1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________TO____________
COMMISSION FILE NUMBER 333-26649
NEXTEL INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1671412
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
2001 EDMUND HALLEY DRIVE, RESTON, VIRGINIA 20191
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (703) 433-4000
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 NOVEMBER 12, 1999
-------------- --------------------
Common Stock, no par value 36,727,849
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements--Unaudited
Condensed Consolidated Balance Sheets--As of September 30, 1999
and December 31, 1998 3
Condensed Consolidated Statements of Operations and Comprehensive
Loss--For the Nine Months and Three Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statement of Stockholders' (Deficit) Equity--
For the Nine Months Ended September 30, 1999 5
Condensed Consolidated Statements of Cash Flows--For the Nine Months
Ended September 30, 1999 and 1998 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II--OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 6. Exhibits and Reports on Form 8-K 23
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PART I
ITEM 1. FINANCIAL STATEMENTS--UNAUDITED.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
SEPTEMBER 30, DECEMBER 31,
1999 1998
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (of which $55,000 and $17,000
is restricted).................................................................... $ 78,026 $ 121,116
Accounts receivable, less allowance for doubtful accounts of
$15,528 and $6,391................................................................ 18,726 35,247
Subscriber unit and accessory inventory.............................................. 16,297 31,914
Prepaid and other.................................................................... 20,800 23,902
------------- -------------
Total current assets........................................................... 133,849 212,179
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation
of $75,395 and $25,773............................................................... 504,016 530,571
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less equity
in net losses of $38,686 and $17,867................................................. 145,487 134,691
INTANGIBLE ASSETS, net of accumulated amortization of $54,243
and $42,483.......................................................................... 458,267 552,419
INVESTMENTS AND OTHER ASSETS............................................................ 253,696 171,276
------------- -------------
$ 1,495,315 $ 1,601,136
============= =============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable, accrued expenses and other......................................... $ 113,309 $ 130,585
Due to parent........................................................................ 15,147 --
Notes payable and current portion of long-term debt.................................. 872 2,061
------------- -------------
Total current liabilities...................................................... 129,328 132,646
LONG-TERM DEBT.......................................................................... 1,502,519 1,254,882
DEFERRED INCOME TAXES................................................................... 95,394 90,194
------------- -------------
Total liabilities.............................................................. 1,727,241 1,477,722
MINORITY INTEREST....................................................................... 23,734 27,516
STOCKHOLDERS' (DEFICIT) EQUITY:
Series A exchangeable redeemable preferred stock, accreted liquidation
preference of $227,908 (2,500 shares authorized, $10.00 par value,
1,988.86 and 988.86
shares issued and outstanding, respectively)...................................... 198,886 98,886
Series B redeemable preferred stock (5,000 shares authorized,
$10.00 par value, no shares issued and outstanding)............................... -- --
Common stock (73,000,000 shares authorized, no par value,
36,577,624 and 36,523,679 shares issued and outstanding,
respectively)..................................................................... 397,018 396,574
Accumulated deficit.................................................................. (737,551) (339,824)
Accumulated other comprehensive loss................................................. (114,013) (59,738)
------------- -------------
Total stockholders' (deficit) equity........................................... (255,660) 95,898
------------- -------------
$ 1,495,315 $ 1,601,136
============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
UNAUDITED
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
OPERATING REVENUES................................. $ 69,105 $ 26,597 $ 27,345 $ 8,850
OPERATING EXPENSES:
Cost of revenues............................... 29,503 12,959 11,431 5,963
Selling, general and administrative............ 167,803 89,578 51,581 49,599
Depreciation and amortization.................. 80,695 33,657 28,813 13,742
------------- ------------- ------------- -------------
278,001 136,194 91,825 69,304
------------- ------------- ------------- -------------
OPERATING LOSS..................................... (208,896) (109,597) (64,480) (60,454)
------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income................................ 5,283 14,177 2,456 4,772
Interest expense............................... (127,676) (74,548) (45,456) (30,163)
Loss from equity method investments............ (20,819) (6,404) (9,299) (4,208)
Foreign currency transaction (loss) gain
and other, net.............................. (61,956) 3,303 (16,417) 5,464
Minority interest.............................. 16,561 8,271 3,262 4,722
------------- ------------- ------------- -------------
(188,607) (55,201) (65,454) (19,413)
------------- ------------- ------------- -------------
LOSS BEFORE INCOME TAX (PROVISION) BENEFIT......... (397,503) (164,798) (129,934) (79,867)
INCOME TAX (PROVISION) BENEFIT..................... (224) 20,555 215 10,003
------------- ------------- ------------- -------------
NET LOSS .......................................... (397,727) (144,243) (129,719) (69,864)
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on
available-for-sale securities,
net of tax.................................. 66,581 (41,071) 24,494 (26,168)
Foreign currency translation adjustment........ (120,856) (16,409) (10,777) (7,497)
------------- ------------- ------------- -------------
COMPREHENSIVE LOSS................................. $ (452,002) $ (201,723) $ (116,002) $ (103,529)
============= ============= ============= =============
NET LOSS PER COMMON SHARE,
BASIC AND DILUTED.............................. $ (10.89) $ (3.95) $ (3.55) $ (1.91)
================ ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING...................... 36,536,514 36,500,557 36,544,653 36,501,654
============= ============= ============= =============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(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, 1999............... 988.86 $ 98,886 -- $ -- 36,523,679 $ 396,574 $(339,824)
Issuance of Series A preferred
stock to parent................... 1,000.00 100,000 -- -- -- -- --
Issuance of common stock upon
exercise of stock options......... -- -- -- -- 53,945 444 --
Unrealized gain on investments...... -- -- -- -- -- -- --
Cumulative translation adjustment... -- -- -- -- -- -- --
Net loss............................ -- -- -- -- -- -- (397,727)
--------- ---------- ------- -------- ---------- --------- ---------
BALANCE, SEPTEMBER 30, 1999............ 1,988.86 $ 198,886 -- $ -- 36,577,624 $ 397,018 $(737,551)
========= ========== ======= ======== ========== ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
UNAUDITED
ACCUMULATED OTHER
COMPREHENSIVE (LOSS) INCOME
---------------------------
UNREALIZED
(LOSS) CUMULATIVE
GAIN ON TRANSLATION
INVESTMENTS ADJUSTMENT TOTAL
----------- ---------- -----
BALANCE, JANUARY 1, 1999............... $ (35,688) $ (24,050) $ 95,898
Issuance of Series A preferred
stock to parent................... -- -- 100,000
Issuance of common stock upon
exercise of stock options......... -- -- 444
Unrealized gain on investments...... 66,581 -- 66,581
Cumulative translation adjustment... -- (120,856) (120,856)
Net loss............................ -- -- (397,727)
--------- ---------- --------
BALANCE, SEPTEMBER 30, 1999............ $ 30,893 $ (144,906) $(255,660)
========= ========== =========
The accompanying notes are an integral part of these condensed consolidated financial statements.
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
UNAUDITED
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................. $ (397,727) $ (144,243)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 80,695 33,657
Loss on write-off of assets....................................................... 8,011 --
Foreign currency transaction loss (gain).......................................... 60,545 (6,699)
Interest accretion on long-term debt, net of capitalization....................... 96,833 68,737
Provision for losses on accounts receivable....................................... 30,306 4,265
Loss from equity method investments .............................................. 20,819 6,404
Deferred income taxes............................................................. 8,218 (31,385)
Minority interest................................................................. (16,561) (8,271)
Change in current assets and liabilities:
Accounts receivable............................................................. (13,785) (14,242)
Subscriber unit and accessory inventory......................................... 15,617 (24,646)
Prepaid and other............................................................... 3,102 (6,828)
Accounts payable, accrued expenses and other.................................... (33,861) 42,227
Change in other assets............................................................ 8,364 (41,027)
------------- -----------
Net cash used in operating activities......................................... (129,424) (122,051)
------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................. (110,242) (291,480)
Purchase of marketable securities.................................................... -- (93,997)
Proceeds from sale of marketable securities.......................................... -- 172,132
Business acquisitions, net of cash acquired.......................................... -- (67,251)
Investments in unconsolidated subsidiaries, net...................................... (32,227) (80,214)
------------- -----------
Net cash used in investing activities......................................... (142,469) (360,810)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments to parent, net............................................................ (10,457) (8,254)
Capital contributions from minority stockholders..................................... 13,223 10,159
Proceeds from issuance of preferred stock to parent.................................. 100,000 8,254
Net proceeds from issuance of and borrowings under long-term debt.................... 142,235 489,123
Repayment of long-term debt.......................................................... (16,198) (2,393)
------------- -----------
Net cash provided by financing activities..................................... 228,803 496,889
------------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.................................... (43,090) 14,028
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.......................................... 121,116 159,790
------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................ $ 78,026 $ 173,818
============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest............................................................... $ 6,324 $ --
============= ===========
Cash paid for income taxes........................................................... $ -- $ 1,685
============= ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements of Nextel
International, Inc. and subsidiaries ("Nextel International" or the "Company"),
an indirect, substantially 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 condensed consolidated 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, 1998 (the "1998 Form 10-K"). 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.
