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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-K

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

               FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997,

                                    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 0-19656

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

                DELAWARE                                        36-3939651
     (State or other jurisdiction of                         (I.R.S. Employer
     incorporation or organization)                        Identification No.)

   1505 FARM CREDIT DRIVE, MCLEAN, VA                             22102
(Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (703) 394-3000

        Securities registered pursuant to Section 12(b) of the Act: NONE

   Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON
                            STOCK, $0.001 PAR VALUE

     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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated herein by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.  [X]

     Based on the closing sales price on March 2, 1998, the aggregate market
value of the voting and non-voting common stock held by nonaffiliates of the
registrant was $5,564,044,097.

     On March 2, 1998, the number of shares outstanding of the registrant's
Class A Common Stock and Class B non-voting Common Stock, $0.001 par value was
252,664,929 and 17,830,000, respectively.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement relating to the Annual Meeting of
Stockholders scheduled to be held on or about May 14, 1998 are incorporated in
Part III, Items 10, 11, 12 and 13.

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                          NEXTEL COMMUNICATIONS, INC.

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     On July 28, 1995, NEXTEL Communications, Inc., a corporation organized
under the laws of the State of Delaware in 1987 ("Old Nextel"), was merged with
ESMR, Inc. ("ESMR"), until then a wholly owned subsidiary of Motorola, Inc.
("Motorola"). ESMR was the surviving corporation in the merger (the "Motorola
Transaction") and succeeded to Old Nextel's assets and liabilities. ESMR changed
its name to Nextel Communications, Inc. ("Nextel" or the "Company"), effective
upon the consummation of the Motorola Transaction. References herein to Nextel
or the Company for periods prior to July 28, 1995 refer to Old Nextel as the
predecessor to the business and operations of Nextel. Unless the context
requires otherwise, references to the Company or to Nextel are intended to
include Nextel Communications, Inc. and its consolidated subsidiaries.

     Information contained herein gives effect to the acquisition of
approximately 1,220,000 shares of the Company's Class A Common Stock, par value
$0.001 per share (the "Common Stock"), by Digital Radio L.L.C. (the "McCaw
Investor") on April 5, 1995, an additional acquisition of 8,163,265 shares of
the Company's Class A Convertible Redeemable Preferred Stock, par value $0.01
per share (the "Class A Preferred Stock") and 82 shares of the Company's Class B
Convertible Preferred Stock, par value $0.01 per share (the "Class B Preferred
Stock") by the McCaw Investor and the consummation of related transactions on
July 28, 1995 (the "McCaw Transaction"), the merger of OneComm Corporation
("OneComm") with and into Nextel on July 28, 1995 (the "OneComm Transaction"),
the consummation of the Motorola Transaction on July 28, 1995, the merger of a
subsidiary of Nextel with American Mobile Systems Incorporated ("AMS") on July
31, 1995 (the "AMS Transaction"), the merger of Dial Page, Inc. ("Dial Page")
with and into Nextel on January 30, 1996 (the "Dial Page Transaction") and the
merger of a subsidiary of the Company with Pittencrieff Communications, Inc.
("PCI") on November 12, 1997 (the "PCI Transaction").

OVERVIEW

     Nextel provides a wide array of digital and analog wireless communications
services throughout the United States. The Company offers a differentiated,
integrated package of digital wireless communications services under the Nextel
brand name, primarily to business users, and as of December 31, 1997, provided
service to approximately 1,270,700 digital subscriber units in the United
States. The Company's digital network constitutes one of the largest integrated
wireless communications systems utilizing a single transmission technology in
the United States. At December 31, 1997, the Company's digital network was
operational in areas in which approximately 65% of the total United States
population lives or works, providing coverage in or around 75 of the top 100
metropolitan statistical areas ("MSAs") in the United States. In addition to its
digital networks, Nextel also operates analog wireless networks which provide
analog specialized mobile radio ("SMR") services throughout the continental
United States and in Hawaii to approximately 583,000 analog SMR subscriber units
as of December 31, 1997. Nextel has significant SMR spectrum holdings in and
around every major business and population center in the country, including all
of the top 50 MSAs in the United States.

     Nextel's digital network in the United States has been developed to replace
its remaining traditional analog SMR systems with advanced mobile communications
systems employing digital technology with a multi-site configuration permitting
frequency reuse ("Digital Mobile network"). Since 1994, the number of digital
subscriber units in service has increased significantly, reflecting the
commencement of Digital Mobile network service in certain markets, increased
sales in markets in which Digital Mobile network services are

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provided and, to a limited extent, acquisitions. The following table summarizes
the approximate number of digital subscriber units in service in the United
States at the dates indicated:

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                   -------------------------------------
                                                    1994     1995     1996       1997
                                                   ------   ------   -------   ---------
<S>                                                <C>      <C>      <C>       <C>
Digital subscriber units.........................  13,500   85,000   300,300   1,270,700
</TABLE>

     A customer using Nextel's Digital Mobile network is able to access mobile
telephone services, two-way dispatch (which provides instant conferencing
capabilities and is marketed as Nextel's "Direct Connect"(SM) service), paging
and alphanumeric short-messaging service and, in the future, is expected to be
able to access data transmission. Nextel is implementing its Digital Mobile
network utilizing digital technology developed by Motorola (such technology is
referred to as the "integrated Digital Enhanced Network" or "iDEN"(TM)).

     In addition, the Company operates or has investments in international
wireless companies through its indirect, wholly owned subsidiary Nextel
International, Inc. (formerly known as McCaw International, Ltd.; "Nextel
International"). Nextel International's subsidiaries or other entities in which
Nextel International holds equity or equivalent interests own and operate
wireless communications systems in Latin America, Asia and Canada and (together
with Nextel's domestic Digital Mobile network operations) provide service in ten
of the world's 25 largest cities. The Company's consolidated financial
statements include financial information reflecting the assets, liabilities and
results of operations relating to Nextel International and its consolidated
subsidiaries as of the dates or for the periods indicated therein. Additional,
more detailed and focused information relating to Nextel International may be
found in the periodic and other reports filed by Nextel International with the
Securities and Exchange Commission (the "Commission") pursuant to rules under
the Securities and Exchange Act of 1934, as amended and the rules thereunder
(the "Exchange Act"). Except as noted above and as otherwise expressly indicated
herein, the description of the Company's business herein refers to the Company's
United States operations.

     Nextel's principal executive and administrative facility is located at 1505
Farm Credit Drive, McLean, Virginia 22102, and its telephone number is (703)
394-3000.

BUSINESS STRATEGY

     Nextel's principal business objective is to offer high-capacity, high
quality, advanced communications services on its Digital Mobile network to its
customers in metropolitan markets throughout the United States and to become a
major participant in the global wireless communications business. The Company's
initial efforts to achieve this objective were focused on the consolidation of
the fragmented SMR industry through the acquisition of SMR systems and the
acquisition of SMR spectrum. More recently, these strategic efforts have been
expanded to include the accelerated deployment of the Company's Digital Mobile
network and the marketing of digital wireless services. The Company believes
that the following elements of its business strategy and characteristics of its
business distinguish its wireless service offerings from those of its
competitors in the wireless communications marketplace:

     PROVIDE A DIFFERENTIATED, INTEGRATED PACKAGE OF WIRELESS SERVICES,
INCLUDING UNIQUE DIRECT CONNECT FEATURE:  Nextel's Digital Mobile network
service provides a bundled product offering consisting of: (i) mobile telephone;
(ii) two-way dispatch; and (iii) paging and alphanumeric short-messaging
services accessible through a single device. Nextel's market research indicates
that a significant degree of overlap exists in the customer population for these
separate wireless communications service offerings. Accordingly, Nextel believes
that, for customers who already subscribe to or who would benefit by access to
multiple wireless services, the convenience of combining multiple wireless
communications options in a single handset and of consolidating all wireless
service charges into a single package price and billing statement are important
features that distinguish Nextel from many of its competitors.

     Nextel's market research also indicates that a sizeable portion of business
users' communications involve contacting others within the same organization.
Nextel believes that its Direct Connect service is especially well suited to
address such intracompany wireless communications needs. The Direct Connect
service, which

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enables a user to instantly set up a conference on either a private (i.e.,
one-to-one) or group (i.e., one-to-many) basis, is a service that is not
included in any integrated service package currently available from competing
cellular and personal communications services ("PCS") operators. To further
expand the flexibility and convenience offered by its Direct Connect service to
users outside a single organization but within a single industry or interest
group in a particular dispatch service area, the Company pioneered the "Business
Net Service" concept. Business Net Service extends Direct Connect service beyond
a company's employees to suppliers or other parties involved in the same
industry. Finally, Nextel expects that its ability to offer a data transmission
capability to users of its Digital Mobile network in the future will increase
the attractiveness of its integrated service offerings to business users and
will supply an additional point of differentiation from its cellular and PCS
competitors.

     FOCUS ON THE BUSINESS CUSTOMER:  Nextel's corporate marketing strategy
focuses on targeting business users that Nextel believes will be likely to
perceive and appreciate the potential for Nextel's wireless communication
service capabilities to increase efficiencies and reduce costs in such users'
business activities. Nextel is currently concentrating its sales efforts on a
number of distinct occupational groupings of mobile workers, including personnel
in the transportation, delivery, real property and facilities management,
construction and building trades, landscaping and professional service sectors.

     INNOVATIVE PRICING FEATURES:  The Company has implemented pricing features
that it believes differentiate its services from those of its cellular
competitors. Such pricing features include: (i) no "roaming" charges assessed
for mobile telephone services provided to its customers traveling anywhere on
the Digital Mobile network outside the customer's home market in the United
States and in certain parts of Canada (through its roaming agreement with
Clearnet Communications, Inc. ("Clearnet"), a provider of analog and digital
wireless services in Canada); (ii) billing its mobile telephone service
customers based on the actual number of seconds of airtime used after the first
minute, in contrast to the common cellular industry practice of rounding all
calls up to the next minute; (iii) charging one airtime rate and a single
nationwide long distance rate, regardless of the time of day a call is made; and
(iv) pricing plans that allow the customer to aggregate the total number of
account minutes for all of such customer's subscriber units and reallocate the
aggregate minutes among subscriber units.

     EXPANDED MARKETING PROGRAM AND DISTRIBUTION CHANNELS:  The Company has
significantly expanded the scope and geographic coverage of its marketing
program and related advertising campaigns to enhance awareness of its brand name
and to stimulate additional interest in and demand for its services by stressing
their versatility, value, simplicity and quality. In March 1997, Nextel launched
a nationwide radio, television and print advertising campaign, coupled with
intensive targeted advertising programs in particular markets coinciding with
the launch of commercial service in those markets. The Company uses both direct
and indirect sales forces as part of its strategy to increase the number of
digital subscriber units placed in service on its Digital Mobile network. Nextel
expects to expand and enhance both direct and indirect distribution channels as
it further penetrates existing markets and expands its geographic reach.

     STRATEGIC RELATIONSHIPS WITH CRAIG O. MCCAW AND MOTOROLA:  Through December
31, 1997, Craig O. McCaw ("Mr. McCaw") and members of the McCaw family have
invested more than $600.0 million in the Company through purchases of the
Company's equity securities from the Company and Motorola. As of December 31,
1997, Mr. McCaw and his affiliates beneficially owned approximately 23.2% of the
common equity interest in the Company, giving effect to the exercise of all
presently exercisable options issued by Nextel to, and held by, the McCaw
Investor or other controlled affiliates of Mr. McCaw. The Company also benefits
from Mr. McCaw's more than 20 years experience in the wireless communications
business. Mr. McCaw currently serves as a member of the Company's Board of
Directors and also as Chairman of the Operations Committee of the Board, which
is responsible for formulating key aspects of the Company's business strategy.
See "-- Agreements with Significant Stockholders -- McCaw Interests."

     Nextel has a number of important strategic and commercial relationships
with Motorola. Motorola provides the iDEN infrastructure and subscriber handset
equipment used throughout Nextel's domestic markets and in most of the
international markets served by Nextel International's affiliated operating
companies. The Company and Motorola also work closely together to improve
existing products and develop

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new technologies such as the modified version of the iDEN ("Reconfigured iDEN")
technology that is currently being deployed in Nextel's Digital Mobile network.
As of December 31, 1997, Motorola was the beneficial owner of an approximate
19.9% ownership stake in the Company, primarily as a result of the Motorola
Transaction. See "-- Agreements with Significant Stockholders -- Motorola."

1998 BUSINESS PLAN

     In early 1997, Nextel finalized and began implementing a business plan for
the period from March 31, 1997 through December 31, 1998 that contemplated an
accelerated build-out of its Digital Mobile network in the United States
incorporating the Reconfigured iDEN technology (the "1997 Plan"). During 1997,
Nextel achieved a significant expansion of its Digital Mobile network and
experienced a large increase in the number of digital subscriber units in
service and system minutes of use. In particular:

     - Digital subscriber units increased from approximately 300,300 to
       approximately 1,270,700;

     - Total net system minutes of use increased from approximately 94 million
       in January to approximately 403 million in December;

     - Approximately 2,100 additional digital cell sites were placed in service;
       and

     - Reconfigured iDEN coverage expanded from 6 to 75 of the top 100 MSAs.

     This growth resulted in greater capital expenditures and net cash used in
Digital Mobile network operations in the final three quarters of 1997 than
estimated for purposes of developing the 1997 Plan. The Company has updated and
revised its business plan for its domestic operations, as it relates to 1998, in
light of its results and experience in building out and commercializing its
Digital Mobile network in 1997 (the "1998 Plan"). Nextel's 1998 Plan
contemplates further expansion of the Company's Digital Mobile network in a
manner that is directed at achieving additional penetration in its business
customer target base in markets where the Digital Mobile network is currently
operating, at selecting and prioritizing additional markets for expansion of
Digital Mobile network coverage by Nextel during 1998, and at enhancing the
quality and performance of its Digital Mobile wireless services offerings to
maintain and strengthen Nextel's competitive position relative to other existing
and emerging providers of digital wireless services in the United States. The
increased funding requirements reflected in the 1998 Plan include (i) a $1,050.0
million increase in total system infrastructure and capital costs over the
$1,450.0 million in such costs that were contemplated by the 1997 Plan for the
period from March 31, 1997 through December 31, 1998 (the "Plan Period") and
(ii) a $500.0 million increase in non-system capital expenditures and operating
losses over the $1,050.0 million of such expenditures and losses that were
contemplated by the 1997 Plan for the Plan Period. The 1998 Plan contemplates
that the Company's funding requirements for system and non-system capital
expenditures for 1998 will be approximately $1,496.0 million as compared to the
approximately $1,452.5 million in funding used for such purposes during 1997.
Such actual and contemplated capital expenditures exclude capital expenditures
relating to international operations and capitalized interest relating to the
Company's domestic and international operations for the respective periods.

     By implementing the 1998 Plan, Nextel expects to further increase the
capacity of its Digital Mobile network to accommodate higher future growth in
subscribers and higher future system usage levels than previously anticipated,
to improve system performance and to continue to expand geographic coverage.
Approximately one-half of the increase in system capital expenditures reflected
in the 1998 Plan for the Plan Period relates to adding capacity to the Digital
Mobile network to accommodate increases in the number of subscribers and higher
levels of system usage. Approximately one-quarter of the increase in system
capital expenditures is associated with enhancements to produce improvements in
system performance, e.g. the construction of additional cell sites and the
deployment of additional base radios to produce greater "in building" coverage.
The balance of the increase in system capital expenditures arises from various
sources, particularly spending for additional switching and dispatch processing
capacity associated with higher anticipated system loads as well as systems
operations and management software upgrades and enhancements to improve network
performance.

     The increase in non-system capital expenditures is largely associated with
the acquisition, construction or improvement of business information and
back-office systems required to meet billing, customer care and

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other business management and tracking activities associated with the growth of
the customer base and increased system usage. In addition to such system and
non-system capital expenditures, a significant amount of the incremental funding
requirements under the 1998 Plan is tied to increased working capital needs and
opportunistic uses of funds, such as discretionary acquisitions of additional
spectrum in privately negotiated transactions or Federal Communications
Commission ("FCC") auctions, which in certain instances may be deferred or
eliminated if sufficient cash is not available to pursue such uses. The 1998
Plan does not include amounts required to acquire Local Multipoint Distribution
Service ("LMDS") licenses in the recently concluded FCC auction, amounts
required in 1998 to pursue LMDS or other new business opportunities or other
potential transactions or investments that are not part of Nextel's domestic
digital and analog SMR wireless communications businesses and assets and related
corporate support services, personnel and overhead. See "-- Post-Fiscal Year
1997 Transactions and Developments--LMDS Auction." The incremental funding
requirements reflected in the 1998 Plan also result in part from the more
accurate cost data and estimates derived from the Company's actual experience
during 1997.

     The 1998 Plan focuses on Nextel capturing an increased share of its
targeted customer population in markets where its Digital Mobile network is
currently operating (or is expected to be placed in operation during 1998).
Nextel believes that, assuming the Company successfully develops a sufficient
customer base in those markets, it will be positioned to compete effectively
against other wireless communications service providers. Although Nextel will
continue to focus on the deployment of its Digital Mobile network in additional
markets throughout the United States, Nextel will do so selectively and will
prioritize its new build opportunities in comparison to the potential commercial
returns from enhancing or expanding coverage and increasing capacity.

FISCAL YEAR 1997 TRANSACTIONS AND DEVELOPMENTS

     800 MHz SMR AUCTION:  The Company submitted bids totaling approximately
$88.8 million representing the highest bids for 475 of the 525 Economic Area
("EA") licenses being awarded by the FCC in the 800 MHz "upper 200 SMR" channel
auction, which concluded on December 8, 1997. Although Nextel successfully bid
for rights to almost 10 MHz of spectrum in areas covering all 50 states and
approximately 98% of the United States' population, the FCC has not yet granted
these licenses to Nextel and petitions to deny the grant have been filed. See
"-- Regulation." Assuming Nextel is granted the licenses, it can gain full use
of them only if the Company relocates certain incumbent licensees to other
portions of the 800 MHz band pursuant to established FCC rules or otherwise
obtains the agreement of such incumbent licensees to Nextel's use of the
relevant frequencies.

     PCI MERGER:  Nextel entered into an Agreement of Merger and Plan of
Reorganization dated as of October 2, 1996, as amended, with PCI providing for
the merger of PCI with a wholly-owned indirect subsidiary of Nextel. PCI had
approximately 6,000 800 MHz SMR channels covering a total population of over 27
million people predominantly in the states of Texas, Oklahoma, New Mexico and
Arizona. The PCI Transaction closed on November 12, 1997, resulting in the
issuance (or reservation for issuance) of a total of approximately 6.2 million
shares of Common Stock valued at $169.6 million.

     OCTOBER NOTES ISSUANCE:  On October 22, 1997, Nextel completed the sale in
a private placement transaction of $1,129.1 million principal amount at maturity
of its 9.75% Senior Serial Redeemable Discount Notes due 2007 (such securities
issued originally and any securities issued in exchange therefor in the related
exchange offer completed January 22, 1998 collectively, the "October Notes").
Nextel received approximately $682.0 million in net cash proceeds from the sale
of the October Notes (the "October Notes Proceeds"). Cash interest will not
accrue on the October Notes prior to October 31, 2002. The October Notes are
senior unsecured indebtedness of Nextel and rank pari passu in right of payment
with all unsubordinated, unsecured indebtedness of Nextel.

     SEPTEMBER NOTES ISSUANCE:  On September 17, 1997, Nextel completed the sale
in a private placement transaction of $840.0 million in principal amount at
maturity of its 10.65% Senior Redeemable Discount Notes due 2007 (such
securities issued originally and any securities issued in exchange therefor in
the related exchange offer completed January 14, 1998, collectively, the
"September Notes" and together with the October Notes, the "1997 Notes"). Nextel
received approximately $486.0 million in net cash proceeds from the sale of the
September Notes (the "September Notes Proceeds"). Cash interest will not accrue
on the
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September Notes prior to September 15, 2002. The September Notes are senior
unsecured indebtedness of Nextel and rank pari passu in right of payment with
all unsubordinated, unsecured indebtedness of Nextel.

     ADDITIONAL CREDIT FACILITIES:  On September 4, 1997, the Company entered
into definitive agreements which increased the Company's total secured financing
capacity under its bank and vendor financing agreements from approximately $2.0
billion to $2.5 billion. These financing agreements were effectively replaced or
terminated on March 13, 1998 in connection with the funding of the Bank Credit
Facility (as defined herein). See "Post-Fiscal Year 1997 Transactions and
Developments -- New Bank Financing."

     MCCAW INVESTOR OPTION EXERCISE:  On July 28, 1997 (the "Option Closing"),
the McCaw Investor exercised in full its option (the "First Option") to purchase
15.0 million shares of Common Stock for an aggregate cash purchase price of
$232.5 million (the "McCaw Option Proceeds").

     SERIES D PREFERRED STOCK ISSUANCE:  On July 21, 1997, Nextel completed the
sale in a private placement transaction of 500,000 shares of its 13% Series D
Exchangeable Preferred Stock mandatorily redeemable 2009 (the shares of such
stock so issued originally, any shares of such stock issued in exchange therefor
in the related exchange offer completed December 18, 1997 and any shares of such
stock issued as payment in kind dividends thereon, collectively, the "Series D
Preferred Stock") with a liquidation preference of $1,000 per share. Nextel
received approximately $482.0 million in net cash proceeds from the sale of the
Series D Preferred Stock (the "Series D Preferred Stock Proceeds"). Dividends on
the Series D Preferred Stock accrue at an annual rate of 13% of the liquidation
preference, are cumulative from the date of issuance and are payable quarterly
in cash or, on or prior to July 15, 2002, at the sole option of Nextel, in
additional shares of Series D Preferred Stock.

     CONSENT SOLICITATION:  In June 1997, Nextel obtained the consent from the
holders of its five issues of Senior Redeemable Discount Notes outstanding prior
to 1997 (the "Old Senior Notes"), to certain amendments to and waivers of
certain provisions of the respective related indentures (as amended, the "Old
Indentures") pursuant to a consent solicitation (the "Consent Solicitation") at
a cost of approximately $67.2 million in cash payments to validly consenting
holders. Also, in connection with the Consent Solicitation, Nextel offered
shares of Common Stock to validly consenting holders of the Old Senior Notes.
Approximately 3.9 million of such shares were subscribed for an aggregate
purchase price of approximately $63.7 million (the "Subscription Proceeds").

     ISSUANCE OF NEW OPTION:  On March 20, 1997, the Company completed the
purchase of an option to acquire 25.0 million shares of Common Stock (the
"Comcast Option") from an affiliate of Comcast Corporation, for an aggregate
purchase price of $25.0 million. In connection with the agreements relating to
the exercise of the First Option, an affiliate of Mr. McCaw purchased, for an
aggregate purchase price of $25.0 million, an option, in replacement of the
Comcast Option, to purchase 25.0 million shares of Common Stock (the "New
Option") of which 15.0 million shares are purchaseable at $16.00 per share and
10.0 million shares are purchaseable at $18.00 per share, in either case at any
time through July 28, 1998.

     NEXTEL INTERNATIONAL 1997 FINANCING:  In March 1997, Nextel International
completed a private placement (the "1997 NI Private Placement") of 951,463 units
yielding approximately $500.0 million in gross proceeds. Each unit is comprised
of a 10-year senior discount note (the "1997 NI Notes") and a warrant to
purchase 0.38748 shares of Nextel International common stock exercisable at a
price of $9.99 per share. The 1997 NI Notes have a 13.0% yield to maturity, are
noncallable for five years, and require no interest payments for the first five
years. The warrants are exercisable any time after March 6, 1998, and expire in
March 2007. In connection with the issuance of the 1997 NI Notes, Nextel
International agreed to use its best efforts to complete a registered offering,
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), to
exchange such 1997 NI Notes for substantially identical notes of equivalent
value. Such exchange offer was completed on September 6, 1997.

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

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     NEXTEL BRAZIL:  In January 1997, Nextel acquired 81% of the outstanding
shares of Wireless Ventures of Brazil, Inc. ("WVB"), an operator of analog SMR
systems in Brazil, for a purchase price of $186.3 million which was paid with
approximately 12.0 million shares of Common Stock, through a merger of WVB with
a wholly-owned subsidiary of Nextel. Nextel simultaneously contributed its
interest in WVB, which has been renamed McCaw International (Brazil), Ltd.
("Nextel Brazil"), to Nextel International. On September 26, 1997, Nextel S.A.
(formerly Airlink S.A.), a subsidiary of Nextel Brazil and the indirect holder
of Nextel Brazil's SMR channels and related operating assets in Brazil, acquired
(i) 49% of the capital stock of MCS Telefonia, Ltda. ("MCS"), an indirect wholly
owned subsidiary of Motorola; (ii) an option to purchase the remaining 51% of
the capital stock of MCS; and (iii) certain assets of MCS (collectively the "MCS
Transaction"). The MCS option is exercisable for $3.2 million upon receipt of
certain necessary approvals from Brazilian regulatory authorities. In connection
with the MCS Transaction, Motorola acquired 5% of the outstanding capital stock
of Nextel S.A., which effectively diluted Nextel International's ownership in
its Brazilian operations to 77%.

