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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 333-26649
------------------------
NEXTEL INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-167-1412
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1191 SECOND AVENUE, SUITE 1600, 98101
SEATTLE, WA (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (206) 749-8000
------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /
Indicate the number of shares outstanding of each of issuer's classes of
common stock as of the latest practicable date:
NUMBER OF SHARES OUTSTANDING
TITLE OF CLASS ON NOVEMBER 1, 1997
- -------------------------------------- --------------------------------------
Common Stock, no par value 36,500,000
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NEXTEL INTERNATIONAL, INC.
INDEX
PAGE NO.
-------------
PART I FINANCIAL INFORMATION.
Item 1. Financial Statements--Unaudited............................................................... 3
Condensed Consolidated Balance Sheets--As of September 30, 1997 and December 31, 1996............... 3
Condensed Consolidated Statements of Operations--For the Three Months Ended September 30, 1997 and
1996............................................................................................... 4
Condensed Consolidated Statements of Operations--For the Nine Months Ended September 30, 1997 and
1996............................................................................................... 5
Condensed Consolidated Statement of Changes in Stockholder's Equity--For the Nine Months Ended
September 30, 1997................................................................................. 6
Condensed Consolidated Statements of Cash Flows--For the Nine Months Ended September 30, 1997 and
1996............................................................................................... 7
Notes to Condensed Consolidated Interim Financial Statements........................................ 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 14
PART II OTHER INFORMATION.
Item 1. Legal Proceedings............................................................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................................................. 21
2
PART I
ITEM 1. FINANCIAL STATEMENTS--UNAUDITED.
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
1997 1996
------------ ----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................. $ 294,430 $ 53,029
Marketable securities................................................................. 85,121 --
Accounts receivable, less allowance for doubtful accounts of $3,581 and $0............ 3,698 540
Radios and accessories................................................................ 1,588 830
Prepaid and other..................................................................... 7,713 183
Notes receivable...................................................................... 2,484 5,704
------------ ----------
Total current assets................................................................ 395,034 60,286
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of $1,197
and $59............................................................................... 86,693 8,703
INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES, at cost less equity in net loss.............. 67,116 98,982
INTANGIBLE ASSETS, net of accumulated amortization of $8,551 and $0..................... 480,050 10,878
INVESTMENTS AND OTHER ASSETS............................................................ 45,687 20,518
------------ ----------
$ 1,074,580 $ 199,367
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable, accrued expenses and other.......................................... $ 53,946 $ 5,819
Due to parent......................................................................... -- 152,783
Notes payable and current portion of long-term debt................................... 6,973 --
------------ ----------
Total current liabilities........................................................... 60,919 158,602
DEFERRED INCOME TAXES................................................................... 127,696 1,562
LONG-TERM DEBT.......................................................................... 530,600 --
------------ ----------
Total liabilities................................................................... 719,215 160,164
------------ ----------
MINORITY INTEREST....................................................................... 28,063 --
STOCKHOLDER'S EQUITY....................................................................
Common stock (73,000,000 shares authorized, no par value, 36,500,000 shares issued and
outstanding)........................................................................ 395,428 65,043
Accumulated deficit................................................................... (77,511) (28,741)
Unrealized gain on investments........................................................ 9,385 2,901
------------ ----------
Total stockholder's equity.......................................................... 327,302 39,203
------------ ----------
$ 1,074,580 $ 199,367
------------ ----------
------------ ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
1997 1996
------------- -------------
REVENUES........................................................................... $ 3,085 $ --
OPERATING EXPENSES
Costs and expenses related to revenues........................................... 753 --
Selling, general and administrative.............................................. 7,350 3,445
Depreciation and amortization.................................................... 4,656 30
------------- -------------
12,759 3,475
------------- -------------
OPERATING LOSS..................................................................... (9,674) (3,475)
------------- -------------
OTHER INCOME (EXPENSE)
Interest income.................................................................. 6,079 910
Interest expense, net............................................................ (16,761) --
Loss from equity method investments.............................................. (2,448) (1,491)
Other............................................................................ (13) 3
------------- -------------
(13,143) (578)
------------- -------------
MINORITY INTEREST.................................................................. 900 --
------------- -------------
LOSS BEFORE INCOME TAX BENEFIT (PROVISION)......................................... (21,917) (4,053)
INCOME TAX BENEFIT (PROVISION)..................................................... 1,296 (294)
------------- -------------
NET LOSS........................................................................... $ (20,621) $ (4,347)
------------- -------------
------------- -------------
NET LOSS PER COMMON SHARE.......................................................... $ (0.57) $ (0.12)
------------- -------------
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................... 36,500,000 36,500,000
------------- -------------
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED
1997 1996
------------- -------------
REVENUES........................................................................... $ 7,049 $ --
OPERATING EXPENSES
Costs and expenses related to revenues........................................... 2,231 --
Selling, general and administrative.............................................. 17,646 6,296
Depreciation and amortization.................................................... 11,347 51
------------- -------------
31,224 6,347
------------- -------------
OPERATING LOSS..................................................................... (24,175) (6,347)
------------- -------------
OTHER INCOME (EXPENSE)
Interest income.................................................................. 15,045 3,355
Interest expense, net............................................................ (39,114) (1)
Loss from equity method investments.............................................. (6,330) (4,030)
Other............................................................................ 140 (1)
------------- -------------
(30,259) (677)
------------- -------------
MINORITY INTEREST.................................................................. 2,247 --
------------- -------------
LOSS BEFORE INCOME TAX BENEFIT (PROVISION)......................................... (52,187) (7,024)
INCOME TAX BENEFIT (PROVISION)..................................................... 3,417 (1,122)
------------- -------------
NET LOSS........................................................................... $ (48,770) $ (8,146)
------------- -------------