Restricted Cash and Cash Equivalents: As of September 30, 1999, the
Company is required under its debt covenants to make equity investments of at
least $55.0 million to Nextel Argentina S.R.L. ("Nextel Argentina") for use in
its operations over the succeeding twelve month period. As of December 31, 1998,
the Company was required under its debt covenants to make equity investments of
at least $17.0 million to McCaw International (Brazil) Ltd. ("MIBL") for use in
its operations over the succeeding twelve month period.
Supplemental Cash Flow Information: For the nine months ended September
30, 1999, the Company purchased $16.7 million of infrastructure equipment
financed through its vendor credit facilities.
ESMR Subscriber Unit and Accessory 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 accessories and represents
marketing costs. Subscriber unit and accessory sales revenue and the related
cost of sales, including current period order fulfillment and installation
related expenses, are classified within selling, general and administrative
expenses as follows (dollars in thousands):
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Subscriber unit and accessory sales (net of trade-in discounts
and returns)............................................ $ 14,382 $12,787 $ 3,994 $11,291
Cost of subscriber unit and accessory sales.................. 35,793 18,678 11,939 16,813
-------- -------- ------ ------
$(21,411) $(5,891) $(7,945) $(5,522)
======== ======= ======= =======
Revenue Recognition: The Company recognizes revenue for airtime and
other services over the period earned, net of credits and adjustments and
revenue from sales of subscriber units and accessories when the subscriber units
and accessories are delivered. The cost of customer discounts and rebates are
recorded when the related revenues are recognized. The Company establishes an
allowance for doubtful accounts sufficient to cover probable losses.
New Accounting Pronouncements: In June 1998, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards for derivative
instruments (including certain derivatives embedded in other contracts) and for
hedging activities by requiring that all derivatives be recognized on the
balance sheet and measured at fair value. In June 1999, the FASB issued SFAS No.
137, "Deferral of the Effective Date of FASB Statement No. 133--an Amendment of
FASB Statement No. 133," which deferred the effective date for the Company until
January 1, 2001. The Company is in the process of evaluating the potential
impact of this standard on its financial position and results of operations.
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NOTE 2--SIGNIFICANT EVENTS AND TRANSACTIONS
Brazil Currency Devaluation: During the nine months ended September 30,
1999, there were significant fluctuations in the value of the Brazilian real
relative to the U.S. dollar, due primarily to the devaluation of the real in
January 1999. As a result, the Company recorded a negative cumulative
translation adjustment of approximately $130.4 million for the nine months ended
September 30, 1999, which is reflected in stockholders' deficit. Additionally, a
foreign currency transaction loss of $57.1 million was recognized during the
nine months ended September 30, 1999, related to long-term debt of the Brazilian
operations denominated in U.S. dollars.
Brazil Ownership: On January 30, 1997, the Company purchased 81% of the
outstanding capital stock of MIBL from Telcom Ventures, LLC (an entity that acts
as a representative of the Founders Group referred to below; "Telcom Ventures")
and various affiliated and unaffiliated investors (collectively, the "Founders
Group"). MIBL owns 95% of the ownership interest in Nextel SA (Brazil) ("Nextel
Brazil"), the principal operating company in Brazil. Pursuant to the definitive
agreements entered into in connection with the Company's original investment in
MIBL, the Company was required to fund 100% of MIBL's capital requirements until
April 29, 1999, at which time the Founders Group, acting through Telcom
Ventures, was required either to contribute its pro rata share of capital
contributions (plus accrued interest) made to MIBL since the Company's original
investment, or to accept the resulting dilution of its ownership interest. The
Founders Group did not make payment of such pro rata share of capital
contributions as provided in the definitive agreements. Consequently, the
Company's capital contributions to MIBL through April 29, 1999 have increased
the Company's ownership interest in MIBL to approximately 92% of contributed
capital and have diluted the ownership interest of the Founders Group in MIBL to
approximately 8% of contributed capital. Telcom Ventures has disputed its
reduction in ownership interest in MIBL.
On August 16, 1999, MIBL and the Company filed a Motion for Judgment in
the Circuit Court for the City of Alexandria, Virginia, against Telcom Ventures
seeking a declaration from the court that the Founders Group's option to make
its pro rata share of capital contributions was not properly exercised, and as a
result of having failed to make such payment: that the Founders Group's
ownership interest in MIBL has fallen below 10%; that the Founders Group is no
longer entitled to designate a director to serve on the MIBL Board of Directors;
and that the director previously designated by the Founders Group must resign
from the MIBL Board of Directors. On September 15, 1999, Telcom Ventures filed
its answer denying the material allegations made in the Motion for Judgment, and
asserted a counterclaim alleging that the Company breached a fiduciary duty to
Telcom Ventures and that MIBL breached a contract with Telcom Ventures by
allegedly issuing shares for less than fair market value without the informed
consent of the director designated by the Founders Group. Telcom Ventures'
counterclaim seeks damages in the amount of $100.0 million, plus punitive
damages. MIBL and the Company have filed an answer denying the material
allegations made in the counterclaim. See also Part II, Item 1, "Legal
Proceedings."
Shanghai, People's Republic of China: In July 1999, Shanghai CCT-McCaw
Telecommunications Systems Co., Ltd. ("Shanghai CCT McCaw") was informed by
China United Telecommunications, Ltd. ("Unicom") that Unicom's cooperative
project with Shanghai CCT McCaw needed to be terminated because it used a
financing structure no longer permitted by Chinese regulations. Unicom requested
that the parties commence negotiations to deal with the termination. In
September 1999, Shanghai CCT McCaw received notice from Unicom advising that
there would no longer be cash distributions allowed to foreign investors in
companies structured like Shanghai CCT McCaw. The Company in cooperation with
other foreign investors in Shanghai CCT McCaw met with Unicom management in
October 1999 to continue the negotiation for modifying the existing shareholder
structure. As of September 30, 1999, the Company's carrying value of its
minority interest in Shanghai CCT McCaw is approximately $13.6 million.
Issuance of Preferred Stock: On May 13, 1999, the Company received
$100.0 million in proceeds from the issuance of 1,000 shares of its Series A
Exchangeable Redeemable Preferred Stock, par value $10.00 per share (the "Series
A Preferred Stock") to a wholly owned subsidiary of Nextel Communications.
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NOTE 3--LONG-TERM DEBT
The Company's long-term debt is comprised of the following notes and facilities:
September 30, December 31,
1999 1998
---- ----
(dollars in thousands)
13.0% SENIOR REDEEMABLE DISCOUNT NOTES DUE 2007,
net of unamortized discount of
$274,760 and $337,065 $676,703 $614,398
12.125% SENIOR REDEEMABLE DISCOUNT NOTES DUE 2008,
net of unamortized discount of
$248,806 and $289,349 481,194 440,651
INTERNATIONAL MOTOROLA FINANCING FACILITY, bears
interest at variable rates based either
on the U.S. prime rate or LIBOR (10.50%--1999) 134,232 --
NEXTEL BRAZIL EQUIPMENT FINANCING, bears
interest at variable rates based either
on the U.S. prime rate or LIBOR (10.28%--1999;
10.25% to 11.00%--1998) 103,757 102,196
NEXTEL ARGENTINA BANK CREDIT FACILITY, bears
interest at variable rates based either
on the ABR or the Eurodollar rate (8.75% to 9.50%--
1999 and 1998) 100,000 83,500
PHILIPPINES MOTOROLA BRIDGE FINANCING, bears
interest at 2.50% over the U.S. prime rate
or LIBOR (10.25%--1998) -- 8,575
OTHER 7,505 7,623
------------ ------------
1,503,391 1,256,943
Less current portion (872) (2,061)
----------- -----------
$ 1,502,519 $ 1,254,882
============ ============
International Motorola Financing Facility: In February 1999, the
Company and Motorola Credit Corporation ("Motorola Credit") entered into
definitive agreements that established the terms and conditions under which
Motorola Credit agreed to provide up to $225.0 million in term loans to the
Company and certain of its operating subsidiaries (the "International Motorola
Financing Facility") to finance the purchase from Motorola Inc. of equipment and
related services and to refinance certain indebtedness to Motorola Credit. Loans
under the International Motorola Financing Facility will be repaid in eight
equal semi-annual installments beginning June 30, 2001 and will mature December
31, 2004. Loans under the International Motorola Financing Facility bear
interest at variable rates based upon either the U.S. prime rate or LIBOR and
are secured by, among other things, a pledge of the shares of stock of certain
of the Company's direct and indirect subsidiaries held by the Company and
certain third party shareholders.