POST-FISCAL YEAR 1997 TRANSACTIONS AND DEVELOPMENTS

     NEW BANK FINANCING:  Nextel, Nextel Finance Company, a wholly owned
subsidiary of Nextel ("NFC"), and certain other subsidiaries of Nextel entered
into definitive agreements, which became effective on March 13, 1998, with
respect to a secured credit facility arranged by Barclays Capital, Chase
Securities, Inc., J.P. Morgan Securities Inc., NationsBanc Montgomery Securities
L.L.C. and Toronto-Dominion Securities (USA), Inc. (the "Bank Credit Facility").
The Bank Credit Facility replaces a prior credit facility initially arranged on
September 30, 1996, as amended (the "Old Bank Credit Facility"). The credit
agreement relating to the Bank Credit Facility (the "Bank Credit Agreement")
provides for up to $3.0 billion of secured financing, consisting of a $1.5
billion revolving loan and $1.5 billion in term loans. Concurrently with the
effectiveness of the Bank Credit Facility, the Company made and applied
borrowings pursuant to certain of the term loans thereunder to repay the
indebtedness outstanding under and to terminate its secured credit facility with
Motorola and certain other lenders (the "Vendor Credit Facility") and terminated
the additional vendor credit facility pursuant to which additional secured
borrowings of up to $200.0 million were available from Motorola. Nextel
contemplates accessing the Bank Credit Facility to finance investments and
acquisitions, to fund capital expenditures and for working capital and general
corporate purposes. Borrowings under the Bank Credit Facility are secured by
liens on assets of Nextel's subsidiaries that are "restricted" subsidiaries
under the terms of Nextel's public indentures (the "Nextel Indentures") relating
to the Company's various outstanding issues of senior discount notes (the
"Nextel Notes") and bear interest payable quarterly at an adjustable rate
calculated based either on the prime rate or LIBOR. The Nextel Indentures
contain provisions that operate to limit the amount of borrowings available
under the Bank Credit Facility in certain circumstances. See "-- Risk
Factors -- Nextel to Require Additional Financing" and "-- Forward Looking
Statements" and Part II, Item 7, "Management's Discussion and Analysis and
Results of Operations."

     The maturity date of the $1.5 billion revolving loan and a $500.0 million
portion of the term loans is March 31, 2006. The maturity date of the remaining
$1.0 billion portion of the term loans is September 30, 2006. Notwithstanding
the foregoing, (i) the maturity of the revolving credit facility and the $500.0
million term loan facility will be accelerated to the date that is six months
prior to the earliest maturity date for the then outstanding Old Senior Notes,
unless the aggregate principal amount of all the Old Senior Notes is less than
$1.0 billion and (ii) the maturity of the $1.0 billion term loan facility, will
be accelerated to the date that is three months prior to the earliest maturity
date for the then outstanding Old Senior Notes unless the aggregate principal
amount of all outstanding Old Senior Notes is less than $1.0 billion. Access to
the Bank Credit Facility is required for Nextel to implement the 1998 Plan. See
"-- Risk Factors -- Nextel to Require Additional Financing," and "-- Forward
Looking Statements" and Part II, Item 7, "Management's Discussion and Analysis
and Results of Operations."

     TENDER OFFER AND CONSENT SOLICITATION:  On March 3, 1998, Nextel commenced
a cash tender offer and related consent solicitation with respect to all of the
outstanding 11.5% Senior Redeemable Discount Notes due 2003 and 12.25% Senior
Redeemable Discount Notes due 2004 (collectively, the "Targeted Notes"). The
tender offer and consent solicitation is scheduled to conclude April 3, 1998.
Based on tenders made through March 20, 1998, the Company estimates that the
total amount of funds required by the Company to pay the
                                        8
<PAGE>   9

aggregate amount due with respect to the Targeted Notes tendered and all related
consents delivered in connection with such tender offer and consent
solicitation, assuming that all relevant conditions to the tender offer are
satisfied and the Company accepts such tendered Targeted Notes, will be
approximately $736.8 million. The Company intends to use a portion of the
February Notes Proceeds (as defined below) to make such payments.

     LMDS AUCTION:  On February 18, 1998, the FCC commenced an auction of
spectrum in the 28 GHz - 31 GHz range, known as LMDS. In connection with its
participation in the LMDS auction and potential pursuit of LMDS-related business
opportunities, the Company has entered into a joint venture with NextLink
Communications, Inc. ("NextLink"). NextLink, a publicly traded company that is
controlled by Mr. McCaw, provides local facilities based telecommunications
services, with an emphasis on delivering switched services to commercial
customers. NextLink files periodic and other reports with the Commission
pursuant to the Exchange Act, and additional information concerning NextLink is
contained in such Exchange Act reports. The joint venture is being conducted
through NextBand Communications, L.L.C. ("NextBand") which participated in the
FCC's LMDS spectrum auction. As of the conclusion of the LMDS spectrum auction
on March 25, 1998, NextBand had submitted $134.7 million in bids that
represented the highest bids with respect to the auction of LMDS spectrum in 42
Basic Trading Areas (as defined herein) covering approximately 96 million people
throughout the United States. Under the terms of the joint venture, one half of
the bid amount is to be funded by the Company.

     SERIES E PREFERRED STOCK ISSUANCE:  On February 11, 1998, Nextel completed
the sale of 750,000 shares of 11.125% Series E Exchangeable Preferred Stock
mandatorily redeemable 2010 (the shares of such stock so issued originally, any
shares of such stock issued in exchange therefor in the Series E Preferred Stock
Exchange Offer (as defined herein) and any shares of such stock issued as
payment in kind dividends thereon, collectively the "Series E Preferred Stock"),
with a liquidation preference of $1,000 per share, generating approximately
$727.9 million in net proceeds (the "Series E Preferred Stock Proceeds").
Dividends on the Series E Preferred Stock accrue at an annual rate of 11.125% of
the liquidation preference, are cumulative from the date of issuance and are
payable quarterly in cash or, on or prior to February 15, 2003, at the sole
option of Nextel, in additional shares of Series E Preferred Stock.

     The shares of the Series E Preferred Stock were issued in a private
placement transaction, have not been registered with the Commission under the
Securities Act and may not be sold absent registration or an applicable
exemption from the registration requirements. In connection with the issuance of
the Series E Preferred Stock, Nextel agreed to use its best efforts to file with
the Commission and cause to become effective a registration statement with
respect to a registered offer to exchange the then outstanding Series E
Preferred Stock for an equal number of shares of 11.125% Series E Exchangeable
Preferred Stock that have been registered pursuant to the Securities Act (the
"Series E Preferred Stock Exchange Offer"). In the event that the Series E
Preferred Stock Exchange Offer is not consummated prior to specified dates, the
dividend accrual rate applicable to the Series E Preferred Stock will increase
by specified amounts until the Series E Preferred Stock Exchange Offer is
consummated or certain other requirements are met.

     FEBRUARY NOTES ISSUANCE:  Concurrent with the sale of the Series E
Preferred Stock, on February 11, 1998, Nextel completed the sale of $1,627.0
million principal amount at maturity of its 9.95% Senior Serial Redeemable
Discount Notes due 2008 (the "February Notes"). The issue price of the February
Notes, which mature on February 15, 2008, was $614.71 per $1,000 principal
amount at maturity (generating approximately $975.9 million in net proceeds (the
"February Notes Proceeds")) representing a yield to maturity of 9.95% computed
on a semi-annual bond equivalent basis from the date of issuance. Cash interest
will not accrue on the February Notes prior to February 15, 2003, and will be
payable on February 15 and August 15 of each year commencing August 15, 2003, at
a rate of 9.95% per annum. The February Notes are senior unsecured indebtedness
of Nextel and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel.

     The February Notes were issued in a private placement transaction and have
not been registered with the Commission under the Securities Act and may not be
sold absent registration or an applicable exemption from the registration
requirements. In connection with the issuance of the February Notes, Nextel has
agreed to use

                                        9
<PAGE>   10

its best efforts to file with the Commission and cause to become effective a
registration statement with respect to a registered offer to exchange the then
outstanding February Notes for an equal principal amount at maturity of its
9.95% Senior Redeemable Discount Notes due 2008 that have been registered
pursuant to the Securities Act (the "February Notes Exchange Offer"). In the
event that the February Notes Exchange Offer is not consummated prior to
specified dates, additional incremental interest on the accreted value of the
February Notes will accrue until the February Notes Exchange Offer is
consummated or certain other requirements are met.

     NEXTEL INTERNATIONAL JAPAN INVESTMENT:  On March 17, 1998, Nextel
International purchased a 21% equity interest in J-Com Co., Ltd., a digital SMR
provider in Japan ("J-Com") for a purchase price of approximately $0.6 million.
Nextel International also provided a shareholder loan of approximately $32.1
million to J-Com. J-Com's licenses cover more than 125 million people. DJSMR
Business Partnership, a Japanese partnership in which an affiliate of Motorola
is the majority partner, holds a 49% equity interest in J-Com. The remaining
equity interests in J-Com are held by Nichimen Corporation, an investment firm
(which holds a 25% equity interest), and ORIX Corporation, a leasing firm (which
holds a 5% equity interest).

     NEXTEL INTERNATIONAL 1998 NOTES ISSUANCE:  On March 12, 1998, Nextel
International completed the sale in a private placement transaction of $730.0
million in principal amount at maturity of its 12 1/8% Senior Discount Notes due
2008 (the "1998 NI Notes"). Nextel International received approximately $387.0
million in net proceeds to be used for system and related capital expenditures
and other general corporate purposes of Nextel International and its
subsidiaries and restricted affiliates.

     The 1998 NI Notes were issued in a private placement transaction and have
not been registered with the Commission under the Securities Act and may not be
sold absent registration or an applicable exemption from the registration
requirements. In connection with the issuance of the 1998 NI Notes, Nextel
International has agreed to use its best efforts to file with the Commission and
cause to become effective a registration statement with respect to a registered
offer to exchange the then outstanding 1998 NI Notes for an equal principal
amount at maturity of its 12 1/8% Senior Discount Notes due 2008 that have been
registered pursuant to the Securities Act (the "1998 NI Notes Exchange Offer").
In the event that the 1998 NI Notes Exchange Offer is not consummated prior to
specified dates, additional incremental interest on the accreted value of the
1998 NI Notes will accrue until the 1998 NI Notes Exchange Offer is consummated
or certain other requirements are met.

WIRELESS INDUSTRY OVERVIEW

     DEVELOPMENT OF THE WIRELESS COMMUNICATIONS INDUSTRY.  Today's wireless
communications industry began in 1970 when the FCC reallocated 115 MHz of radio
spectrum in the 800/900 MHz bands from the federal government and UHF television
to land mobile service use to provide high-quality, high-capacity communications
services to vehicle-mounted and hand-held portable telephones and other two-way
radio units. The FCC allocated initially 40 MHz for cellular service (which were
allocated in equal blocks to two cellular operators in each MSA or Rural
Statistical Area ("RSA")) and 30 MHz for private radio services, including SMR.
The FCC later increased the allocations to 50 MHz for cellular service and 46
MHz for private radio services due to capacity constraints. The remaining 19 MHz
were divided among six different services. Because of regulatory delays, the
first commercial cellular systems were not operational until 1983. Since then,
however, growth in the industry has been rapid, with approximately 57.2 million
mobile telephone units (consisting of analog cellular, digital cellular and PCS
units) in service at December 31, 1997. The first SMR systems became operational
in 1974, and SMR units in service had grown to approximately 3.1 million by
December 31, 1997 (consisting of both analog SMR units and wide-area digital SMR
units). The number of other private radio users is estimated to be approximately
17.0 million as of December 31, 1997.

     SMR AND CELLULAR/PCS TELEPHONY.  The cellular telephone industry was
created by the FCC as a regulated duopoly. The FCC awarded only two licenses to
provide cellular service in the service area of any

                                       10
<PAGE>   11

given MSA or RSA. Subsequently, the FCC allocated 120 MHz of spectrum in the
1.8-2.2 GHz band for the provision of PCS, which include mobile wireless
communications services similar to those provided over Nextel's Digital Mobile
network. The FCC has awarded three 30 MHz and three 10 MHz PCS licenses for this
spectrum on either a Major Trading Area ("MTA") or a Basic Trading Area ("BTA")
(each as defined in the Rand McNally Commercial Atlas) market definition through
a competitive bidding process. Since August 10, 1996, SMR operators have been
subject to the same common carrier obligations as cellular and PCS operators,
although the amount of spectrum assigned to a single SMR licensee typically is
less than that assigned to cellular and PCS licensees. See "-- Regulation."
Within the limitations of available spectrum and technology, SMR operators are
authorized to provide mobile communications services to business and individual
users, including mobile telephone, two-way dispatch, paging and mobile data
services.

     In the past, however, SMR operators generally have not been able to provide
mobile telephone service competitive with that provided by cellular operators
because of various factors affecting SMR system capacity and quality. The
primary factors affecting capacity include: the smaller portion of the radio
spectrum allocated to SMR, the assignment of SMR frequencies on a non-contiguous
basis, regulations and procedures that initially served to spread ownership of
SMR licenses among a large number of operators in each market, thereby further
limiting the amount of SMR spectrum available to any particular operator, and
traditional SMR technology, which employs analog transmission and a single site,
high-power transmitter configuration, thus precluding the use of any given SMR
frequency by more than one caller at a time within a given licensed service
area. Partially as a result of these capacity constraints, SMR operators
traditionally have emphasized two-way dispatch service, which involves shorter
duration communications than mobile telephone service and places less demand on
system capacity.

     The traditional analog SMR market, therefore, has been oriented largely to
customers such as contractors, service companies and delivery services that have
significant field operations and need to provide their personnel with the
ability to communicate directly with one another, either on a one-to-one or
one-to-many basis, within a limited geographic area. As a result of the
foregoing, the broader market of wireless communications users that are
primarily interested in mobile telephone service has to date been served only on
a limited basis by the traditional analog SMR operators.

NEXTEL'S DIGITAL MOBILE NETWORK

     DIGITAL MOBILE NETWORK SERVICES.  The Company is designing and constructing
its Digital Mobile network to support a variety of service offerings, including
mobile telephone, two-way dispatch, paging and short-messaging services and, in
the future, data transmission. The Company's Digital Mobile networks provide
customers desiring mobile telephone service with access to features competitive
with those offered by current wireless communications services, such as the
"hand-off" of calls from one site to another and "in-building" signal
penetration for improved portable performance in selected high usage areas. In
addition to the mobile telephone and two-way dispatch functions, the Digital
Mobile network has been designed to include a signaling or paging capability,
which also has been built into each subscriber unit, to enable a customer to
receive alphanumeric short-text messages. In addition, the Company's Digital
Mobile network has been designed to offer customers additional features, such as
voicemail, call hold, call waiting, no-answer or busy-signal transfer, call
forwarding, three way calling and two lines.

     Nextel International's operating subsidiaries and affiliated entities plan
to construct and operate digital networks employing iDEN technology in major
metropolitan market areas located in Brazil, Mexico, Argentina, Peru and the
Philippines. Nextel has entered into interoperability agreements with Clearnet
and with Nextel Mexico to provide, among other things, for coordination of
customer identification and validation necessary to facilitate cross-border
roaming service in North America.

     DIGITAL MOBILE NETWORK TECHNOLOGY.  The Digital Mobile network, as
currently deployed by the Company, combines the advanced iDEN digital technology
developed and designed by Motorola, with a low-power, multi-site
transmitter/receiver configuration that permits frequency reuse. The iDEN
technology being deployed by Nextel shares many common components with the
Global System for Mobile Communications ("GSM") technology that has been
established as the digital cellular communications standard in Europe and

                                       11
<PAGE>   12

is a variant of the GSM technology that is being deployed by certain PCS
operators in the United States. The design of the Company's existing and
proposed Digital Mobile network currently is premised on dividing a service area
into multiple sites. Each site contains a low-power transmitter, receiver and
control equipment (the "base station"). The base station in each site is
connected by microwave, fiber optic or telephone line to a computer controlled
switching center (the "switching center"). The switching center controls the
automatic hand-off of calls from site to site as a subscriber travels,
coordinates calls to and from a subscriber unit and connects calls to the public
switched telephone network, in the case of mobile telephone calls. In the case
of two-way dispatch, the switching center connects the subscriber initiating the
call to the other subscriber (in the case of a private call) or to a number of
other subscribers (in the case of a group call) to whom the call is directed in
the requested service areas. Northern Telecom, Inc. has supplied the mobile
telephone switches for the Digital Mobile network. At December 31, 1997, the
Company had 17 operational switches and approximately 4,000 cell sites
constructed and in operation in its Digital Mobile network.

     Currently, there are three principal digital technology formats that are
being assessed or proposed for deployment or deployed currently by providers of
cellular telephone service or by certain PCS providers or licensees in the
United States. One such format is Time Division Multiple Access ("TDMA") digital
transmission technology, a version of which, known as "three-time slot TDMA,"
has been and is expected to be deployed by certain cellular operators. The
second principal format, known as Code Division Multiple Access ("CDMA") digital
transmission technology, has been and is expected to be deployed by certain
other cellular and PCS operators. The third principal format, known as GSM-PCS,
is an updated, up-banded, PCS-adapted version of the TDMA-based GSM digital
technology format. GSM-PCS has been deployed and is expected to be deployed by
certain PCS operators.

     Although TDMA, CDMA and GSM-PCS are digital transmission technologies, and
thus share certain basic characteristics and areas of contrast to analog
transmission technology, TDMA, CDMA and GSM-PCS are not compatible or
interchangeable with each other. The Motorola proprietary first generation iDEN
technology originally incorporated in Nextel's Digital Mobile network is known
as "six-time slot TDMA" and the successor to such first generation iDEN
technology, known as "Reconfigured iDEN," is currently being deployed in
Nextel's Digital Mobile network. Although each of these versions of Motorola's
proprietary iDEN technology is based on the TDMA technology format, each differs
in a number of significant respects from the TDMA technology versions being
assessed or deployed by cellular operators and PCS licensees in the United
States, which differences may have important consequences. Additionally, unlike
the three-time slot TDMA technology format being utilized for the mobile
telephone function in the Reconfigured iDEN technology platform or the
three-time slot TDMA technology format being utilized by certain cellular
providers, the first generation iDEN technology, as well as the "six-time slot
TDMA" technology utilized for the two-way dispatch function in the Reconfigured
iDEN technology platform, can carry up to six voice and/or control paths per
channel.

     The implementation of Digital Mobile network design and technology
increases significantly the capacity of the Company's existing SMR channels.
This increase in capacity is accomplished in two ways. First, each channel is
capable of carrying up to six voice and/or control paths by employing the
six-time slot TDMA digital technology or up to three voice and/or control paths
by employing the three-time slot TDMA digital technology. Each voice is
converted into a stream of data bits that are compressed before being
transmitted, allowing each of the time-slotted voice and/or control paths to be
transmitted on the same channel without causing interference. Upon receipt of
the coded voice data bits, the subscriber unit decodes the voice signal. By
using the Reconfigured iDEN technology, the Company achieves an approximate six
times improvement in channel utilization capacity for channels used for two-way
dispatch service and an approximate three times improvement in channel
utilization for channels used for mobile telephone service.

     The second means of increasing capacity is based on employing a system
design in use in the cellular industry that reuses each channel many times
throughout the market area. The ability to reuse channels results from placing
transmitters at low elevation sites and restricting the power output to not more
than 100 watts effective radiated power (which creates a service area of less
than one mile to thirty miles, depending on the terrain and the power setting).
The use of six-time slot TDMA technology for two-way dispatch service and
three-time slot TDMA technology for mobile telephone service, in combination
with Nextel's reuse of its
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<PAGE>   13

licensed frequencies in a cellular-type system design, permits Nextel to utilize
its current holdings of spectrum more efficiently.

     TECHNOLOGY COMMITMENTS.  Pursuant to the equipment purchase agreements
between Nextel and Motorola first entered into in 1991, as subsequently amended
by, among others, the amendment entered into in connection with the Motorola
Transaction (the "Prior Equipment Agreement Amendment") and by the Second
Equipment Agreement Amendment entered into in connection with the McCaw
Transaction (the "Second Equipment Agreement Amendment"), Motorola provides the
iDEN infrastructure and subscriber handset equipment to Nextel throughout its
markets (such equipment purchase agreements, as amended, being referred to
herein as the "Equipment Purchase Agreements"). The Company expects to rely on
Motorola for the manufacture of a substantial portion of the equipment necessary
to construct its Digital Mobile network and all of its Digital Mobile handset
equipment for the foreseeable future. See "-- System Construction and
Suppliers." The Equipment Purchase Agreements govern Nextel's rights and
obligations regarding purchases of system infrastructure equipment manufactured
by Motorola. Nextel has, among other things, agreed (subject to certain
conditions) to purchase and install iDEN system infrastructure equipment during
the four-year and six-year periods beginning on August 4, 1994 sufficient to
cover 70% and 85%, respectively, of the United States population. In addition,
subject to the applicable terms and conditions under the Second Equipment
Agreement Amendment, Nextel has agreed to deploy Reconfigured iDEN technology
and, until August 4, 1999 and subject to certain conditions, to purchase from
Motorola at least 50% of the base radios Nextel purchases in any calendar year.
Such Nextel system infrastructure equipment purchases are in addition to amounts
purchased from Motorola or for which Nextel, OneComm or Dial Page, had placed
orders with Motorola prior to August 4, 1994.

     Nextel continuously reviews alternate technologies as they are developed.
To date, however, it has not been regarded as necessary or as a commercially
feasible strategy to adapt currently available alternative technologies to
operate on Nextel's present spectrum position. Having been the high bidder on
475 EA licenses in the recent 800 MHz SMR auction, Nextel has the opportunity to
operate on up to an average of 10 MHz of contiguous spectrum in nearly every
market in the United States. See "-- Fiscal Year 1997 Transactions and
Developments -- 800 MHz SMR Auction." By relocating incumbent operators out of
this spectrum, assuming the FCC grants Nextel these licenses, Nextel will have
access to contiguous channel blocks, similar to its cellular and PCS
competitors. Nextel continues to pursue regulatory initiatives that would
provide SMR operators, including Nextel, with additional rights to use
contiguous blocks of spectrum. See "-- Regulation." The availability of a
significant block of contiguous spectrum would permit the introduction of a
broader range of technology options not available on non-contiguous spectrum
blocks. However, Nextel's consideration of such alternative technologies,
independent of technological feasibility, would likely be materially affected by
Nextel's contractual obligations to Motorola regarding domestic deployment and
utilization of iDEN technology as well as the additional capital requirement
associated with the deployment of an alternative technology. See " -- Risk
Factors -- Reliance on One Principal Supplier in Implementation of the Digital
Mobile Network."

     SYSTEM CONSTRUCTION AND SUPPLIERS.  The first step required to achieve the
build-out of the Digital Mobile network in a market is the completion of the
radio design plan, which typically takes about four months. This stage involves
the selection of specific areas in the market for the placement of base station
sites and the identification of specific frequencies that will be employed at
each site in the initial configuration. Sites are selected on the basis of their
proximity to targeted customers, the ability to acquire and build the site and
frequency propagation characteristics. Site procurement efforts include
obtaining leases and permits, and in many cases, zoning approvals. This site
acquisition process for the initial system to be constructed in a market,
depending on the number of sites, typically takes from two to eighteen months.
Preparation of each site for equipment installation, including construction of
equipment shelters, towers and power systems, grounding, ventilation and air
conditioning, typically takes six weeks, while equipment installation, testing
and pre-operational systems optimization generally takes an additional six weeks
prior to commencing system operation. Following commencement of system
operations in a selected market, the Company expects to add new sites to such
system continually in order to improve coverage and capacity. See "-- Forward
Looking Statements."

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<PAGE>   14

     It is expected that for the next few years of Digital Mobile network
operations by Nextel, Motorola and competing manufacturers who are licensed by
Motorola will be the only manufacturers of subscriber equipment that is
compatible with Nextel's Digital Mobile network. The Prior Equipment Agreement
Amendment provides for the licensing by Motorola of interfaces relating to
infrastructure and subscriber equipment and of additional manufacturers for
subscriber equipment. In connection with the Second Equipment Agreement
Amendment, Motorola further agreed to negotiate to enter into licenses with at
least one alternative manufacturer of iDEN infrastructure equipment. Currently,
however, there are no arrangements in effect with any additional manufacturers
to supply Nextel with an alternative source for either iDEN system
infrastructure or subscriber equipment.

     CONVERSION TO DIGITAL MOBILE NETWORK.  In order to activate Digital Mobile
network service in a market, the Company must have available a certain number of
800 MHz frequencies that have been cleared of analog SMR traffic in that market
("channel recovery"). Channel recovery may involve transferring 800 MHz
customers to 900 MHz channels or other 800 MHz analog SMR channels. Upon launch
of commercial service in a market, the Company commences marketing the Digital
Mobile network services to potential customers, including certain of its
existing SMR analog system customers, and converts 800 MHz frequencies to the
Digital Mobile network as such customers migrate ("migration"). The Company has
commenced its channel recovery and migration efforts for existing customers in
each of the markets in which its Digital Mobile network has been activated. The
Company expects that only a portion of its SMR channels in most of its markets
will be needed for the initial phase of the Digital Mobile network build-out.
Accordingly, the Company expects to have the opportunity to move affected
customers off its analog SMR network to the Digital Mobile network gradually to
avoid any significant disruption of service to customers. See "--Risk
Factors -- Risks of Implementation of Digital Mobile Network" and "-- Forward
Looking Statements."