------------- -------------
NET LOSS PER COMMON SHARE.......................................................... $ (1.34) $ (0.22)
------------- -------------
------------- -------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING............................... 36,500,000 36,500,000
------------- -------------
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
UNAUDITED
COMMON STOCK UNREALIZED
------------------------ ACCUMULATED GAIN ON
SHARES AMOUNT DEFICIT INVESTMENTS TOTAL
------------ ---------- ------------ ----------- ----------
BALANCE, January 1, 1997........................ 36,500,000 $ 65,043 $ (28,741) $ 2,901 $ 39,203
Capital contributions from parent............... 315,585 315,585
Issuance of warrants in connection with private
placement..................................... 14,800 14,800
Unrealized gain on investments.................. 6,484 6,484
Net loss........................................ (48,770) (48,770)
------------ ---------- ------------ ----------- ----------
BALANCE, September 30, 1997..................... 36,500,000 $ 395,428 $ (77,511) $ 9,385 $ 327,302
------------ ---------- ------------ ----------- ----------
------------ ---------- ------------ ----------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
UNAUDITED
1997 1996
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................... $ (48,770) $ (8,146)
Adjustment to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization........................................................ 11,347 51
Interest accretion on long-term debt................................................. 38,199 --
Loss from equity method investments.................................................. 6,330 4,030
Deferred income taxes................................................................ (2,555) --
Minority interest.................................................................... (2,247) --
Change in current assets and liabilities
Accounts receivable................................................................ 1,514 (84)
Radios and accessories............................................................. 747 (441)
Prepaid and other.................................................................. (4,996) (685)
Accounts payable, accrued expenses and other....................................... 846 516
Other.............................................................................. 1,765 216
----------- ----------
Net cash provided (used) by operating activities................................. 2,180 (4,543)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................................................................... (59,236) (2,925)
Purchase of marketable securities...................................................... (142,539) --
Proceeds from sale of marketable securities............................................ 58,728 --
Issuance of notes receivable........................................................... (2,484) (12,000)
Investments in unconsolidated subsidiaries............................................. (76,510) (33,261)
Other.................................................................................. (3,926) (460)
----------- ----------
Net cash used in investing activities............................................ (225,967) (48,646)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayments to) parent, net............................................ (23,556) 9,408
Capital contribution from parent....................................................... 6,366 22,817
Proceeds from issuance of warrants..................................................... 14,800 --
Net proceeds from issuance of long-term debt........................................... 467,578 --
----------- ----------
Net cash provided by financing activities........................................ 465,188 32,225
----------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................................... 241,401 (20,964)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........................................... 53,029 85,302
----------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................................. $ 294,430 $ 64,338
----------- ----------
----------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated interim financial statements of Nextel
International, Inc. and subsidiaries ("Nextel International" or the "Company")
included herein have been prepared by the Company without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission") and reflect all adjustments that are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods. All adjustments made were normal recurring accruals.
The interim financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Exchange Offer Registration Statement on Form S-4 (Registration No. 333-26649),
as amended, which was declared effective by the Commission on August 8, 1997.
Operating results for the interim periods are not necessarily indicative of
results for an entire year.
The accounts of the Company's foreign subsidiaries are consolidated as of a
date one month earlier than the accounts of the Company and its U.S.
subsidiaries to ensure timely reporting of consolidated results.
Certain prior period amounts have been reclassified to conform with the
current presentation.
NOTE 2--SIGNIFICANT TRANSACTIONS
MCCAW BRAZIL: On January 30, 1997, the Company's parent, Nextel
Communications, Inc. ("NCI"), purchased 81% of the issued and outstanding
capital stock of Wireless Ventures of Brazil, Inc. ("WVB") from Telcom Ventures,
Inc. and affiliates (collectively "Telcom Ventures") in exchange for $186.3
million in NCI Class A Common Stock ("NCI Common Stock"). NCI's investment in
WVB was simultaneously contributed to the Company, and the Company changed WVB's
name to McCaw International (Brazil), Ltd. ("McCaw Brazil"). McCaw Brazil and
its subsidiaries hold or have options to acquire licenses for 1,700 channels,
and provide specialized mobile radio ("SMR") services in 23 cities in Brazil
including Sao Paulo, Rio de Janeiro, Belo Horizonte, Curitiba, and Brasilia.
Telcom Ventures has the right between October 31, 2001 and November 1, 2003, to
require the Company to redeem their 19% interest in McCaw Brazil at fair market
value as determined pursuant to an appraisal procedure. The Company is currently
required to fund 100% of McCaw Brazil's capital requirements until April 30,
1999 when Telcom Ventures must either (i) contribute its pro rata share plus
accrued interest or (ii) dilute its ownership interest. Dividends are declared
at the discretion of McCaw Brazil's board of directors and are allocated based
on the ownership percentages in effect at the date of declaration. No dividends
have been declared to date.
The total cost of the acquisition, which was accounted for as a purchase,
was $187.2 million and exceeded the net liabilities of McCaw Brazil by $215.7
million, which was allocated to licenses and goodwill based on their preliminary
estimated fair values and is being amortized over their estimated useful lives
of 20 years.
Immediately prior to and in connection with the purchase of 49% of the
capital stock of MCS Radio Telefonia Ltda. (described below), the Company
reorganized its Brazil equity holdings so that AirLink S.A. ("AirLink," formerly
known as AirLink Servicos e Comercio, Ltda.), a wholly owned subsidiary of McCaw
Brazil, became a holding company for McCaw Brazil's Brazilian SMR licensee
companies. McCaw Brazil and subsidiaries other than AirLink continue to hold
options to acquire SMR licensees. The Company
8
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 2--SIGNIFICANT TRANSACTIONS (CONTINUED)
intends to transfer any equity interest in SMR licensees obtained as a result of
the exercise of such options to AirLink.
MCS: On September 26, 1997, AirLink acquired 49% of the capital stock of MCS
Radio Telefonia, Ltda. ("MCS"), an indirect wholly owned subsidiary of Motorola,
Inc. ("Motorola"), an option to purchase the remaining 51% of the capital stock
of MCS upon receipt of the approval of the applicable Brazilian regulatory
authorities, and certain assets of MCS. Upon the approval of the Brazilian
regulatory authorities, the option for the remaining 51% will be exercisable for
approximately $3.2 million. In exchange, Motorola, through a wholly owned
subsidiary, acquired 5% of the outstanding capital stock of AirLink. MCS owns
SMR licenses in thirteen of the largest Brazilian cities, including Sao Paulo,
Rio de Janeiro and Belo Horizonte. Immediately subsequent to the acquisition,
the Company, through its 81% equity interest in McCaw Brazil and McCaw Brazil's
95% equity interest in AirLink, held a 77% equity interest in AirLink.