As of September 30, 1999, approximately $134.2 million had been
borrowed under the International Motorola Financing Facility, including the
entire $100.0 million of reimbursement loans relating to the purchase of
equipment and related services by or for the benefit of certain operating
subsidiaries, and $90.8 million remained available for borrowing. On June 18,
1999, the Company made a $23.8 million drawdown under the International Motorola
Financing Facility to repay the $14.7 million outstanding under the previously
existing facility (the "Philippines Motorola Financing") between Motorola Credit
and Infocom Communications Network, Inc. ("Nextel Philippines") and to reimburse
the Company $8.6 million for having repaid the bridge financing facility (the
"Philippines Motorola Bridge Financing") between Motorola Credit and the Company
for the benefit of Nextel Philippines in February 1999. The availability of
borrowings under the International Motorola Financing Facility is subject to the
satisfaction or waiver of certain applicable borrowing conditions.
Nextel Argentina Bank Credit Facility: Effective in May 1999, Nextel
Argentina and the lenders under Nextel Argentina's $100.0 million senior secured
credit facility (the "Argentina Credit Facility") agreed to certain amendments
to the
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Argentina Credit Facility modifying certain covenants for future quarters
(the "Argentina Amendments"). As a result of the Argentina Amendments, the
Company has entered into a new capital subscription agreement that requires
equity of $83.5 million to be contributed to Nextel Argentina during 1999, $85.0
million during 2000, $19.5 million during 2001 and $49.5 million during the
first nine months of 2002. Concurrently with the execution of the Argentina
Amendments, Motorola Credit agreed to provide up to $50.0 million in loans to
Nextel Argentina as incremental term loans under the Argentina Credit Facility
for purchase from Motorola of qualifying equipment and related services (the
"Motorola Argentina Incremental Facility"). As of September 30, 1999, the entire
$100.0 million available for borrowing under the Argentina Credit Facility has
been drawn, and none of the $50.0 million Motorola Argentina Incremental
Facility has been drawn.
Motorola Incremental Facility Commitment: On May 3, 1999, Nextel
Communications, Nextel International and Motorola Credit entered into a
memorandum of understanding and term sheet (the "Motorola Incremental Facility
Commitment") regarding the terms and conditions under which Motorola Credit will
provide a $56.6 million secured credit facility to the Company (the
"International Motorola Incremental Facility"). Under the Motorola Incremental
Facility Commitment, Motorola Credit agreed to provide up to $56.6 million in
incremental term loans to the Company for working capital purposes. Loans under
the International Motorola Incremental Facility will mature December 31, 2001
and will bear interest at variable rates based upon either the U.S. prime rate
or LIBOR. Loans under the International Motorola Incremental Facility will be
secured by a pledge of all of the shares of stock of Clearnet Communications,
Inc. ("Clearnet"), a Canadian wireless communications services company, held by
the Company.
The availability of the loans under the International Motorola
Incremental Facility is subject to a number of conditions, including the
negotiation, execution and delivery of definitive agreements and the completion
by Motorola Credit of its due diligence review of the Company. The parties
currently do not contemplate entering into definitive agreements implementing
the terms of the Motorola Incremental Facility Commitment during 1999, and it is
expected that equity investment made or to be made by Nextel Communications in
the Company during the fourth quarter of 1999 will provide the funds that
initially had been planned to come from this source.
NOTE 4--SEGMENT INFORMATION
Nextel International has four reportable operating segments: 1) Nextel
Brazil, 2) Nextel Argentina, 3) Nextel de Mexico S.A. de C.V. ("Nextel Mexico")
and 4) Nextel del Peru, S.A. ("Nextel Peru"). The operations of all other
businesses that fall below the reporting thresholds are included in the
"Corporate and Other" segment below and include all corporate entities,
including those holding equity investments in Nextel Philippines and Nexnet Co.,
Ltd. ("Nexnet," formerly J-Com Co., Ltd., an entity organized under the laws of
Japan).
The Company's reportable segments reflect the Company's geographic
focus and are defined as operating segments in which the Company has obtained a
controlling interest in the entity. Management evaluates performance of these
segments and allocates resources to them based on earnings or losses before
interest, taxes, depreciation and amortization and other non-recurring charges
("EBITDA"). All intercompany eliminations have been included in Corporate and
Other.
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CORPORATE
NEXTEL NEXTEL NEXTEL NEXTEL AND
BRAZIL ARGENTINA MEXICO PERU OTHER CONSOLIDATED
------ --------- ------ ---- ----- ------------
(DOLLARS IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues....................... $ 24,067 $ 27,669 $ 15,342 $ 2,027 $ -- $ 69,105
========== ========= ========== ========= ========= ==========
EBITDA................................... $ (54,879) $ (30,484) $ (21,831) $ (9,359) $ (11,648) $ (128,201)
Depreciation and amortization............ 26,476 23,259 18,891 4,276 7,793 80,695
---------- --------- ---------- --------- --------- ----------
Operating loss........................... $ (81,355) $ (53,743) $ (40,722) $ (13,635) $ (19,441) $ (208,896)
========== ========= ========== ========= ========= ==========
Capital expenditures..................... $ 36,085 $ 45,749 $ 23,520 $ 14,289 $ 3,290 $ 122,933
========== ========= ========== ========= ========= ==========
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues....................... $ 10,023 $ 5,552 $ 9,527 $ 1,495 $ -- $ 26,597
========== ========= ========== ========= ========= ==========
EBITDA................................... $ (37,625) $ (24,071) $ (3,546) $ (1,498) $ (9,200) $ (75,940)
Depreciation and amortization............ 14,531 7,196 10,707 736 487 33,657
---------- --------- ---------- --------- --------- ----------
Operating loss........................... $ (52,156) $ (31,267) $ (14,253) $ (2,234) $ (9,687) $ (109,597)
=========== ========== =========== ========== ========== ==========
Capital expenditures..................... $ 142,080 $ 69,478 $ 60,893 $ 25,957 $ 72 $ 298,480
========== ========= ========== ========= ========== ==========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
Operating revenues....................... $ 8,024 $ 11,795 $ 6,480 $ 1,046 $ -- $ 27,345
========== ========= ========== ========= ========= ==========
EBITDA................................... $ (15,637) $ (6,692) $ (6,794) $ (2,858) $ (3,686) $ (35,667)
Depreciation and amortization............ 6,777 9,876 6,578 2,141 3,441 28,813
---------- --------- ---------- --------- --------- ----------
Operating loss........................... $ (22,414) $ (16,568) $ (13,372) $ (4,999) $ (7,127) $ (64,480)
========== ========= ========== ========= ========= ==========
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Operating revenues....................... $ 3,182 $ 1,910 $ 3,258 $ 500 $ -- $ 8,850
========== ========= ========== ========= ========= ==========
EBITDA................................... $ (22,996) $ (15,325) $ (3,300) $ (1,010) $ (4,081) $ (46,712)
Depreciation and amortization............ 5,815 3,825 3,710 312 80 13,742
---------- --------- ---------- --------- --------- ----------
Operating loss........................... $ (28,811) $ (19,150) $ (7,010) $ (1,322) $ (4,161) $ (60,454)
=========== ========== =========== ========== ========== ==========
AS OF SEPTEMBER 30, 1999
Property, plant and equipment, net....... $ 177,349 $ 131,399 $ 118,718 $ 51,228 $ 25,322 $ 504,016
========== ========= ========== ========= ========= ==========
Identifiable assets...................... $ 375,896 $ 247,853 $ 389,194 $ 72,592 $ 409,780 $1,495,315
========== ========= ========== ========= ========= ==========
AS OF DECEMBER 31, 1998
Property, plant and equipment, net....... $ 259,610 $ 109,284 $ 98,637 $ 40,825 $ 22,215 $ 530,571
========== ========= ========== ========= ========= ==========
Identifiable assets...................... $ 579,429 $ 237,542 $ 377,952 $ 62,434 $ 343,779 $1,601,136
========== ========= ========== ========= ========= ==========
NOTE 5--SUBSEQUENT EVENTS
Issuance of Preferred Stock: On November 5, 1999, the Company received
$50.0 million in proceeds from the issuance of 500 shares of its Series A
Preferred Stock to a wholly owned subsidiary of Nextel Communications. The funds
are intended to finance, during the balance of 1999, the resumption of a more
aggressive plan for the expansion and enhancement of the Company's ESMR networks
and to fund working capital requirements. Although the Company currently
anticipates that it will receive continuing significant financial support for
its activities from Nextel Communications during the remainder of 1999 and into
2000, there can be no assurances that the Company will receive any specific
amount of additional equity investments or other financial support from Nextel
Communications, and Nextel Communications has no legal obligation to make any
additional equity investment in, or to advance any other funds to, the Company.