     MARKETING.  Nextel's marketing strategy focuses on targeting business users
that Nextel believes will be likely to perceive and appreciate the potential for
Nextel's wireless communication service capabilities to increase efficiencies
and reduce costs in such users' business activities. Nextel is currently
concentrating its sales efforts on a number of distinct occupational groupings
of mobile workers, including personnel in the transportation, delivery, real
property and facilities management, construction and building trades,
landscaping and professional service sectors. See "-- Business Strategy."

     Nextel continues to believe that its ability to deliver a full line of
mobile communications services in an integrated package using a single,
multi-function subscriber unit on its Digital Mobile network significantly
differentiates the Company from other providers of wireless communications
services. The progress of Nextel's Digital Mobile network services marketing
efforts is and will continue to depend upon numerous factors including system
performance, subscriber equipment performance and the ability to deliver
services that satisfy customer needs and expectations. Nextel reviews its
business and marketing plans in consideration of a variety of factors, including
perceived opportunities, actual experiences in the marketplace, availability of
financial and other resources and overall economic and/or competitive
considerations, and may from time to time determine to change, refine or
redirect such plans. See "-- Forward Looking Statements."

     COMPETITION.  Each of the markets in which the Company's Digital Mobile
network operates or will operate is served by multiple other wireless
communications service providers. In each of the markets where the Company's
Digital Mobile network operates, the Company may compete with the two
established cellular licensees in such market and as many as six PCS licensees.
A substantial number of the entities that have been awarded PCS licenses are
current cellular communications service providers and joint ventures of current
and potential wireless communications service providers, many of which have
financial resources, subscriber bases and name recognition greater than Nextel.
PCS operators will likely compete with Nextel in providing some or all of the
services available through the Company's Digital Mobile network. Additionally,
the Company expects that existing cellular service providers, some of which have
been operational for a number of years and have significantly greater financial
and technical resources, subscriber bases and name recognition than Nextel, will
continue to upgrade their systems to provide digital wireless communications
services competitive with those available on the Company's Digital Mobile
network. Moreover, cellular and wireline companies have been granted authority
to participate in dispatch and SMR services, respectively. Nextel also expects
its Digital Mobile network business to face competition from other technologies
and services
                                       14
<PAGE>   15

developed and introduced in the future. See "-- Risk Factors -- Success of
Nextel is Dependent on its Ability to Compete."

     Pursuant to the Omnibus Appropriations Act of 1997, the FCC reallocated and
auctioned 30 MHz of 2.3 GHz spectrum to wireless services in the first quarter
of 1997. However, the strict operational and technical limitations the FCC
placed on use of the spectrum will likely prohibit the provision of mobile
services using current technology. Additionally, the FCC has reallocated 220 MHz
of radio spectrum for use by "emerging telecommunications technologies," such as
PCS, low-earth orbit satellites and mobile satellite systems. The FCC has
authorized a consortium of communications companies to provide nationwide mobile
satellite services. Additionally, the FCC recently reallocated 36 MHz of the
former analog television channels to commercial services, including broadcasts,
fixed and mobile services. Nextel cannot predict how these technologies will
develop or what impact, if any, they will have on Nextel's ability to compete
for wireless communications services customers.

NEXTEL'S EXISTING ANALOG SMR OPERATIONS

     The Company's existing analog SMR operations focus primarily on two-way
radio service provided to customers who need the ability to communicate with one
another in the field, either on a one-to-one or one-to-many basis. Due to
capacity constraints on its existing analog SMR systems in major metropolitan
areas, Nextel has been able to offer mobile telephone service on such systems to
only a limited number of its customers.

     At December 31, 1997, the Company provided analog SMR service to
approximately 583,000 units.

     MANAGEMENT AGREEMENTS.  In addition to SMR systems for which it is the
licensed owner, the Company manages analog SMR systems licensed to third parties
in certain of its markets. The management agreements generally have terms of 15
or 30 years. In many cases, the Company holds an option to acquire managed SMR
systems.

     MARKETING.  The Company markets its existing analog SMR services primarily
to businesses that employ fleets of vehicles requiring two-way radio capability
and, to a limited extent, to customers who require both two-way radio and mobile
telephone service, such as sales or service managers. The Company's sales
efforts are directed to both the 900 MHz and 800 MHz systems. The Company
utilizes a direct sales and marketing force as well as independent equipment
dealers. Subscriber units sold by the Company's sales force for use on existing
analog SMR networks are typically installed and maintained by the Company's
service departments. In addition, the service departments are responsible for
system maintenance for most of the Company's existing analog SMR networks. The
Company's marketing of its analog SMR service may be affected in certain markets
by the activation of its Digital Mobile networks in such markets. See
"-- Nextel's Digital Mobile Network."

     COMPETITION.  The Company's existing analog SMR operations compete in each
market with a number of other operators of traditional analog SMR networks
providing service on the 220 MHz, 800 MHz and 900 MHz bands. The Company's
analog operations also compete with SMR and private radio operators utilizing
other frequencies for the provision of two-way dispatch services, with cellular
operators and, in certain markets, with PCS systems operators, that offer
services similar to the mobile telephone service now offered on traditional
analog SMR networks. At the present time, analog cellular systems are generally
believed to offer better quality wireless telephone transmission (at a higher
price) than traditional analog SMR operators. On March 7, 1995, the FCC
authorized cellular operators to offer two-way dispatch services, which allows
cellular operators to offer, upon installation of the necessary infrastructure
equipment, a service that may be competitive with analog SMR two-way dispatch
service. Additionally, Nextel's analog SMR operations may face competition in
the future from other SMR operators utilizing digital technology.

AGREEMENTS WITH SIGNIFICANT STOCKHOLDERS

     MCCAW INTERESTS.  Pursuant to the terms of the Securities Purchase
Agreement dated as of April 4, 1995, as amended, among Nextel, the McCaw
Investor and Mr. McCaw (the "McCaw Securities Purchase

                                       15
<PAGE>   16

Agreement") and certain other related agreements and documents, (i) the McCaw
Investor purchased on April 5, 1995 from Nextel, approximately 1.2 million
shares of Common Stock for an aggregate purchase price of approximately $14.9
million; and (ii) the McCaw Investor purchased on July 28, 1995 from Nextel, for
an aggregate purchase price of $300.0 million, an aggregate of 8.2 million units
consisting of a total of (a) approximately 8.2 million shares of Class A
Preferred Stock; (b) 82 shares of Class B Preferred Stock; and (c) options to
acquire an aggregate of up to 35.0 million shares of Common Stock at exercise
prices ranging from $15.50 to $21.50 per share (15.0 million of which were
purchased upon exercise of the First Option on July 28, 1997 and approximately
4.9 million of which were transferred in November 1997). In addition, in
connection with the agreements relating to the exercise of the First Option, an
affiliate of Mr. McCaw, Option Acquisition, L.L.C. ("Option Acquisition"),
purchased the New Option which entitles Option Acquisition to acquire 25.0
million shares of Common Stock of which 15.0 million shares are purchaseable at
$16.00 per share and 10.0 million shares are purchaseable at $18.00 per share,
in either case at any time through July 28, 1998. See "-- Fiscal Year 1997
Transactions and Developments -- Issuance of New Option." As a result of certain
transfers and option exercises, at December 31, 1997 affiliates of Mr. McCaw
beneficially owned approximately 7.9 million shares of Class A Preferred Stock
convertible into approximately 23.7 million shares of Common Stock, 82 shares of
Class B Preferred Stock and options to purchase up to an aggregate of
approximately 40.5 million shares of Common Stock at prices ranging from $12.25
to $21.50 per share.

     Additionally, in connection with such equity investments, Nextel, the McCaw
Investor and Mr. McCaw reached agreement on a number of matters relating to the
ownership, acquisition and disposition of the Class A Preferred Stock and the
Class B Preferred Stock, including without limitation, the granting of
registration and antidilutive rights to the McCaw Investor and certain
affiliates, limitations on investments by the McCaw Investor and its affiliates
in excess of approximately 45% of the voting securities of Nextel and certain
transfer restrictions applicable to the shares of Nextel capital stock held by
the McCaw Investor and certain affiliates (which transfer restrictions, as they
relate to shares of Common Stock owned by the McCaw Investor, were largely
removed on July 28, 1997, at the closing of the exercise of the First Option).
Finally, on July 28, 1995, pursuant to agreements between the McCaw Investor and
Motorola entered into in connection with the McCaw Securities Purchase
Agreement, the McCaw Investor purchased 4.0 million shares of Common Stock from
Motorola and Motorola granted to the McCaw Investor the option to purchase up to
an additional 9.0 million shares of Common Stock held by Motorola (2.0 million
of which were purchased on September 3, 1997 and approximately 1.6 million of
which were transferred in November 1997).

     Pursuant to the McCaw Securities Purchase Agreement, Nextel's Restated
Certificate of Incorporation (the "Certificate of Incorporation") and Nextel's
By-Laws (the "Nextel By-Laws"), Nextel, the McCaw Investor and Mr. McCaw have
established certain arrangements relating to the governance of Nextel associated
with such investments, including, without limitation, the rights relating to
designation by the McCaw Investor and election of three representatives of the
McCaw Investor to the Board of Directors of the Company representing not less
than 25% of the Board of Directors. Currently, the McCaw Investor has designated
only two directors for election to the Board of Directors.

     Pursuant to the McCaw Securities Purchase Agreement, the Certificate of
Incorporation and the Nextel By-Laws, a five-member Operations Committee of the
Board of Directors was created, and the McCaw Investor is entitled to have a
majority of the members of such Operations Committee selected from among the
McCaw Investor's representatives on the Board of Directors.

     The Operations Committee has the authority to formulate key aspects of
Nextel's business strategy, including decisions relating to the technology used
by Nextel, acquisitions, operating and capital budgets, marketing and strategic
plans, approval of financing plans and endorsement of nominees to the Board of
Directors and committees thereof, as well as nomination and oversight of certain
executive officers. Currently, both of the McCaw Investor's designees on the
Board of Directors also serve as members of the Operations Committee, of which
Mr. McCaw is the chairman. The Board of Directors, by a majority vote, may
override actions taken or proposed by the Operations Committee, although doing
so would give rise to a $25.0 million liquidated damages payment to the McCaw
Investor, the commencement of accrual of a 12% dividend payable on the stated
value of all outstanding shares of Class A Preferred Stock (an aggregate stated
value of
                                       16
<PAGE>   17

approximately $290.5 million) and the immediate vesting of the shares subject to
the Incentive Option (as defined below) granted pursuant to the McCaw Incentive
Option Agreement (as defined below). However, the Board of Directors, by a
defined super-majority vote, retains the power to override actions taken or
proposed by the Operations Committee without triggering the obligation to make a
liquidated damages payment, or to commence dividend accruals with respect to the
Class A Preferred Stock or to accelerate the vesting of the options granted
pursuant to the McCaw Incentive Option Agreement. In addition, the Board of
Directors also may act to terminate the Operations Committee, although such
action by the Board of Directors would, in certain circumstances, result in the
obligation to make such a liquidated damages payment and result in the
commencement of such dividend accrual and the accelerated vesting of the related
options.

     The McCaw Securities Purchase Agreement, the Certificate of Incorporation
and the Nextel By-Laws also delineate a number of circumstances, chiefly
involving or resulting from certain events with respect to the McCaw Investor or
Mr. McCaw, in which the Operations Committee could be terminated but such
liquidated damages payment, dividend accrual and vesting of options would not be
required.

     The shares of Class A Preferred Stock are redeemable at Nextel's option,
and the shares of Class B Preferred Stock are mandatorily convertible, in the
event of a change of control of Nextel (as defined in the terms of such
preferred stock). Further, the McCaw Investor has agreed that, subject to
certain limited exceptions (including certain then existing securities holdings
and relationships), until the later of (i) five years after the closing of the
McCaw Transaction or (ii) one year after the termination of the Operations
Committee, neither the McCaw Investor nor its controlled affiliates will
participate in other two-way terrestrial-based mobile wireless communications
systems in the region that includes any part of North America or South America,
unless such opportunities first have been presented to and rejected by Nextel in
accordance with the provisions of the McCaw Securities Purchase Agreement.

     Pursuant to an agreement entered into by Nextel and Motorola in connection
with the McCaw Securities Purchase Agreement, Motorola has agreed to support the
decisions and recommendations of the Operations Committee and to vote the shares
of Common Stock held by Motorola accordingly, subject to (i) the right of any
Motorola-designated members of the Board of Directors to vote in a manner
consistent with their fiduciary duties and (ii) the right of Motorola to vote
its shares as it determines necessary with respect to issues that conflict with
Motorola's corporate ethics or that present conflicts of interest, or in order
to protect the value or marketability of the shares of Common Stock held by
Motorola.

     Concurrently with the execution of the McCaw Securities Purchase Agreement,
Nextel entered into a Management Support Agreement (the "Support Agreement")
with Eagle River, Inc., an affiliate of the McCaw Investor ("Eagle River")
pursuant to which Eagle River provides management and consulting services to
Nextel, the Board of Directors and the Operations Committee from time to time as
requested. In consideration of the services to be provided to Nextel under the
Support Agreement, Nextel entered into an Incentive Option Agreement (the "McCaw
Incentive Option Agreement") concurrently with the execution of the McCaw
Securities Purchase Agreement granting to Eagle River the option to purchase an
aggregate of 1.0 million shares of Common Stock at an exercise price of $12.25
per share (the "Incentive Option"). The Incentive Option expires on April 4,
2005, and became exercisable with respect to 400,000 shares on April 4, 1997 and
becomes exercisable for an additional 200,000 shares in each of the three years
thereafter. On February 10, 1998, Nextel and Eagle River agreed to amend the
McCaw Incentive Option Agreement to remove the shares issuable upon exercise of
the Incentive Option from registration pursuant to Nextel's previously filed
Form S-8 registration statements, confirm the applicability of certain demand
and "piggyback" registration rights. Additionally, pursuant to the Support
Agreement, the Company agreed to reimburse Eagle River for all out-of-pocket
costs, plus up to $200,000 per year for all allocable overhead costs reasonably
incurred by Eagle River in connection with the performance of its obligations
under the Support Agreement. Payments in the amount of $504,000 were made to
Eagle River pursuant to the Support Agreement during fiscal year 1997.

     MOTOROLA.  On July 28, 1995, Nextel consummated the Motorola Transaction
pursuant to which Nextel effectively acquired all of Motorola's 800 MHz SMR
licenses in the continental United States in exchange for 59.5 million shares of
common stock (comprised of 41.7 million shares of Common Stock and 17.8 million

                                       17
<PAGE>   18

shares of Nextel's Class B non-voting common stock (the "Non-Voting Common
Stock")). Pursuant to the agreement relating to the Motorola Transaction,
Motorola currently has the right to nominate two persons for election as members
of the Board of Directors; although, to date, Motorola has exercised such right
only with respect to one director. Also, in connection with the Motorola
Transaction, Nextel entered into an agreement for the purchase of Motorola
infrastructure equipment and Motorola agreed to provide additional vendor
financing for such equipment purchases. The agreements relating to the Motorola
Transaction also include certain provisions concerning Nextel's choice of
technology deployment, the licensing of additional equipment manufacturers and
the selection of strategic equity investors, as well as transactions involving
Motorola Canada Limited ("Motorola Canada") and Clearnet, including the purchase
by Nextel of a portion of Motorola Canada's equity interest in Clearnet (which
equity interest is currently held by Nextel International) in exchange for 2.5
million shares of Common Stock, which was consummated effective as of October
19, 1994.

     On July 28, 1995, Motorola sold to the McCaw Investor 4.0 million shares of
Common Stock at $12.25 per share and granted to the McCaw Investor the option to
purchase up to an additional 9.0 million shares of Common Stock over a six-year
period. The first tranche of such option (the "Motorola First Tranche") became
exercisable for up to 2.0 million shares of Common Stock at $15.50 per share
during the 30-day period following the second anniversary of the closing of the
Motorola Transaction, and the remaining options will become exercisable for up
to an additional 2.0 million shares at $18.50 per share during the 30-day period
following the fourth anniversary of the closing of the Motorola Transaction (the
"Motorola Second Tranche") and up to 5.0 million shares at $21.50 per share
during the 30-day period following the sixth anniversary of the closing of the
Motorola Transaction (the "Motorola Third Tranche"). The McCaw Investor
exercised the Motorola First Tranche in full and purchased 2.0 million shares of
Common Stock from Motorola on September 3, 1997. In the event the Motorola
Second Tranche is exercised for only a portion of the shares covered thereby,
the number of shares purchasable in the Motorola Third Tranche will be reduced
to the percentage of the Motorola Second Tranche actually purchased. In
addition, Motorola has granted to the McCaw Investor a right of first offer or a
right of first refusal to purchase shares of Common Stock that are owned by
Motorola. In November 1997, the McCaw Investor transferred portions of the
Motorola Second Tranche and Motorola Third Tranche relating to an aggregate of
approximately 1.6 million of the shares subject thereto.

REGULATION

     The licensing, operation, acquisition and sale of Nextel's SMR businesses
are regulated by the FCC. SMR regulations have undergone significant changes
during the last four years and continue to evolve as new FCC rules and
regulations are adopted pursuant to the Omnibus Budget Reconciliation Act of
1993 ("OBRA '93") and the Telecommunications Act of 1996 ("TCA '96").

     With regard to the licensing of Nextel's Digital Mobile networks, Nextel
subsidiaries currently hold site-specific FCC licenses to use SMR radio channels
in each of their markets. Unlike the spectrum licenses assigned to other
wireless service providers, i.e., cellular and PCS, which are granted on a
geographic-area basis (e.g., MTA or MSA), SMR licenses historically were granted
on a site-by-site basis, requiring Nextel to obtain numerous licenses to
construct and operate its SMR systems. In addition, each of these SMR station
licenses generally must be a minimum of 70 miles away from all non-affiliated
SMR base stations operating on the same SMR frequencies (referred to as
"co-channel protection") and must be constructed and operational within one year
of grant or the licenses will cancel automatically.

     Prospectively, 800 MHz SMR licenses will be assigned on a geographic area
basis, similar to cellular and PCS licenses. Late last year, the FCC auctioned
the upper 200 800 MHz SMR channels in three blocks (20 channels, 60 channels and
120 channels) per EA throughout the U.S. (hereinafter, the "Upper Channel
Auction"). These EA licenses will permit the licensee to construct and operate
base stations on any authorized channel throughout the licensed geographic area.
Significantly, the EA licenses permit system modifications within the service
area without prior FCC approval, thus providing the same operational flexibility
currently provided cellular and PCS licensees.

                                       18
<PAGE>   19

     Nextel was the high bidder on 475 of the 525 EA licenses auctioned at the
Upper Channel Auction, covering all 50 states. Pursuant to the FCC's auction
rules, Nextel has submitted applications for each of the licenses. On January
21, 1998, the FCC released a public notice announcing the acceptance of Nextel's
and other bidders' applications. On February 20, 1998, two parties filed
petitions to deny all of Nextel's applications. One other party filed a petition
to deny Nextel's application for the channel blocks in the New York City EA.
Nextel opposed those petitions in filings made on March 4 and March 5, 1998.
Each of the three petitioners replied to Nextel's oppositions on March 17, 1998.

     Should the FCC grant Nextel's upper channel EA licenses, Nextel will have
the authority to relocate incumbent providers to the lower 800 MHz channels.
Relocation of these incumbents will provide Nextel the ability to achieve
contiguous blocks of spectrum. Any incumbents that are not relocated must be
afforded co-channel protection by Nextel. Pursuant to the FCC's construction
rules, Nextel must provide system coverage to one-third of the population of
each of its licensed EA within three years and two-thirds of the population of
the EA within five years, and Nextel must construct 50% of its licensed channels
in at least one location within each EA within three years. Given Nextel's
existing constructed analog and digital footprint, these buildout requirements
already have been achieved in a substantial number of markets.

     The FCC is expected to commence an auction of the lower 230 800 MHz
channels during 1998. Although the channels will be auctioned on an EA basis,
the channel blocks will be smaller than those awarded on the Upper Channel
Auction, licensing winning bidders on blocks of five or 50 channels. After the
auction of the lower 800 MHz channels, incumbents therein will not be subject to
relocation, and EA licensees must provide co-channel protection to incumbents,
who will be permitted to operate within their assigned interference contours,
provided that all affected co-channel incumbent licensees consent. EA licensees
on the lower channels must construct systems adequate to cover one-third of the
population in their service area within three years of license grant, and
two-thirds within five years. Alternatively, EA licensees may show "substantial
service" to the geographic area within five years.

     A number of incumbent SMR operators have appealed the FCC's new 800 MHz
licensing rules to the United States Court of Appeals for the District of
Columbia Circuit, and two parties requested a court-imposed stay of the auction.
The Court denied these motions for stay, and the Upper Channel Auction was held
as scheduled. While the pending litigation has not had an immediate impact on
the 800 MHz auction schedule, the future development of the case and its
ultimate outcome may affect any subsequent auctions of 800 MHz SMR spectrum.
Additionally, a number of parties are seeking FCC reconsideration of the lower
channel auction and service rules.

     In August 1994, when the FCC first began to consider geographic-area
licensing for 800 MHz SMRs, all 800 MHz SMR licensing was frozen (i) due to a
large backlog of SMR applications and (ii) in an effort to stabilize the 800 MHz
SMR landscape to prepare for new geographic-area licensing. In the spring of
1996, the FCC was able to process all of the backlogged applications, resulting
in a number of license grants to Nextel. Many of these grants were the subject
of petitions for reconsideration, but Nextel has retained a large number of
these granted licenses, which will enable further implementation of Nextel's
Digital Mobile network. Although the Upper Channel Auction signaled the end of
the freeze on these channels, the freeze remains in effect on the lower
channels.

     At the same time it suspended all 800 MHz SMR licensing, the FCC
established a waiver process whereby parties could obtain new licenses if they
could show that their application (i) affects only channels on which the
applicant is already permanently licensed and (ii) affects coverage only within
the applicant's geographic area. Nextel and other SMR licensees subsequently
filed numerous applications pursuant to this waiver process, and have continued
to pursue FCC grant of these applications. On October 23, 1996, the Chief of the
Wireless Telecommunications Bureau released an order directing the FCC's
Licensing Division to process the waiver applications. On February 6 and 7,
1997, Nextel was granted nearly all of its waiver applications. A few of those
grants have been challenged by other SMR license applicants, and these grants
and challenges are still pending.

     As a Commercial Mobile Radio Services ("CMRS") provider, the Company's use
and aggregation of radio spectrum, its technical operation and, in some cases,
its relationship with third parties, are regulated by
                                       19
<PAGE>   20

the FCC. For example, the FCC imposes on Nextel and other CMRS operators a 45
MHz CMRS spectrum cap, thus limiting the amount of CMRS spectrum (e.g.,
cellular, PCS, and SMR) any single provider can hold. No more than 10 MHz of SMR
spectrum in the 800 MHz SMR service can be attributed to one entity, however,
under existing rules. Cellular licensees and wireline companies have been
granted the authority to participate in dispatch and SMR services, respectively.

     The FCC also requires Nextel to permit its services to be resold, to permit
manual roaming by users with technically compatible equipment, to provide
enhanced 911 services by April 1998, to contribute to federal and state
Universal Service Funds (as defined below) and to offer local telephone number
portability by as early as mid-1999. Additionally, the FCC is considering the
imposition of an automatic roaming obligation on all CMRS providers. The FCC has
not thus far imposed a requirement that all CMRS providers provide
interconnection to all other CMRS providers, but has stated that it will
consider interconnection complaints on a case-by-case basis and that it may
consider in the future whether to impose more general interconnection
obligations. Each of these existing and potential regulatory obligations could
have an impact on Nextel's operations. However, some of the obligations, such as
enhanced 911, are coupled with a right to recover the costs of implementation.
Nextel is studying the cost of enhanced 911 implementation and working with
state and local officials to establish cost recovery mechanisms.

     In its implementation of TCA '96, the FCC recently established new federal
universal service mechanisms that will affect CMRS operators. Under the new
rules, wireless service providers potentially are eligible to receive universal
service subsidies for the first time; however, they also are required to
contribute to both federal and state universal service funds (the "Universal
Service Funds"). The FCC recently denied petitions for reconsideration arguing
that CMRS providers are not required to contribute to state universal service
programs. A number of parties have challenged the FCC's universal service order
and the cases have been consolidated in the United States Court of Appeals for
the Fifth Circuit in New Orleans. A judicial determination could result in a
change in CMRS carrier support payments required for federal universal service
programs. The ultimate resolution of the federal universal service rules could
affect CMRS carrier contribution obligations to state universal service
programs. At this time, however, many states are moving forward with Universal
Service Fund programs, a number of which require contributions, varying greatly
from state to state, from CMRS carriers.

     On July 18, 1997, the FCC determined that the National Exchange Carrier
Association ("NECA") will be the temporary administrator of the universal
service program. All entities potentially contributing to the program were
required to file a revenue worksheet with NECA by September 1, 1997. Universal
service payment obligations began on January 1, 1998. Under current rules,
Nextel will be required to contribute an amount equal to 0.72% of its total
revenues and an additional 3.19% of its interstate revenues to the federal
Universal Service Fund. At the state level, Nextel currently is contributing to
some state funds (e.g. Kansas universal service fund, which currently assesses a
fee of 9.89% of gross intrastate revenues, which may increase to up to 14%
within the next two years).

