, which facility, as amended on
May 8, 1998, was increased to $100.0 million. Borrowings under the Argentina
Credit Facility are subject to the satisfaction or waiver of certain conditions.
Loans under the Argentina Credit Facility will bear interest at a rate equal to
either (i) the ABR plus 2.75% (ABR is the highest of the prime rate, the base CD
rate plus 1% or the federal funds rate plus 0.5%) or (ii) the Eurodollar rate
plus 3.75% (the Eurodollar rate is the LIBO rate multiplied by the statutory
reserve rate). The loans under the Argentina Credit Facility will be repaid in
quarterly installments beginning September 30, 2000 and ending March 31, 2003.
The first nine installments will be equal to 1/18 of the then-outstanding
balance and the final installment will be in an amount equal to the
then-outstanding balance. As of June 30, 1998, borrowings under the Argentina
Credit Facility totaled $21.0 million and bore interest at approximately 9.5%.

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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 International, Inc. ("Nextel International"
or the "Company"), an indirectly wholly owned subsidiary of Nextel
Communications, Inc. ("Nextel Communications"), for the three-month and
six-month periods ended June 30, 1998 and 1997 should be read in conjunction
with the Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in Part I of this report and the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 ("1997 Form 10-K").

Nextel International, through its operating subsidiaries and affiliates,
provides wireless communications services in five of the largest cities in Latin
America and three of the largest cities in Asia. The Company's markets cover
approximately 373 million people, approximately 131 million of which are in
Latin America. Nextel International is the largest specialized mobile radio
("SMR") service provider in Brazil and Mexico, and holds the largest SMR channel
position in Argentina.

The Company's strategy is focused on using its leading analog dispatch or
SMR channel positions in its principal markets, together with Nextel
Communications' experience and supplier relationships, to upgrade its services
from analog dispatch to digital enhanced specialized mobile radio ("ESMR")
services. The Company intends to use digital "iDEN(TM)" (integrated Digital
Enhanced Network) technology developed by Motorola, Inc. ("Motorola") to provide
its ESMR services. The Company, through its operating subsidiaries or
affiliates, launched commercial ESMR service under the brand name "Nextel(TM)"
in Sao Paulo and Buenos Aires during the second quarter of 1998 and Rio de
Janeiro and Manila during July 1998. Additionally, the Company's Japanese
affiliate, J-Com Co., Ltd. ("J-Com"), introduced a multi-functional commercial
ESMR service under the brand name "Nexnet(TM)" in the Kanto region of Japan
(which includes Tokyo) in July 1998. The Company currently plans to launch
commercial ESMR service in Mexico City during the third quarter of 1998 and the
greater Lima area in 1999. The timing of the Company's currently planned launch
schedule depends on a number of factors, some of which are beyond the Company's
control. See 1997 Form 10-K, Part I, Item 1, "The Company's Operations and
Investments."

The Company owns majority controlling interests in wireless communications
services companies in Brazil, Mexico, Argentina and Peru and owns equity
interests and actively participates in the management of wireless communications
services companies in the Philippines and Japan. In addition, the Company owns
an approximately 15% equity interest in Clearnet Communications Inc., a Canadian
wireless communications services company ("Clearnet"), and has a contractual
right through its Chinese joint venture to receive 12.1% of the profits
generated by a Global System for Mobile communications ("GSM") network in
Shanghai, China (the "Shanghai GSM System"). The wireless communications
services companies that the Company owns or has interests in and the right to
receive profits in the Shanghai GSM System are referred to herein as the
"Operating Companies." The Company does not actively participate in the
management or in the formulation of the business plans or policies of Clearnet
or the Shanghai GSM System and considers them passive investments.

As of June 30, 1998, Nextel's proportionate share of international digital
subscriber units in service, based on its ownership interests in the Operating
Companies, is estimated to be approximately 67,000, which includes total digital
subscriber units on networks currently in operation in Argentina, Brazil,
Canada, Japan, and Shanghai, China. Total international digital subscriber units
in service for the Operating Companies is estimated to be approximately 357,000
as of June 30, 1998.

FISCAL QUARTER TRANSACTIONS AND DEVELOPMENTS

PHILIPPINES. In February 1998, the Company reached an agreement in
principle with the three groups of local shareholders of Nextel Philippines (the
"Philippines Shareholders"), including the Gotesco group (the "Gotesco Group")
which owns a 20% interest in Infocom Communications Network, Inc. ("Nextel
Philippines"), and finalized such agreements in April 1998 (the "Philippines
Partner Agreements"). Pursuant to the Philippines Partner Agreements (i) the
Nextel Philippines corporate governance arrangements were