See Item 2, "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
(A SUBSTANTIALLY WHOLLY OWNED SUBSIDIARY OF NEXTEL COMMUNICATIONS, INC.)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion of the consolidated financial condition and
results of operations of Nextel International, an indirect, substantially wholly
owned subsidiary of Nextel Communications, for the nine-month and three-month
periods ended September 30, 1999 and 1998 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 with the 1998 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. As of September
30, 1999, the markets in which the Operating Companies hold licenses covered
approximately 380 million people, approximately 132 million of which were in
Latin America. On a proportionate basis, based on the Company's ownership
interests as of September 30, 1999, the markets in which the Operating Companies
hold licenses covered approximately 190 million people, approximately 122
million of which were in Latin America.
The Company's strategy is focused on using its specialized mobile radio
("SMR") channel positions in its principal markets to upgrade its services from
analog dispatch to enhanced SMR ("ESMR") services and to continue to build out
its ESMR networks in its principal markets. The Company uses integrated Digital
Enhanced Network ("iDEN(R)") 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 in the second quarter of 1998, Rio de Janeiro,
Manila and Mexico City in the third quarter of 1998, Rosario, Argentina in the
fourth quarter of 1998, and in Lima, Peru in the second quarter of 1999.
Additionally, the Company's Japanese affiliate, Nexnet, introduced a
multi-functional commercial ESMR service under the brand name "NEXNET(TM)" in
the Kanto region of Japan (which includes Tokyo) in the second half of 1998. See
the 1998 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, Argentina, Mexico and Peru and owns
equity interests and participates in the management of wireless communications
services companies in the Philippines. In addition, the Company owns
approximately 15.4% of the equity interest in Clearnet, and has a contractual
right through its Chinese joint venture to receive approximately 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 in which it has ownership interests
and the right to receive profits are referred to herein as the "Operating
Companies." The Company does not actively participate in the day-to-day
management or in the formulation of the business plans or policies of Clearnet,
Nexnet or the Shanghai GSM System.
As of September 30, 1999, the Company's proportionate share of
international digital subscriber units in service, based on its ownership
interests in the Operating Companies, was estimated to be approximately 319,200,
which includes total digital subscriber units (comprised of ESMR, personal
communications services ("PCS") and GSM units) on networks currently in
operation in Argentina, Brazil, Canada, Japan, Mexico, Peru, the Philippines and
Shanghai, China. As of September 30, 1999, total international digital
subscriber units in service for the Operating Companies was estimated to be
approximately 1,011,200.
THIRD QUARTER TRANSACTIONS AND DEVELOPMENTS
Management Changes: In September 1999, the Company named Lo Van Gemert
as its President and Chief Operating Officer replacing Steven Dussek, who was
promoted to the position of Chief Executive Officer of the Company (replacing
Keith Grinstein, who assumed the position of Vice Chairman). In September 1999,
Mr. Dussek also was appointed as Executive Vice President of Operations for
Nextel Communications. Prior to joining the Company Mr. Van Gemert had been
President of the North Region of Nextel Communications.
Brazil Currency Devaluation: During the nine months ended September 30,
1999, there were significant fluctuations in the value of the Brazilian real
relative to the U.S. dollar, due primarily to the devaluation of the real in
January 1999. As a result, the Company recorded a negative cumulative
translation adjustment of approximately $130.4 million for the nine months ended
September 30, 1999, which is reflected in stockholders' deficit. Additionally, a
foreign currency transaction loss of $57.1 million was recognized during the
nine months ended September 30, 1999, related to long-term debt of the Brazilian
operations denominated in U.S. dollars.
The Company cannot predict what other effects the volatility of the
Brazilian currency will have on its results of operations and the value of its
investments in Brazil. Currency fluctuations could have significant effects on
the Company's results of operations due to, among other things, (i) a change in
the amount in the Brazilian currency that the Company's Brazilian subsidiaries
will have to pay for U.S. dollar-denominated purchases of certain equipment and
services; (ii) the Company's U.S. dollar-converted revenue stream from its
Brazilian subsidiaries; and (iii) the impact of currency fluctuations on the
Brazilian economy, and on the economies of the other Latin American countries in
which the Operating Companies conduct
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business. The Company currently does not hedge its foreign exchange exposure.
See "--Nextel International's Forward-Looking Statements are Subject to a
Variety of Factors that Could Cause Actual Results to Differ Materially from
Current Beliefs" and the 1998 Form 10-K, Item 1, "Business--Risk Factors--Nextel
is subject to fluctuations in currency exchange rates."
Brazil Ownership: On January 30, 1997, the Company purchased 81% of the
outstanding capital stock of MIBL from the Founders Group. MIBL owns 95% of the
ownership interest in Nextel Brazil, the principal operating company in Brazil.
Pursuant to the definitive agreements entered into in connection with the
Company's original investment in MIBL, the Company was required to fund 100% of
MIBL's capital requirements until April 29, 1999, at which time the Founders
Group, acting through Telcom Ventures, was required either to contribute its pro
rata share of capital contributions (plus accrued interest) made to MIBL since
the Company's original investment, or to accept the resulting dilution of its
ownership interest. The Founders Group did not make payment of such pro rata
share of capital contributions as provided in the definitive agreements.
Consequently, the Company's capital contributions to MIBL through April 29, 1999
have increased the Company's ownership interest in MIBL to approximately 92% of
contributed capital and have diluted the ownership interest of the Founders
Group in MIBL to approximately 8% of contributed capital. Telcom Ventures has
disputed its reduction in ownership interest in MIBL.
On August 16, 1999, MIBL and the Company filed a Motion for Judgment in
the Circuit Court for the City of Alexandria, Virginia, against Telcom Ventures
seeking a declaration from the court that since the Founders Group's option to
make its pro rata share of capital contributions was not properly exercised, and
that as a result of having failed to make such payment: that the Founders
Group's ownership interest in MIBL has fallen below 10%; that the Founders Group
is no longer entitled to designate a director to serve on the MIBL Board of
Directors; and that the director previously designated by the Founders Group
must resign from the MIBL Board of Directors. On September 15, 1999, Telcom
Ventures filed its answer denying the material allegations made in the Motion
for Judgment, and asserted a counterclaim alleging that the Company breached a
fiduciary duty to Telcom Ventures and that MIBL breached a contract with Telcom
Ventures by allegedly issuing shares for less than fair market value without the
informed consent of the director designated by the Founders Group. Telcom
Ventures' counterclaim seeks damages in the amount of $100.0 million, plus
punitive damages. MIBL and the Company have filed an answer denying the material
allegations made in the counterclaim. See also Part II, Item 1, "Legal
Proceedings."
Shanghai, People's Republic of China: In July 1999, Shanghai CCT McCaw
was informed by Unicom that Unicom's cooperative project with Shanghai CCT McCaw
needed to be terminated because it used a financing structure no longer
permitted by Chinese regulations. Unicom requested that the parties commence
negotiations to deal with the termination. In September 1999, Shanghai CCT McCaw
received notice from Unicom advising that there would no longer be cash
distributions allowed to foreign investors in companies structured like Shanghai
CCT McCaw. The Company in cooperation with other foreign investors in Shanghai
CCT McCaw met with Unicom management in October 1999 to continue the negotiation
for modifying the existing shareholder structure.
POST THIRD QUARTER TRANSACTION
Issuance of Preferred Stock: On November 5, 1999, the Company received
$50.0 million in proceeds from the issuance of 500 shares of its Series A
Preferred Stock to a wholly owned subsidiary of Nextel Communications. The funds
are intended to finance, during the balance of 1999, the resumption of a more
aggressive plan for the expansion and enhancement of the Company's ESMR networks
and to fund working capital requirements. Although the Company currently
anticipates that it will receive continuing significant financial support for
its activities from Nextel Communications during the remainder of 1999 and into
2000, there can be no assurances that the Company will receive any specific
amount of additional equity investments or other financial support from Nextel
Communications and Nextel Communications has no legal obligations to make any
additional equity investment in, or to advance any other funds to, the Company.
See "--Liquidity and Capital Resources."