The total cost of the acquisition, which was accounted for as a purchase,
was $20.2 million and exceeded the book value of the net tangible assets of MCS
by $16.7 million. The excess was allocated to licenses and goodwill based on
their preliminary estimated fair values and will be amortized over their
estimated useful lives of 20 years.
MOBILCOM: In January 1997, NCI purchased additional common shares of
Corporacion Mobilcom S.A. de C.V., a Mexican SMR operator ("Mobilcom") at a cost
of $16.5 million, in exchange for shares of NCI Common Stock. Such interest was
simultaneously contributed to the Company. In February 1997, Mobilcom
shareholders approved a $27.0 million capital call (the "Mobilcom Capital
Call"), and the Company funded its pro rata share (approximately $10.3 million)
with a cash contribution. On April 16, 1997, the Company purchased additional
shares of Mobilcom by funding the unsubscribed portion of the Mobilcom Capital
Call (approximately $11.1 million), thereby increasing the Company's ownership
interest to approximately 46.3%.
Through a series of transactions from June 30, 1997 to August 31, 1997, the
Company acquired additional shares of Mobilcom from shareholders that held a
right to put (the "Mobilcom Put") the entire amount of their holding to the
Company at its appraised fair market value. The transactions were consummated at
an aggregate cost of $57.1 million and increased the Company's equity interest
in Mobilcom to approximately 76.5%. Approximately $22.1 million of the purchase
price is payable in January 1998 and is included in accounts payable, accrued
expenses and other as of September 30, 1997. As a result of such acquisitions,
the Company is no longer subject to the rights formerly held by the Mobilcom Put
holders.
As the Mobilcom acquisitions resulted in the Company owning greater than 50%
of the outstanding common stock and obtaining control of Mobilcom, the Company
consolidated the accounts of Mobilcom commencing on September 1, 1997 under the
purchase method of accounting. The carrying amount of the Company's investment
in Mobilcom as of August 31, 1997 totaled approximately $152.3 million and
exceeded the book value of the net tangible assets of Mobilcom by $107.8
million. The excess was allocated to licenses and goodwill based on their
preliminary estimated fair values and is being amortized over their estimated
useful lives of 20 years.
9
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 2--SIGNIFICANT TRANSACTIONS (CONTINUED)
MCCAW ARGENTINA: On May 6, 1997, the Company contributed its 100% ownership
interest in McCaw Argentina S.A. ("MCASA") into Nextel International
(Argentina), Ltd. ("Nextel Argentina") (formerly McCaw International
(Argentina), Ltd.), a joint venture between the Company and Wireless Ventures of
Argentina, L.L.C. ("WVA"). WVA's contribution included all of the outstanding
common stock of a paging company and two companies that own SMR licenses in
Argentina. The Company has a 50% voting interest and shares equally in the
profits and losses of the joint venture. Capital contributions are to be made
equally unless otherwise agreed to by both the Company and WVA. Commencing on
May 6, 1997, the Company is accounting for its investment in the joint venture
under the equity method of accounting. Prior to May 6, 1997, the Company's
consolidated financial statements included selling, general and administrative
expenses related to MCASA totaling $772 and $1,668 for the nine months ended
September 30, 1997 and 1996, respectively and $1,253 for the three months ended
September 30, 1996. Other results of operations related to MCASA were
insignificant.
INDONESIA: On August 15, 1997 the Company entered into an agreement to form
a joint venture with PT Gunung Sewu Kencana, a large diversified Indonesian
corporation ("GSK"), using PT Mitra Kencana Telekomunindo, an Indonesian
corporation owned by GSK ("MKT"), as the joint venture company. MKT holds a
provisional license for 80 SMR channels that can be converted by MKT, upon
satisfaction of certain regulatory requirements, into an operating license
whereby MKT will be entitled to provide SMR and ESMR services in the city of
Jakarta and the regions of West Java, East Java and Bandar Lampung. Upon such
deployment of services in accordance with the operating license, MKT will have
the right to continue developing a national wireless communications network
across Indonesia and providing SMR and ESMR services on a nationwide basis.
Upon receiving the required regulatory approval to become a shareholder of
MKT ("Ministry Approval"), which is expected to occur by March 31, 1998, the
Company is expected to acquire an equity interest in MKT representing 37.5% of
the outstanding stock of MKT. Notwithstanding its 37.5% equity interest in MKT,
the Company has agreed to fund 44% (rather than 37.5%) of the capital
requirements of MKT in order to maintain its then-current ownership interest.
Profits and losses are to be allocated and dividends are to be distributed based
on the Company's 37.5% equity interest.
The Company has committed to loan MKT sufficient funds to meet 44% of the
interim cash needs of MKT in advance of the receipt of Ministry Approval (the
aggregate of such advances, the "MKT Loan"). The Company's share of such funds
is currently estimated to be approximately $16 million through March 31, 1998.
The Company is not obligated to provide funds to MKT after March 31, 1998 if
Ministry Approval has not been obtained by such date. The MKT Loan is guaranteed
by GSK. No amounts have been advanced to MKT through September 30, 1997.
Upon receipt of Ministry Approval, the MKT Loan will be converted to equity
and applied to the Company's initial capital contribution. If the Company does
not receive Ministry Approval by March 31, 1998, the MKT Loan will be payable on
demand together with interest accruing as of the date of demand. No interest
will be payable on the MKT Loan if the Company converts such loan into an equity
interest in MKT. Upon conversion of the MKT Loan into equity, the MKT Loan will
be extinguished and the Company will account for its investment in MKT under the
equity method of accounting.