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restructured to give the Company increased minority shareholder rights and the
Philippines Shareholders agreed to vote for the election of new, professional
senior management of Nextel Philippines; (ii) the Company purchased existing
shareholder loans of the Philippines Shareholders totaling approximately $19.6
million, which loans bear interest at 18% per annum and are convertible into
equity of Nextel Philippines; (iii) the Company may, at its option, fund Nextel
Philippines' future capital needs, currently estimated to be $50 million for
fiscal year 1998, pursuant to loans that, at the option of the Company, may be
converted into equity of Nextel Philippines; (iv) the Gotesco Group obtained the
right to put its 20% interest to the Company for approximately $9.4 million,
beginning in January 1999 (the "Gotesco Put"); and (v) the Company has the right
to call the Gotesco Group's 20% interest for approximately $11.6 million, if the
Gotesco Group does not exercise the Gotesco Put. The ability of the Company to
convert shareholders' loans into equity, satisfy the Gotesco Put or call the
Gotesco Group's 20% interest is subject to applicable Philippines foreign
ownership rules. Despite the provisions of the Philippines Partner Agreements,
two of the Philippines Shareholders, Jetcom, Inc. ("Jetcom") and Foodcamp
Industries and Marketing, Inc. ("Foodcamp"), have taken actions or failed to
take actions to effect the terms of such agreement, including the failure to
convene a meeting of the board of directors of Nextel Philippines and a vote on
the election of the senior management of such company and other steps necessary
to complete the restructuring of Nextel Philippines' corporate governance
framework in accordance with the Philippines Partner Agreements. On June 19,
1998, the Company sent a written notice to such shareholders asserting the
Company's belief that such shareholders have failed to perform their respective
obligations under the Philippines Partner Agreements and informing such
shareholders that the Company will pursue all remedies available to it under the
Philippines Partner Agreements and applicable laws in order to enforce its
rights. These shareholders have sent written responses to the Company's letter
in which they denied all of the Company's assertions.

On June 26, 1998, the Company and the Gotesco Group entered into an
Agreement to Accelerate Put Rights (the "Gotesco Put Acceleration Agreement")
pursuant to which the exercise date of the Gotesco Put was accelerated from
January 1999 to August 21, 1998. The Company also agreed to pay the Gotesco
Group (i) $500,000 upon the delivery of irrevocable proxies covering the voting
rights on the shares of Nextel Philippines owned by the Gotesco Group to a third
party or parties selected mutually by the Company and the Gotesco Group; (ii)
$500,000 to the Gotesco Group upon the conclusion of the Nextel Philippines
annual shareholder meeting, provided that the Gotesco Group's shares of Nextel
Philippines are voted in favor of the corporate governance provisions of the
Philippines Partner Agreements at such annual meeting; and (iii) $8,000,000 upon
the transfer of the shares covered by the Gotesco Put to a qualified third-party
purchaser in accordance with Philippines law, which transfer shall occur no
later than August 21, 1998. The Company is in discussion with several Philippine
groups regarding the purchase of an equity interest in Nextel Philippines,
including the purchase of the shares covered by the Gotesco Put and the Gotesco
Put Acceleration Agreement. Pursuant to the Gotesco Put Acceleration Agreement,
the Gotesco Group pledged its shares of Nextel Philippines to the Company,
delivered such shares to an escrow agent and granted irrevocable proxies
covering the voting rights on such shares to third parties selected mutually by
the Company and the Gotesco Group. As of July 31, 1998, the Company had made the
two payments of $500,000 to the Gotesco Group due upon execution and delivery of
the Gotesco Put Acceleration Agreement and upon the conclusion of the Nextel
Philippines annual shareholders meeting.

On July 13, 1998, Nextel Philippines held the 1998 annual shareholders
meeting and organizational board of directors meeting pursuant to which certain
corporate governance provisions of the Philippines Partner Agreements were
implemented, including the appointment of new, professional senior management.
Immediately prior to the meetings, the Philippines Securities and Exchange
Commission (the "ROP SEC") issued a temporary restraining order (the "TRO") upon
petition of one of the Philippines Shareholders and certain individual
shareholders who hold shares in Nextel Philippines in their capacity as members
of the board of directors of Nextel Philippines representing the interests of
Jetcom and Foodcamp (collectively, the "Petitioners"). The Petitioners requested
the nullification of the amendments of the bylaws of Nextel Philippines
contemplated by the corporate governance provisions of the Philippines Partner
Agreements (the "Bylaw Amendments") and the TRO enjoined Nextel Philippines from
implementing such Bylaw Amendments for a 72-hour period. The Petitioners further
requested that a preliminary injunction be issued with the same effect pending a
trial on the merits with respect to the validity of the Bylaw Amendments. On
July 15,
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1998, pursuant to the agreement of Nextel Philippines and the Petitioners and
confirmed by the ROP SEC, (a) the TRO was permitted to expire and (b) pending a
trial on the merits as to the validity of the Bylaw Amendments (i) the
Petitioners agreed to withdraw their petition for a preliminary injunction and
(ii) Nextel Philippines agreed that the provisions of the Bylaw Amendments
granting the Company certain veto rights (the "Company Veto Rights") would not
be implemented.