RESULTS OF OPERATIONS
The following discussion compares the results of operations for the
nine- and three-month periods ended September 30, 1999 to the nine- and
three-month periods ended September 30, 1998, and significant factors that could
affect the Company's prospective financial condition and results of operations.
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, 1999 VS. 1998 SEPTEMBER 30, 1999 VS. 1998
--------------------------- ---------------------------
INCREASE PERCENT INCREASE PERCENT
(DECREASE) CHANGE (DECREASE) CHANGE
(dollars in millions) (dollars in millions)
Operating revenues $ 42.5 159.8% $ 18.5 209.0%
Cost of revenues 16.5 127.7% 5.5 91.7%
Selling, general and
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administrative 78.2 87.3% 2.0 4.0%
Depreciation and amortization 47.0 139.8% 15.1 109.7%
Interest income (8.9) (62.7)% (2.3) (48.5)%
Interest expense 53.1 71.3% 15.3 50.7%
Loss from equity method investments 14.4 225.1% 5.1 121.0%
Foreign currency transaction (loss) gain
and other, net (65.3) NM (21.9) NM
Minority interest 8.3 100.2% (1.5) (30.9)%
Income tax benefit (20.8) (101.1)% (9.8) (97.9)%
NM--change not meaningful
Operating revenues include service revenues, which consist primarily of
charges for airtime usage and monthly network access fees from providing mobile
wireless services. Operating revenues for the nine- and three-month periods
ended September 30, 1999 increased from the comparable 1998 periods primarily as
a result of an increase in end-of-period digital subscriber units in service, as
well as an increase in average monthly revenue per digital subscriber unit
resulting from the launch of digital services in major markets in Brazil,
Argentina and Mexico. The Company's total proportionate digital subscribers
units in service at September 30, 1999 was approximately 90,000 in Brazil,
52,000 in Argentina, 46,000 in Mexico and 8,000 in Peru.
Cost of revenues consists primarily of network operating costs and
interconnection fees assessed by local exchange carriers. Cost of revenues for
the nine- and three-month periods ended September 30, 1999 increased from the
comparable 1998 periods primarily due to the increase in the number of cell
sites and switches placed in service from September 30, 1998 to September 30,
1999 as well as increases in airtime usage and digital subscriber units in
service. Cost of revenues, such as site rental and telecommunications expenses,
are expected to increase as additional cell sites and switches are placed into
service and as additional markets are launched. See "--Nextel International's
Forward-Looking Statements are Subject to a Variety of Factors that Could Cause
Actual Results to Differ Materially from Current Beliefs."
The increase in selling, general and administrative expenses for the
nine months ended September 30, 1999 consisted of an increase in selling and
marketing expenses of $45.1 million and an increase in general and
administrative expenses of $33.1 million, from the comparable nine month period
in 1998.
Selling and marketing expenses for the nine months ended September 30,
1999 increased by 140.5% to $77.2 million, as compared to $32.1 million for the
nine months ended September 30, 1998. This increase in selling and marketing
expenses consisted primarily of (i) increased sales and marketing labor costs
and related commission expenses and (ii) increased costs incurred in connection
with higher levels of sales of digital subscriber units, including an increase
in the loss generated from increased sales of digital subscriber units of $15.5
million. Customer subsidies and/or discounts offered in connection with the sale
and installation of digital subscriber units and related accessories are
expected to increase on a per unit basis in order to stimulate new customer
growth.
General and administrative expenses for the nine months ended September
30, 1999 increased 57.6% to $90.6 million, as compared to $57.5 million for the
nine months ended September 30, 1998. The increase in general and administrative
expenses is primarily related to (i) increased bad debt expense of $26.0 million
and (ii) increased personnel costs, principally reflecting increased staffing
for back-office support activities, to service an increased number of subscriber
units in service in existing and new markets.
The Company recognized approximately $30.3 million in bad debt expense
for the nine months ended September 30, 1999 compared to $4.3 million for the
nine months ended September 30, 1998. The higher bad debt expense was a result
of a focused program to aggressively take action on delinquent paying customers
and strengthened credit and collection procedures. The program focused on Nextel
Brazil and Nextel Argentina, where collectively 96.0% of the bad debt expense
through September 30, 1999 has been incurred. The Company implemented procedures
to minimize credit risk, such as requiring deposits, requesting bank statements
and/or requesting current credit references from prospective customers. Bad debt
expense has decreased 47.3% from $15.0 million for the quarter ended June 30,
1999 to $7.9 million for the quarter ended September 30, 1999, which the Company
believes is principally a result of these initiatives.
Depreciation and amortization expense for the nine- and three-month
periods ended September 30, 1999 increased from the comparable 1998 periods
primarily reflecting the effect of placing additional cell sites and switches
into service as a result of the Company's continuing build-out of the ESMR
networks in its various geographic markets.
The decrease in interest income reflects lower average cash balances
available for investment during the nine- and three-month periods ended
September 30, 1999 from the comparable 1998 periods.
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15
The increase in interest expense for the nine- and three-month periods
ended September 30, 1999 from the comparable 1998 periods resulted primarily
from the higher average level of borrowings under the Company's bank and vendor
credit facilities.
The loss from equity method investments for the nine- and three-month
periods ended September 30, 1999 increased from the comparable 1998 periods
primarily as a result of the Company's increased ownership interest in and
increased operating losses incurred by Nextel Philippines subsequent to the
commercial launch of ESMR service in Manila in the third quarter of 1998 and the
operating losses associated with the Company's investment in Nexnet (acquired in
March 1998).
Foreign currency transaction gain (loss) and other, net for the nine-
and three-month periods ended September 30, 1999 decreased from the comparable
1998 periods primarily due to the foreign currency transaction losses incurred
as a result of the devaluation of the Brazilian real relative to the U.S. dollar
during 1999.
Minority interest for the nine-month period ended September 30, 1999
increased from the comparable 1998 period primarily due to the minority
shareholders' share of increasing operating losses recorded in Nextel Brazil.
The income tax benefit for the nine- and three-month periods ended
September 30, 1999 decreased from the comparable 1998 periods primarily due to
changes in tax legislation in Argentina and Mexico and the depletion of
temporary differences in Brazil that have been utilized to offset operating loss
carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred cumulative net losses of approximately $737.6
million from its inception through September 30, 1999. These losses resulted
from expenditures required to support the development of the Company's wireless
communications networks and other start-up costs incurred by the Operating
Companies. The Company's activities have been financed primarily with the net
proceeds of the Company's securities offerings in 1997 and 1998, and to a lesser
extent from vendor and bank financing, including the existing financing
facilities obtained from Motorola and the Argentina Credit Facility and equity
contributions. Although Nextel Communications elected to make additional cash
equity investments of approximately $82.5 million in March 1998, of $100.0
million in May 1999 and $50.0 million in November 1999 in the Company, it is
not obligated to provide any additional funding to the Company. 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.
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In September 1999, in view of a number of factors, including primarily
the improvement in operating results being experienced by most of the Operating
Companies, the improving conditions in the domestic and international capital
markets, relaxation or anticipated relaxation of regulatory restrictions
affecting certain of the Operating Companies and the anticipated stabilization
of economic circumstances in the Company's larger markets, especially in Latin
America, senior management of Nextel International determined to resume a more
aggressive approach to network build-out activities, in order to expand and
enhance coverage primarily in and around the Company's major Latin American
market areas. As a result of this change in approach, the Company anticipates
that its funding requirements over the balance of 1999 and for calendar year
2000 will increase, in comparison to those that would have been associated
with a continuation of the Company's more conservative approach to building its
networks and conducting its business that had been in place up to this point in
1999.
The Company currently anticipates that its cash needs for the fourth
quarter of 1999 will total approximately $140 million, including the funding
of operating losses, financing of ESMR network construction activities in the
markets of the relevant Operating Companies, required capital contributions to
certain Operating Companies, cash interest expense and other working capital
needs, but excluding any funding for new investment opportunities or business
initiatives (and the Company currently has no binding commitments relating to
any new investment opportunities or business initiatives) during that period.
Nextel International currently is in the early stages of developing its
detailed business plan and related budget for calendar year 2000, which are
not likely to be finalized before late 1999 or early in 2000. Although Nextel
International contemplates that the increase in system construction activities
and its resumption of a more aggressive network build-out plan will continue
in 2000, and will be reflected in an increased level of capital expenditures
and cash needs for such purposes, Nextel International may later revise its
plans and adjust its budgets in light of various factors, including
competitive conditions in the relevant markets of its Operating Companies,
prevailing conditions in domestic and international capital markets, the
availability of financing from Nextel Communications to support the Operating
Companies' activities and plan, the actual operating results and apparent
prospects of the Operating Companies and any determination to pursue new
investment opportunities or business initiatives presented to the Company.