     As is true for cellular service and PCS system operators, the
interconnection of subscriber units with the public switched telephone network
requires Nextel to obtain certain exchange and interexchange services from
telephone companies. In June 1996, the FCC adopted a national regulatory
framework for implementing the local competition provisions of TCA '96,
including adoption of rules delineating interconnection obligations of incumbent
local exchange carriers ("LECs"), unbundling requirements for incumbent LECs,
network elements, requirements for access to local rights of way, dialing parity
and telephone numbering and number portability, and requirements for resale of
and nondiscriminatory access to incumbent LEC services. The FCC established a
national regulatory framework that sets pricing standards and negotiation and
arbitration guidelines. However, the United States Court of Appeals for the
Eighth Circuit vacated certain of such standards and guidelines, on the grounds
that the FCC lacked the authority to bind state regulators on the matter of
local pricing of interconnection. As a result, landline interconnection pricing
and other issues where the FCC attempted to set a national framework will be
left to state-by-state determinations.

     The Eighth Circuit, however, also determined that the FCC had special
authority over CMRS carriers and their interconnection to incumbent LECs.
According to the Eighth Circuit decision, national interconnec-

                                       20
<PAGE>   21

tion rules will be maintained for Nextel's CMRS operations. The FCC appealed the
Eighth Circuit decision to the Supreme Court, which has set the case for hearing
in its October 1998 Term. In response to the Eighth Circuit's initial decision,
the FCC released a public notice reminding interested parties that CMRS specific
incumbent LEC interconnection rules remain in effect pending further FCC action.
The FCC also is considering whether additional action should be taken to further
develop CMRS-LEC interconnection rules in light of the Eighth Circuit decision.

     Furthermore, the FCC recently adopted new rules limiting the use of
customer proprietary network information by telecommunications carriers,
including incumbent LECs, in marketing a broad range of telecommunications
services to their customers, and the customers of affiliated companies. These
new rules may affect the Company and the way it conducts its business,
particularly its ability to compete against incumbent LECs with wireless
affiliates. However, the Company does not anticipate that the rules will result
in a significant adverse impact on its financial position, results of operation
or liquidity.

     Allegations of harmful effects from the use of hand-held cellular phones
have prompted new studies concerning the safety of the emissions of
electromagnetic energy from hand-held wireless phones. In August 1996, however,
the FCC adopted new standards for evaluating the extent to which wireless
facilities will expose both employees and the public to radio frequency
radiation. At that time, the FCC determined that state and local regulation of
radio frequency radiation from facilities used to provide "personal wireless
services" is preempted to the extent the facilities comply with the FCC's radio
frequency exposure limits. On August 25, 1997, the FCC affirmed the radio
frequency exposure limits adopted in 1996. At that time, it also revised a
number of rules, including extending the transition period for implementing
federal radio frequency emissions guidelines for existing facilities, and
expanded the coverage of its radio frequency emissions regulations to include
all SMR operators, rather than covering only those operators that offer services
comparable to cellular and PCS. In the face of an increase in local siting
disputes, the FCC concurrently issued a notice of proposed rulemaking to
consider, among other things, the procedure for obtaining relief from state and
local regulations pertaining to the placement of facilities, guidelines
governing the types of information that a state or local government can request
to judge compliance with FCC emissions rules, and the adoption of a presumption
that facilities licensed by the FCC comply with the FCC's radio frequency
emissions guidelines.

     Nextel also is subject to limitations on foreign government investment as
set forth in the Communications Act of 1934, as amended (the "Communications
Act"). The Communications Act currently restricts foreign ownership or control
over CMRS licenses, which include SMR licenses. The FCC recently decided to
consider the opportunities that other nations provide to U.S. companies in their
communications industries as a factor in deciding whether to permit higher
levels of indirect foreign ownership in companies controlling common carrier and
certain other radio licenses. The TCA '96 relaxes these restrictions by
eliminating the statutory provisions restricting foreign officers and directors
in licensees and their parent corporations. In February 1997, the U.S.
government entered into a World Trade Organization ("WTO") agreement with
respect to telecommunications. The agreement requires the United States, among
other things, to afford "national" treatment to foreign investors of WTO
countries seeking indirect ownership of CMRS licenses in the United States.
These changes, and the FCC's rules implementing the agreement, will permit
additional foreign investment and participation in the United States' wireless
marketplace and therefore will enhance competition. The WTO agreement became
effective on February 5, 1998. The FCC's rules implementing the WTO became
effective on February 9, 1998.

     On October 3, 1997, the FCC released an order establishing uniform rules
governing incumbent LEC participation in broadband CMRS within each LEC's
landline telephone region. These rules will expire on January 1, 2002 unless
extended by the FCC. While the FCC eliminated the requirement in its cellular
rules for full structural separation of the incumbent LEC cellular affiliate
from the LEC landline affiliate, the FCC adopted a new set of rules designed to
address incentives incumbent LECs may have to engage in anticompetitive
practices against CMRS providers, such as discriminatory interconnection,
cost-shifting and anticompetitive pricing. The FCC also recently released a
notice of inquiry on calling party pays ("CPP"), a mechanism that would allow
CMRS providers to offer service plans under which callers to CMRS customers
would pay for the calls that they make. A calling party pays offering would
establish a system similar to that
                                       21
<PAGE>   22

used in European countries. Comments and reply comments were filed in the
proceeding, and on February 23, 1998, the Cellular Telecommunications Industry
Association ("CTIA") filed a petition at the FCC seeking expedited consideration
of CPP rules. Comments and reply comments on CTIA's petition are due May 8, 1998
and June 8, 1998, respectively.

STATE REGULATIONS AND LOCAL APPROVALS

     In OBRA '93, Congress preempted states from regulating rates or entry into
CMRS, including SMR. The scope of the allowable level of state regulations of
CMRS, however, remains unclear since Congress allowed states to retain
jurisdiction over CMRS carriers' "other terms and conditions" of service. OBRA
'93 does not identify the "other terms and conditions" of CMRS service that can
be regulated by the states, and the resolution of this issue will impact the
extent to which SMR providers will be subject to state regulation of CMRS. Some
states have eliminated all regulation of CMRS providers, e.g. Virginia, while
others, such as Kentucky and Louisiana, continue to require CMRS tariff filings.
The siting of base stations also remains subject to state and local jurisdiction
although Congress attempted to limit abuses of that authority in adopting
Section 704 of the TCA '96. Petitions seeking clarification of states' siting
authority are currently pending at the FCC.

     Future changes in regulation or legislation affecting Digital Mobile
network service and the recent allocation of additional CMRS spectrum by
Congress and the FCC could materially adversely affect Nextel's business.

EMPLOYEES

     At December 31, 1997, the Company had approximately 6,400 full-time
employees. None of the Company's employees are covered by a collective
bargaining agreement, and the Company believes that its relationship with its
employees is good.

RISK FACTORS

     The Company's business, financial condition and future prospects are
subject to a number of risks and contingencies. Those that the Company regards
currently among the most significant are summarized below. See also "-- Forward
Looking Statements."

     HISTORY OF AND FUTURE EXPECTATIONS OF LOSSES AND NEGATIVE CASH FLOW.  The
activities of Nextel since its inception in 1987 have been concentrated on the
acquisition and operation of SMR businesses and the development of the Company's
Digital Mobile network. Nextel has incurred net losses since its inception,
including losses attributable to common stockholders of approximately $1,643.0
million for the year ended December 31, 1997. Nextel had an accumulated deficit
totaling approximately $2,749.1 million at December 31, 1997. In addition,
Nextel has experienced significant negative net cash flows since its inception.
Nextel anticipates that it will continue to experience significant net losses
and significant negative net cash flow during the ongoing deployment of its
Digital Mobile network over the next several years. Nextel's ability to arrange
sufficient equity and/or debt financing or to generate sufficient revenue to
cover its operating and capital needs is subject to a number of risks and
contingencies. Accordingly, there can be no assurance as to whether or when
Nextel's operations will become profitable. See "-- Nextel to Require Additional
Financing" and "-- Forward Looking Statements."

     RISKS OF IMPLEMENTATION OF DIGITAL MOBILE NETWORK.  The implementation of
the Company's Digital Mobile network involves systems design, site procurement,
construction, electronics installation, receipt of necessary FCC and other
regulatory approvals, channel recovery (freeing a certain number of 800 MHz
frequencies from SMR analog traffic) and initial systems optimization prior to
commencing commercial service. Each stage can take from several weeks to several
months and involves various risks and contingencies, the outcome of which cannot
be predicted. There can be no assurance that Nextel will be able to implement
its Digital Mobile network (where such network is not already in commercial
operation) in any particular market in accordance with its current plans and
schedules. See "-- Forward Looking Statements."

                                       22
<PAGE>   23

     IMPLEMENTATION OF DIGITAL MOBILE NETWORK SUBJECT TO RISKS OF DEVELOPING
TECHNOLOGY.  As described previously, TDMA, CDMA and GSM-PCS are the three
principal digital technology formats that are being assessed or proposed for
deployment or have been deployed by providers of cellular telephone service or
certain entities that have been awarded PCS licenses to provide wireless
communications services in the United States. Although TDMA, CDMA and GSM-PCS
are digital transmission technologies, and thus share certain basic
characteristics and areas of contrast to analog transmission technology, TDMA,
CDMA and GSM-PCS are not compatible or interchangeable with each other.

     Motorola's proprietary Reconfigured iDEN digital technology is currently
being deployed in Nextel's Digital Mobile network. Although Reconfigured iDEN is
based on the TDMA technology format it differs in a number of significant
respects from the TDMA technology versions being assessed or deployed by
cellular operators and PCS licensees in the United States, which differences may
have important consequences.

     In the future, a digital transmission technology other than TDMA may gain
acceptance sufficient to adversely affect the resources devoted by third parties
in developing or improving TDMA-based technologies and the market acceptance of
TDMA-based technologies such as iDEN. Moreover, currently existing digital
cellular technology formats cannot be utilized on Nextel's present SMR spectrum
holdings. Accordingly, if any improvements were to be made to such currently
existing digital cellular technology formats, the prospect of achievement of
parallel improvements in the TDMA-based iDEN technology presently utilized by
Nextel is not certain. See "-- Forward Looking Statements."

     Customer acceptance of the services offered by Nextel will be affected by
technology-based differences and also by the operational performance and
reliability of system transmissions on Nextel's Digital Mobile network. Nextel
encountered certain technology and system performance issues with respect to
system reliability (the percentage of time the system is operating), system
access (how often a user can gain access to the system) and various
characteristics affecting voice transmission quality of mobile telephone
services utilizing Nextel's Digital Mobile network prior to the second quarter
of 1996 in those markets where Nextel's Digital Mobile network had been launched
using the first generation iDEN technology. Nextel and Motorola took actions to
address system performance issues in general, and voice transmission quality
concerns in particular, which the Company believes successfully resolved such
issues and concerns. However, similar actions and other measures, most of which
can be categorized as systems optimization, are expected to be ongoing
activities connected with Nextel's operation of its Digital Mobile network.
Moreover, Nextel expects that systems optimization, software loading and planned
maintenance activities will be ongoing components of its operation of the
Digital Mobile network that will periodically require the scheduled turndown of
selected subsystems in Nextel's Digital Mobile network during periods of very
low system traffic, typically at night or on weekend days. See "-- Forward
Looking Statements."

     Moreover, the satisfactory resolution of certain system performance issues
in a particular market or at a particular stage of operation will not
necessarily preclude the need to address those issues again, for example, as a
result of a significant increase in the number of subscribers using the Digital
Mobile network, and future upgrades or modifications to the digital Mobile
network may have unexpected adverse effects on performance issues previously
addressed and resolved. Each of Motorola and Nextel believes, however, that a
large portion of the hardware and software adjustments developed in the course
of system development and technology optimization activities to address
particular issues, and the resulting system performance improvements realized,
should be applicable to similar issues in different markets. Nevertheless, as is
often the case in the deployment of wireless communications networks, it should
be expected that there will be market-specific characteristics, such as local
terrain, topography, the number of licensed frequencies, the utilization of
adjacent radio frequencies and other factors, that will require customized
optimization activities to address related system performance issues
successfully. See "-- Forward Looking Statements."

     Any future inability to address and resolve satisfactorily performance
issues that affect customer acceptance of Digital Mobile network service could
delay or adversely affect the further successful commercialization of the
Digital Mobile network and could adversely affect the business and financial
prospects of Nextel. If Nextel for any reason is unable to implement its Digital
Mobile network as currently contemplated to be deployed and provide service to
its target customers that is competitive with the services of

                                       23
<PAGE>   24

other wireless communications providers, Nextel would be unable, utilizing its
analog SMR technology and systems, to provide mobile telephone services
comparable to those provided by other cellular and PCS wireless communications
services providers or to achieve significant further subscriber growth. See
"-- Forward Looking Statements."

     NEXTEL TO REQUIRE ADDITIONAL FINANCING.  Nextel anticipates that, for the
foreseeable future, it will be utilizing significant amounts of its available
cash for capital expenditures for the construction and enhancement of its
Digital Mobile network, operating expenses relating both to the Digital Mobile
network and to its analog SMR business, potential acquisitions (including the
acquisition of rights to spectrum through the recently concluded 800 MHz
auction, acquisition of LMDS spectrum through the joint venture conducted
through NextBand in the recently concluded LMDS spectrum auction and any future
auctions of spectrum by the FCC), debt service requirements and other general
corporate expenditures. Nextel anticipates that its cash utilization for capital
expenditures and other investing activities and operating losses will continue
to exceed its cash flows from operating activities over the next several years.
During the year ended December 31, 1997, Nextel's average monthly cash
utilization rate for investing activities (principally attributable to capital
expenditures for the build-out of the Company's Digital Mobile network and
acquisitions) was approximately $160.2 million, and its average monthly net cash
used in operating activities was approximately $30.2 million. Such average
monthly amounts are not necessarily representative of Nextel's anticipated
future experience in such areas, but are expected to continue to be at
significant levels during 1998 in connection with the implementation of Nextel's
1998 Plan and the related build-out, expansion and enhancement of its Digital
Mobile network.

     In connection with the Company's implementation of its 1998 Plan in its
domestic markets, Nextel has estimated that the external funding required to
meet the cash needs of its domestic business activities during 1998, including
principally the purchase or redemption of the remaining Targeted Notes, the
funding of anticipated capital expenditures and acquisitions (including the
remaining balance due for acquisitions of licenses in the FCC's 800 MHz spectrum
auction concluded in December 1997 but excluding amounts to acquire LMDS
licenses), and operating losses, will be approximately $2,970.0 million, which
includes approximately $1,335.0 million of system infrastructure and other
system capital costs relating to Nextel's Digital Mobile network. Such estimates
are based in part on the Company's experience in 1997 and on a number of
significant assumptions, including assumptions regarding continued subscriber
growth and increased demand for the Company's wireless services and enhancements
to existing Digital Mobile system infrastructure to expand and improve systems
coverage and performance to address competitive pressures faced or anticipated
by the Company in its domestic markets. Additionally, the 1998 Plan does not
include amounts required to acquire LMDS licenses or to pursue LMDS or other new
business opportunities or other potential transactions or investments that are
not part of Nextel's domestic digital and analog SMR wireless communications
businesses and assets and related corporate support services, personnel and
overhead. See "-- 1998 Business Plan." The telecommunications industry is
rapidly evolving and there can be no assurance that the Company will not
experience levels of demand for its services or competitive pressures that
differ from those experienced in 1997 and from those assumed in developing the
Company's 1998 Plan, which could cause an increase in the Company's need for
additional financing. See "-- Forward Looking Statements."

     The Bank Credit Agreement currently provides for up to $3.0 billion in
secured financing, subject to the satisfaction or waiver of applicable borrowing
conditions which are secured by liens on assets of Nextel's subsidiaries that
are "restricted" subsidiaries under the Nextel Indentures. Of such financing,
$1.0 billion of term loan financing was drawn as of March 13, 1998. The
availability of such financing is subject to Nextel's satisfying certain
requirements under the Old Indentures, which require Nextel to issue new equity
for cash as a condition to obtaining access to all amounts not constituting
"permitted debt" (as such term is defined in the Old Indentures). Based upon the
amount of new equity issued, and debt incurred, through March 13, 1998 Nextel
estimates that approximately $250.0 million of the amounts available under the
Bank Credit Facility cannot be accessed under the Old Indenture requirements
(other than to refinance existing debt) until either (i) proceeds of the prior
debt incurrences (including the February Notes Proceeds) are applied to
refinance notes issued under the Old Indentures (See "Post Fiscal Year 1997
Transactions and Developments -- Tender Offer and Consent Solicitation") or (ii)
the Company issues additional equity for cash that would

                                       24
<PAGE>   25

support the incurrence of additional debt. See "Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Future Capital Needs and Resources." The Company expects that it
will be acquiring more than $250.0 million of Targeted Notes tendered pursuant
to the currently pending tender offers therefor. If such Targeted Notes are so
acquired, the Company may access the entire $3.0 billion available under the
Bank Credit Facility in compliance with the debt incurrence requirements set
forth in the Old Indentures.

     Assuming (i) that Nextel secures access to all of the available funds under
the Bank Credit Facility and (ii) that the New Option is exercised for cash and
Nextel receives the $420.0 million in proceeds from such exercise, Nextel
believes that such amounts, coupled with the Company's available cash and cash
equivalents, including the proceeds from the financing transactions completed in
1998 that remain after completion of the tender offers for the Targeted Notes,
will provide funds that in the aggregate are expected to be more than sufficient
to implement the Company's 1998 Plan and meet the other currently anticipated
cash needs of the domestic business activities contemplated by the 1998 Plan
through the end of 1998 and to fund the Company's share of the purchase price
for the LMDS spectrum acquired by NextBand. See "Post-Fiscal Year 1997
Transactions and Developments -- LMDS Auction." Thereafter, Nextel may require
substantial additional financing to fund further deployment, expansion and
enhancement of its Digital Mobile network, to fund operating losses and for
other purposes. To the extent the Company's existing financing sources are
insufficient to meet such needs, the Company may seek to raise additional
capital from public or private equity or debt sources. See "-- Forward Looking
Statements."

     The availability of borrowings pursuant to the Bank Credit Facility is
subject to certain conditions, and there can be no assurance that such
conditions will be met. Moreover, there can be no assurance that the New Option
will be exercised for cash, and that Nextel will receive the proceeds therefrom,
or that any other outstanding options will be exercised for cash. The Bank
Credit Facility, the Nextel Indentures, and the terms of the certificate of
designation for the Series E Preferred Stock (the "Series E Certificate") and of
the certificate of designation for the Series D Preferred Stock (the "Series D
Certificate") contain and will continue to contain provisions that operate to
limit the amount of borrowings that may be incurred by Nextel. The Bank Credit
Agreement also requires Nextel and its relevant subsidiaries at specified times
to maintain compliance with certain operating and financial covenants or ratios
including certain covenants and ratios specifically related to leverage, which
may become more stringent over time. In addition, Nextel's capital needs, and
its ability to adequately address those needs through debt or equity funding
sources, are subject to a variety of factors that cannot presently be predicted
with certainty, such as the commercial success of Nextel's Digital Mobile
network, the amount and timing of Nextel's capital expenditures and operating
losses and the market price of the Common Stock. See "-- Forward Looking
Statements."

     Nextel currently is aware of numerous factors and considerations, any one
or more of which could have a material effect on the timing and/or amount of the
future funding to be required by Nextel, but Nextel cannot currently quantify
with precision either the magnitude or the certainty of the effects associated
with any such factors. These factors include: (i) the uncertainty of legal
challenges lodged against the 800 MHz SMR auction that was completed on December
8, 1997; (ii) the uncertainty of legal challenges to Nextel's applications for
licenses on which Nextel was the high bidder at the 800 MHz auction; (iii) the
amounts that will be required to accomplish retuning or acquisition of 800 MHz
incumbent channels in spectrum blocks for which Nextel was the high bidder at
the 800 MHz auction; (iv) the possibility that Nextel will be able to obtain
geographic area licenses on the lower 800 MHz channels through an FCC auction;
(v) the potential commercial opportunities and risks associated with
implementation of Nextel's 1998 Plan; and (vi) the net impact on Nextel's
capital plan of certain developments currently expected to increase capital
needs (e.g., the additional capital needed if Nextel acquires for cash
additional spectrum in certain markets to increase the capacity and/or
efficiency of Nextel's operating its Digital Mobile network in such markets, the
additional capital needed for more extensive construction of the Digital Mobile
network in additional market areas acquired or that may be acquired in the
future, the additional capital needed to produce more robust coverage in
existing and new Nextel Digital Mobile network markets, additional capital
required to pursue new telecommunications service offerings or business
opportunities (including LMDS spectrum acquisitions), and the expenditures
associated with analog SMR station construction requirements under the currently
effective

                                       25
<PAGE>   26

FCC 800 MHz channel licensing approach) that may be offset (whether wholly or
partially) by other developments anticipated to (or to have the potential to)
reduce capital needs (e.g., co-location of antenna and/or transmitter sites with
other providers of wireless services in the relevant markets, reductions in
infrastructure and subscriber unit prices obtained from Motorola including
reductions pursuant to the Second Equipment Agreement Amendment and subsequent
agreements, alternative and more economical means for increasing system
capacity, other than constructing additional cell sites and/or installing
additional base radios, such as use of so-called "smart antennas," mini-cells
and software-driven and/or system design performance enhancements). Many of the
foregoing involve elements wholly or partially beyond Nextel's control or
influence. Other considerations in addition to the factors identified above may
significantly affect Nextel's decisions to seek additional financing, including
general economic conditions, conditions in the telecommunications and/or
wireless communications industry and the feasibility and attractiveness of
structuring particular financings for specific purposes (e.g., separate
capital-raising activities with respect to international activities and
opportunities). See "-- Forward Looking Statements."

     Nextel has had and may in the future have discussions with third parties
regarding potential equity investments and debt financing arrangements to
satisfy actual or anticipated financing needs. Pursuant to the Motorola
Transaction, Nextel has agreed, under certain circumstances, not to grant
superior governance rights to any third-party investor without Motorola's
consent, which may make securing equity investments more difficult. The ability
of Nextel to incur additional indebtedness (including, in certain circumstances,
indebtedness incurred under the Bank Credit Agreement is and will be limited by
the terms of the Nextel Indentures, the Series E Certificate, the Series D
Certificate and the Bank Credit Agreement.

     At present, other than the existing equity or debt financing arrangements
that have been consummated and/or disclosed herein, Nextel has no commitments or
understandings with any third parties to obtain any material amount of
additional equity or debt financing. Moreover, no assurances can be made that
Nextel will be able to obtain any such additional financing in the amounts or at
the times such financing may be required, or that, if obtained, any such
financing would be on acceptable terms. Nextel also anticipates that it will
continue to experience significant operating losses and negative net cash flows
during the ongoing build out phase of the Digital Mobile network over the next
several years. Accordingly, there can be no assurances as to whether or when the
operations of Nextel will become profitable. As a result of Nextel's anticipated
continuing losses, the uncertainty regarding the exercise of options and
warrants, the total availability of financing under the Bank Credit Facility,
and the impact of Reconfigured iDEN and other matters discussed above, there can
be no assurance that Nextel will have adequate capital, or will be able to
successfully structure acceptable arrangements with third parties, to implement
the contemplated expansion and enhancement of its Digital Mobile network.
Failure to obtain such financing could result in the delay or abandonment of
some or all of the Company's acquisition, development and expansion plans and
expenditures which could have a material adverse effect on its business,
financial condition and prospects. See "-- Forward Looking Statements."

     SUCCESS OF NEXTEL IS DEPENDENT ON ITS ABILITY TO COMPETE.  Nextel's success
depends on its Digital Mobile network's ability to compete with other wireless
communications systems in each relevant market and the Company's ability to
successfully market integrated wireless communications services. Nextel is
continuing to focus its marketing efforts on attracting customers from its
previously identified targeted groups of potential subscribers, chiefly its
existing analog SMR subscribers and other business users, including current
users of multiple wireless communications services and those new users who may
be attracted to the combination of services made possible by its Digital Mobile
network. See "-- Nextel's Digital Mobile Network -- Competition" and
"-- Marketing."

     Following implementation of its Digital Mobile network and completion of
related system optimization activities, Nextel's Digital Mobile network will
compete with established and future wireless communications operators to attract
customers to its service in each of the markets in which the Company operates
such Digital Mobile network. Nextel's ability to compete effectively with other
wireless communications service providers will depend on a number of factors,
including the continued satisfactory performance of iDEN technology, the
establishment and maintenance of roaming service among the Company's market
areas and

                                       26
<PAGE>   27

the further development of cost effective direct and indirect channels of
distribution for the Company's Digital Mobile network products and services.
Although Nextel has made significant progress in these areas to date, no
assurance can be given that such objectives will be completely achieved.
Moreover, Nextel must compete with current cellular communications providers and
current or potential wireless communication service providers, many of which
have financial resources, subscriber bases and name recognition greater than
Nextel. See "-- Ability to Manage Growth" and "-- Forward Looking Statements."