In addition, on July 11, 1998, the Company received a letter from counsel
to Jetcom and Foodcamp alleging that the Company had engaged a public relations
firm to undertake an advertising campaign on behalf of Nextel Philippines and
that pursuant to such campaign the Company issued misleading press releases
regarding the launching of commercial ESMR services by Nextel Philippines,
including press releases stating that the Company and Nextel Philippines
intended to provide cellular services. The letter stated, among other things,
that the Company's retention of the public relations firm was unauthorized, that
while Nextel Philippines' franchise includes authorization to operate a cellular
system its provisional authority ("PA") does not permit such operations, that
the Company has been informed by Nextel Philippines' management not to use the
word cellular in describing its telecommunications services and that as a
consequence of the foregoing, several telecommunication companies have initiated
legal proceedings that place Nextel Philippines' PA in jeopardy. The letter
states that Jetcom and Foodcamp intend to hold the Company liable for any and
all damages as a result of the foregoing. The Company denies the substance of
the allegations in the letter described above and specifically denies that the
Company or any agent of the Company authorized the issuance of the press
releases in question.

Although the Company believes that the provisions of the Philippines
Partner Agreements are enforceable against each of the Philippines Shareholders
and that the Company will eventually be successful in any litigation against
Jetcom and Foodcamp regarding such agreements, there can be no assurance that
the Company will prevail in any arbitration or legal action against Jetcom and
Foodcamp or that such claims will be resolved in a timely manner. To the extent
the Company is not successful in resolving these issues with Jetcom and
Foodcamp, the Company may decide not to continue to fund Nextel Philippines. Any
failure to resolve the legal issues among the shareholders of Nextel Philippines
in a timely manner, and any resulting decision by the Company not to continue to
provide additional funding to Nextel Philippines, would have a material adverse
effect on Nextel Philippines' business, prospects, financial condition and
results of operation. The Company does not believe that any of the Philippines
Shareholders intend to fund Nextel Philippines in fiscal year 1998. Any lack of
funding of Nextel Philippines, either from the Company, the Philippines
Shareholders or other sources, would have a material adverse effect on Nextel
Philippines' business, prospects, financial condition and results of operation,
including its ability to meet its obligations, and, accordingly, on the value of
the Company's investment in Nextel Philippines.

MEXICO. On June 30, 1998, the Mexican Federal Telecommunications
Commission ("COFETEL") issued a press release in which it ordered Comunicaciones
Nextel de Mexico S.A. de C.V. ("Nextel Mexico") to cease its pre-launch
marketing campaign for its ESMR services because, according to the COFETEL press
release, Nextel Mexico's SMR concessions did not authorize the Company to offer
the services specified in Nextel Mexico's marketing materials. On July 8, 1998,
Nextel Mexico received a letter from COFETEL containing such order. Prior to
receipt of COFETEL's order, and based on the press reports regarding COFETEL's
press release, Nextel Mexico had ceased its pre-launch marketing campaign. On
July 9, 1998, Nextel Mexico sent a written reply to COFETEL in which it informed
COFETEL that the Company had ceased its pre-launch marketing campaign and
intended to revise its pre-launch marketing campaign to insure that any terms
describing its ESMR services were consistent with its SMR licenses. After
meeting with COFETEL, Nextel Mexico revised the language in its pre-launch
marketing campaign and, with COFETEL's authorization, resumed its pre-launch
marketing campaign. Although the Company believes that its licenses authorize
all of the services contemplated to be offered on its ESMR network and that
COFETEL will not have any further objections to Nextel Mexico's marketing
campaigns, there can be no assurance that COFETEL will accept Nextel Mexico's
interpretation of its SMR licenses or that COFETEL will not object to Nextel
Mexico's future marketing campaigns.

INDONESIA. On June 26, 1998, the Company and PT Gunung Sewu Kencana
("GSK") agreed to amend the preliminary agreement entered into by the two
parties in connection with the Company's right to purchase
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a 37.5% interest in PT Mitra Kencana Telekomunindo, an Indonesian SMR
licenseholder owned by GSK ("MKT"), to extend the deadline for receipt of
regulatory approvals from June 30, 1998 to December 31, 1998. Although the
Company believes that MKT presents it with significant opportunities to expand
its SMR network in Asia, the Company does not intend to make any substantial
investment in MKT until the economic and political conditions in Indonesia, in
particular, and the economic conditions in Asia generally, have stabilized.

POST FISCAL QUARTER-END TRANSACTIONS AND DEVELOPMENTS

EXCHANGE OFFER. On August 4, 1998, the Company commenced an exchange offer
(the "Exchange Offer") for its 12 1/8% Senior Discount Notes due 2008 (the
"March 1998 Notes") pursuant to a registration statement declared effective by
the Securities and Exchange Commission (the "Commission") on such date. The
Exchange Notes were originally offered and sold by the Company in March 1998 in
a private placement transaction (the "March 1998 Offering") that was exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The Exchange Offer is scheduled to expire on September 2, 1998 and the
exchange is expected to be consummated as soon as practicable thereafter. The
Exchange Offer is intended to satisfy the Company's obligations under a
registration rights agreement entered into between the Company and the initial
purchasers of the March 1998 Notes on behalf of the holders of the March 1998
Notes.