Taking its anticipated capital expenditures and the other cash needs of
its businesses (in light of the anticipated operating results of those
businesses) during the fourth quarter of 1999 into account, Nextel International
believes that it can meet all of its funding needs during the remainder of 1999.
This conclusion is premised on the availability of funds from the following
sources:
- unrestricted cash on hand as of September 30, 1999 of approximately
$23.0 million;
- application of approximately $18.0 million of the total of
approximately $55.0 million restricted cash on hand as of September
30, 1999 to meet investment commitments in certain Operating
Companies, connected to existing financing facilities of such
Operating Companies, that must be satisfied in the fourth quarter of
1999;
- borrowings of approximately $44.0 million of the financing remaining
available under the International Motorola Financing Facility,
to finance the purchase from Motorola of equipment and related
services; the vendor financing agreement between Nextel Brazil
and Motorola Credit (the "Nextel Brazil Equipment Financing"),
which provides for up to $125.0 million in term loans to Nextel
Brazil to finance the purchase of equipment and related services;
and the Motorola Argentina Incremental Facility, which can be used
to fund purchases from Motorola of equipment and related services;
- receipt of approximately $100.0 million of cash equity investments
currently expected to come from a wholly owned subsidiary of Nextel
Communications (including the $50.0 million cash investment received
on November 5, 1999); and
- receipt of approximately $5.0 million from minority owner
contributions.
The Company expects to begin the year 2000 with approximately $82.0
million of cash and cash equivalents (approximately $37 million of which will
be restricted) and approximately $118 million of remaining borrowing capacity
under various facilities as follows: $69.8 million under the International
Motorola Financing Facility; $7.2 million under the Nextel Brazil Equipment
Financing; and $41.0 million under the Motorola Argentina Incremental Facility.
It is anticipated that the bulk of the Company's cash requirements associated
with its business plan and related budgets for calendar year 2000 will be
satisfied with funds invested or advanced by Nextel Communications or its
relevant subsidiaries.
As to all of the foregoing funding sources, however, Nextel
International cannot provide assurance that the conditions to accessing funds
under its current or contemplated third party bank and vendor financing
facilities will be satisfied, that amounts available under those facilities
will be sufficient, that Nextel Communications will invest or otherwise
advance any additional funds to the Company or that equity or debt funding
will be available to the Company in the public or private capital markets,
domestically or internationally, or that any such financing not yet arranged
and committed (including any from Nextel Communications or its subsidiaries)
will be available on acceptable terms.
In addition, if the Company's business plans change, or if economic
conditions or the political or regulatory climate in the markets of the
Operating Companies, or competitive practices in the mobile wireless
telecommunications industry in those markets, change materially from those
currently prevailing or from those now anticipated in calendar year 2000, if the
Company
16
17
determines to pursue new investments or other new business opportunities or if
other presently unexpected or unplanned circumstances are encountered that have
a material effect on the cash flow of the Operating Companies' mobile wireless
businesses, the Company's anticipated cash needs, and the actions that it
might be required to take to meet such needs, may change significantly
from those contemplated above. Although the Company currently anticipates
that it will receive continuing significant financial support for its
activities from Nextel Communications during the remainder of 1999 and into
2000, there can be no assurances that any specific amount or type of financing
will be provided by Nextel Communications, and Nextel Communications has no
legal obligation to make any additional equity investments in, or to otherwise
advance any other funds to, the Company. In addition to the absence of any legal
obligation of Nextel Communications to provide funding to the Company, certain
of the agreements to which Nextel Communications currently is a party restrict
the amount available to Nextel Communications and its relevant subsidiaries for
purposes of certain defined "restricted payments," including investments in and
advances to the Company. To the extent the Company is unable, for whatever
reason, to obtain sufficient funding from Nextel Communications, the Company
cannot provide assurance whether or on what terms adequate replacement funding
might be available from any other source. If the Company is unable to obtain
such additional capital, or to obtain it on acceptable terms and in a timely
manner, the Company would be required to curtail significantly some of its
planned network construction and development and its operations. Any such
actions would have a material adverse effect on the Company's financial
conditions and results of operations, including its ability to meet its debt
service and working capital requirements. See "--Nextel International's
Forward-Looking Statements are Subject to a Variety of Factors that Could Cause
Actual Results to Differ Materially from Current Beliefs."
As of September 30, 1999, the Company owned 100% of each Nextel Mexico
and Nextel Argentina, approximately 88% of Nextel Brazil (giving effect only to
capital contributions made by the Company to MIBL through April 29, 1999; see
Part II, Item 1, "Legal Proceedings") and 63% of Nextel Peru. The Company's
other non cash assets consist primarily of minority ownership interests in
Nextel Philippines and Nexnet and passive minority investment stakes in the
Shanghai GSM System and Clearnet. The Company cannot control the outcome of
matters submitted to the shareholders of the Operating Companies in which it has
less than a majority interest. Furthermore, the Company may not be able to
access the cash flow of its affiliated companies because (1) it does not have
control to cause dividends to be paid and (2) all of the entities are party to
financing 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. In addition, the existing Motorola
Financing and the Argentina Credit Facility restrict the payment of dividends to
the Company by the Operating Companies that have debt outstanding thereunder.
See 1998 Form 10-K, Part I, Item 1, "Business--Risk Factors--2. Nextel
International will need substantial amounts of financing over the next several
years."
CASH FLOWS
Net cash used in operating activities of $129.4 million for the nine
months ended September 30, 1999 increased by $7.3 million from $122.1 million
for the nine months ended September 30, 1998. This increase is primarily
attributable to increasing net operating losses due to the launch of commercial
ESMR services in major markets in Brazil, Argentina and Mexico.
Since December 31, 1998, working capital has decreased by $75.0 million
to $4.5 million as of September 30, 1999. This decrease primarily resulted from
the utilization of working capital derived from the proceeds of the
International Motorola Financing Facility and the issuance of 1,000 shares of
Series A Preferred Stock to fund investing and operating activities.
Capital expenditures to fund the build-out of the Company's ESMR
networks continue to represent the largest use of the Company's funds for
investing activities. Net cash used in investing activities for the nine-month
period ended September 30, 1999 decreased $218.3 million compared to the same
period in 1998 primarily due to the $181.2 million decrease in cash paid for
capital expenditures. Cash payments for capital expenditures totaled $291.4
million for the nine months ended September 30, 1998 and $110.2 million for the
nine-month period ended September 30, 1999. The Company expects capital
expenditures to accelerate during the remainder of 1999 and into 2000 as it
focuses on improving service levels and expanding the network coverage of its
Operating Companies.
Net cash provided by financing activities for the nine months ended
September 30, 1999 consisted primarily of $142.2 million in net borrowings under
the Company's vendor and bank credit facilities and net proceeds of $100.0
million of net proceeds from the issuance of Series A Preferred Stock to a
wholly owned subsidiary of Nextel Communications, offset slightly by repayments
of long term debt.
YEAR 2000 READINESS
General: Nextel International is close to completing and implementing
the Year 2000 readiness solutions for its computer systems. Such Year 2000
readiness efforts are designed to identify, address and resolve issues that may
be created by computer programs written using two digits rather than four
to define the applicable year. Any of Nextel International's computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This inability to recognize dates could result
in a system failure or miscalculations that result in disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
Many of the Company's corporate administrative and accounting services
are performed for the Company by Nextel Communications. Additionally, many of
the Company's third party vendors are also vendors to Nextel Communications.
Accordingly, in these instances the Company has coordinated its assessment of
its Year 2000 readiness with Nextel Communications.
State of Readiness: Nextel International and Nextel Communications have
had a program in place since February 1998 to address Year 2000 readiness issues
in their critical business areas related to products, networks, information
management systems, non-information systems with embedded technology, suppliers
and customers. The Company's Year 2000 readiness goal focuses on the ability of
the Company to perform its critical business functions and to process
information in an unambiguous manner under various date conditions. These
functions rely on critical Information Technology ("IT") and non-IT systems and
their supporting network elements. These critical systems and network elements
have been divided into two major categories: core business systems and network
infrastructure systems and support functions with high customer impact and
secondary business systems with low customer impact.
To ensure the continued progress and success in managing all of the
Company's Year 2000 readiness requirements, a special steering committee that
includes members of senior management of Nextel Communications responsible for
the information technology and network systems was formed to oversee this
effort. Internal employees, as well as outside contractors, staff the Year 2000
readiness program. Members include employees across functional and divisional
departments who are responsible for assisting in the identification, assessment
and remediation of Year 2000 readiness challenges. In addition, the
representatives from some of the material third parties identified below
participate in this project.