SHANGHAI CCT MCCAW: In October 1997, a subsidiary of CCT Telecom Holdings
Limited, a publicly traded Hong Kong telecommunications company, acquired a 51%
ownership interest in Shanghai McCaw
10
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 2--SIGNIFICANT TRANSACTIONS (CONTINUED)
Telecommunications Co. Ltd., the Chinese joint venture in which the company
maintained a 60% ownership interest, in exchange for approximately $46 million
of capital contributions, access fees, loans and lease guarantees. Immediately
thereafter, the joint venture's name was changed to Shanghai CCT - McCaw
Telecommunications System Co., Ltd. ("Shanghai CCT McCaw"). The acquisition,
which was made directly from Shanghai CCT McCaw, diluted the Company's ownership
interest in Shanghai CCT McCaw to 30% and its contractual right to the profits
generated by a Global System for Mobile communications ("GSM") network in
Shanghai, China to approximately 12.1%. As the Company's investment in Shanghai
CCT McCaw is accounted for under the cost method, the transaction is not
expected to have a significant effect on the Company's consolidated financial
statements.
PRO FORMA INFORMATION: The following summarized pro forma (unaudited)
information assumes the McCaw Brazil, MCS, Mobilcom and Nextel Argentina
transactions had occurred on January 1, 1996.
NINE MONTHS ENDED
----------------------------
SEPTEMBER 30, SEPTEMBER 30,
1997 1996
------------- -------------
Revenues....................................................... $ 17,352 $ 18,182
------------- -------------
------------- -------------
Net loss....................................................... $ (52,723) $ (29,610)
------------- -------------
------------- -------------
Net loss per share............................................. $ (1.44) $ (0.81)
------------- -------------
------------- -------------
Weighted average shares outstanding............................ 36,500,000 36,500,000
------------- -------------
------------- -------------
The above amounts consolidate the historical results of McCaw Brazil, MCS,
and Mobilcom prior to the acquisitions and reflect adjustments for the
recognition of the minority ownership interests and the amortization of licenses
and goodwill. Additionally, the above amounts combine the historical results of
MCASA and WVA under the equity method of accounting as if the Nextel Argentina
joint venture had occurred on January 1, 1996. The pro forma information is not
necessarily indicative of the results that would actually have occurred had the
transactions been consummated on the date indicated, nor are they necessarily
indicative of future operating results of the Company.
NOTE 3--INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
Investments where the Company has the ability to exercise significant
influence over operating and financial policies and possesses a voting interest
of 50% or less are accounted for under the equity method. The Company's equity
in net loss of Mobilcom, its only significant equity investment, was $519 and
$1,269 for the three months ended September 30, 1997 and 1996, and $3,255 and
$3,808 for the nine months ended September 30, 1997 and 1996, respectively. The
Company's equity in net loss of Mobilcom differs from its proportionate share of
its reported net income primarily due to the amortization of the excess purchase
price over net assets acquired. Commencing September 1, 1997, the Company
consolidated the
11
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 3--INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES (CONTINUED)
accounts of Mobilcom. See Note 2, "Significant Transactions." Condensed
operating results for Mobilcom are as follows:
THREE MONTHS ENDED
NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------- --------------------
1997 1996 1997 1996
--------- --------- --------- ---------
Revenues......................................... $ 2,357 $ 1,419 $ 6,283 $ 3,985
Operating loss................................... (1,257) (579) (2,620) (3,379)
Net loss......................................... (967) (1,814) (2,908) (7,482)
NOTE 4--COMPANY FINANCING
LONG-TERM DEBT: In March 1997, the Company completed a private placement of
951,463 units yielding approximately $482.0 million in net proceeds. Each unit
is comprised of a 10-year senior discount note (with a principal amount at
maturity of $1,000) and a detachable warrant to purchase 0.38748 shares of the
Company's common stock. The notes have a 13% yield to maturity, are noncallable
for five years, and require no interest payments for the first five years. The
warrants are exercisable at a price of $9.99 per share and entitle the holders
to purchase, in the aggregate, approximately 368,673 shares of the Company's
common stock.
PHILIPPINES FINANCING: In June 1997, Infocom Communication Network, Inc.
("Infocom") and Motorola, Inc. ("Motorola") entered into an equipment financing
agreement (the "Philippines Motorola Financing"), pursuant to which Motorola
agreed to provide up to $15 million in term loans to Infocom to finance the
purchase of infrastructure equipment and services from Motorola. The terms of
the Philippines Motorola Financing provides for a maturity of two years and an
annual interest rate of LIBOR plus 506 basis points. Pursuant to the Philippines
Motorola Financing the term loans are secured by a first-priority lien on
substantially all of Infocom's assets and a pro rata guarantee of such financing
by each of Infocom's shareholders, including the Company.
BRAZIL FINANCING: In October 1997, McCaw Brazil and Motorola Credit Corp., a
subsidiary of Motorola ("Motorola Credit"), entered into an Equipment Financing
Agreement whereby Motorola Credit agreed to provide up to $125 million in
revolving loans (the "Brazil Motorola Financing") to McCaw Brazil to be used to
acquire infrastructure equipment and related services from Motorola. The Brazil
Motorola Financing is repayable in semi-annual installments over a period of 42
months commencing June 30, 2000 and bears interest at an annual rate
periodically determined by the Company of either the LIBOR rate plus 463 basis
points or the prime rate plus 250 basis points. Pursuant to the Brazil Motorola
Financing, the revolving loans are secured by a first priority lien on
substantially all of McCaw Brazil's assets, a pledge of all of the stock of
McCaw Brazil and its subsidiaries, including AirLink, and guarantees by the
Company and Motorola International Development Corporation (which indirectly
holds a 5% equity interest in AirLink) of 93.9% and 6.1%, respectively, of McCaw
Brazil's obligations under such financing. Additionally, approximately $70.3
million of the Company's cash, cash equivalents and marketable securities have
been restricted for use as future equity investments in McCaw Brazil and its
subsidiaries.
12
NEXTEL INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
DOLLARS IN THOUSANDS UNLESS OTHERWISE NOTED
UNAUDITED
NOTE 5--STOCKHOLDER'S EQUITY
As a result of approval by the Company's Board of Directors on August 15,
1997, the total number of shares of authorized stock was increased from
20,000,000 to 73,000,000 and a 3.65-for-1 stock split was effective as of August
25, 1997. All share and per share data presented reflect this stock split. The
number of shares of common stock outstanding increased from 10,000,000 to
36,500,000 immediately after the stock split.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW.