ORGANIZATIONAL CHANGES. On July 1, 1998, the Company announced a series of
organizational changes. The Company announced the creation of two regional
operating groups to oversee its Operational Companies in Latin America and Asia
and the creation of an International Service Center based in McLean, Virginia to
provide centralized functions for the Operating Companies. The Company named
Brian A. Vincent, formerly Vice President of Business Development of the
Company, as its President, Asia-Pacific Region, to be based in Seattle,
Washington, and Jose Felipe as its President, Latin America Region, to be based
in Miami, Florida. Prior to joining the Company, Mr. Felipe served in various
senior management positions at AT&T Corp. ("AT&T") and Lucent Technologies,
Inc., including most recently as regional president of AT&T for Puerto Rico and
the Virgin Islands. The Company named Thomas J. Truesdale, formerly Vice
President of International Operations of the Company, as its Vice President,
International Service Center.

The Company also named Mark R. Sobol to the position of Vice President of
International Operations. Prior to joining the Company, Mr. Sobol served as an
advisor to the senior management of several telecommunications companies in the
U.S. and Latin America, including AT&T Wireless Services, Inc. Additionally, the
Company nominated and Nextel Mexico elected William S. Roberts, formerly Vice
President of Country Operations of the Company, as President of Nextel Mexico.

RESULTS OF OPERATIONS

Six Months Ended June 30, 1998 vs. Six Months Ended June 30, 1997

Revenues increased $13.7 million to $17.7 million for the six months ended
June 30, 1998 from $4.0 million for the six months ended June 30, 1997. Costs
and expenses related to revenues increased $5.5 million to $7.0 million for the
six months ended June 30, 1998, compared to $1.5 million for the six months
ended June 30, 1997. The increases were attributable primarily to the
acquisition of controlling interests in Nextel Mexico, MCS Radio Telefonia Ltd.
("MCS") and Nextel Argentina S.R.L. ("Nextel Argentina") in August 1997,
September 1997 and January 1998, respectively (collectively, the "Purchase
Transactions"). For the periods presented subsequent to the Purchase
Transactions, the results of Nextel Mexico, MCS and Nextel Argentina are
included in the Company's consolidated financial statements. See Part I, Item 1,
"Notes to Condensed Consolidated Interim Financial Statements--Note 2." For the
six months ended June 30, 1997, substantially all of the revenues and costs and
expenses related to revenues result from the five months of SMR operations of
McCaw International (Brazil), Ltd. and its subsidiaries and affiliates ("Nextel
Brazil") included in the Company's consolidated financial statements.

Revenues and costs and expenses related to revenues are expected to
continue to increase because the Company launched commercial ESMR services in
Sao Paulo and Buenos Aires in the second quarter of 1998 and Rio de Janeiro in
the third quarter of 1998. Additionally, the Company plans to launch commercial

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ESMR service in Mexico City during the third quarter of 1998. The commercial
ESMR launches in Manila and the Kanto region of Japan in the third quarter of
1998 will not affect revenues or costs and expenses related to revenues because
Nextel Philippines and J-Com are accounted for under the equity method.

Selling, general and administrative expenses increased $29.7 million to
$40.0 million for the six months ended June 30, 1998, compared to $10.3 million
for the six months ended June 30, 1997. The increase is attributable primarily
to the effect of the Purchase Transactions as well as increased costs in Nextel
Brazil necessary to support its launch of commercial ESMR service including
sales, marketing and administrative support costs.

Selling, general and administrative expenses are expected to continue to
increase because the Company intends to market its ESMR services aggressively in
each of its geographic regions and to increase staffing and other administrative
support activities to support the planned expansion of the Company's commercial
ESMR service. Additionally, the Company includes the loss resulting from the
sale of digital subscriber units in selling, general and administrative
expenses, as the loss represents primarily marketing costs for the commercial
ESMR services. The Company expects to continue to offer partial subsidies and
discounts on its sale and installation of digital subscriber units in programs
designed to stimulate both new subscriber growth and the migration of
subscribers from the Company's existing analog SMR systems to its ESMR networks.

Depreciation and amortization expense increased $13.2 million to $19.9
million for the six months ended June 30, 1998, compared to $6.7 million for the
six months ended June 30, 1997. The increase is attributable primarily to the
effect of the Purchase Transactions. The Company expects depreciation and
amortization expense to increase significantly in future periods due to
depreciation on fixed assets placed in service upon commencement of commercial
ESMR service in each of its markets.

Interest income increased $0.4 million to $9.4 million for the six months
ended June 30, 1998, compared to $9.0 million for the six months ended June 30,
1997. The increase was attributable primarily to income recognized on the
investment of the then-remaining net proceeds from the Company's offering and
issuance in March 1997 (the "March 1997 Offering") of units consisting of senior
discount notes due 2007 (the "March 1997 Notes") and detachable warrants to
purchase up to 1% of the Company's outstanding common stock. See "-- Liquidity
and Capital Resources."

Interest expense increased $22.0 million to $44.4 million for the six
months ended June 30, 1998, compared to $22.4 million for the six months ended
June 30, 1997. The increase is attributable primarily to interest expense
associated with the March 1997 Notes and the March 1998 Notes.

Loss from equity method investments decreased $1.7 million to $2.2 million
for the six months ended June 30, 1998, compared to $3.9 million for the six
months ended June 30, 1997. The decrease was attributable primarily to the
effect of the Purchase Transactions. As of June 30, 1998, the only Operating
Companies being accounted for under the equity method were Nextel Philippines
and J-Com.