During the course of developing Year 2000 readiness solutions, Nextel
Communications has identified five phases that define the status of progress
toward Year 2000 readiness. The five phases are:
- Awareness--locating, listing and prioritizing
specific technology used in Nextel Communications' or
the Company's operations that is potentially subject
to Year 2000 readiness related challenges;
- Assessment--determining the level of risk of Year
2000 readiness challenges that exist on Nextel
Communications' or the Company's systems through
inquiry, research and testing;
- Remediation--determining and resolving Year 2000
related challenges identified in previous phases
through replacement, upgrade or repair and planning
for the scheduled implementation of the selected Year
2000 ready resolution;
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- Testing--evaluating and reviewing results to monitor
and assess completeness of the manipulation of dates
and date-related data on IT and non-IT systems,
including those of material third parties; and
- Implementation--installing and integrating the
application of Year 2000 ready resolutions by
replacement, upgrade or repair of IT and non-IT
systems, including those of material third parties.
Core Business Systems and Network Infrastructure. As of September 30, 1999,
Nextel International and Nextel Communications' core business system and network
infrastructure and support systems successfully passed integrated testing in a
Year 2000 environment. The purpose of that test was to confirm the Year 2000
readiness of the Company's essential system elements that are integrated with
the ESMR networks and that are necessary to enable the Company to add subscriber
units to the ESMR networks, to provide the currently available and planned
wireless communications services on the network, and to correctly bill customers
for those services.
These core business systems and network infrastructure systems and
operational functions tested include:
- new customer account set-up and modifications;
- activation and provisioning of new phones and implementation of
modifications in existing customers' service plans;
- processing of calls and other mobile communications services (including
interconnect, voicemail, short message service, and private and group
dispatch services);
- collection and rating of call data for billing purposes; and
- customer bill generation.
These integrated systems were tested by applying certain date specific
sequences to determine their functionality in a Year 2000 environment. These
tests specifically involved testing both Year 2000 transition and leap-year
transition. These integrated system tests were conducted in a laboratory setting
which simulated the Company's network configuration, core business systems and
handsets. Based on the testing, the Company believes that these systems
will perform normally during and after the transition into the Year 2000.
Our Secondary Business Systems. These systems are mostly internal to the Company
with little or no impact on the customers and include applications such as
payroll, benefit management and low-level facility issues.
The majority of these secondary systems have passed Year 2000 readiness
testing and have been successfully implemented into the Company's environment.
However, some of these systems are still in the process of completing the
Testing or Implementation phases of the Company's Year 2000 readiness program.
All remaining secondary systems are planned to be tested and implemented by the
end of November 1999.
Third Party Year 2000 Compliance. The Company's ability to reach its
Year 2000 readiness goal depends and will continue to depend on the efforts of
Nextel Communications and significant third-party vendors, suppliers,
subcontractors to and business partners of Nextel Communications and the
Company. The Company monitors the progress of these third parties towards Year
2000 readiness. The Company regularly contacts and attempts to obtain from these
third parties relevant details and schedules concerning their contemplated
development of Year 2000 ready applications for utilization in the Company's
operations and systems. Specifically, the Company relies on services and
products offered by the following significant third parties:
- MOTOROLA supplies the Company's system infrastructure and
subscriber handset units. Motorola has informed the Company that
all subscriber unit models manufactured after June 1, 1998 are
Year 2000 ready. All other digital subscriber units are Year
2000 ready with the exception of the short message service
feature on those phones, which is not expected to cause a
material disruption in the Company's service offerings. With
regard to the ESMR networks, Motorola has indicated that the
following system infrastructure components are Year 2000 ready:
1) critical call and data processing systems for the ESMR
networks have passed Year 2000 readiness testing;
2) Nortel switches and CISCO routers have passed Year 2000
readiness testing appropriate for use by the Company; and
3) voice mail system components have passed Year 2000 readiness
testing.
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The Company believes that its testing of its core business systems and
network infrastructure has confirmed the Year 2000 readiness of these system
infrastructure components.
- MOTOROLA COMMUNICATIONS ISRAEL LTD., which provides the
provisioning systems for the Company, has provided notification
that its software is Year 2000 ready. The Company believes that
its testing of its core business systems and network
infrastructure systems and operational support functions confirm
these systems' Year 2000 readiness.
- LHS GROUP, INC. ("LHS"), is the software vendor for the
Company's billing information systems. LHS informed the Company
that the software currently in use in the Company's systems that
supports the billing processes is Year 2000 ready in conjunction
with recommended upgrades. The Company has completed the
necessary upgrades and it has tested successfully.
- VANTIVE CORPORATION ("VANTIVE"), provides information systems
used in the Company's customer care function and provides order
entry systems for the Company. Vantive provided information to
the Company that it has successfully tested the Year 2000
readiness of the software that has been used to develop Year
2000 ready order entry systems for the Company's operations.
- ORACLE CORPORATION ("ORACLE"), provides the Company with
information systems, development tools and database management
software that supports the Company's human resources and
financial functions. Oracle has advised the Company that the
software that supports its human resources and financial
functions is Year 2000 ready in conjunction with recommended
upgrades. The Company has installed these upgrades, and testing
is significantly underway and should be completed at the end of
November 1999.
- HEWLETT-PACKARD, INC., supplies the Company with computer
hardware, such as monitors and peripherals, and UNIX operating
systems. Hewlett-Packard has provided the Company with
sufficient information to make all of the Hewlett-Packard
software and hardware supplied products Year 2000 ready. The
Company is currently making significant progress toward applying
all of these Year 2000 solutions, and this effort is scheduled
to be completed by the end of November 1999.
The Costs to Address the Company's Year 2000 Readiness Challenges:
Based on information developed to date as a result of the Company's assessment
efforts, the Company believes that the costs of modifying, upgrading or
replacing its systems and equipment will not have a material effect on the
Company's liquidity, financial condition or the results of operations. The
Company currently estimates that expenditures in connection with these efforts
will not exceed $5 million, excluding any amounts charged to the Company by
Nextel Communications. This cost estimate does not include parallel Year 2000
issues readiness expenses incurred by Nextel Communications relating to common
or shared systems or components, for which the Company may be required to
provide appropriate reimbursement to Nextel Communiations. To date, the Company
has not deferred any significant projects, goals or objectives relating to its
operations as a result of implementing Year 2000 readiness efforts.
The Risks of the Company's Year 2000 Readiness Challenges: Although the
Company's core business systems and network infrastructure and support systems
components have tested successfully under Year 2000 date conditions in tests
conducted in a laboratory setting, there is still some risk to its service and
systems. Any failure by third parties which have a material relationship with
the Company to achieve full Year 2000 readiness may be a potential risk if such
failure were to adversely impact the ability of such third parties to provide
any products or services that are critical to the Company's operations. In
addition, where the Company cannot validate that technology provided by
remaining vendors, suppliers, and other material third parties is Year 2000
ready, the Company has obtained assurances from these material third parties
that their systems are or will be Year 2000 ready. If these material third
parties fail to appropriately address their own Year 2000 readiness challenges,
there could be a materially adverse effect on the Company's financial condition
and results of operations. These risks include, but are not limited to:
- inability of subscribers to make or receive phone calls;
- inability of sites, switches and other interfaces to accurately
record call details of subscriber phone calls; and
- inability of billing systems to accurately report and bill
subscribers for phone usage.
Other risks associated with the Company's inability or that of material
third parties to deploy Year 2000 ready solutions in a timely and successful
manner may involve or result in conditions that could preclude the Company from:
- deploying an alternative technology that is Year 2000 ready;
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- implementing commercial service launches in new markets or
introducing new services in existing markets;
- pursuing additional business opportunities; and
- obtaining equity or debt financing.
Significantly, the Company cannot independently assess the impact of
Year 2000 readiness challenges, activities and programs involving operators of
public switched telecommunications networks or other service providers, for
example, electric utilities. The Company therefore must rely on the public
switched telecommunications networks and utility providers' estimates of their
own Year 2000 readiness and the status of their related compliance activities
and programs in the Company's own Year 2000 readiness assessment process.
Because the Company's systems are interconnected with and dependent on public
switched telecommunications networks and are dependent upon the systems of other
service providers, any disruption of operations in the computer programs of such
public switched telecommunications networks or service providers would likely
have an impact on the Company's systems. Moreover, there can be no assurance
that such impact will not have a materially adverse effect on the Company's
operations.