The following is a discussion of the condensed consolidated financial
condition and results of operations of Nextel International, Inc. ("Nextel
International" or the "Company"), an indirectly wholly owned subsidiary of
Nextel Communications, Inc. ("Nextel Communications"), for the nine month
periods ended September 30, 1997 and 1996.
The Company currently provides wireless communications services in the four
largest cities in Latin America and two of the largest cities in Asia, primarily
utilizing specialized mobile radio ("SMR") channels in its licensed service
areas. The wireless services companies in which the Company holds interests
operate in markets covering approximately 230 million people, approximately 120
million of which are in Latin America. Nextel International, through its
operating subsidiaries, is the largest SMR service provider in Brazil and
Mexico, and holds the largest SMR channel position in Argentina.
The Company's strategy is to focus on leveraging its analog dispatch or SMR
channel positions in its principal markets and using Nextel Communication's
experience and supplier relationships to upgrade its services from analog
dispatch to digital enhanced specialized mobile services ("ESMR"). The upgrade
to digital networks will allow the Company to increase capacity significantly
and to offer additional services and features such as enhanced dispatch (group
calling and instant conferencing), high-quality telephone interconnect and text
messaging. The Company is upgrading its analog SMR networks to digital ESMR
networks using the integrated Digital Enhanced Network ("iDEN") technology
developed by Motorola, Inc. ("Motorola") and deployed by Nextel Communications
in certain of its markets. The Company also continues to assess additional
opportunities to enter into new markets, particularly in Latin America and Asia.
The Company owns interests in and actively participates in the management of
wireless communications services companies in Brazil, Argentina, Mexico and the
Philippines. In addition, the Company currently 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") and has a 3.7% interest in Clearnet
Communications Inc., a Canadian wireless communications services company. The
wireless services companies in which the Company holds interests or a
contractual right are referred to herein as the "Operating Companies."
Additionally, upon formation of the Indonesian joint venture company, the
Company will hold a 37.5% equity interest in an SMR operator in Indonesia.
Immediately prior to and in connection with the purchase of 49% of the
capital stock of MCS Radio Telefonia Ltda. (described below), the Company
reorganized its Brazil equity holdings so that AirLink S.A. ("AirLink," formerly
known as AirLink Servicos e Comercio, Ltda.), a wholly owned subsidiary of McCaw
International (Brazil), Ltd. ("McCaw Brazil"), became a holding company for
McCaw Brazil's SMR Brazilian licensee companies. McCaw Brazil and subsidiaries
other than AirLink continue to hold options to acquire SMR licensees. The
Company intends to transfer any equity interest in SMR licensees obtained as a
result of the exercise of such options to AirLink.
On September 26, 1997, AirLink acquired 49% of the capital stock of MCS
Radio Telefonia, Ltda. ("MCS"), an indirect wholly owned subsidiary of Motorola,
Inc. ("Motorola"), an option to purchase the remaining 51% of the capital stock
of MCS upon receipt of the approval of the applicable Brazilian regulatory
authorities, and certain assets of MCS. Upon the approval of the Brazilian
regulatory authorities, the option for the remaining 51% will be exercisable for
approximately $3.2 million. In exchange, Motorola, through a wholly owned
subsidiary, acquired 5% of the outstanding capital stock of AirLink. MCS owns
SMR licenses in thirteen of the largest Brazilian cities, including Sao Paulo,
Rio de Janeiro and Belo Horizonte. Immediately subsequent to the acquisition,
the Company, through its 81% equity interest
14
in McCaw Brazil and McCaw Brazil's 95% equity interest in AirLink, held a 77%
equity interest in AirLink.
POST FISCAL QUARTER-END TRANSACTIONS AND DEVELOPMENTS
SHANGHAI. In October 1997, a subsidiary of CCT Telecom Holdings Limited, a
publicly traded Hong Kong telecommunications company, acquired a 51% ownership
interest in Shanghai McCaw Telecommunications Co. Ltd., the Chinese joint
venture in which the company maintained a 60% ownership interest, in exchange
for approximately $46 million of capital contributions, access fees, loans and
lease guarantees. Immediately thereafter, the joint venture's name was changed
to Shanghai CCT - McCaw Telecommunications System Co., Ltd. ("Shanghai CCT
McCaw"). The acquisition, which was made directly from Shanghai CCT McCaw,
diluted the Company's ownership interest in Shanghai CCT McCaw to 30% and the
Company's contractual rights to the profits generated by the Shanghai GSM System
to approximately 12.1%.
BRAZIL. In October 1997, McCaw Brazil and Motorola Credit Corp., a
subsidiary of Motorola ("Motorola Credit"), entered into an Equipment Financing
Agreement whereby Motorola Credit agreed to provide up to $125 million in
revolving loans (the "Brazil Motorola Financing") to McCaw Brazil to be used to
acquire infrastructure equipment and related services from Motorola. The Brazil
Motorola Financing is repayable in semi-annual installments over a period of 42
months commencing June 30, 2000 and bears interest at an annual rate
periodically determined by the Company of either the LIBOR rate plus 463 basis
points or the prime rate plus 250 basis points. Pursuant to the Brazil Motorola
Financing, the revolving loans are secured by a first priority lien on
substantially all of McCaw Brazil's assets, a pledge of all of the stock of
McCaw Brazil and its subsidiaries, including AirLink, and a guarantee by the
Company and Motorola International Development Corporation (which indirectly
holds a 5% equity interest in AirLink) of 93.9% and 6.1%, respectively, of McCaw
Brazil's obligations under such financing. Additionally, approximately $70.3
million of the Company's cash, cash equivalents and marketable securities have
been restricted for use as future equity investments in McCaw Brazil and its
subsidiaries.
BRAZIL REGULATIONS. On November 3, 1997, the Ministry of Communications of
Brazil (the "Brazil Ministry of Communications") issued Ordinance 557, which
adopted Norma 14/97 ("Norma 14/97"). Norma 14/97 enacts the proposed regulations
that were published for comment in May 1997 and June 1997, and repeals Brazil
Ministry of Communications Administrative Ruling No. 478, each of which was
described in the Company's Exchange Offer Registration Statement on Form S-4
(Registration No. 333-26649), as amended, substantially as proposed. Norma 14/97
provides the regulations governing SMR providers in Brazil, including service
requirements, interconnection rules, license consolidation and transfer of
licenses and technical specifications.