Other expense totaling $2.2 million for the six months ended June 30, 1998
consists primarily of a $2.2 million foreign currency transaction loss
recognized on the Company's Japanese yen-denominated loan to J-Com resulting
from the decrease in value of the Japanese yen relative to the U.S. dollar.

Minority interest increased $2.2 million to $3.5 million for the six months
ended June 30, 1998, compared to $1.3 million for the six months ended June 30,
1997. The increase is attributable primarily to increase in both the net loss
and minority ownership interest of Nextel Brazil.

Income tax benefit increased $8.5 million to $10.6 million for the six
months ended June 30, 1998, compared to $2.1 million for the six months ended
June 30, 1997. The increase is attributable primarily to the effect of the
Purchase Transactions and, to a lesser extent, increased tax net operating
losses in Brazil.

Three Months Ended June 30, 1998 vs. Three Months Ended June 30, 1997

Revenues increased $6.7 million to $9.2 million for the three months ended
June 30, 1998 from $2.5 million for the three months ended June 30, 1997. Costs
and expenses related to revenues increased $2.7 million to $3.4 million for the
three months ended June 30, 1998, compared to $0.7 million for the three
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months ended June 30, 1997. The increases were attributable primarily to the
Purchase Transactions. For the three months ended June 30, 1997, substantially
all of the revenues and costs and expenses related to revenues result from the
three months of SMR operations of Nextel Brazil included in the Company's
consolidated financial statements.

Selling, general and administrative expenses increased $18.6 million to
$24.8 million for the three months ended June 30, 1998, compared to $6.2 million
for the three months ended June 30, 1997. The increase is attributable primarily
to the effect of the Purchase Transactions as well as increased costs in Nextel
Brazil necessary to support its launch of commercial ESMR service, including
sales, marketing and administrative support costs.

Selling, general and administrative expenses are expected to continue to
increase because the Company intends to market its ESMR services aggressively in
each of its geographic regions and increase staffing and other administrative
support activities to support the planned expansion of the Company's commercial
ESMR service. Additionally, the Company includes the loss resulting from the
sale of digital subscriber units in selling, general and administrative
expenses, as the loss represents primarily marketing costs for the commercial
ESMR services. The Company expects to continue to offer partial subsidies and
discounts on its sale and installation of digital subscriber units in programs
designed to stimulate both new subscriber growth and the migration of
subscribers from the Company's existing analog SMR systems to its ESMR networks.

Depreciation and amortization expense increased $6.6 million to $10.7
million for the three months ended June 30, 1998, compared to $4.1 million for
the three months ended June 30, 1997. The increase is attributable primarily to
the effect of the Purchase Transactions. The Company expects depreciation and
amortization expense to increase significantly in future periods due to
depreciation on fixed assets placed in service upon commencement of commercial
ESMR service in each of its markets.

Interest income decreased $1.1 million to $5.1 million for the three months
ended June 30, 1998, compared to $6.2 million for the three months ended June
30, 1997. The decrease was attributable primarily to a decrease in the average
outstanding balance of cash, cash equivalents and marketable securities for the
three months ended June 30, 1998, as compared to the three months ended June 30,
1997. The decrease in the average outstanding balance of cash, cash equivalents
and marketable securities is attributable to increased activity in the Company's
capital expenditure program.

Interest expense increased $8.6 million to $25.4 million for the three
months ended June 30, 1998, compared to $16.8 million for the three months ended
June 30, 1997. The increase is attributable primarily to interest expense
associated with the March 1998 Notes.

Loss from equity method investments decreased $1.1 million to $0.9 million
for the three months ended June 30, 1998, compared to $2.0 million for the three
months ended June 30, 1997. The decrease was attributable primarily to the
effect of the Purchase Transactions. As of June 30, 1998, the only Operating
Companies being accounted for under the equity method were Nextel Philippines
and J-Com.

Other expense totaling $3.4 million for the three months ended June 30,
1998 consists primarily of a $2.2 million foreign currency transaction loss
recognized on the Company's Japanese yen-denominated loan to J-Com resulting
from the decrease in value of the Japanese yen relative to the U.S. dollar.

Minority interest increased $1.4 million to $2.3 million for the three
months ended June 30, 1998, compared to $0.9 million for the three months ended
June 30, 1997. The increase is attributable primarily to the increase in both
the net loss and minority ownership interest of Nextel Brazil.

Income tax benefit increased $4.6 million to $6.2 million for the three
months ended June 30, 1998, compared to $1.6 million for the three months ended
June 30, 1997. The increase is attributable primarily to the effect of the
Purchase Transactions and, to a lesser extent, increased tax net operating
losses in Brazil.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred net losses of approximately $177.1 million from
inception through June 30, 1998. These losses resulted from operating expenses
required to support the development of the Company's
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wireless communications networks, other start-up costs and the fact that through
June 30, 1998 only $30.8 million of consolidated revenues had been recognized.
The Company expects to continue to incur increasing losses and negative
operating cash flows as it continues to build out and upgrade its existing
wireless communications networks.