     While Nextel believes that the mobile telephone service currently being
provided on its Digital Mobile network utilizing the Reconfigured iDEN
technology is similar in function to and achieves performance levels competitive
with those being offered by other current wireless communications service
providers in Nextel's market areas, there are (and will in certain cases
continue to be) differences between the services provided by Nextel and by
cellular and/or PCS system operators and the performance of their respective
systems. Nextel currently offers its mobile telephone customers the ability to
"roam" among Nextel's existing Digital Mobile network market areas, which
currently represent coverage of areas in which approximately 65% of the United
States population lives or works. Accordingly, Nextel will not be able to
provide roaming service comparable to that currently available from cellular and
certain PCS system operators, which have roaming agreements covering each
other's markets throughout the United States, unless and until a nationwide
Digital Mobile network build-out is substantially completed. In addition, if
either PCS or cellular operators provide two-way dispatch services in the
future, Nextel's competitive advantage may be impaired.

     Subscriber units on the Company's Digital Mobile network are not compatible
with those employed on cellular or PCS systems, and vice versa. This lack of
interoperability may impede Nextel's ability to attract cellular or PCS
subscribers or those new mobile telephone subscribers that desire the ability to
access different service providers in the same market. Nextel currently markets
a multi-function subscriber unit that is (and is likely to remain) significantly
more expensive than analog handsets and is (and is likely to remain) somewhat
more expensive than digital cellular or PCS handsets that do not incorporate a
comparable multi-function capability. Accordingly, the prices expected to be
charged to Nextel for the subscriber handsets to be used by Nextel's Digital
Mobile network customers will be higher than those charged to operators for
analog cellular handsets and may be higher than those charged to operators for
digital cellular handsets. However, Nextel believes that its multi-function
subscriber units currently are competitively priced compared to multi-function
(mobile telephone service and alphanumeric short-text messaging) digital
cellular and PCS handsets. During the transition to digital technology, certain
participants in the United States cellular industry are offering subscriber
units with dual mode (analog and digital) compatibility. Additionally, certain
analog cellular system operators that directly or through their affiliates also
are constructing and operating digital PCS systems have made available to their
customers dual mode/dual band (800 MHz cellular/1900 MHz PCS) subscriber units,
to combine the enhanced feature set available on digital PCS systems within
their digital service coverage areas with the broader wireless coverage area
available on the analog cellular network. Nextel does not have comparable hybrid
subscriber units available to its customers.

     Additionally, there can be no assurances that existing analog SMR customers
will be willing to invest in new subscriber equipment necessary to migrate to
the Company's Digital Mobile network, nor can there be any assurance that a
sufficient number of customers or potential customers of Nextel's Digital Mobile
network will be willing to accept system coverage limitations as a trade-off for
the enhanced multi-function wireless communications package provided by the
Company on its nationwide Digital Mobile network. Over the past several years as
the number of wireless communications providers in Nextel's market areas has
increased, the prices of such providers' wireless service offerings to customers
in those markets have generally been decreasing. The Company may encounter
further market pressures to reduce its Digital Mobile network service offering
prices to respond to particular short term, market specific situations (such as
special introductory pricing packages that may be offered by new providers
launching their service in a market) or to remain competitive in the event that
wireless service providers generally continue to reduce the prices charged to
their customers. Moreover, because many of the cellular operators and certain of
the PCS operators in Nextel's markets have substantially greater financial
resources than Nextel, such operators may be able to offer prospective customers
equipment subsidies or discounts that are substantially greater than those, if
any, that could be offered by Nextel and may be able to offer services to
customers at prices that are below prices

                                       27
<PAGE>   28

that Nextel is able to offer for comparable services. Thus, Nextel's ability to
compete based on the price of its Digital Mobile network subscriber units and
service offerings will be limited. Nextel cannot predict the competitive effect
that any of these factors, or any combination thereof, will have on Nextel. See
"-- Forward Looking Statements."

     Cellular operators and certain PCS operators and entities that have been
awarded PCS licenses each control more spectrum than is allocated for SMR
service in each of the relevant market areas. Each cellular operator is licensed
to operate 25 MHz of spectrum and certain PCS licensees have been licensed for
30 MHz of spectrum in the markets in which they are licensed, while no more than
21.5 MHz is available in the 800 MHz band to all SMR systems, including Nextel's
systems, in those markets. The control of more spectrum gives cellular operators
and such PCS licensees the potential for more system capacity, and, therefore,
more subscribers, than SMR operators, including Nextel. Nextel believes that it
generally has adequate spectrum to provide the capacity needed on its Digital
Mobile network currently and for the reasonably foreseeable future. See
"-- Forward Looking Statements."

     The Company has been increasing over time the proportion of its Digital
Mobile network customers that it obtains through its indirect distributor
network, and Nextel currently anticipates that it will rely more heavily on
indirect distribution channels to achieve greater market penetration for its
digital wireless service offerings. As the Company expands its retail subscriber
base through increased reliance on indirect distribution channels, and as price
competition in the wireless industry intensifies, the average revenue per
subscriber unit is expected to decrease and the churn rate is expected to
increase. See "-- Forward Looking Statements."

     ABILITY TO MANAGE GROWTH.  As a result of the commencement of Digital
Mobile network service in certain markets and increased sales in markets in
which Digital Mobile network services are provided and, to a limited extent,
acquisitions, the number of subscriber units in service on Nextel's Digital
Mobile network has increased substantially over the past several years.

     The ability of Nextel to continue to add increasing numbers of subscribers
on its Digital Mobile network is dependent on a variety of factors. Among the
more important of such factors is Nextel's ability to successfully plan for
additional system capacity in its market areas at levels adequate to accommodate
anticipated new subscribers and the related increases in system usage. One
important factor influencing system capacity is the amount of spectrum available
to Nextel in a particular market area. Although Nextel continues to pursue
opportunities to acquire additional SMR spectrum in its market areas, Nextel
believes that its present holdings of 800 MHz spectrum are generally adequate
for the current and reasonably foreseeable operation of its Digital Mobile
network.

     An important factor influencing the ability to increase the number of
subscribers is the availability of a sufficient quantity of cell sites, system
infrastructure equipment and subscriber units, of the appropriate models and
types, to meet the demands and preferences of potential subscribers to the
Digital Mobile network. To date, Nextel has been able to secure sufficient cell
sites at appropriate locations in its markets to meet planned system coverage
and capacity targets, and also has been able to obtain adequate quantities of
base radios and other system infrastructure equipment from Motorola and other
suppliers, and adequate volumes and mix of subscriber units and related
accessories from Motorola, to meet subscriber and system loading rates. See
"-- Reliance on One Principal Supplier in Implementation of Digital Mobile
Network" and "-- Forward Looking Statements."

     Other factors affecting Nextel's ability to successfully add customers on
its Digital Mobile network include (i) the adequacy and efficiency of its
information systems, business processes and related support functions; (ii)
reducing the length of time from customer order to commencement of service (the
"activation cycle") on the Digital Mobile network to maintain the activation
cycle typically encountered for "off the shelf" cellular and PCS wireless
service offerings; and (iii) improving the efficiency and speed of the processes
for the Company's customer service and accounts receivable collection functions
to adequately respond to the needs of a growing customer base on the Digital
Mobile network and the increasing amounts of billed digital service and
equipment revenue. Customer reliance on Nextel's customer service functions may
increase as more Digital Mobile network customers are added through indirect
distribution channels.
                                       28
<PAGE>   29

     Although the Company has taken steps to refine, improve, and scale-up its
back-office and support systems and processes, there can be no assurance that
such systems and processes will achieve levels of capacity, or improvements in
speed and efficiency, sufficient to meet customer and network growth and
demands, or will be able to do so on a timely basis. Any inability of the
Company to timely meet Digital Mobile network capacity needs, to have access to
suitable cell sites and infrastructure and subscriber equipment in any one or
more of its market areas, or to develop when and as required improvements or
expansions to its systems and processes adequate to meet desired levels of
customer activation and increased levels of usage and demand for wireless
services on the Digital Mobile network could decrease or postpone subscriber
growth, or delay or otherwise impede billing and collection of amounts owed,
thereby adversely affecting Nextel's revenues, business and prospects. See
"-- Forward Looking Statements."

     RELIANCE ON ONE PRINCIPAL SUPPLIER IN IMPLEMENTATION OF DIGITAL MOBILE
NETWORK.  Pursuant to the Equipment Purchase Agreements, between Nextel and
Motorola, Motorola provides the iDEN infrastructure and subscriber handset
equipment to Nextel throughout its markets. Nextel expects that it will need to
rely on Motorola for the manufacture of a substantial portion of the equipment
necessary to construct its Digital Mobile network and handset equipment for the
foreseeable future. The Second Equipment Agreement Amendment limits Nextel's
ability to deploy a "Switch in Technology" which, under the Second Equipment
Agreement Amendment, is defined to mean a decision by Nextel before August 4,
1999 to install and use digital radio frequency technology as an alternative to
iDEN on more than 25% of its SMR channels in the 806-824 MHz band in one or more
of its top 20 domestic markets, or the utilization by Nextel of any of its SMR
channels for voice interconnect on certain United States cellular and/or PCS
radio telephony standards. Nextel may not implement such a Switch in Technology
unless (1) Nextel determines that the iDEN or Reconfigured iDEN equipment fails
to meet certain performance specifications established in the Second Equipment
Agreement Amendment, which failure materially adversely affects the commercial
viability of the technology to provide reliable services as intended by Motorola
and Nextel, and Motorola does not cure such failure within six months after
receiving notice thereof, or (2) Nextel or the McCaw Investor offers to acquire
the remainder of Motorola's shares of Common Stock at a per share price of at
least 110% of the average of the closing prices of the Common Stock over the 30
trading days preceding the public announcement by Nextel of the decision to
implement such a Switch in Technology. In either case, if Motorola manufactures
(or elects to manufacture) the alternate technology Nextel elects to deploy,
Nextel must purchase 50% of its infrastructure requirements and 25% of its
subscriber equipment requirements from Motorola for three years, provided such
equipment is competitive in price and performance to the equipment utilizing or
incorporating such alternate technology then offered by other manufacturers.

     Should Nextel choose to deploy a technology other than iDEN for any of its
wireless communications services, Nextel believes that its systems planning and
its contractual relationships with Motorola would permit it to utilize a
different technology. Due to the considerable present uncertainty surrounding
the factors that might affect such a decision, including the additional capital
requirements associated with the deployment of an alternative technology, the
performance characteristics and customer perceptions of Reconfigured iDEN, or of
competing digital technologies and possible future improvements in Reconfigured
iDEN technology platform, it is impossible to predict if or when such a decision
could be made. See "-- Forward Looking Statements."

     NEXTEL'S PROSPECTS ARE DEPENDENT ON GOVERNMENTAL REGULATION.  The
licensing, operation, acquisition and sale of Nextel's SMR businesses are
regulated by the FCC. FCC regulations have undergone significant changes during
the last three years and continue to evolve as new FCC rules and regulations are
adopted pursuant to the OBRA '93 and the TCA '96. Nextel's ability to conduct
its business is dependent, in part, on its compliance with FCC rules and
regulations. Future changes in regulation or legislation affecting Digital
Mobile network service and Congress' and the FCC's continued allocation of
additional CMRS spectrum could materially adversely affect Nextel's Digital
Mobile network business. See "-- Regulation" and "-- Forward Looking
Statements."

     NEXTEL SUSCEPTIBLE TO CONTROL BY SIGNIFICANT STOCKHOLDERS.  Based on
securities ownership information relating to Nextel as of December 31, 1997, and
giving effect (on such date) to the conversion of the outstanding shares of
Nextel's preferred stock and Non-Voting Common Stock and the exercise in full of

                                       29
<PAGE>   30

(i) two separate options held by the McCaw Investor exercisable for periods of
four and six years, respectively, from July 28, 1995, to acquire an aggregate of
up to 15.0 million shares of Common Stock at exercise prices ranging from $18.50
to $21.50 per share, (ii) the Incentive Option held by Eagle River, to purchase
an aggregate of 1.0 million shares of Common Stock at an exercise price of
$12.25, which vests over a five-year period from April 4, 1995, (iii) the New
Option issued to Option Acquisition to acquire 15.0 million shares at $16.00 per
share and 10.0 million shares at $18.00 per share on or prior to July 28, 1998,
(iv) the options granted on July 28, 1995 to the McCaw Investor by Motorola to
purchase up to approximately 5.4 million shares of Common Stock over a six-year
period and (v) a warrant held by Motorola to purchase approximately 2.9 million
shares of Common Stock, entities controlled by Mr. McCaw would hold
approximately 24.4% and Motorola would hold approximately 15.1% of the Common
Stock that would be outstanding as of such date.

     Pursuant to the McCaw Securities Purchase Agreement and certain other
related agreements and documents, the McCaw Investor can exert certain influence
with respect to significant aspects of the Company's business and strategy. See
"-- Agreements with Significant Stockholders -- McCaw Interests." Based upon
their respective ownership positions, if the McCaw Investor and Motorola chose
to act together, such parties could have a sufficient voting interest in Nextel,
among other things, to (1) exert effective control over the approval of
amendments to the Certificate of Incorporation, mergers, sales of assets or
other major corporate transactions as well as other matters submitted for
stockholder vote, (2) defeat a takeover attempt and (3) otherwise control
whether particular matters are submitted for a vote of the stockholders of
Nextel. Although Motorola has made certain commitments as described in
"-- Agreements with Significant Stockholders -- McCaw Interests," Nextel is not
aware of any current agreements among the McCaw Investor and Motorola with
respect to the ownership or voting of Common Stock and neither Motorola nor the
McCaw Investor has indicated to Nextel that it has any present intention to seek
to exercise such control. Pursuant to the McCaw Securities Purchase Agreement,
the McCaw Investor has agreed that it will not vote for any nominee to the Board
of Directors other than persons it is entitled to designate under the terms of
the securities it owns or of the McCaw Securities Purchase Agreement. Upon
request of Nextel, the McCaw Investor has also agreed to cause shares of Common
Stock, the voting of which is controlled by it or its affiliates, to be voted in
a manner proportionate to the votes of other holders of Common Stock in the
election of directors so designated by the Board of Directors.

     Each of the McCaw Investor and Motorola has and (subject to the terms of
applicable agreements between such parties and Nextel) may have an investment or
interest in entities that provide wireless telecommunications services that
could potentially compete with Nextel. Under the McCaw Securities Purchase
Agreement, the McCaw Investor, Mr. McCaw and their Controlled Affiliates (as
defined in the McCaw Securities Purchase Agreement) may not, for a period of
time after consummation of the McCaw Transaction, participate in other two-way
terrestrial-based mobile wireless communications systems in the region that
includes any part of North America or South America unless such opportunities
have first been presented to and rejected by Nextel in accordance with the
provisions of the McCaw Securities Purchase Agreement. Such limitation is
subject to certain limited exceptions, including certain existing securities
holdings and relationships (and expressly including Mr. McCaw's investment in
AT&T Corp. ("AT&T") resulting from AT&T's acquisition of McCaw Cellular
Communications, Inc. ("McCaw Cellular") which investment may not exceed 3% of
the outstanding stock of AT&T). Such restrictions terminate on the later to
occur of July 28, 2000 or one year after the termination of the Operations
Committee.

     POTENTIAL CONFLICT OF INTEREST RELATIONSHIP WITH MOTOROLA.  Motorola and
its affiliates have and currently are engaged in wireless communications
businesses, and may in the future engage in additional such businesses, which
are or may be competitive with some or all of the services offered by Nextel's
Digital Mobile networks, although the Motorola Land Mobile Products Sector
("Motorola LMPS") may not, prior to July 28, 1998, make use (with certain
limited exceptions) of the customer lists conveyed by Motorola to ESMR in
connection with the Motorola Transaction to solicit subscribers for any 800 MHz
SMR commercial mobile voice business owned or managed by Motorola LMPS in the
continental United States. Pursuant to the Second Equipment Agreement Amendment,
Motorola has agreed that until July 1998, Motorola LMPS will not solicit other
iDEN customers and neither Motorola LMPS nor Motorola's credit corporation

                                       30
<PAGE>   31

subsidiary will make any equity investment in, or provide equipment/vendor
financing to, certain iDEN customers with respect to purchases of iDEN
equipment.

     Although Nextel believes that its equipment purchase and financing
relationship with Motorola has been structured to reflect the realities of
purchasing and borrowing from a competitor, there can be no assurance that the
potential conflict of interest will not adversely affect Nextel in the future.
Moreover, Motorola's role as a significant stockholder of Nextel, in addition to
its role as a major creditor and supplier, also creates potential conflicts of
interest, particularly with regard to significant transactions. See "-- Forward
Looking Statements."

     CONCERNS ABOUT MOBILE COMMUNICATIONS HEALTH RISK MAY AFFECT PROSPECTS OF
NEXTEL.  Allegations have been made, but not proven, that the use of portable
mobile communications devices may pose health risks due to radio frequency
emissions from such devices. Studies performed by wireless telephone equipment
manufacturers have investigated these allegations, and a major industry trade
association and certain governmental agencies have stated publicly that the use
of such phones poses no undue health risk. The actual or perceived risk of
mobile communications devices could adversely affect Nextel through a reduced
subscriber growth rate, a reduction in subscribers, reduced network usage per
subscriber or through reduced financing available to the mobile communications
industry.

     DEPENDENCE ON KEY PERSONNEL.  In early 1996, Nextel added a number of key
personnel to its senior management team. The Company's business plans and
strategies contemplating an accelerated nationwide build-out, expansion and
enhancement of its Digital Mobile network and related aggressive advertising and
marketing campaigns largely have been developed by, and are expected to be
implemented with, the active involvement and participation of many members of
the Company's senior management team, including particularly each of Messrs.
Akerson, Donahue, Shindler, West, Kelly and Sidman. The loss of the services of
any of these individuals could have a material adverse effect on the Company.
See "Executive Officers of the Registrant."

     RISKS ASSOCIATED WITH FOREIGN OPERATIONS.  Because the Company owns
interests in and operates international wireless companies through Nextel
International, it is subject to the risks inherent in such foreign operations
including: (i) political, economic and social conditions in the foreign
countries in which such operations are conducted; (ii) currency risks and
exchange controls; (iii) potential inflation in the applicable foreign
economies; (iv) the impact of import duties on the cost and/or prices of
infrastructure equipment and subscriber handsets; and (v) foreign taxation of
earnings and payments received by Nextel International from its operating
subsidiaries. Although the risks associated with the foreign operations
conducted through Nextel International have not adversely impacted the Company's
operating results to date, there can be no assurance that they will not do so in
the future, particularly as such operations expand in scope, scale and
significance.

FORWARD LOOKING STATEMENTS

     "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:  A number of the matters and subject areas discussed in the "Risk
Factors" section and elsewhere in this Annual Report on Form 10-K for the year
ended December 31, 1997 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
Nextel's actual future experience involving any one or more of such matters and
subject areas. Nextel has attempted to identify, in context, certain of the
factors that it currently believes may cause actual future experience and
results to differ from Nextel's current expectations regarding the relevant
matter or subject area. The operation and results of Nextel'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 "Risk Factors" section, including, but not limited
to, general economic conditions in the geographic areas and occupational market
segments that Nextel is targeting for its Digital Mobile network service, the
availability of adequate quantities of system infrastructure and subscriber
equipment and components to meet Nextel's service deployment and marketing plans
and customer demand, the success of efforts to improve and satisfactorily
address any issues relating to the Company's Digital Mobile network performance,
the continued

                                       31
<PAGE>   32

successful performance of the Reconfigured iDEN technology being deployed in the
Company's various market areas, the ability to achieve market penetration and
average subscriber revenue levels sufficient to provide financial viability to
the Company's Digital Mobile network business, the Company's ability to timely
and successfully accomplish required scale-up of its billing, collection,
customer care and similar back-room operations to keep pace with customer growth
and increased system usage rates, growth in levels of accounts receivables being
generated by the Digital Mobile network customer base, access to sufficient debt
or equity capital to meet Nextel's operating and financing needs, the quality
and price of similar or comparable wireless communications services offered or
to be offered by Nextel's competitors, including providers of cellular and PCS
service, future legislative or regulatory actions relating to SMR services,
other wireless communications services or telecommunications generally and other
risks and uncertainties described from time to time in Nextel's reports and,
with specific reference to risk factors relating to international operations, in
Nextel International's reports, filed with the Commission.

ITEM 2.  PROPERTIES

     The Company leases its principal executive and administrative office, which
is located at 1505 Farm Credit Drive, in McLean, Virginia, comprising
approximately 80,400 square feet, for an initial term of 10 years, expiring
August 14, 2006, with two five-year renewal options. The Company also leases for
certain administrative operations approximately 110,000 square feet of office
space in Denver, Colorado, under a lease expiring in 2004; approximately 95,600
square feet of office space in Norcross, Georgia, under a lease expiring in
2005; approximately 50,000 square feet of office space in McLean, Virginia,
under a lease expiring in 2005; and approximately 48,300 square feet in
Rutherford, New Jersey, under a lease expiring in 2001. The Company also leases
office facilities for sales, maintenance and administrative operations in its
markets. There were 155 office leases in effect at December 31, 1997, with terms
ranging from 1 to 10 years (not including extensions related to the exercise of
renewal options).

     The Company leases antenna sites for the transmission of its radio service
which are located, in the case of its analog SMR operations, primarily on either
building tops or mountain tops and in the case of its Digital Mobile networks
operations, on towers, generally at heights ranging from 150 to 300 feet above
the ground. The terms on approximately 97% of the leases range from
month-to-month to 20 years. As of December 31, 1997, the Company had
approximately 2,500 site leases for its analog SMR business in the United States
and approximately 4,000 constructed sites at leased locations in the United
States for its Digital Mobile network. The Company also owns properties and
transmission towers where management considers it is in the best interest of the
Company to do so. See "Item 1. -- Business -- Nextel's Digital Mobile
Network -- System Construction and Suppliers" for a discussion of factors
relevant to additional equipment, transmission and antenna sites that will need
to be procured and constructed in connection with the implementation of the
Company's Digital Mobile network in the designated markets.

ITEM 3.  LEGAL PROCEEDINGS

     On July 10, 1995, a lawsuit titled In Re Nextel Communications Securities
Litigation was filed in the United States District Court in the District of New
Jersey. This litigation, which is being pursued as a class action, amends and
consolidates three previously filed class action complaints and seeks damages
allegedly incurred by certain stockholders and claimed to result from
defendants' alleged violations of Section 10(b) of the Exchange Act as amended
and Rule 10b-5 promulgated thereunder. The litigation also makes claims of fraud
and deceit. Specifically, plaintiffs claim that such damages resulted from
certain alleged false and misleading statements made by defendants regarding the
digital communications technology developed by Motorola and deployed by Nextel
in its Digital Mobile network. While Nextel cannot predict the outcome of this
litigation, Nextel believes that the claims against it are without merit and
intends to vigorously defend against them. On July 23, 1997, the United States
District Court in the District of New Jersey declined to grant Nextel's motions
to dismiss pursuant to Federal Rule of Civil Procedure Rules 12(b)(6) and (9)(b)
substantially all of the causes of action alleged in the plaintiff's complaint
filed in this lawsuit. Most recently, Nextel filed a motion to deny class
certification. A ruling on the motion has not yet been made.

                                       32
<PAGE>   33

     On September 19, 1994, a lawsuit titled Charles Dascal v. Morgan O'Brien,
Becker, Gurman, Lukas, Meyers, O'Brien and McGowan, P.C. and Nextel
Communications, Inc., was filed in the Circuit Court of Dade County, Florida.
The lawsuit, which has been transferred to the United States District Court for
the Southern District of Florida, seeks compensatory damages, lost profits and
special damages based on the defendants' alleged breach of fiduciary duty,
misappropriation of trade secrets, negligent misrepresentation, fraud,
conversion, civil theft, breach of good faith and fair dealing and unjust
enrichment. The claims, which primarily concern alleged conduct by Nextel's
current Vice Chairman and former Chairman of the Board, Morgan O'Brien, in the
late 1970's and early 1980's prior to the formation of Nextel, assert that
business plans allegedly formulated by the plaintiff relating to the development
of a wireless communications system were disclosed to, and have been improperly
used by, the defendants. On September 13, 1994, the Board of Directors
determined that Morgan O'Brien in his capacities as an officer, director and
authorized representative of Nextel, was entitled to indemnification in respect
of this matter. Nextel has filed counterclaims against Mr. Dascal and has also
filed third-party claims against Tel Air Network, Inc. ("Tel Air"), and Knight-
Ridder, Inc. ("Knight-Ridder"). The counterclaim against Mr. Dascal has been
dismissed and the Company is currently not aware of any other ruling with
respect to the third-party claims against Tel Air and Knight-Ridder. Nextel also
has moved for summary judgment for dismissal of Mr. Dascal's claims against
Nextel and Mr. O'Brien. To date there has been no ruling on that motion. While
Nextel cannot predict the outcome of this litigation, Nextel believes that the
claims against it are without merit and intends to vigorously defend against
them. A trial date has been set for mid-1998.