SMR SERVICES. Norma 14/97 provides that SMR service may only be provided to
legal entities or groups of legal entities for the performance of specific
activities. SMR service may not be provided to individual subscribers, and all
SMR subscriber units must be capable of providing dispatch service.
INTERCONNECTION RULES. Norma 14/97 prohibits an operator of a public
switched telecommunications network ("PSTN") from adopting practices that
inhibit competition or procedures that result in discrimination of any kind
against SMR licenseholders. Norma 14/97 contemplates that each SMR provider will
obtain interconnection to the PSTN pursuant to interconnection agreements with
the operators of the PSTN. If interconnection negotiations do not produce an
interconnection agreement within 60 days of the commencement of negotiations or
if full interconnection is not implemented within 90 days of the conclusion of
negotiations, either party to the negotiation may refer the matter to the Brazil
Ministry of Communications for resolution.
Under Norma 14/97, an SMR service provider must apply to the Brazil Ministry
of Communications to obtain blocks of telephone numbers to be used by such SMR
service provider for use by its subscribers.
15
The telephone numbers granted by the Brazil Ministry of Communications cannot
exceed 50% of the total number of SMR mobile subscriber units projected to be in
operation by the SMR service provider, as projected by the SMR service provider
in the schedule for the deployment of the services.
Norma 14/97 also limits the volume of interconnect traffic for SMR service
providers. Norma 14/97 provides that within an SMR service provider's network,
the volume of traffic interconnected with the PSTN cannot exceed one third of
the sum of intra-network traffic volume and outgoing calls interconnected to the
PSTN. For purposes of calculating the number of intra-network calls, each
subscriber unit called during a one-to-many dispatch call counts as one
intra-network call. The evaluation of the traffic volumes for the purposes of
the above restrictions is to take place every four months.
LICENSE CONSOLIDATION AND TRANSFER OF LICENSES. Norma 14/97 provides that
SMR licenseholders may not hold more than 200 SMR channels (10 MHz) in each
geographic area. Under Norma 14/97, the transfer of a license or the controlling
interest of a licensee may only be effected after the actual commencement of
commercial operation of service. Norma 14/97 permits SMR licensees that are
under common ownership or control to request the Brazil Ministry of
Communications to consolidate their SMR licenses, subject to the 200 channel
limitation, under one SMR licensee. The Brazil Ministry of Communications must
approve any request for consolidation within three months of receipt of such
request.
Although the Company believes that the current regulatory framework, as
embodied by Norma 14/97, permits the Company's current and planned operations in
Brazil, there can be no assurance that the Brazilian government or the Brazil
Ministry of Communications will not modify the existing regulatory framework in
a manner that is materially adverse to the Company. Additionally, because the
Brazilian telecommunications regulatory framework, including SMR, is relatively
new and still developing and the enforcement of regulations is often uncertain,
it is difficult to determine how regulators will interpret the rules or judge
compliance. Any actions by the Brazilian government or the Brazil Ministry of
Communications impeding or placing substantial restrictions on the Company's
ability to deploy ESMR services could have a material adverse effect on the
Company's competitive position in Brazil and on its business and results of
operations.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. NINE MONTHS ENDED SEPTEMBER 30, 1996
The Company acquired majority interests in McCaw International (Brazil),
Ltd. ("McCaw Brazil") and Corporacion Mobilcom S.A. de C.V. ("Mobilcom") in
January 1997 and August 1997, respectively. Accordingly, there were no
comparable revenues or costs and expenses related to revenues in the nine months
ended September 30, 1996. For the first nine months of 1997, substantially all
of the revenues and costs and expenses related to revenues result from the eight
months of McCaw Brazil's SMR operations and one month of Mobilcom's SMR
operations included in the Company's consolidated financial statements.
Selling, general and administrative expenses increased $11.3 million to
$17.6 million for the nine months ended September 30, 1997 from $6.3 million for
the nine months ended September 30, 1996. The increase is primarily attributable
to $12.2 million of expenses from the McCaw Brazil operations which have been
included in the Company's consolidated results of operations commencing January
1997.
Depreciation and amortization expense totaled $11.3 million for the nine
months ended September 30, 1997. The amount is primarily attributable to
depreciation and amortization expense of approximately $9.9 million related to
McCaw Brazil. The remaining amount is due to depreciation and amortization
expenses related to Mobilcom and the amortization of licenses in Argentina which
commenced commercial operations in February 1997. No significant depreciation
and amortization expense was recognized during the nine months ended September
30, 1996.
16
Interest income increased $11.6 million to $15.0 million for the nine months
ended September 30, 1997 from $3.4 million for the nine months ended September
30, 1996. The increase was primarily attributable to income recognized on the
investment of the net proceeds from the Company's issuance in March 1997 of
units consisting of senior discount notes due 2007 and detachable warrants to
purchase up to 1% of the Company's outstanding common stock (the "Units
Issuance"). See--"Liquidity and Capital Resources."
Interest expense of $39.1 million was recognized during the nine months
ended September 30, 1997 of which $38.2 million represented interest accretion
on the long-term debt associated with the Units Issuance and amortization of
associated debt issue costs. Additionally, Nextel International (CANMEX), Ltd.
("Canmex") (formerly McCaw International (CANMEX), Ltd.), a wholly owned
subsidiary of the Company incurred $0.4 million of interest expense on a note
payable to the Company's parent, and McCaw Brazil and Mobilcom incurred
approximately $0.5 million of interest expense on short term borrowings. During
the nine months ended September 30, 1997, the Company capitalized $0.5 million
of interest expense in connection with the construction and development of its
digital ESMR networks. No interest expense was incurred during the nine months
ended September 30, 1996.
Loss from equity method investments increased $2.3 million to $6.3 million
for the nine months ended September 30, 1997 from $4.0 million for the nine
months ended September 30, 1996. The increase was primarily attributable to
approximately $2.4 million in losses associated with the Company's investment in
Nextel International (Argentina), Ltd. ("Nextel Argentina") (formerly McCaw
International (Argentina), Ltd.), which has been accounted for under the equity
method since May 1997.