Prior to March 1997, funds necessary to finance the Company's activities
were provided to the Company by its parent, which is an unrestricted subsidiary
of Nextel Communications, in the form of equity contributions. Since March 1997
and through June 30, 1998, the Company's activities have been financed primarily
with the net proceeds of the March 1997 Offering and the March 1998 Offering
and, to a lesser extent, from vendor financing, including the existing secured
equipment financing facilities obtained from Motorola. Nextel Communications is
not obligated to provide any additional funding to the Company.

Net cash used in operating activities for the six months ended June 30,
1998 was approximately $60.7 million. Net cash used in investing activities for
the six months ended June 30, 1998 was approximately $222.4 million. Net cash
provided by financing activities for the six months ended June 30, 1998 was
approximately $456.9 million. Working capital as of June 30, 1998 increased to
$292.7 million compared to $223.3 million at December 31, 1997. The cash used in
operating activities primarily represents cash used to fund operating losses and
pay value-added taxes on the purchase of switches and other infrastructure
equipment. The cash used in investing activities primarily represented
investments in the Operating Companies to fund the build-out of the Company's
ESMR networks, to fund the Company's initial investment in Comunicaciones Nextel
del Peru S.A. ("Nextel Peru," formerly Valorcom S.A.) and J-Com and to acquire
the remaining 50% interest in Nextel Argentina. The cash provided by financing
activities and the increase in working capital are primarily a result of the
Company receiving approximately $387 million of net proceeds from the March 1998
Offering and borrowings by the Company under the Brazil Motorola Financing and
the Argentina Credit Facility (each as defined below) of approximately $41.7
million and $21.0 million, respectively. As a result of the above activities,
cash and cash equivalents increased approximately $173.8 million during the six
months ended June 30, 1998.

As described in the 1997 Form 10-K, the Company has estimated its funding
requirements for fiscal year 1998 will be approximately $810 million (the "1998
Plan"). These amounts consist primarily of the costs of building the Company's
ESMR networks, including the purchase of switches and other equipment, the
acquisition of cell sites, the costs of constructing the networks and loading
subscribers, the acquisition of licenses and investments and funding of
operating losses. The Company has estimated that approximately $227 million of
such requirements in fiscal year 1998 will be related to expenditures in Brazil,
$161 million in Argentina, $152 million in Mexico, $29 million in Peru and $74
million in the Philippines. See 1997 Form 10-K, Part I, Item 1,
"Business -- 1998 Plan."

Through June 30, 1998, the Company's total cash expenditures for its
business activities described in the 1998 Plan, including system and related
capital expenditures, were approximately $460 million. Such expenditures were
consistent with the levels estimated by the Company in the 1998 Plan. The
Company's total cash expenditures for fiscal year 1998, however, may be subject
to the effect of certain risks and uncertainties, as identified or referred to
in the 1997 Form 10-K. See also "-- Foward-Looking Statements."

In November 1996, Nextel Communications, the Company and Motorola entered
into a binding memorandum of understanding regarding the provision of equipment
financing by Motorola, including the Motorola Financings (the "Motorola MOU").
In June 1997 and October 1997, pursuant to the Motorola MOU, the Company and
Motorola entered into definitive agreements for financing the purchase of up to
$14.7 million and $125 million of equipment and related services by Nextel
Philippines (the "Philippines Motorola Financing") and Nextel Brazil (the
"Brazil Motorola Financing"), respectively. The existing secured equipment
financing facilities obtained from Motorola under the Motorola MOU and any
additional financing arrangements obtained from Motorola under the Motorola MOU
are referred to herein collectively as the "Motorola Financings." In February
1998, Nextel Argentina entered into an $83 million senior secured credit
facility, which facility, as amended on May 8, 1998, was increased to $100
million (the "Argentina

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Credit Facility"). The terms and conditions of the Motorola MOU, the Philippines
Motorola Financing, the Brazil Motorola Financing and the Argentina Credit
Facility are described in the 1997 Form 10-K.

As of June 30, 1998, all of the $14.7 million available under the
Philippine Motorola Financing had been borrowed and approximately $92.0 million
had been borrowed under the Brazil Motorola Financing, with the remaining $33.0
million available for future borrowings. As of June 30, 1998, $21.0 million had
been borrowed under Argentina Credit Facility, with the remaining $79.0 million
available for future borrowing.