     Unless otherwise indicated, the relevant plaintiffs have not specified
amounts of damages being sought. Given Nextel's assessment of the claims
asserted against it in each such lawsuit, and in other pending or threatened
litigation (including litigation incidental to the conduct of its business),
Nextel does not believe that such lawsuits, individually or in the aggregate,
will have a material adverse effect on Nextel's financial condition, results of
operations or liquidity.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of security holders of the Company
during the period commencing October 1, 1997 and concluding December 31, 1997,
which is the final quarter covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

     The following section provides certain information regarding those persons
serving as executive officers of the Company as of March 12, 1998. All of such
executive officers were most recently elected to their present officer positions
by action of the Board of Directors of Nextel. There is no family relationship
between any of the executive officers of the Company, or between any of such
officers and any of the Directors of the Company. Officers of the Company are
elected to serve until their successors have been elected.

     DANIEL F. AKERSON. (49) Mr. Akerson has served as Chairman of the Board and
Chief Executive Officer since joining the Company on March 6, 1996. From 1993
until March 5, 1996, Mr. Akerson served as a general partner of Forstmann Little
& Co., a private investment firm ("Forstmann Little"). While serving as a
general partner of Forstmann Little, Mr. Akerson also held the positions of
Chairman of the Board and Chief Executive Officer of General Instrument
Corporation, a technology company acquired by Forstmann Little. From 1983 to
1993, Mr. Akerson held various senior management positions with MCI
Communications Corporation, including President and Chief Operating Officer. Mr.
Akerson serves as a director of American Express Company and America OnLine,
Inc.

     MORGAN E. O'BRIEN. (53) Mr. O'Brien has served as a director of the Company
since co-founding the Company in 1987. Since March 1996, Mr. O'Brien has served
as a Vice Chairman of the Board of Directors. From 1987 to March 5, 1996, Mr.
O'Brien served as Chairman of the Board of Directors, and from 1987 to October
16, 1994, Mr. O'Brien also served as General Counsel of the Company. Mr. O'Brien
was with the firm of Jones, Day, Reavis & Pogue, an international law firm, from
January 1986 to January 1990, during which time he served as partner-in-charge
of the firm's telecommunications section from January 1986 until co-founding the
Company in 1987. Mr. O'Brien also served as a consultant to Jones, Day, Reavis &
Pogue

                                       33
<PAGE>   34

from January 1990 to October 1991. From June 1979 until April 1987, Mr. O'Brien
was in private legal practice and represented major SMR operators in proceedings
before the FCC. From October 1970 to June 1979, Mr. O'Brien served in a variety
of legal and managerial positions with the FCC in the areas of private radio and
radio common carrier administration. Mr. O'Brien serves on the Board of
Directors of CTIA, a leading wireless communications trade association.

     TIMOTHY M. DONAHUE. (49) Mr. Donahue has served as President of the Company
since joining the Company on February 1, 1996 and as a director of the Company
since May 1996. On February 29, 1996, Mr. Donahue was elected to the additional
position of Chief Operating Officer of the Company. From 1986 to January 1996,
Mr. Donahue held various senior management positions with AT&T Wireless
Services, Inc. ("AT&T Wireless"), most recently Regional President for the
Northeast.

     STEVEN M. SHINDLER. (35) Mr. Shindler joined the Company in May 1996 and
serves as Vice President and Chief Financial Officer. Between 1987 and 1996, Mr.
Shindler was an officer with Toronto Dominion Bank, where most recently he was a
Managing Director in its Communications Finance Group.

     BARRY WEST. (52) Mr. West joined the Company in March 1996 and serves as
Vice President and Chief Technology Officer. Prior thereto, Mr. West served in
various senior positions with British Telecom for more than five years, most
recently as Director of Value-Added Services and Corporate Marketing at Cellnet,
a cellular communications subsidiary of British Telecom.

     THOMAS KELLY. (50) Mr. Kelly joined the Company in April 1996 and serves as
Vice President of Marketing. Between 1993 and 1996, Mr. Kelly was Regional Vice
President of Marketing for AT&T Wireless. Prior to joining AT&T, Mr. Kelly
worked for 12 years with the marketing consulting firm of Howard Bedford Nolan,
where he was most recently an Executive Vice President.

     ROBERT S. FOOSANER. (55) Mr. Foosaner joined the Company in April 1992 and
serves as Vice President and Chief Regulatory Officer. Prior to joining the
Company, Mr. Foosaner was a partner at the law firm of Jones, Day, Reavis &
Pogue where he most recently served as head of the communications group. Before
joining the law firm in November 1986, Mr. Foosaner held various positions at
the FCC where he most recently served as Chief, Private Radio Bureau.

     KEITH D. GRINSTEIN. (37) Mr. Grinstein has served as President, Chief
Executive Officer and as a director of Nextel International since January 1996.
From January 1991 to December 1995, Mr. Grinstein was President and Chief
Executive Officer of the aviation communications division of AT&T Wireless.
Prior thereto, Mr. Grinstein held a number of positions at McCaw Cellular and
its subsidiaries, including Vice President, General Counsel and Secretary of LIN
Broadcasting Company, a subsidiary of McCaw Cellular, and Vice President and
Assistant General Counsel of McCaw Cellular. Mr. Grinstein is a director of
Clearnet.

     THOMAS J. SIDMAN. (43) Mr. Sidman has served as Vice President and General
Counsel of the Company since joining the Company on October 17, 1994. From
January 1988 to October 1994, Mr. Sidman was a partner of Jones, Day, Reavis &
Pogue specializing in corporate and securities law and mergers and acquisitions.

     A.J. LONG. (36) Mr. Long has served as Vice President and Treasurer since
joining the Company in June 1996. From June 1994 to June 1996, Mr. Long served
as Assistant Treasurer at Sprint Communications, L.P. ("Sprint"). From January
1993 to June 1994, Mr. Long served as Manager of Mergers and Acquisitions at
Sprint. From August 1991 to January 1993, Mr. Long served as Manager of
Corporate Audit Staff at Sprint.

     WILLIAM G. ARENDT. (40) Mr. Arendt has served as Vice President and
Controller since joining the Company in May 1997. From June 1996 until joining
the Company, Mr. Arendt was Vice President and Controller for Pocket
Communications, Inc., a PCS company. From September 1992 until June 1996, he was
Controller for American Mobile Satellite Corporation. Prior thereto, he was with
Ernst & Young LLP for twelve years.

                                       34
<PAGE>   35

                                    PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
         MATTERS

MARKET FOR COMMON STOCK

     Nextel's Common Stock is traded on the Nasdaq Stock Market ("NSM") under
the symbol "NXTL." Prior to February 3, 1997, the Common Stock traded under the
symbol "CALL." The table below presents high and low closing price information
for the Common Stock as reported by the NSM for the periods indicated.

<TABLE>
<CAPTION>
                                                   QUARTERLY COMMON STOCK PRICE RANGES FOR THE
                                                            YEARS ENDED DECEMBER 31,
                                                  ---------------------------------------------
                                                          1997                    1996
                                                  ---------------------   ---------------------
                 QUARTER ENDED                      HIGH         LOW        HIGH         LOW
                 -------------                    ---------   ---------   ---------   ---------
<S>                                               <C>         <C>         <C>         <C>
March 31........................................   $15.750     $12.875     $18.875     $13.500
June 30.........................................    19.188      12.250      23.375      16.750
September 30....................................    29.438      19.688      20.250      14.375
December 31.....................................    31.000      22.500      18.500      12.750
</TABLE>

NUMBER OF STOCKHOLDERS OF RECORD

     As of March 27, 1998, the number of stockholders of record of the Company's
Common Stock was 3,788. Nextel has authority to issue shares of Non-Voting
Common Stock, which are convertible on a share-for-share basis into shares of
Common Stock. As of March 27, 1998, there was a single stockholder of record
holding all of the 17,830,000 outstanding shares of Non-Voting Common Stock, and
a single stockholder of the Company's Class A Preferred Stock and Class B
Preferred Stock. The Company's Series D Preferred Stock and Series E Preferred
Stock are not listed or traded on any established public trading market and are
not convertible into the Company's Common Stock.

DIVIDENDS

     The Company has not paid any dividends on the Common Stock, and does not
plan to pay dividends on the Common Stock for the foreseeable future. The Nextel
Indentures and the Bank Credit Agreement presently prohibit, and are expected to
operate so as to continue to prohibit, Nextel from paying dividends. In
addition, the collateral security mechanisms and related provisions associated
with the Bank Credit Facility limit the amount of cash available to make
dividends, loans and cash distributions to Nextel from Nextel's subsidiaries
that operate the Digital Mobile network in Nextel's markets. Provisions in the
indentures to which Nextel International is a party also place significant
restrictions on Nextel's ability to receive cash from Nextel International or
any of its subsidiaries. Accordingly, while such restrictions are in place, any
profits generated by such subsidiaries will not be available to Nextel for,
among other things, payment of dividends.

     The Company anticipates that for the foreseeable future any cash flow
generated from its operations will be used to develop and expand the Company's
business. Any future determination as to the payment of dividends will be at the
discretion of the Company's Board of Directors and will depend upon the
Company's operating results, financial condition and capital requirements,
contractual restrictions, general business conditions and such other factors as
the Company's Board of Directors deems relevant. There can be no assurance that
the Company will pay dividends at any time in the future. Under certain limited
circumstances, the Company may be obligated to pay dividends on the Class A
Preferred Stock. See Part I, Item 1 "Business -- Agreements with Significant
Stockholders -- The McCaw Interests."

RECENT SALES OF UNREGISTERED SECURITIES

     Nextel sold securities that were not registered under the Securities Act in
the following transaction during the fourth quarter of 1997: On October 22,
1997, Nextel completed the sale of $1,129.1 million principal amount at maturity
of the October Notes pursuant to Rule 144A and Regulation S under the Securities
Act to qualified institutional buyers and to persons outside the United States.
The issue price of the October Notes, which mature on October 31, 2007, was
$619.96 per $1,000 principal amount at maturity, representing a yield to
maturity of 9.75% computed on a semi-annual bond equivalent basis from the date
of issuance. Nextel

                                       35
<PAGE>   36

received approximately $682.0 million in October Notes Proceeds. Morgan Stanley
& Co. Incorporated, Chase Securities, Inc., J.P. Morgan Securities, Inc.,
NationsBanc Montgomery Securities, Inc., TD Securities (USA) Inc. and Credit
Suisse First Boston Corporation acted as placement agents and received
approximately $17.5 million in fees in connection with the sale of the October
Notes. The foregoing transaction was effected pursuant to the exemption of
Section 4(2) of the Securities Act and Rule 144A and Regulation S thereunder in
reliance upon the representations of the purchasers of the October Notes.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth certain consolidated financial data for the
periods indicated and should be read in conjunction with the Consolidated
Financial Statements, related notes and other financial information appearing
elsewhere in Part II of this Form 10-K Annual Report (dollar amounts in
thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                                          NINE MONTHS    FISCAL YEAR
                                        YEAR ENDED DECEMBER 31,              ENDED          ENDED
                                ---------------------------------------   DECEMBER 31,    MARCH 31,
                                   1997          1996          1995         1994(1)         1994
                                -----------   -----------   -----------   ------------   -----------
<S>                             <C>           <C>           <C>           <C>            <C>
INCOME STATEMENT DATA(2):
Revenues......................  $   738,897   $   332,938   $   171,703   $    74,857    $   67,928
Cost of operations............      284,549       247,717       151,718        51,406        28,666
Selling, general and
  administrative expenses.....      865,791       330,256       193,321        85,077        41,107
Expenses related to corporate
  reorganization(3)...........           --            --        17,372            --            --
Depreciation and
  amortization................      526,377       400,831       236,178        94,147        58,398
                                -----------   -----------   -----------   -----------    ----------
     Operating loss...........     (937,820)     (645,866)     (426,886)     (155,773)      (60,243)
Interest (expense), net.......     (378,032)     (206,480)      (89,509)      (41,454)      (18,101)
Other income (expense),
  net(4)(5)...................        6,511       (10,866)      (15,372)           33             3
Income tax (provision)
  benefit.....................     (258,726)      307,192       200,602        71,345        21,437
                                -----------   -----------   -----------   -----------    ----------
Loss before extraordinary
  item........................   (1,568,067)     (556,020)     (331,165)     (125,849)      (56,904)
Extraordinary item............      (45,787)           --            --            --            --
Preferred dividends...........      (29,119)           --            --            --            --
                                -----------   -----------   -----------   -----------    ----------
Loss attributable to common
  stockholders................  $(1,642,973)  $  (556,020)  $  (331,165)  $  (125,849)   $  (56,904)
                                ===========   ===========   ===========   ===========    ==========
Basic and diluted loss per
  share attributable to common
  stockholders:
Loss before extraordinary
  item........................  $     (6.41)  $     (2.50)  $     (2.31)  $     (1.25)   $    (0.73)
Extraordinary item............        (0.18)           --            --            --            --
                                -----------   -----------   -----------   -----------    ----------
                                $     (6.59)  $     (2.50)  $     (2.31)  $     (1.25)   $    (0.73)
                                ===========   ===========   ===========   ===========    ==========
Number of shares used in
  computations(6).............  249,320,000   222,779,000   143,283,000   100,639,000    78,439,000
                                ===========   ===========   ===========   ===========    ==========
</TABLE>

                                       36
<PAGE>   37

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                     -------------------------------------------------   MARCH 31,
                                        1997         1996         1995         1994         1994
                                     ----------   ----------   ----------   ----------   ----------
<S>                                  <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Cash and cash equivalents(7).......  $  301,601   $  139,681   $  340,826   $  301,679   $  483,483
Marketable securities(8)...........     131,404        5,012       68,443      172,313      426,113
Current assets.....................     839,597      309,097      504,661      504,248      921,983
Intangible assets, net.............   4,699,746    4,076,300    3,549,622    1,451,780      889,912
Total assets.......................   9,227,801    6,472,439    5,547,256    2,918,985    2,229,832
Long-term debt(9)..................   5,038,250    2,783,041    1,687,829    1,193,096    1,113,268
Redeemable preferred stock(10).....     529,119           --           --           --           --
Stockholders' equity...............   1,912,420    2,808,138    2,945,141    1,268,575      846,304
</TABLE>

---------------
 (1) Effective December 31, 1994, Nextel changed its fiscal year end from March
     31 to December 31. Accordingly, the income statement data is presented for
     the transition period from April 1, 1994 to December 31, 1994.

 (2) See Item 7, "Management's Discussion and Analysis of Financial Condition
     and Results of Operations" and Note 2 to the Notes to Nextel's consolidated
     financial statements for a description of acquisitions.

 (3) See Note 2 to the Notes to Nextel's consolidated financial statements.

 (4) Other expense in 1996 primarily reflects equity in the losses of certain
     foreign investments accounted for under the equity method. See Note 2 to
     the Notes to Nextel's consolidated financial statements.

 (5) Other expense in 1995 includes a $15.0 million write-down of the investment
     in Nextel Mexico as a result of the devaluation of the Mexican peso.

 (6) Weighted average number of shares of Common Stock outstanding during the
     respective periods.

 (7) Includes approximately $159.8 million in cash and cash equivalents held by
     Nextel International and its subsidiaries as of December 31, 1997, which
     are not available to fund any of the cash needs of Nextel's domestic
     Digital Mobile and analog SMR businesses due to restrictions contained in
     the indenture relating to the 1997 NI Notes.

 (8) Includes approximately $128.6 million in marketable securities held by
     Nextel International and its subsidiaries as of December 31, 1997, which
     are not available to fund any of the cash needs of Nextel's domestic
     Digital Mobile and analog SMR businesses due to restrictions contained in
     the indenture relating to the 1997 NI Notes.

 (9) Excludes the current portions of long-term debt. See Note 6 to the Notes to
     Nextel's consolidated financial statements.

(10) See Note 10 to the Notes to Nextel's consolidated financial statements.

                                       37
<PAGE>   38

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     The following is a discussion of the consolidated financial condition and
results of operations of Nextel for the fiscal years ended December 31, 1997,
1996 and 1995, and certain factors that could affect Nextel's prospective
financial condition. The results of historical periods may not be indicative of
future performance. See Part I, Item 1 "Business -- Risk
Factors -- Forward-Looking Statements."

     The Company's operating revenues primarily arise from its digital and
analog wireless communications businesses in the United States, particularly
from the provision of mobile telephone and two-way radio services and, to a
lesser extent, from sales and maintenance of related equipment. The Company's
consolidated financial statements include financial information reflecting the
assets, liabilities and results of operations relating to Nextel International
and its consolidated subsidiaries as of the dates or for the periods indicated
therein. To date Nextel International's operations have not had a material
impact on the Company's consolidated results of operations, and since March 1997
the funding needs relating to the international operations have been met largely
through separate financing arrangements entered into by Nextel International and
its operating subsidiaries and affiliates. Accordingly, except as noted above
and as otherwise expressly indicated herein, the description of the Company's
financial condition and results of operations herein refers to the Company's
United States operations. More detailed information relating to Nextel
International's financial condition and results of operations may be found in
the periodic and other reports filed by Nextel International with the Commission
pursuant to the Exchange Act.

     The Company expects to continue to experience negative operating margins
while it is developing, building-out, enhancing and expanding its Digital Mobile
network and implementing related commercialization activities. In particular, as
additional markets are added to the Company's Digital Mobile network, the
Company expects to incur increased costs such as site rentals,
telecommunications expenses, systems and other capital expenses and license or
business acquisition costs. Selling, general and administrative expenses are
also expected to increase with the continuation and expansion of aggressive
national and regional marketing campaigns, increased sales and marketing and
network support staffing and continuing customer subsidies in connection with
the sale and installation of digital subscriber units in the United States.

RESULTS OF OPERATIONS

  YEAR ENDED DECEMBER 31, 1997 VS. YEAR ENDED DECEMBER 31, 1996

     Service revenue for the year ended December 31, 1997 increased 139%
primarily attributable to the 323% increase in digital subscriber units in
service from approximately 300,300 at December 31, 1996 to approximately
1,270,700 at December 31, 1997. Service revenue did not keep pace with the rate
of increase in digital subscriber units primarily because approximately
two-thirds of the new customers were added in the last half of 1997. The
increase in service revenue reflects the commencement of Digital Mobile network
service in certain markets and increased sales in markets in which Digital
Mobile network services are provided. Key factors contributing to the Company's
customer growth include increased sales force and marketing staff, increased
distribution channels, expanded network capacity, declining prices for
equipment, increased consumer awareness and acceptance of wireless
communications and pricing plans targeted at particular market segments.
Additionally, average monthly revenue per digital unit increased from
approximately $54.00 to approximately $66.00 for the years ended December 31,
1996 and 1997, respectively. As the Company expands its retail subscriber base
through increased reliance on indirect distribution channels, and as price
competition in the wireless industry intensifies, the average revenue per
subscriber unit is expected to decrease.

     The average churn rate for the Digital Mobile network operations has
increased from less than 1% per month for the year ended December 31, 1996 to
less than 1.3% per month for the year ended December 31, 1997. During the fourth
quarter of 1997, the average monthly churn rate was approximately 1.4%. Such
average monthly churn rate is expected to increase during 1998.

     Total analog equipment sales and maintenance revenue for the year ended
December 31, 1997 decreased 25% primarily attributable to the decrease in analog
SMR subscriber units in service in the Company's United States markets to
approximately 583,000 at December 31, 1997. The decrease in analog SMR unit
sales and
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<PAGE>   39

the decrease in analog SMR subscriber units in service in the Company's United
States markets is a result of the Company's focus on digital unit sales, the
declining competitiveness of analog SMR services and related subscriber
equipment utilizing analog technology, the recapture by the Company of its
analog SMR frequencies for use in the operation of its Digital Mobile network
and the related migration of analog subscriber units to the Digital Mobile
network.

     Cost of service revenue for the year ended December 31, 1997 increased 22%
primarily resulting from an increase in cell sites activated in 1997 as well as
an increase in airtime usage and an increase in digital subscriber units in
service. Service costs as a percentage of service revenue have decreased from
74% for the year ended December 31, 1996 to 38% for the year ended December 31,
1997, primarily as a result of economies of scale achieved due to the increase
in digital subscriber units in service.

     Selling, general and administrative expenses for the year ended December
31, 1997 increased 162%, primarily related to increased staffing and other
back-office and customer care activities supporting the accelerated growth in
the Company's implementation and operation of the Digital Mobile network.
Selling expenses increased primarily due to increased sales and marketing labor
costs and related commission expenses. Also contributing to the increase was the
rollout of aggressive national and regional marketing campaigns to increase
awareness of Nextel's products and services associated with the full-scale
commercial launch of the Digital Mobile network incorporating the Reconfigured
iDEN technology beginning in March 1997. Selling and marketing expenses are
expected to increase as the Company continues to expand its presence in existing
markets and expands the geographic coverage of its Digital Mobile network. The
Company includes the loss generated from the sale of digital subscriber units in
selling, general and administrative expenses, as the loss primarily represents
marketing costs for the Digital Mobile network. The loss on Digital Mobile
subscriber equipment sales for the year ended December 31, 1997 increased by
493%, primarily reflecting the continued effect of customer subsidies and
discounts on increased sales of digital subscriber units and related digital
accessories and the expenses associated with programs designed to stimulate the
orderly migration of customers from the Company's traditional analog SMR systems
to its new Digital Mobile network systems. Competitive market pressures are
expected to result in a continued trend of negative gross margins on digital
equipment sales as the Company anticipates that it will continue to offer
customers subsidies and/or discounts in connection with the sale and
installation of digital subscriber units.

     The Company recognized an aggregate of approximately $55.6 million and
$32.5 million, respectively, in bad debt expense for the year and the quarter
ended December 31, 1997. Bad debt expense as a percentage of total revenues,
including digital equipment revenues, increased to 5.6% in 1997 from 1.2% in
1996. The amount of bad debt expense recognized by the Company during 1997 was
significantly higher compared to 1996 as a result of a number of factors,
including principally delays in the billing of amounts due on purchases of
digital network subscriber equipment and the inability of the Company's billing
and collection systems, processes and personnel to fully keep pace with the
rapid growth of the Company's customer base and Digital Mobile network
utilization. As a result, the Company instituted a more comprehensive and
aggressive program for the collection of past due receivables in the latter part
of 1997 and increased its bad debt reserve, which contributed to the increased
bad debt expense. Nextel believes that it is pursuing appropriate activities and
already has taken a number of measures that it expects to result in the gradual
improvement of its billing and accounts receivable collection effectiveness in
1998. Nextel does not anticipate that the percentage of bad debt expense as
compared to total revenues will increase in 1998, although with the anticipated
growth of revenues, the absolute dollar amount of such expenses may increase.
Accordingly, the amount of bad debt expense recognized by the Company during
1997 should not be viewed as indicative of either the amount or level of bad
debt expense that the Company may recognize in future periods. See Part I, Item
1 "Business -- Forward Looking Statements".

     Effective October 1, 1997, the Company changed the estimated useful lives
of certain intangible assets including FCC licenses and the excess of purchase
price over fair value of net assets acquired related to domestic acquisitions
from 20 to 40 years to better reflect the period over which the economic
benefits of such assets will be realized. The change in the estimated useful
lives of these intangible assets had the effect of decreasing amortization
expense by approximately $27.7 million for the quarter and the year ended

                                       39
<PAGE>   40

December 31, 1997. Depreciation and amortization for the year ended December 31,
1997 increased 31%, net of the effect of the change in useful lives of certain
intangible assets, reflecting the effect of the activation of additional cell
sites and switches, the expansion of the existing Digital Mobile network and the
effect of certain asset and license acquisitions during 1997. System assets
relating to the development of the Digital Mobile network represent the largest
portion of capital expenditures during the year ended December 31, 1997.
Depreciation of such assets begins upon commencement of commercial service. The
Company anticipates that depreciation and amortization expense will continue to
increase as the Company acquires additional FCC licenses and as the Company
constructs additional cell sites and switching facilities to expand the Digital
Mobile network.

     Interest expense for the year ended December 31, 1997 increased 79%,
reflecting higher debt balances primarily attributable to additional borrowings
under the Company's secured credit facilities. Interest expense also increased
during 1997 as a result of the issuance of the 1997 NI Notes and the 1997 Notes.

     Interest income for the year ended December 31, 1997 increased 42%,
reflecting higher average cash balances available for investment during the year
ended December 31, 1997 as compared to the prior year, primarily as a result of
the capital raised from the 1997 NI Notes and the proceeds received from the
issuance of the Series D Preferred Stock and the 1997 Notes.

     Other income for the year ended December 31, 1997 was $6.5 million,
primarily reflecting a $10.6 million gain on the disposal of certain assets,
foreign currency transaction gains of $6.0 million and minority interest
attributable to losses of certain foreign investments that are consolidated of
$2.1 million offset by $13.1 million of equity in the net losses of certain
foreign investments accounted for under the equity method.

     The Company recorded an income tax provision of $258.7 million in 1997,
compared to a benefit of $307.2 million in 1996. The effective tax rate for 1997
was 19.1%, compared with the 1996 effective tax rate of 35.6%. The 1997 results
were unfavorably impacted as a result of an increase in the Company's valuation
allowance related to net operating losses ("NOLs"). A significant portion of the
Company's deferred tax liabilities will reverse after current NOLs expire. After
considering this and other factors, including the change in useful lives of
certain intangible assets and recent operating results, the Company has
increased its valuation allowance in 1997 by $767.5 million. Of this amount,
approximately $384.1 million was recorded as a charge in the fourth quarter of
1997. In certain circumstances, Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," limits the recognition of income tax
benefits for NOLs to the amount of deferred tax liabilities that are expected to
reverse within the statutory carry forward period. This change is not expected
to have an impact on the Company's ability to utilize its NOLs for income tax
purposes.