Minority interest in the net loss of McCaw Brazil and Mobilcom totaled $2.3
million during the nine months ended September 30, 1997. The amount is primarily
attributable to the minority shareholder's interest in McCaw Brazil subsequent
to the acquisition of an 81% interest by the Company in January 1997.
The Company recognized an income tax benefit of $3.4 million during the nine
months ended September 30, 1997 compared to an income tax provision of $1.1
million during the nine months ended September 30, 1996. The income tax benefit
recognized during the nine months ended September 30, 1997 was primarily
attributable to net operating losses of Brazil allowed to be recognized due to
the existence of Brazilian taxable temporary differences. The income tax expense
recognized for the nine months ended September 30, 1996 was primarily
attributable to the taxes associated with Canmex's interest income.
THREE MONTHS ENDED SEPTEMBER 30, 1997 VS. THREE MONTHS ENDED SEPTEMBER 30, 1996
The Company acquired majority interests in McCaw Brazil and Mobilcom in
January 1997 and August 1997, respectively. Accordingly, there were no revenues
or costs and expenses related to revenues in the three months ended September
30, 1996. For the third quarter of 1997, a majority of the revenues and costs
and expenses related to revenues result from McCaw Brazil's SMR operations
included in the Company's consolidated financial statements. Revenues and costs
and expenses related to revenues attributable to the one month of Mobilcom's SMR
operations included in the Company's consolidated financial statements totaled
$0.7 million and $0.2 million, respectively.
Selling, general and administrative expenses increased $3.0 million to $7.4
million for the three months ended September 30, 1997 from $3.4 million for the
three months ended September 30, 1996. The increase is primarily attributable to
the expenses from the McCaw Brazil operations which have been included in the
Company's consolidated results of operations commencing January 1997.
Depreciation and amortization expense totaled $4.7 million for the three
months ended September 30, 1997. The amount is primarily attributable to
depreciation and amortization expense of approximately $3.7 million related to
McCaw Brazil. The remaining amount is due primarily to depreciation and
17
amortization expenses related to Mobilcom. No significant depreciation and
amortization expense was recognized during the three months ended September 30,
1996.
Interest income increased $5.2 million to $6.1 million for the three months
ended September 30, 1997 from $0.9 million for the three months ended September
30, 1996. The increase was primarily attributable to income recognized on the
investment of the proceeds from the Units Issuance.
Interest expense of $16.8 million was recognized during the three months
ended September 30, 1997 of which $16.7 million represented accretion on the
long-term debt associated with the Units Issuance and amortization of debt issue
costs. During the three months ended September 30, 1997, the Company capitalized
$0.5 million of interest expense associated with the construction and
development of its digital ESMR networks. No interest expense was recognized
during the three months ended September 30, 1996.
Loss from equity method investments increased $0.9 million to $2.4 million
for the three months ended September 30, 1997 from $1.5 million for the three
months ended September 30, 1996. The increase was primarily attributable to
losses associated with the Company's investment in Nextel Argentina, which has
been accounted for under the equity method since May 6, 1997.
Minority interest in the net loss of McCaw Brazil and Mobilcom totaled $0.9
million during the three months ended September 30, 1997. The amount is
primarily attributable to the minority shareholder's interest in McCaw Brazil
subsequent to the acquisition of an 81% interest in McCaw Brazil by the Company
on January 30, 1997.
The Company recognized an income tax benefit of $1.3 million during the
three months ended September 30, 1997 compared to an income tax provision of
$0.3 million during the three months ended September 30, 1996. The income tax
benefit recognized during the three months ended September 30, 1997 was
primarily attributable to net operating losses of Brazil allowed to be
recognized due to the existence of Brazilian taxable temporary differences. The
income tax expense recognized for the three months ended September 30, 1996 was
primarily attributable to the taxes associated with Canmex's interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred historical net losses of approximately $77.5
million since inception through September 30, 1997. 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.
Net cash provided by operating activities for the nine months ended
September 30, 1997 was approximately $2.2 million. Net cash used by investing
activities for the nine months ended September 30, 1997 was approximately $226.0
million. Net cash provided by financing activities for the nine months ended
September 30, 1997 was approximately $465.2 million. Working capital as of
September 30, 1997 increased to $334.1 million compared to a negative $98.3
million at December 31, 1996. The cash used by investing activities primarily
represented investments in the Operating Companies to fund the build-out of the
Company's ESMR networks and acquire additional equity ownership interests. The
cash provided by financing activities and the increase in working capital are
primarily a result of the Company receiving approximately $482.0 million of net
proceeds from the Units Issuance. As a result of the above activities, cash and
cash equivalents increased approximately $241.4 million during the nine months
ended September 30, 1997.
Through March 3, 1997, funds necessary to finance the Company's activities
were provided to the Company primarily by its parent company (which is an
unrestricted subsidiary of Nextel Communications), in the form of equity
contributions. The Company's parent company is not obligated to provide any
additional funding to the Company. For the next several years, the Company
anticipates using its existing cash and investments and externally generated
funds from debt and equity sources as discussed below to cover future needs,
including the design, implementation and operation of the Company's ESMR
networks
18
and the acquisition of additional equity interests in the Operating Companies.
Additionally, the Company is considering expanding its operations into other
markets through investments in unaffiliated companies.
In November 1996, Nextel, Nextel International and Motorola entered into a
binding memorandum of understanding (the "Motorola MOU") regarding the terms of
financing to be provided by Motorola to fund the purchase of Motorola equipment
by the Operating Companies other than Clearnet (the "Motorola Financing"). Under
the Motorola MOU, the significant terms of which are more fully described in the
Company's Exchange Offer Registration Statement on Form S-4, as amended
(Registration No. 333-26649), Motorola agreed to provide an aggregate of up to
$400 million in vendor financing to Nextel Communications and Nextel
International for the worldwide purchase of iDEN equipment and services and
ancillary products (such as switches). In March 1997, Motorola and Nextel
entered into an agreement increasing the maximum worldwide vendor financing
available to Nextel and Nextel International to $650 million, with a maximum
non-U.S. amount outstanding of $400 million, subject to certain per country
limits as agreed to in the Motorola MOU. The terms of any borrowings under the
Motorola Financing are subject to negotiation and execution of definitive
agreements. The availability of borrowings pursuant to the Motorola Financing
are expected to be subject to certain conditions, and there can be no assurance
that such conditions will be met. In July 1997, in accordance with the Motorola
MOU, Infocom and Motorola entered into an equipment financing agreement (the
"Philippines Motorola Financing"), pursuant to which Motorola will provide up to
$15 million of vendor financing in the form of term loans to Infocom.