The Company believes that the net proceeds from the March 1998 Offering,
together with available cash, cash equivalents and marketable securities and
borrowings expected to be available under the existing Motorola Financings and
the Argentina Credit Facility, will be sufficient to fund the Company's current
operations, including the planned expansion of its existing operations and any
funding of Nextel Philippines' capital needs by the Company pursuant to the
Philippines Partner Agreements, during fiscal year 1998; however, there can be
no assurance that such funds will be sufficient. If, among other things, the
Company's plans change, its assumptions regarding its funding needs associated
with the further build-out, expansion and enhancement of its ESMR network at the
Operating Company level prove to be inaccurate, the other shareholders in
certain of the Operating Companies do not fund their expected capital
requirements, it consummates acquisitions or investments in addition to those
currently contemplated or at higher prices than currently contemplated, it
increases its existing equity ownership interests in certain of the Operating
Companies beyond those currently contemplated, it experiences growth in its
business or subscriber base greater than that which was anticipated in
developing the 1998 Plan, it experiences unanticipated costs or competitive
pressures, the Operating Companies are unable to access funds under the existing
Motorola Financings and/or the Argentina Credit Facility, or the net proceeds
from the March 1998 Offering, together with any other funds available to the
Company and the Operating Companies or any other borrowings, otherwise prove to
be insufficient to meet cash needs through fiscal year 1998, the Company may be
required to seek additional capital sooner than currently anticipated. The
availability of borrowings under the existing Motorola Financings and under the
Argentina Credit Facility are subject to the satisfaction or waiver of certain
conditions. The Company will also require significant additional capital in
years subsequent to fiscal year 1998 to fund the build-out of new ESMR networks
in the Company's licensed markets, expansion and enhancement of its existing
ESMR networks, the acquisitions of additional licenses and investments in new
markets and operating losses and for other general corporate purposes. To the
extent the Company's then-existing financing sources are insufficient to meet
such needs, the Company may seek to raise such additional capital from public or
private equity or debt sources. There can be no assurance that the Company will
be able to raise such capital on satisfactory terms, if at all. Additionally,
the Company and certain of the Operating Companies may incur indebtedness only
in compliance with the terms of covenants contained in the indentures governing
the March 1997 Notes and the March 1998 Notes. See "-- Forward-Looking
Statements."

In the future, the Company may consider obtaining financing from various
sources, including vendor financing provided by equipment suppliers (including
the Motorola Financings), project financing from commercial banks and
international agencies such as International Finance Corporation and Overseas
Private Investment Corporation, bank lines of credit and sales of equity and
debt issued by the Operating Companies and/or the Company. To the extent the
Company issues debt, its leverage and debt service obligations will increase.
There can be no assurance that the Company will be able to raise such capital on
satisfactory terms, if at all.

The Company owns 100% of Nextel Mexico and Nextel Argentina, 81% of Nextel
Brazil (or approximately 77% of Nextel S.A.) and 70.1% of Nextel Peru. The
Company's other assets consist of minority ownership interests in Nextel
Philippines and J-Com, passive minority investment stakes in the Shanghai GSM
System and Clearnet and as of June 30, 1998, cash, cash equivalents and
marketable securities of approximately $336.2 million consisting primarily of
net cash proceeds remaining from the March 1998 Offering. Even though the
Company participates in the management of the Operating Companies (except for
Clearnet and the Shanghai GSM System) and has certain contractual rights
designed to protect its interests as a minority shareholder, it cannot control
the outcome of matters submitted to the shareholders of the Operating Companies
in which it has less than a majority interest. In addition, the Company may be
unable to
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access the cash flow of its affiliated companies because (i) it does not have
the requisite control to cause such entities to pay dividends and (ii)
substantially all of such entities are parties to or expected to become parties
to vendor financing or other borrowing agreements that severely restrict the
payment of dividends, and such entities are likely to continue to be subject to
such restrictions and prohibitions for the foreseeable future. The existing
Motorola Financings and the Argentina Credit Facility restrict the payment of
dividends to the Company by the Operating Companies that have debt outstanding
thereunder. Any future vendor or bank financings are likely to include similar
covenants restricting the payment of dividends. See 1997 Form 10-K, Part I, Item
1, "Business -- Risk Factors -- Substantial Indebtedness; Ability to Service
Debt; Refinancing Risks."

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" 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 differ materially from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company has attempted to identify, in context, certain of the factors that
it currently believes may cause actual future experience and results to differ
from the Company's current expectations regarding the relevant matter or subject
area. The operations and results of the Company's business also may be subject
to the effect of other risks and uncertainties in addition to the relevant
qualifying factors identified in the 1997 Form 10-K, Part I, Item 1,
"Business -- Risk Factors," including, but not limited to, general economic
conditions in Latin America and Asia, as a result of the recent Asian economic
crisis, and in the market segments that the Company is targeting for SMR and
ESMR commercial services, future legislation or regulation by governmental
entities in the markets in which the Operating Companies conduct their business,
the availability of adequate quantities of system infrastructure and subscriber
equipment and components to meet the Company's service deployment and marketing
plans and customer demand, access to sufficient debt and equity financing to
meet the Company's operating and financial needs, the successful deployment and
performance of the iDEN technology, the ability to achieve market penetration
and average subscriber revenue levels sufficient to provide financial viability
to the Company's wireless communications business, the Company's ability to
accomplish required scale-up of its billing, customer care and similar
administrative support timely and successfully to keep pace with anticipated
customer growth and increased system usage, the quality and price of similar or
comparable wireless communications services offered or to be offered by the
Company's competitors in each market, including providers of cellular and
personal communications services, other wireless communications services or
telecommunications generally and other risks and uncertainties described from
time to time in the Company's reports filed with the Commission.

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PART II

ITEM 1. LEGAL PROCEEDINGS.