Finally, in assessing the Company's Year 2000 readiness exposure, the
Company has considered that certain operators of public switched
telecommunication networks or other service providers and operations located in
foreign countries may not be at the same level of awareness or assessment of the
Year 2000 readiness challenges and remedial measures as their United States
counterparts. These factors may result in delays in identifying Year 2000
readiness challenges and a lag in implementing remediation efforts.
Contingency Plans: While the Company's integrated testing on its
core business systems was successful in tests conducted in a laboratory setting,
it has developed guidelines for addressing Year 2000 readiness business
contingency plans for external and internal systems should it be determined that
contingency plans are necessary. This contingency planning process focuses on
the major components of the Company's core business system and network and has
as its primary goal the minimization of customer impact events resulting from
the Year 2000 transition. Final preparation of the Company's contingency plans
is underway, which establishes the framework and logistic strategy for executing
the Company's contingency plan, if required. These plans are designed to support
the Company's core business in the event of an unexpected Year 2000 related
complication. These plans are being developed by representatives from all areas
of the Company's and Nextel Communications' business, and are being coordinated
and compiled by the Company's Year 2000 Program Management Office group.
NEXTEL INTERNATIONAL'S FORWARD-LOOKING STATEMENTS ARE SUBJECT TO A
VARIETY OF FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
CURRENT BELIEFS.
"Safe Harbor" Statements under the Private Securities Litigation Reform
Act of 1995:A number of the statements made in the foregoing "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this report are not historical or current facts, but deal with
potential future circumstances and developments. Those statements are qualified
by the inherent risks and uncertainties surrounding expectations generally, and
also may differ materially from the Company's actual experience involving any
one or more of these matters and subject areas. The Company has attempted to
identify, in context, some of the factors that it currently believes may cause
actual experience and results to differ from current expectations regarding the
relevant matter or subject area. The operation and results of the Company's and
of the Operating Companies' wireless communications businesses also may be
subject to the effect of other risks and uncertainties in addition to the
relevant qualifying factors identified in the 1998 Form 10-K, Part I, Item 1,
"Business--Risk Factors," including, but not limited to:
- general economic conditions in Latin America and Asia and in the
market segments that the Company is targeting for its services;
- the availability of sufficient equity and/or debt financing to
fund the Company's anticipated business plan;
- the effect of valuation changes affecting the Brazilian currency
on the economies of the other Latin American economies in which
the Operating Companies conduct business;
- the impact of the changes in the relative valuation of
currencies in Brazil and the rest of Latin America in general as
compared to the U.S. dollar;
- substantive terms of any international financial aid package
that may be made available to any country in which the Operating
Companies conduct business, including, without limitation,
Brazil;
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- 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 network and
subscriber equipment and components to meet the Company's
business plans and anticipated customer demand;
- the impact of the economic conditions in Latin America and Asia
and other market conditions on the volatility and availability
of equity and debt financing in domestic and international
capital markets and the Company's access to sufficient debt and
equity financing to meet its operating and financial needs;
- the successful deployment and performance of Motorola's iDEN
technology in the Company's wireless communications networks;
- the receipt of sufficient funding, consistent with its current
expectations, from Nextel Communications during the balance of
1999 and into 2000 to meet a significant portion of the
Company's cash needs during that period;
- 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, collection, customer care and similar administrative
support systems 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, including providers of cellular, PCS,
other wireless communications services or telecommunications
generally;
- satisfactory completion of Year 2000 software and hardware
revisions by the Company and the entities with which the Company
does business; and
- other risks and uncertainties described from time to time in the
Company's reports filed with the Securities and Exchange
Commission (the "Commission").
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A significant portion of Nextel International's operations are financed
through senior discount notes and bank and vendor credit facilities that are
payable in U.S. dollars. These financial instruments expose the Company to
certain market risks, including interest rate risk and foreign currency exchange
risk as described below. Because the Company's debt does not require any
significant principal payments in the near term, the Company has not entered
into any hedging activities to protect itself from foreign currency exchange or
interest rate risks.
To the extent that these financial instruments provide for variable
rates of interest, the Company is exposed to interest rate risk, primarily
related to potential fluctuations in the U.S. prime rate and LIBOR. These rates
are used to determine the interest rates that are applicable to borrowings under
the Company's bank and vendor credit facilities.
The Company's debt is denominated in U.S. dollars, while the Company's
revenues are denominated in foreign currencies. Fluctuations in exchange rates
relative to the U.S. dollar, primarily that related to the Brazilian currency,
expose the Company to foreign exchange risk. In order to manage such risks, the
Company attempts to protect its revenues and earnings from foreign currency
exchange risks by periodically adjusting prices in local currencies and, in some
cases, setting such prices in direct relation to the U.S. dollar.
The Company also holds an available-for-sale investment in shares of
Clearnet Communications, Inc., a publicly traded company, which had a common
equivalent fair value of $151.3 million at September 30, 1999. The investment in
shares of Clearnet is reported at its common equivalent market value in the
Company's financial statements. Negative fluctuations in the stock price of
Clearnet expose the Company to equity price risks. A 10% decline in the stock
price would result in an approximately $15.1 million decrease in the fair value
of the Company's investment in Clearnet.
The table below summarizes the Company's sensitivity to market risks
associated with fluctuations in foreign currency exchange and interest rates.
The table presents principal cash flows by year of maturity for the Company's
fixed and variable rate debt obligations. Fair values are determined based on
quoted market prices for senior discount notes and carrying value for the bank
and vendor credit facilities at September 30, 1999.
YEAR OF MATURITY TOTAL DUE AT FAIR
2000 2001 2002 2003 2004 THEREAFTER MATURITY VALUE
---- ---- ---- ---- ---- ---------- -------- ------
(U.S. DOLLARS IN THOUSANDS)
Long-term debt:
Fixed rate................. $1,681,463 $ 1,681,463 $ 919,063
Average interest rate...... 12.6% 12.6%
Variable rate.............. $31,629 $75,525 $ 85,901 $ 115,901 $ 36,544 -- $ 345,500 $ 345,500
Average interest rate...... 9.8% 9.9% 9.9% 9.7% 9.8% -- 9.8%
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PART II
ITEM 1. LEGAL PROCEEDINGS.
The Company and/or the Operating Companies are involved in certain
legal proceedings as described in the Company's 1998 Form 10-K.
On August 16, 1999 MIBL and the Company filed a Motion for Judgment in
the Circuit Court for the City of Alexandria, Virginia, against Telcom Ventures.
(See description of the relationship among the Company, MIBL, and Telcom
Ventures in Note 2, "Brazil Ownership.") The Motion for Judgment seeks a
declaration from the court that the Founders Group's option to make its pro rata
share of capital contributions was not properly exercised, and as a result of
having failed to make such payment: that the Founders Group's ownership interest
in MIBL has fallen below 10%; that the Founders Group is no longer entitled to
designate a director to serve on the MIBL Board of Directors; and that the
director previously designated by the Founders Group must resign from the MIBL
Board of Directors. On September 16, 1999, Telcom Ventures filed its answer
denying the material allegations made in the Motion for Judgment, and asserted a
counterclaim alleging that the Company breached fiduciary duty to Telcom
Ventures and that MIBL breached a contract with Telcom Ventures by allegedly
issuing shares for less than fair market value without the informed consent of
the director designated by the Founders Group. Telecom Ventures' counterclaim
seeks damages in the amount of $100 million, plus punitive damages. MIBL and the
Company have filed an answer denying the material allegations made in the
counterclaim. MIBL and the Company intend to vigorously contest the allegations
made in Telcom Venture's counterclaim, which MIBL and the Company believe are
without merit. The Company does not expect that this litigation will have a
material adverse effect on the Company's financial condition, results of
operations or prospects.
On August 16, 1999, Promon Electronica Ltda ("Promon") filed a
complaint against Nextel Brazil before the 36th Civil Court of the City of Sao
Paulo, SP, for ordinary collection of monies in the amount of about $11 million.
Promon alleges that said amount is due under the parties' agreement relating to
the establishment of a trunking system in Brazil. On October 5, 1999, Nextel
Brazil filed its answer denying the material allegations made in the complaint
and, on that same date, filed a counterclaim against Promon for approximately $2
million. Nextel Brazil believes that the allegations in Promon's complaint are
substantially without merit and intends to defend against them vigorously. The
Company does not expect that this litigation will have a material adverse effect
on the Company's financial condition, results of operation or prospects.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) List of Exhibits.
EXHIBIT NO. EXHIBIT DESCRIPTION
*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.
(b) Reports on Form 8-K.
The Company did not file a Current Report on Form 8-K during the
quarter ended September 30, 1999.
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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/James L. Swoboda
-----------------------------
James L. Swoboda
Vice President and Controller
November 15, 1999
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EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
*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.
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