     During the fourth quarter of 1997, the Company purchased $166.2 million
book value of its 11.5% Senior Redeemable Discount Notes due 2003 and $81.8
million book value of its 12.25% Senior Redeemable Discount Notes due 2004 at a
cost in excess of related carrying amounts. Accordingly, the Company recorded an
extraordinary loss of approximately $45.8 million related to the early
retirement of debt. The extraordinary loss represented the difference between
the purchase price and the book value of such Targeted Notes on the date of
purchase plus unamortized debt issuance costs.

     YEAR ENDED DECEMBER 31, 1996 VS. YEAR ENDED DECEMBER 31, 1995

     Total revenues for the year ended December 31, 1996, increased 94% to
$332.9 million, compared to $171.7 million for the year ended December 31, 1995.
Service revenue increased 119% to $297.5 million. The increase in service
revenue was principally a result of a modest increase in subscriber units in
service attributable to the completion of the Dial Page Transaction, the
commencement of Digital Mobile network service in certain markets during 1996
and the increased units in service in markets that commenced Digital Mobile
network service in 1994 and 1995.

     The increase in the total number of digital subscriber units in service as
of December 31, 1996, was approximately 215,300 units, to approximately 300,300
units as compared to the approximately 85,000 digital subscriber units in
service as of December 31, 1995, primarily reflecting continued expansion of the
Company's Digital Mobile network.

                                       40
<PAGE>   41

     The average churn rate for the Digital Mobile network operations was less
than 1% per month for the year ended December 31, 1996. There was insufficient
history of customer activity on the Digital Mobile network to derive a
meaningful churn rate for the year ended December 31, 1995.

     Cost of service revenue for the year ended December 31, 1996, increased 79%
to $221.4 million, compared to $123.5 million for the year ended December 31,
1995, primarily as a result of a modest increase in subscriber units in service
attributable to the completion of the Dial Page Transaction, the commencement of
Digital Mobile network service in certain markets during 1996 and the increased
units in service in markets that commenced Digital Mobile network service in
1994 and 1995. The direct costs associated with the Company's Digital Mobile
network, such as site rental and telephone expenses, will continue to increase
as additional Digital Mobile network markets are placed into service.

     Selling, general and administrative expenses for the year ended December
31, 1996, increased 71% to $330.3 million, compared to $193.3 million for the
year ended December 31, 1995. The increase is primarily related to the increased
staffing and other activities to support the implementation and operation of the
Company's Digital Mobile network. Selling expenses increased also due to the
rollout of aggressive marketing campaigns associated with the full-scale
commercial launch of the Company's Digital Mobile network incorporating the
Reconfigured iDEN technology in certain markets in late 1996. Selling, general
and administrative expenses include a loss on Digital Mobile subscriber
equipment sales of $25.4 million in 1996, compared to a loss of $13.8 million in
1995, reflecting the continued effect of customer subsidies or discounts on
increased sales of Digital Mobile subscriber units during 1996 as compared to
1995 and the effect of migrating customers from traditional analog SMR systems
to the Company's Digital Mobile network.

     Expenses related to the corporate reorganization for the year ended
December 31, 1995 reflect estimates of employee and facility related costs
resulting from the consolidation, resizing and relocation of the Company's
headquarters and customer care operations in connection with certain business
combinations consummated in 1995 (see note 2 to the Company's audited
consolidated financial statements). No such costs were recorded during the year
ended December 31, 1996.

     Depreciation and amortization for the year ended December 31, 1996,
increased 70% to $400.8 million, compared to $236.2 million for the year ended
December 31, 1995, reflecting the effect of the Motorola, OneComm, AMS and Dial
Page Transactions (the "Acquisitions") and the activation of the Company's
Digital Mobile network in additional market areas. System assets relating to the
development of the Company's Digital Mobile network represent the largest
portion of capital expenditures during the period. Depreciation and amortization
of such assets begins upon commencement of commercial service in each market.

     Interest income for the year ended December 31, 1996, decreased 18% to
$21.0 million, compared to $25.5 million for the year ended December 31, 1995.
The decrease relates to the utilization of cash for the development and
implementation of the Company's Digital Mobile network and to fund operating
activities.

     Interest expense for the year ended December 31, 1996, increased 98% to
$227.5 million, compared to $115.0 million from the year ended December 31,
1995, reflecting principally increased interest expense attributable to the
assumption of OneComm's Senior Redeemable Discount Notes due 2004 and the Dial
Call Senior Redeemable Discount Notes due 2004 and 2005 in the Acquisitions and
interest expense attributable to increased borrowings under the Company's
secured credit facilities to fund capital expenditures, acquisitions and
operations.

     Other expenses for the year ended December 31, 1996, were $10.9 million,
primarily reflecting equity in the losses of certain foreign investments
accounted for under the equity method.

     The income tax benefit for the year ended December 31, 1996, was $307.2
million as compared to $200.6 million for the year ended December 31, 1995.
These benefits resulted from the utilization of net operating losses against
deferred tax liabilities. The effective tax rate for 1996 of 35.6% decreased
from 37.7% in 1995 as a result of a decrease in the utilization of state net
operating losses for financial reporting purposes.

                                       41
<PAGE>   42

LIQUIDITY AND CAPITAL RESOURCES

     Nextel had net losses attributable to common stockholders of $1,643.0
million and $556.0 million for the fiscal years ended December 31, 1997 and
1996, respectively. Total expenses associated with developing and operating the
Company's Digital Mobile network have more than offset digital service revenues
and the operating earnings of the analog SMR operations, and are expected to
continue to offset such digital service revenues and analog SMR operating
earnings for the next several years. Nextel has consistently used external
sources of funds, primarily from equity issuances and the incurrence of debt, to
fund operations, acquisitions, capital expenditures and other non-operating
needs. For the next several years, Nextel intends to use 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 its Digital Mobile network.

     Since December 31, 1996, working capital has increased by $137.3 million to
$70.7 million as of December 31, 1997. The increase in working capital is
primarily a result of the receipt of the net cash proceeds of the 1997 NI Notes,
and the Series D Preferred Stock and the 1997 Notes remaining after the
application of a portion thereof to reduce outstanding borrowings under the
Company's secured credit facilities and to repurchase a portion of the Targeted
Notes during 1997. Proceeds of the 1997 NI Notes were primarily used to finance
international activities. The Company's construction and operation of its
domestic Digital Mobile network have been and continue to be principally
financed by incurring long-term debt.

     CASH FLOWS.  Net cash used in operating activities for the year ended
December 31, 1997, increased by $157.8 million as compared to net cash used in
operating activities for the year ended December 31, 1996. Operating cash flows
were impacted by increased sales, advertising and marketing expenses related to
the full-scale commercial launch of the Digital Mobile network in March 1997, as
well as increased costs associated with back office and customer care activities
necessary to support the Company's accelerated growth plans.

     Net cash used in investing activities was $2,048.4 million for the year
ended December 31, 1997. Cash used in investing activities during 1997 related
principally to (i) capital expenditures of $1,597.4 million for the build-out of
the Digital Mobile network, (including $101.9 million of capital expenditures
made by Nextel International in its international operations), (ii) $265.1
million of net cash used to acquire businesses and additional spectrum, (iii)
$126.4 million in net cash used to purchase marketable securities during the
period and (iv) $59.5 million in cash paid for investments in and advances to
certain foreign affiliates.

     Net cash provided by financing activities during the year ended December
31, 1997 of $2,572.8 million consisted primarily of gross proceeds of $2.2
billion from the issuance of the 1997 NI Notes, the 1997 Notes and the Series D
Preferred Stock, offset in part by approximately $75.4 million in deferred
financing cost payments ($67.2 million of deferred financing costs relating to
the consent solicitation were offset in part by the approximately $63.7 million
in proceeds received from the offering of common stock to validly consenting
holders) as well as the use of approximately $283.3 million of such October
Notes Proceeds to purchase a portion of the Targeted Notes. Other sources of
cash provided by financing activities include $481.3 million from the net
borrowings under the Company's secured credit facilities, as well as the receipt
of approximately $281.9 million in proceeds from stock issuances and option
exercises. The resulting increase in cash and cash equivalents from December 31,
1996, was $161.9 million, to a balance of $301.6 million at December 31, 1997.

FUTURE CAPITAL NEEDS AND RESOURCES

     Nextel anticipates that, for the foreseeable future, it will be utilizing
significant amounts of its available cash for capital expenditures for the
construction and enhancement of its domestic Digital Mobile network, operating
expenses relating both to such Digital Mobile network and to its domestic analog
SMR business, potential acquisitions (including the acquisition of rights to
spectrum through the recently concluded 800 MHz auction, acquisition of LMDS
spectrum through the joint venture conducted through NextBand in the recently
concluded LMDS spectrum auction and any future auctions of spectrum by the FCC),
debt service requirements and other general corporate expenditures. Nextel
anticipates that its cash utilization for capital expenditures and other
investing activities and operating losses will continue to exceed its cash flows
from operating activities over the next several years.

                                       42
<PAGE>   43

     In connection with the Company's implementation of its 1998 Plan in its
domestic markets, Nextel has estimated that the external funding required to
meet the cash needs of its domestic business activities during 1998, including
principally the purchase or redemption of the remaining Targeted Notes, the
funding of anticipated capital expenditures and acquisitions (including the
remaining balance due for acquisitions of licenses in the FCC's 800 MHz spectrum
auction concluded in December 1997, but excluding amounts to acquire LMDS
licenses) and operating losses, will be approximately $2,970.0 million, which
includes approximately $1,335.0 million of system infrastructure and other
system capital costs relating to Nextel's Digital Mobile network expected to be
incurred during 1998. Such estimates are based in part on the Company's
experience in 1997 and on a number of significant assumptions, including
assumptions regarding continued subscriber growth and increased demand for the
Company's wireless services and enhancements to existing Digital Mobile system
infrastructure to expand and improve systems coverage and performance to address
competitive pressures faced or anticipated by the Company in its domestic
markets. Additionally, the 1998 Plan does not include amounts required to
acquire LMDS licenses or to pursue LMDS or other new business opportunities or
other potential transactions or investments that are not part of Nextel's
domestic digital and analog SMR wireless communications businesses and assets
and related corporate support services, personnel and overhead. See Part I, Item
1 "Business -- 1998 Business Plan." The telecommunications industry is rapidly
evolving and there can be no assurance that the Company will not experience
levels of demand for its services or competitive pressures that differ from
those experienced in 1997 and from those assumed in developing the Company's
1998 Plan, which could cause an increase in the Company's need for additional
financing. See Part I, Item 1 "Business -- Forward Looking Statements."

     The Bank Credit Agreement currently provides for up to $3.0 billion in
secured financing, subject to the satisfaction or waiver of applicable borrowing
conditions. Of such financing, $1.0 billion of term loan financing was drawn as
of March 13, 1998. The availability of such financing is subject to Nextel's
satisfying certain requirements under the Old Indentures, which require Nextel
to issue new equity for cash as a condition to obtaining access to all amounts
not constituting "permitted debt" (as such term is defined in the Old
Indentures). Based upon the amount of new equity issued, and debt incurred,
through March 13, 1998 Nextel estimates that approximately $250.0 million of the
amounts available under the Bank Credit Facility cannot be accessed under the
Old Indenture requirements (other than to refinance existing debt) until either
(i) proceeds of the prior debt incurrences (including the February Notes
Proceeds) are applied to refinance notes issued under the Old Indentures (See
Part I, Item 1 "Business -- Post Fiscal Year 1997 Transactions and
Developments -- Tender Offer and Consent Solicitation") or (ii) the Company
issues additional equity for cash that would support the incurrence of
additional debt. The Company expects that it will be acquiring more than $250.0
million of Targeted Notes tendered pursuant to the currently pending tender
offers therefor. If such Targeted Notes are so acquired, the Company may access
the entire $3.0 billion available under the Bank Credit Facility in compliance
with the debt incurrence requirements set forth in the Old Indentures.

     Assuming (i) that Nextel secures access to all of the available funds under
the Bank Credit Facility, and (ii) that the New Option is exercised for cash and
Nextel receives the $420.0 million in New Option Proceeds from such exercise,
the Company believes that such amounts, coupled with the Company's available
cash and cash equivalents, including proceeds from the financing transactions
completed in 1998 that remain after completion of the tender offers for the
Targeted Notes, will provide funds that in the aggregate are expected to be more
than sufficient to implement the Company's 1998 Plan and meet the other
currently anticipated cash needs of the domestic business activities
contemplated by the 1998 Plan through the end of 1998 not including capital
required to pursue new telecommunications service offerings or business
offerings (including LMDS spectrum acquisitions). Thereafter, Nextel may require
substantial additional financing to fund further deployment, expansion and
enhancement of its Digital Mobile network, to fund operating losses and for
other purposes. To the extent the Company's existing financing sources are
insufficient to meet such needs, the Company may seek to raise additional
capital from public or private equity or debt sources. See Part I, Item 1
"Business -- Forward Looking Statements."

     The availability of borrowings pursuant to the Bank Credit Facility is
subject to certain conditions, and there can be no assurance that such
conditions will be met. Moreover, there can be no assurance that the New Option
will be exercised for cash and that Nextel will receive the proceeds therefrom,
or that any other outstanding options will be exercised for cash. The Bank
Credit Facility, the Nextel Indentures, and the terms
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<PAGE>   44

of the Series E Certificate and of the Series D Certificate contain and will
continue to contain provisions that operate to limit the amount of borrowings
that may be incurred by Nextel. The Bank Credit Agreement also requires Nextel
and its relevant subsidiaries at specified times to maintain compliance with
certain operating and financial covenants or ratios including certain covenants
and ratios specifically related to leverage which may become more stringent over
time. In addition, Nextel's capital needs, and its ability to adequately address
those needs through debt or equity funding sources, are subject to a variety of
factors that cannot presently be predicted with certainty, such as the
commercial success of Nextel's Digital Mobile network, the amount and timing of
Nextel's capital expenditures and operating losses and the market price of the
Common Stock. See Part I, Item 1 "Business -- Forward Looking Statements."

EFFECT OF INFLATION

     Inflation is not a material factor affecting the Company's business.
General operating expenses such as salaries, employee benefits and lease costs
are, however, subject to normal inflationary pressures. From time to time the
Company may experience price changes in connection with the purchase of certain
system infrastructure and subscriber equipment that are based, in part, on
relative changes in pricing indices that are affected by inflationary pressures.
The Company does not currently believe that any of such price changes will be
material to the Company's business.

YEAR 2000 COMPLIANCE

     As is the case with most other businesses using computers in their
operations, the Company is in the process of evaluating and addressing Year 2000
compliance of its computer systems. Such Year 2000 compliance efforts are
designed to identify, address and resolve issues that may be created by computer
programs being written using two digits rather than four to define the
applicable year. Any of the Company's computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.

     The Company is currently evaluating its computer systems and software to
determine whether they will function properly with respect to dates in the year
2000 and thereafter. This process involves assessing overall Year 2000 risk and
modifying or replacing certain hardware and software maintained by the Company,
as well as communicating with external service providers to ensure that they are
taking the appropriate action to remedy certain Year 2000 compliance issues of
their own. Based on its evaluation of such systems and software to date, the
Company does not believe that risks associated with the Year 2000 issues, as
they relate to the Company's computer systems and software, will have a material
adverse effect on its financial condition or results of operations. However, the
Company cannot independently assess the impact of Year 2000 risks, issues and
compliance activities and programs involving operators of public switch
telecommunications networks ("PSTNs") or other (such as electric utility)
service providers. The Company therefore must rely on PSTN and utility
providers' estimates of their own Year 2000 risks, issues and the status of
their related compliance activities and programs in the Company's own risk
assessment process. Because the Company's systems will be interconnected with
PSTNs and will be dependent upon the systems of other service providers, any
disruption of operations in the computer programs of such PSTNs 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 material adverse effect on
the Company's operations.

     The total cost to the Company of its own Year 2000 assessment, compliance
and verification activities has not been and, based on its evaluation to date,
is not anticipated to be material to the Company's financial position or results
of operations in any given year.

EFFECT OF NEW ACCOUNTING STANDARDS

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), that establishes standards for reporting and display of comprehensive
income and is effective for fiscal years beginning after December 15,

                                       44
<PAGE>   45

1997. Components of comprehensive income include items such as net income and
changes in fair market value of available-for-sale securities and foreign
currency translation adjustments.

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), that changes the standards for
reporting information about operating segments in annual financial statements
and requires reporting of selected information in interim financial reports.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.

     Both SFAS 130 and SFAS 131 require additional disclosure, but are not
expected to result in a material effect on the Company's financial position or
results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Nextel uses mandatorily redeemable preferred stock, senior discount notes,
and bank and vendor credit facilities to finance its operations. These
on-balance sheet financial instruments, to the extent they provide for variable
rates of interest, expose the Company to interest rate risk, with the primary
interest rate risk exposure resulting from changes in LIBOR or the prime rate
which are used to determine the interest rates that are applicable to borrowings
under the Company's bank credit facilities. Nextel uses off-balance sheet
derivative financial instruments, including interest rate swap and interest rate
protection agreements to partially hedge interest rate exposure associated with
both on-balance sheet financial instruments and anticipated debt transactions.
All of the Company's derivative financial instrument transactions are entered
into for non-trading purposes. The terms and characteristics of the derivative
financial instruments are matched with the underlying on-balance sheet
instrument or anticipated transaction and do not constitute speculative or
leveraged positions independent of these exposures.

     Nextel International's revenues are denominated in foreign currencies while
a significant portion of its operations are financed through senior discount
notes and bank and vendor credit facilities which are denominated in U.S.
dollars. Accordingly, fluctuations in exchange rates relative to the U.S.
dollar, primarily those related to the Brazilian Real, expose the Company to
foreign currency exchange rate risk. In the near term, the Company's foreign
currency exchange rate exposure associated with the repayment of Nextel
International's debt obligations is limited as the terms of the senior discount
notes and bank and vendor credit facilities do not require principal payments
until after 1999. Accordingly, as of December 31, 1997, the Company has not
established any hedge or risk reduction strategies related to its foreign
currency exchange rate exposure.

     The information below summarizes Nextel's sensitivity to market risks
associated with fluctuations in interest rates and foreign currency exchange
rates as of December 31, 1997 in U.S. dollars. To the extent that the Company's
financial instruments expose the Company to interest rate and foreign currency
exchange risk, they are presented within each market risk category in the table
below. The table presents principal cash flows and related interest rates by
year of maturity for the Company's mandatorily redeemable preferred stock,
senior discount notes, and bank and vendor credit facilities in effect at
December 31, 1997 and, in the case of the mandatorily redeemable preferred stock
and senior discount notes, exclude the potential exercise of the relevant
redemption features. The cash flows related to the variable portion of interest
rate swaps are determined by dealers using valuation models that estimate the
future level of interest rates, with consideration of the applicable yield curve
as of December 31, 1997. For interest rate swaps and the interest rate
protection agreement, the table presents notional amounts and the related
reference interest rates by year of maturity. Fair values included herein have
been determined based on (i) quoted market prices for mandatorily redeemable
preferred stock and senior discount notes; (ii) the carrying value for the bank
and vendor credit facilities at December 31, 1997 as interest rates are reset
periodically; and (iii) estimates obtained from dealers to settle interest rate
swap and interest rate protection agreements. Notes 6, 7 and 10 to the
consolidated financial statements contain descriptions of the Company's
mandatorily redeemable preferred

                                       45
<PAGE>   46

stock, senior discount notes, bank and vendor credit facilities, and interest
rate risk management agreements and should be read in conjunction with the table
below (U.S. dollar amounts in thousands).
<TABLE>
<CAPTION>
                                                        YEAR OF MATURITY
                                                                            --------------

                                         1998       1999      2000       2001       2002
                                       --------   --------   -------   --------   --------
<S>                                    <C>        <C>        <C>       <C>        <C>
I. INTEREST RATE SENSITIVITY
Redeemable Preferred Stock and
  Long-Term Debt:
Fixed Rate.........................          --         --        --         --         --
Average Interest Rate..............          --         --        --         --         --
Variable Rate......................          --         --   $10,050   $137,771   $180,775
Average Interest Rate..............          --         --     11.0%       9.3%       9.3%
Interest Rate Swaps:
Variable to Fixed..................          --   $100,000        --   $200,000         --
Average Pay Rate...................          --       5.4%        --       5.5%         --
Average Receive Rate...............          --       5.9%        --       5.8%         --
Variable to Variable...............          --         --   $50,000   $100,000         --
Average Pay Rate...................          --         --      5.7%       5.7%         --
Average Receive Rate...............          --         --      5.9%       5.9%         --
Anticipated Transaction Interest
  Rate Protection Agreement:
Protection Agreement...............    $570,000         --        --         --         --
Average Pay Rate...................        6.0%         --        --         --         --
II. FOREIGN EXCHANGE RATE
  SENSITIVITY
Long-Term Debt:
Fixed Rate.........................          --         --        --         --         --
Average Interest Rate..............          --         --        --         --         --
Variable Rate......................          --         --   $10,050   $ 10,050   $ 15,075
Average Interest Rate..............          --         --     11.0%      11.0%      11.0%

<CAPTION>
                                               YEAR OF MATURITY

                                                    TOTAL
                                       THERE-       DUE AT        FAIR
                                       AFTER       MATURITY      VALUE
                                     ----------   ----------   ----------
<S>                                  <C>          <C>          <C>
I. INTEREST RATE SENSITIVITY
Redeemable Preferred Stock and
  Long-Term Debt:
Fixed Rate.........................  $5,846,874   $5,846,874   $4,591,492
Average Interest Rate..............       11.0%
Variable Rate......................  $  894,675   $1,223,271   $1,223,271
Average Interest Rate..............        8.9%
Interest Rate Swaps:
Variable to Fixed..................          --   $  300,000   $      151
Average Pay Rate...................          --         5.4%
Average Receive Rate...............          --         5.8%
Variable to Variable...............          --   $  150,000   $   (2,002)
Average Pay Rate...................          --         5.7%
Average Receive Rate...............          --         5.9%
Anticipated Transaction Interest
  Rate Protection Agreement:
Protection Agreement...............          --   $  570,000   $   (6,068)
Average Pay Rate...................          --         6.0%
II. FOREIGN EXCHANGE RATE
  SENSITIVITY
Long-Term Debt:
Fixed Rate.........................  $  951,463   $  951,463   $  575,635
Average Interest Rate..............       13.0%
Variable Rate......................  $   15,075   $   50,250   $   50,250
Average Interest Rate..............       11.0%
</TABLE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements of the Company are filed under this
Item, beginning on page F-1 of this Report. The financial statement schedules
required under Regulation S-X are filed pursuant to Item 14 of this Report,
beginning on page F-33 of this Report.

ITEM 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING FINANCIAL
DISCLOSURE

     None.

                                       46
<PAGE>   47

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required herein regarding directors is incorporated herein
by reference from the definitive Proxy Statement for Nextel's 1998 Annual
Meeting, which is scheduled to be filed on or before April 10, 1998, under the
caption "Election of Directors." The information required herein regarding
executive officers required is set forth in Part I hereof under the heading
"Executive Officers of the Registrant," which information is incorporated herein
by reference. The information required herein regarding compliance with Section
16(a) of the Exchange Act by the Company's directors and executive officers, and
persons who own more than ten percent of a registered class of the Company's
equity securities is incorporated herein by reference from the definitive Proxy
Statement for Nextel's 1998 Annual Meeting which is scheduled to be filed on or
before April 10, 1998, under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance."

ITEM 11.  EXECUTIVE COMPENSATION

     The information required herein regarding compensation of executive
officers and directors is incorporated herein by reference from the definitive
Proxy Statement for Nextel's 1998 Annual Meeting, which is scheduled to be filed
on or before April 10, 1998, under the captions "Executive Compensation" and
"Election of Directors -- Compensation of Directors."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required herein is incorporated herein by reference from
the definitive Proxy Statement for Nextel's 1998 Annual Meeting, which is
scheduled to be filed on or before April 10, 1998, under the caption "Securities
Ownership of Management and Certain Beneficial Owners."

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required herein is incorporated herein by reference from
the definitive Proxy Statement for Nextel's 1998 Annual Meeting, which is
scheduled to be filed on or before April 10, 1998, under the caption "Certain
Relationships and Related Transactions."

                                       47
<PAGE>   48

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

     (a) (1) The following Financial Statements are included in Part II Item 8:

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                      ----
        <S>                                                           <C>
        Independent Auditors' Report................................   F-2
        Consolidated Balance Sheets, December 31, 1997 and 1996.....   F-3
        Consolidated Statements of Operations, Years Ended December
          31, 1997, 1996 and 1995...................................   F-4
        Consolidated Statements of Changes in Stockholders' Equity,
          Years Ended December 31, 1997, 1996 and 1995..............   F-5
        Consolidated Statements of Cash Flows, Years Ended December
          31, 1997, 1996 and 1995...................................   F-6
        Notes to Consolidated Financial Statements..................   F-7
</TABLE>

         (2) The following Financial Statement Schedules are submitted herewith
and are included herein in 14(d). Schedules other than those listed below are
omitted because they are either not required or not applicable.