On June 19, 1998, the Company sent a written notice to Jetcom and Foodcamp,
two of the Philippines Shareholders, asserting the Company's belief that such
shareholders have failed to perform their respective obligations under the
Philippines Partner Agreements and informing such shareholders that the Company
will pursue all remedies available to it under the Philippines Partner
Agreements and applicable laws in order to enforce its rights. In addition,
immediately prior to the Nextel Philippines annual shareholders meeting on July
13, 1998, the ROP SEC issued a TRO in favor of the Petitioners. The Petitioners
requested the nullification of the amendments of the bylaws of Nextel
Philippines contemplated by the corporate governance provisions of the
Philippines Partner Agreements and the TRO enjoined Nextel Philippines from
implementing such Bylaw Amendments for a 72-hour period. The Petitioners further
requested that a preliminary injunction be issued with the same effect pending a
trial on the merits with respect to the validity of the Bylaw Amendments. On
July 15, 1998, pursuant to the agreement of Nextel Philippines and the
Petitioners and confirmed by the ROP SEC (a) the TRO was permitted to expire and
(b) pending a trial on the merits as to the validity of the Bylaw Amendments (i)
the Petitioners agreed to withdraw their petition for a preliminary injunction
and (ii) Nextel Philippines agreed that the Company Veto Rights would not be
implemented. See Part I, Item 2, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Fiscal Quarter Transactions and
Developments -- Philippines."

Other than the proceeding described above, neither the Company nor the
Company's subsidiaries are party to any material litigation.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) List of Exhibits.

EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------

3.1 Restated Articles of Incorporation of the Company.
3.2 Restated Bylaws of the Company.
*10.1 Amendment No. 1 and Waiver, dated May 8, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent.
*10.2 Restructuring Agreement, dated as of April 2, 1998, by and
among Foodcamp Industries and Marketing, Inc., Chan Chon
Siong, Nextel International, Inc., Top Mega Enterprises,
Ltd. and Infocom Communications Network, Inc.
*10.3 Restructuring Agreement, dated as of April 2, 1998, by and
among Gotesco Properties Inc., Jose C. Go, Joel T. Go,
Nextel International, Inc., Top Mega Enterprises, Ltd. and
Infocom Communications Network, Inc.
*10.4 Restructuring Agreement, dated as of April 2, 1998, by and
among Jetcom Inc., Nextel International, Inc., Top Mega
Enterprises, Ltd. and Infocom Communications Network, Inc.
*10.5 Pledge Agreement, dated as of April 2, 1998, by and among
Infocom Communications Network, Inc., Nextel International,
Inc. and Jetcom, Inc.
*10.6 Form of Credit Agreement between Infocom Communications
Network, Inc. and the shareholders listed on Exhibit A
attached thereto, as amended from time to time.
*10.7 Agreement to Accelerate Put Rights, dated June 26, 1998,
among Gotesco Properties Inc., Jose C. Go, Joel T. Go,
Nextel International, Inc. and Top Mega Enterprises Ltd.
10.8 Employment Agreement dated June 23, 1998 between the Company
and Mark R. Sobol.
10.9 Employment Agreement dated May 20, 1998 between the Company
and Jose Felipe.
**27 Financial Data Schedule.

- ---------------
* Filed as an exhibit to the Company's Registration Statement on Form S-4 (No.
333-55877), as amended, originally filed with the Commission on June 3, 1998
and incorporated herein by reference.

** Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act.

(b) Reports on Form 8-K.

None
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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 INTERNATIONAL, INC.

BY: /s/ DAVID E. ROSTOV
------------------------------------
David E. Rostov
Vice President and
Chief Financial Officer
(Principal Accounting Officer)

August 13, 1998

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EXHIBIT INDEX

EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------

3.1 Restated Articles of Incorporation of the Company.
3.2 Restated Bylaws of the Company.
*10.1 Amendment No. 1 and Waiver, dated May 8, 1998, among Nextel
Argentina S.R.L., the Lenders named therein and the Chase
Manhattan Bank as Administrative Agent.
*10.2 Restructuring Agreement, dated as of April 2, 1998, by and
among Foodcamp Industries and Marketing, Inc., Chan Chon
Siong, Nextel International, Inc., Top Mega Enterprises Ltd.
and Infocom Communications Network, Inc.
*10.3 Restructuring Agreement, dated as of April 2, 1998, by and
among Gotesco Properties Inc., Jose C. Go, Joel T. Go,
Nextel International, Inc., Top Mega Enterprises, Ltd. and
Infocom Communications Network, Inc.
*10.4 Restructuring Agreement, dated as of April 2, 1998, by and
among Jetcom Inc., Nextel International, Inc., Top Mega
Enterprises, Ltd. and Infocom Communications Network, Inc.
*10.5 Pledge Agreement, dated as of April 2, 1998, by and among
Infocom Communications Network, Inc., Nextel International,
Inc. and Jetcom, Inc.
*10.6 Form of Credit Agreement between Infocom Communications
Network, Inc. and the shareholders listed on Exhibit A
attached thereto, as amended from time to time.
*10.7 Agreement to Accelerate Put Rights, dated June 26, 1998,
among Gotesco Properties Inc., Jose C. Go., Joel T. Go,
Nextel International, Inc. and Top Mega Enterprises Ltd.
10.8 Employment Agreement dated June 23, 1998 between the Company
and Mark R. Sobol.
10.9 Employment Agreement dated May 20, 1998 between the Company
and Jose Felipe.
**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 of 1933, as
amended.