Additionally, in October 1997, McCaw Brazil and Motorola Credit entered into the
Brazil Motorola Financing, pursuant to which Motorola Credit will provide up to
$125 million of vendor financing in the form of revolving loans to McCaw Brazil.
Any amounts available to be borrowed by the Operating Companies under the
Motorola Financing will be reduced by any amounts borrowed by Nextel and its
subsidiaries other than the Company and the Operating Companies. Nextel has
committed to the Company that at least $95 million of the Motorola Financing
will be available to the Company. As of September 30, 1997, Nextel had borrowed
$151 million pursuant to the Motorola Financing. In addition, to the extent
total amounts outstanding under the Motorola Financing to Nextel and its
subsidiaries, including the Company and the Operating Companies (other than
Clearnet), plus requests for additional financing under the Motorola Financing
by Nextel and its subsidiaries other than the Company and the Operating
Companies would exceed $400 million, Nextel International is required to repay
or cause to be repaid sufficient borrowings such that after giving effect to
such repayment, the total amount of loans outstanding from Motorola to Nextel
and its subsidiaries, including the Company and the Operating Companies (other
than Clearnet), will not exceed $400 million (any such repayment is referred to
as a "Forced Repayment"). Nextel has agreed with the Company not to cause a
Forced Repayment.
The Company expects approximately $220 million of the funds necessary to
design, implement and operate the Company's planned ESMR networks will be
obtained at the Operating Company level through the Motorola Financing and other
project financing sources. Based on the Motorola Financing agreements entered
into to date between Motorola and the Operating Companies and preliminary
discussions with other project financing sources, the Company believes that it
will be able to obtain sufficient financing to meet its current objectives for
funding at the Operating Company level. There can be no assurance that the
Company will be able to raise such capital on satisfactory terms, if at all. See
"--Forward Looking Statements."
The Company believes that its current available cash and cash equivalents,
together with borrowings expected to be available under existing and proposed
project financing, including the Motorola Financing, will be sufficient to fund
the cash needs of the Company's current operations, including the planned
expansion of its existing operations, but excluding any additional investments
or acquisitions, through the end of fiscal year 1999. Thereafter, the Company
may require substantial additional capital. If the Company's plans or
assumptions change, if its assumptions prove to be inaccurate, if it consummates
additional investments or acquisitions, if it experiences unanticipated costs or
competitive pressures, or if
19
the Company's available cash and cash equivalents, together with the proceeds of
any borrowings under the Motorola Financing or other project financing sources
identified above, otherwise prove to be insufficient or cannot be obtained at
satisfactory terms, if at all, the Company may be required to seek additional
capital sooner than currently anticipated. See "--Forward-Looking Statements."
In the future, the Company may consider obtaining financing from various
other sources, including capital contributions from Nextel Communications in the
form of cash or Nextel Communications common stock, vendor financing provided by
equipment suppliers, project financing from commercial banks and international
agencies such as International Finance Corporation and Overseas Private
Investment Corporation, bank lines of credit and sales of equity and debt issued
by the Operating Companies and/or the Company. Nextel Communications has no
obligation to provide any such financing and to the extent the Company issues
debt, its leverage and debt service obligations will increase. There can be no
assurance that the Company will be able to raise such capital on satisfactory
terms, if at all. See "--Forward-Looking Statements."
FORWARD-LOOKING STATEMENTS.
"SAFE HARBOR" STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995. A number of the matters and subject areas discussed in the foregoing
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from the Company's actual
future experience involving any one or more of such matters and subject areas.
The Company has attempted to identify, in context, certain of the factors that
it currently believes may cause actual future experiences and results to differ
from the Company's current expectations regarding the relevant matter or subject
area. The operation and results of the Company's wireless communications
business also may be subject to the effect of other risks and uncertainties in
addition to the relevant qualifying factors identified elsewhere in the
foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section, including, but not limited to, general economic
conditions in the countries where the Company operates and those that the
Company is targeting for its wireless communications services, the availability
of adequate quantities of system infrastructure and subscriber equipment and
components to meet the Company's service deployment and marketing plans and
customer demand, the successful deployment of the iDEN technology, the ability
to achieve market penetration and average subscriber revenue levels sufficient
to provide financial viability to the Company's wireless communications
business, the Company's ability to timely and successfully accomplish required
scale-up of its billing, customer care and similar back-room operations to keep
pace with customer growth and increased system usage, access to sufficient debt
or equity capital to meet the Company's operating and financial needs, 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 and personal communications services, future legislative or regulatory
actions in the countries where the Company operates relating to SMR services,
other wireless communications services or telecommunications generally and other
risks and uncertainties described from time to time in the Company's reports
filed with the Commission.
20
PART II
ITEM 1. LEGAL PROCEEDINGS
The Company is not currently involved in any material legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits.
EXHIBIT NO. EXHIBIT DESCRIPTION
- ------------- -------------------------------------------------------------
10.1 Equipment Financing Agreement dated as of October 31, 1997,
by and between McCaw International (Brazil), Ltd. and
Motorola Credit Corporation.
27* Financial Data Schedule
- ------------------------
* Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act of 1933, as
amended.
(b) Reports on Form 8-K.
None.
21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEXTEL INTERNATIONAL, INC.
By: /s/ DAVID E. ROSTOV
-----------------------------------------
David E. Rostov
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
November 13, 1997
22
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT DESCRIPTION
- ------------- -------------------------------------------------------------
10.1 Equipment Financing Agreement dated as of October 31, 1997,
by and between McCaw International (Brazil), Ltd. and
Motorola Credit Corporation.
27* Financial Data Schedule
- ------------------------
* Submitted only with the electronic filing of this document with the
Commission pursuant to Regulation S-T under the Securities Act of 1933, as
amended.
23