<TABLE>
        <S>                                                           <C>
        Schedule I..................................................  F-33
        Schedule II.................................................  F-37
</TABLE>

                            ------------------------

         (3) List of Exhibits -- Refer to Exhibit Index on pages E1-E6, which is
incorporated herein by reference.

     (b) Reports on Form 8-K:

         (1) The Registrant filed a Current Report on Form 8-K dated October 23,
1997, reporting under Item 5 the issuance of the October Notes.

     (c) Exhibits listed above in Item 14(a)(3) are included herein.

     (d) Financial Statement Schedules listed above in Item 14(a)(2) are
incorporated herein by reference.

                                       48
<PAGE>   49

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                         FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
                                                                PAGE
                                                              --------
<S>                                                           <C>
INDEPENDENT AUDITORS' REPORT................................     F-2
CONSOLIDATED FINANCIAL STATEMENTS
  Consolidated Balance Sheets as of December 31, 1997 and
     1996...................................................     F-3
  Consolidated Statements of Operations for the Years Ended
     December 31, 1997, 1996 and 1995.......................     F-4
  Consolidated Statements of Changes in Stockholders' Equity
     for the Years Ended December 31, 1997, 1996 and 1995...     F-5
  Consolidated Statements of Cash Flows for the Years Ended
     December 31, 1997, 1996 and 1995.......................     F-6
  Notes to Consolidated Financial Statements................     F-7
FINANCIAL STATEMENT SCHEDULES
  Schedule I -- Condensed Financial Information of
     Registrant.............................................    F-33
  Schedule II -- Valuation and Qualifying Accounts..........    F-37
</TABLE>

                                       F-1
<PAGE>   50

                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
  Nextel Communications, Inc.

     We have audited the accompanying consolidated balance sheets of Nextel
Communications, Inc. and subsidiaries (the "Company") as of December 31, 1997
and 1996, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedules listed in the Index at Item 14(a)(2). These financial statements and
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Nextel Communications, Inc. and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.

DELOITTE & TOUCHE LLP

McLean, Virginia
March 13, 1998

                                       F-2
<PAGE>   51

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 1997          1996
                                                              -----------   -----------
<S>                                                           <C>           <C>
                                 ASSETS
CURRENT ASSETS
  Cash and cash equivalents (of which $159,790 is restricted
     as of December 31, 1997)...............................  $   301,601   $   139,681
  Marketable securities (of which $128,560 is restricted as
     of December 31, 1997)..................................      131,404         5,012
  Accounts and notes receivable, net........................      240,637        90,392
  Subscriber equipment inventory............................      101,338        45,168
  Other.....................................................       64,617        28,844
                                                              -----------   -----------
     Total current assets...................................      839,597       309,097
PROPERTY, PLANT AND EQUIPMENT, net..........................    3,225,603     1,803,739
INTANGIBLE ASSETS, net......................................    4,699,746     4,076,300
OTHER ASSETS................................................      462,855       283,303
                                                              -----------   -----------
                                                              $ 9,227,801   $ 6,472,439
                                                              ===========   ===========
                  LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable..........................................  $   529,191   $   225,309
  Accrued expenses and other................................      232,123       148,911
  Current portion of long-term debt.........................        7,577         1,524
                                                              -----------   -----------
     Total current liabilities..............................      768,891       375,744
LONG-TERM DEBT..............................................    5,038,250     2,783,041
DEFERRED INCOME TAXES.......................................      951,192       505,516
OTHER.......................................................       27,929            --
                                                              -----------   -----------
     Total liabilities......................................    6,786,262     3,664,301
                                                              -----------   -----------
COMMITMENTS AND CONTINGENCIES (Notes 6, 9, 12)
SERIES D EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE
  2009
  13% cumulative annual dividend; 515,166 shares issued
  and outstanding, stated at liquidation value..............      529,119            --
STOCKHOLDERS' EQUITY
  Preferred stock, Class A convertible redeemable, 7,905,981
     and 8,163,265 shares issued and outstanding............      290,545       300,000
  Preferred stock, Class B convertible, 82 shares issued and
     outstanding............................................           --            --
  Common stock, Class A, 253,246,237 and 211,374,665 shares
     issued, 252,028,617 and 209,753,097 outstanding........          253           211
  Common stock, Class B, non-voting convertible, 17,830,000
     shares issued and outstanding..........................           18            18
  Paid-in capital...........................................    4,379,810     3,672,908
  Accumulated deficit.......................................   (2,749,105)   (1,135,251)
  Treasury shares, at cost, 1,217,620 and 1,621,568
     shares.................................................      (23,435)      (31,400)
  Unrealized gain on investments, net of taxes..............       22,798        14,993
  Notes receivable from stockholders........................           --        (1,100)
  Deferred compensation, net................................       (8,464)      (12,241)
                                                              -----------   -----------
     Total stockholders' equity.............................    1,912,420     2,808,138
                                                              -----------   -----------
                                                              $ 9,227,801   $ 6,472,439
                                                              ===========   ===========
</TABLE>

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

                                      F-3
<PAGE>   52

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                           1997          1996          1995
                                                        -----------   -----------   -----------
<S>                                                     <C>           <C>           <C>
REVENUES
  Service revenue.....................................  $   712,237   $   297,512   $   135,753
  Analog equipment sales and maintenance..............       26,660        35,426        35,950
                                                        -----------   -----------   -----------
                                                            738,897       332,938       171,703
                                                        -----------   -----------   -----------
OPERATING EXPENSES
  Cost of service revenue.............................      269,685       221,382       123,496
  Cost of analog equipment sales and maintenance......       14,864        26,335        28,222
  Selling, general and administrative.................      865,791       330,256       193,321
  Expenses related to corporate reorganization........           --            --        17,372
  Depreciation and amortization.......................      526,377       400,831       236,178
                                                        -----------   -----------   -----------
                                                          1,676,717       978,804       598,589
                                                        -----------   -----------   -----------
OPERATING LOSS........................................     (937,820)     (645,866)     (426,886)
                                                        -----------   -----------   -----------

OTHER INCOME (EXPENSE)
  Interest expense....................................     (407,805)     (227,495)     (115,034)
  Interest income.....................................       29,773        21,015        25,525
  Other...............................................        6,511       (10,866)      (15,372)
                                                        -----------   -----------   -----------
                                                           (371,521)     (217,346)     (104,881)
                                                        -----------   -----------   -----------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND
  EXTRAORDINARY ITEM..................................   (1,309,341)     (863,212)     (531,767)
INCOME TAX PROVISION (BENEFIT)........................      258,726      (307,192)     (200,602)
                                                        -----------   -----------   -----------
LOSS BEFORE EXTRAORDINARY ITEM........................   (1,568,067)     (556,020)     (331,165)
EXTRAORDINARY ITEM -- LOSS ON EARLY RETIREMENT OF
  DEBT, NET OF INCOME TAX OF $0.......................      (45,787)           --            --
                                                        -----------   -----------   -----------
NET LOSS..............................................   (1,613,854)     (556,020)     (331,165)
REDEEMABLE PREFERRED STOCK DIVIDENDS..................      (29,119)           --            --
                                                        -----------   -----------   -----------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS..............  $(1,642,973)  $  (556,020)  $  (331,165)
                                                        ===========   ===========   ===========
BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO
  COMMON STOCKHOLDERS:
  Loss before extraordinary item attributable to
     common stockholders..............................  $     (6.41)  $     (2.50)  $     (2.31)
  Extraordinary item..................................        (0.18)           --            --
                                                        -----------   -----------   -----------
                                                        $     (6.59)  $     (2.50)  $     (2.31)
                                                        ===========   ===========   ===========
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
  OUTSTANDING.........................................  249,320,000   222,779,000   143,283,000
                                                        ===========   ===========   ===========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-4
<PAGE>   53
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
                                         CLASS A              CLASS B             CLASS A                CLASS B
                                     PREFERRED STOCK      PREFERRED STOCK       COMMON STOCK           COMMON STOCK
                                   --------------------   ---------------   --------------------   --------------------
                                    SHARES      AMOUNT    SHARES   AMOUNT     SHARES      AMOUNT     SHARES      AMOUNT
                                   ---------   --------   ------   ------   -----------   ------   -----------   ------
<S>                                <C>         <C>        <C>      <C>      <C>           <C>      <C>           <C>
BALANCE December 31, 1994........         --   $     --     --       $--    105,595,628    $106             --    $
Issuance of common stock:
 Exercise of options and
   warrants......................                                             1,622,778       2
 Digital Radio purchase..........  8,163,265    300,000     82                1,220,000       1
 Acquisitions....................                                            67,310,953      67     17,830,000     18
Deferred compensation............
Collection of notes receivable,
 net of accrued interest.........
Unrealized gain on investments...
Net loss.........................
                                   ---------   --------     --        --    -----------    ----    -----------    ---
BALANCE December 31, 1995........  8,163,265    300,000     82        --    175,749,359     176     17,830,000     18
Issuance of common stock:
 Exercise of options and
   warrants......................                                             1,580,981       1
 Employee stock purchase plan....
 Acquisitions....................                                            25,888,819      26
 Comcast purchase................                                             8,155,506       8
Exercise of anti-dilutive
 rights..........................
Deferred compensation............
Interest on notes receivable.....
Unrealized loss on investments...
Net loss.........................
                                   ---------   --------     --        --    -----------    ----    -----------    ---
BALANCE December 31, 1996........  8,163,265    300,000     82        --    211,374,665     211     17,830,000     18
Issuance of common stock:
 Exercise of options and
   warrants......................                                             2,598,649       3
 Employee stock purchase plan....
 Acquisitions....................                                            19,556,399      19
 Digital Radio option............                                            15,000,000      15
 Consent solicitation............                                             3,944,672       4
 Conversion of preferred stock...   (257,284)    (9,455)                        771,852       1
Issuance of warrants of
 subsidiary......................
Repurchase of Comcast option.....
Issuance of McCaw option to
 purchase common stock...........
Deferred compensation............
Collection of notes receivable...
Unrealized gain on investments...
Preferred dividends..............
Net loss.........................
                                   ---------   --------     --        --    -----------    ----    -----------    ---
BALANCE December 31, 1997........  7,905,981   $290,545     82       $--    253,246,237    $253     17,830,000    $18
                                   =========   ========     ==        ==    ===========    ====    ===========    ===

<CAPTION>
                                                                         UNREALIZED       NOTES
                                                                            GAIN        RECEIVABLE
                                    PAID-IN     ACCUMULATED   TREASURY    (LOSS) ON        FROM         DEFERRED
                                    CAPITAL       DEFICIT      SHARES    INVESTMENTS   STOCKHOLDERS   COMPENSATION
                                   ----------   -----------   --------   -----------   ------------   ------------
<S>                                <C>          <C>           <C>        <C>           <C>            <C>
BALANCE December 31, 1994........  $1,520,322   $  (248,066)  $   (786)   $ (1,214)      $(1,245)       $   (542)
Issuance of common stock:
 Exercise of options and
   warrants......................       5,722                       18
 Digital Radio purchase..........      12,644
 Acquisitions....................   1,654,440
Deferred compensation............       4,400                                                             (3,076)
Collection of notes receivable,
 net of accrued interest.........                                                            227
Unrealized gain on investments...                                           33,268
Net loss.........................                  (331,165)
                                   ----------   -----------   --------    --------       -------        --------
BALANCE December 31, 1995........   3,197,528      (579,231)      (768)     32,054        (1,018)         (3,618)
Issuance of common stock:
 Exercise of options and
   warrants......................      16,836                   (1,242)
 Employee stock purchase plan....        (112)                     227
 Acquisitions....................     341,984                  (37,009)
 Comcast purchase................      99,897
Exercise of anti-dilutive
 rights..........................        (842)                   7,392
Deferred compensation............      17,617                                                             (8,623)
Interest on notes receivable.....                                                            (82)
Unrealized loss on investments...                                          (17,061)
Net loss.........................                  (556,020)
                                   ----------   -----------   --------    --------       -------        --------
BALANCE December 31, 1996........   3,672,908    (1,135,251)   (31,400)     14,993        (1,100)        (12,241)
Issuance of common stock:
 Exercise of options and
   warrants......................      23,621                    1,569
 Employee stock purchase plan....      (1,848)                   5,424
 Acquisitions....................     388,062                      972
 Digital Radio option............     232,471
 Consent solicitation............      63,452
 Conversion of preferred stock...       9,454
Issuance of warrants of
 subsidiary......................      14,800
Repurchase of Comcast option.....     (25,000)
Issuance of McCaw option to
 purchase common stock...........      24,743
Deferred compensation............       6,266                                                              3,777
Collection of notes receivable...                                                          1,100
Unrealized gain on investments...                                            7,805
Preferred dividends..............     (29,119)
Net loss.........................                (1,613,854)
                                   ----------   -----------   --------    --------       -------        --------
BALANCE December 31, 1997........  $4,379,810   $(2,749,105)  $(23,435)   $ 22,798       $    --        $ (8,464)
                                   ==========   ===========   ========    ========       =======        ========
</TABLE>

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

                                       F-5
<PAGE>   54

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              1997         1996        1995
                                                           -----------   ---------   ---------
<S>                                                        <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss...............................................  $(1,613,854)  $(556,020)  $(331,165)
  Adjustments to reconcile net loss to net cash used in
     operating activities--
     Amortization of deferred financing costs and
       accretion of senior redeemable discount notes.....      346,289     188,687      94,430
     Depreciation and amortization.......................      526,377     400,831     236,178
     Provision for losses on accounts receivable.........       55,623       6,968       1,936
     Deferred income tax provision (benefit).............      258,726    (308,262)   (201,427)
     Extraordinary loss on retirement of debt............       45,787          --          --
     Other, net..........................................       28,520       5,393      18,339
     Change in current assets and liabilities, net of
       effects from acquisitions:
       Accounts and notes receivable.....................     (204,048)    (28,954)    (22,420)
       Subscriber equipment inventory....................      (68,840)    (19,939)     (1,179)
       Other assets......................................      (37,398)     11,985     (15,914)
       Accounts payable, accrued expenses and other......      300,294      94,602      86,483
                                                           -----------   ---------   ---------
          Net cash used in operating activities..........     (362,524)   (204,709)   (134,739)
                                                           -----------   ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Payments for acquisitions and purchase of licenses, net
     of cash acquired....................................     (207,225)     37,705     (85,917)
  Other investments and advances to affiliates...........      (59,480)    (38,380)    (51,605)
  Capital expenditures (Note 1)..........................   (1,597,420)   (434,641)   (270,943)
  Purchases of marketable securities.....................     (234,071)   (132,333)         --
  Proceeds from maturities and sales of marketable
     securities..........................................      107,667     196,771     112,095
  Other..................................................      (57,860)     11,769       6,140
                                                           -----------   ---------   ---------
          Net cash used in investing activities..........   (2,048,389)   (359,109)   (290,230)
                                                           -----------   ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of debt securities............................    1,700,279          --          --
  Issuance of preferred stock............................      500,000          --     300,000
  Long-term borrowings...................................      250,000     581,408          --
  Revolving line of credit borrowings (repayments),
     net.................................................      231,250    (296,704)    154,134
  Retirement of debt securities..........................     (283,288)         --          --
  Other long-term (repayments) borrowings, net...........       (8,023)      1,009      (6,357)
  Consent solicitation proceeds..........................       63,456          --          --
  Deferred financing costs...............................     (138,845)    (37,676)         --
  Issuance of common stock and options...................      281,904     114,636      16,112
  Option repurchase......................................      (25,000)         --          --
  Notes receivable from stockholders.....................        1,100          --         227
                                                           -----------   ---------   ---------
          Net cash provided by financing activities......    2,572,833     362,673     464,116
                                                           -----------   ---------   ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.....      161,920    (201,145)     39,147
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...........      139,681     340,826     301,679
                                                           -----------   ---------   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................  $   301,601   $ 139,681   $ 340,826
                                                           ===========   =========   =========
</TABLE>

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


                                       F-6
<PAGE>   55

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

     OPERATIONS -- Nextel Communications, Inc., and its subsidiaries ("Nextel"
or the "Company") provide a wide array of digital wireless communications
services throughout the United States, primarily to business users, utilizing
frequencies licensed by the Federal Communications Commission ("FCC"). In
addition to its digital operations, Nextel also operates analog wireless
networks which provide analog specialized mobile radio ("SMR") services.
Nextel's digital network has been developed to replace its remaining traditional
analog SMR systems with advanced mobile communication systems employing digital
technology with a multi-site configuration permitting frequency reuse ("Digital
Mobile network") utilizing digital technology developed by Motorola Inc.
("Motorola") (such technology is referred to as the "integrated Digital Enhanced
Network" or "iDEN(TM)"). Nextel's principal business objective is to offer
high-capacity, high quality, advanced communications services on its Digital
Mobile network to its customers in metropolitan markets throughout the United
States and to become a major participant in the global wireless communications
business. Through its subsidiary Nextel International, Inc. ("Nextel
International", formerly known as McCaw International, Ltd.), and other
subsidiaries that are involved in the international wireless investments and
business activities managed and/or coordinated through Nextel International,
Nextel has interests in wireless operations in Latin America, Asia and Canada.

     CONCENTRATIONS OF RISK -- The Company believes that the geographic and
industry diversity of its customer base minimizes the risk of incurring material
losses due to concentrations of credit risk.

     The Company is party to certain equipment purchase agreements with
Motorola, a significant stockholder (see Notes 6 and 12). For the foreseeable
future the Company expects that it will need to rely on Motorola for the
manufacture of a substantial portion of the equipment necessary to construct and
make operational its Digital Mobile network.

     USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

     PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Nextel and its majority-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation. To facilitate the timely reporting of consolidated results, the
accounts of Nextel International's foreign subsidiaries are consolidated on a
one-month lag based on a fiscal year ending November 30.

     The equity method is used to account for unconsolidated investments in
companies in which the Company exercises significant influence over operating
and financial policies but does not have a controlling interest.

     CASH AND CASH EQUIVALENTS; SUPPLEMENTAL CASH FLOW INFORMATION -- Cash
equivalents consist of time deposits and highly liquid investments with
remaining maturities of three months or less at the time of purchase. At
December 31, 1997, approximately $159.8 million in cash and cash equivalents
held by Nextel International and its subsidiaries were not available to fund any
of the cash needs of Nextel's domestic Digital Mobile network and SMR businesses
due to restrictions contained in the indenture related to the 10-year discount
notes issued by Nextel International in March 1997 (the "1997 NI Notes
Indenture") (see Note 6).

                                       F-7
<PAGE>   56
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Supplemental disclosures of cash flow information are as follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                                   ---------------------------
                                                     1997      1996      1995
                                                   --------   -------   ------
                                                         (IN THOUSANDS)
<S>                                                <C>        <C>       <C>
CASH PAID:
  Interest paid..................................  $105,464   $32,660   $8,454
                                                   ========   =======   ======
  Income taxes paid..............................  $     --   $ 1,290   $  389
                                                   ========   =======   ======
</TABLE>

     Total cash and non-cash capital expenditures were $1,641.5 million, $570.0
million and $419.7 million, for the years ended December 31, 1997, 1996 and
1995, respectively. Total capital expenditures include interest capitalized in
connection with the construction and development of the Digital Mobile network
of approximately $43.0 million, $32.9 million and $31.0 million during the years
ended December 31, 1997, 1996 and 1995, respectively. Prior to September 30,
1996, the Company financed certain of its equipment purchases directly with
vendors. During the years ended December 31, 1996 and 1995, the total equipment
acquired under these vendor financing agreements was $102.5 million and $117.8
million, respectively.

     INVESTMENTS -- Marketable debt securities and certificates of deposit with
original maturities greater than three months are classified as marketable
securities. Marketable equity securities intended to be held more than one year
are classified as other long-term assets. At December 31, 1997, approximately
$128.6 million of marketable securities held by Nextel International and its
subsidiaries were not available to fund any of the cash needs of Nextel's
domestic Digital Mobile network and SMR businesses due to restrictions contained
in the 1997 NI Notes Indenture (see Note 6).

     The Company accounts for investments in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All of the Company's marketable securities are
classified as available-for-sale as of the balance sheet date and are reported
at fair value, with unrealized gains and losses, net of tax, recorded as a
component of stockholders' equity. Realized gains or losses, as determined on a
specific identification basis, and declines in value, if any, judged to be other
than temporary on available-for-sale securities are reported in other income or
expense. Investments that are not considered marketable securities are recorded
at the lower of cost or market and included in other assets. Management of the
Company believes its investment policy limits exposure to concentrations of
credit risk.

     SUBSCRIBER EQUIPMENT INVENTORY -- Subscriber equipment is valued at the
lower of cost or market. Cost is determined by the first-in, first-out method.

     PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment, including
improvements that extend useful lives, are recorded at cost, while maintenance
and repairs are charged to operations as incurred. Depreciation and amortization
are computed using the straight-line method based on estimated useful lives of
up to 31 years for buildings, 3 to 10 years for equipment, and 3 to 7 years for
furniture and fixtures. Leasehold improvements are amortized over the shorter of
the respective lives of the leases or the useful lives of the improvements.

     Construction in progress includes labor, material, transmission and related
equipment, engineering, site development, interest and other costs relating to
the construction and development of the Digital Mobile network.

     INTANGIBLE ASSETS -- Intangible assets are recorded at cost and are
amortized using the straight-line method based on estimated useful lives of 40
years for FCC licenses and the excess of purchase price over fair value of
domestic net assets acquired, 3 to 10 years for customer lists, and up to 20
years for other intangibles. Licenses for the Company's international operations
and the excess of purchase price over the fair value of net assets acquired
related to international acquisitions are amortized on a straight-line basis
over 20 years.

                                       F-8
<PAGE>   57
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Effective October 1, 1997, the Company changed the estimated useful lives
of FCC licenses and the excess of purchase price over fair value of net assets
acquired related to domestic acquisitions from 20 to 40 years to better reflect
the period over which economic benefits of such assets are expected to be
realized. The change in the estimated useful lives of these intangible assets
had the effect of decreasing amortization expense by approximately $27.7 million
for the quarter and year ended December 31, 1997.

     INTEREST RATE RISK MANAGEMENT -- The Company uses derivative financial
instruments consisting of interest rate swap and interest rate protection
agreements in the management of its interest rate exposures. These interest rate
swap agreements have the effect of converting certain of the Company's variable
rate obligations to fixed or other variable rate obligations. Amounts to be paid
or received under interest rate swap agreements are accrued as interest rates
change and are recognized over the life of the swap agreements as an adjustment
to interest expense. The fair value of the swap agreements is not recognized in
the consolidated financial statements, since the swap agreements meet the
criteria for matched swap accounting.

     The Company enters into interest rate protection agreements to lock in
current interest rates on 10-year U.S. Treasury notes in anticipation of future
debt issuances that are probable of occurring and whose significant terms and
characteristics have been identified. Such agreements are designated to specific
debt issuances and any resulting net receivable or payable on the agreement is
capitalized as part of the deferred financing costs and amortized as an
adjustment to interest expense over the life of the related debt. In the event
that an agreement is no longer specifically designated to an anticipated
transaction, the agreement would be marked to market with any gain or loss
recognized within the Company's statement of operations.

     The Company does not use financial instruments for trading or other
speculative purposes, nor is it a party to any leveraged derivative instrument.
The use of derivative financial instruments is monitored through regular
communication with senior management. The Company is exposed to credit loss in
the event of nonperformance by the counterparties. This credit risk is minimized
by dealing with a group of major financial institutions with which the Company
has other financial relationships. The Company does not anticipate
nonperformance by these counterparties.

     REVENUE RECOGNITION -- Revenue is recognized for airtime and other services
over the period earned and for sales of equipment when delivered. Accruals for
customer discounts and rebates are recorded when revenues are recognized.

     Certain of the Company's digital equipment sales are made through
independent distributors under agreements allowing rights of return on
merchandise unsold by the distributors. The Company defers recognition of such
sales until the merchandise is sold by the distributors.

     DIGITAL MOBILE NETWORK EQUIPMENT SALES AND RELATED COSTS -- The loss
generated from the sale of subscriber units used in the Digital Mobile network
primarily results from the Company's subsidy of digital subscriber units and
represents marketing costs for the Digital Mobile network. Equipment sales
revenue and related cost of sales of digital subscriber units and related
digital accessories, including current period order fulfillment and installation
related expenses are classified within selling, general and administrative
expenses as follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                               -------------------------------
                                                 1997        1996       1995
                                               ---------   --------   --------
                                                       (IN THOUSANDS)
<S>                                            <C>         <C>        <C>
Equipment Sales..............................  $ 246,074   $129,252   $ 53,515
Cost of Equipment Sales......................    396,948    154,678     67,274
                                               ---------   --------   --------
                                               $(150,874)  $(25,426)  $(13,759)
                                               =========   ========   ========
</TABLE>

     INCOME TAXES -- Deferred tax assets and liabilities are determined based on
the temporary difference between the financial reporting and tax bases of assets
and liabilities applying enacted statutory tax rates in effect for the year in
which the differences are expected to reverse. Future tax benefits, such as net
operating

                                       F-9
<PAGE>   58
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

loss carryforwards, are recognized to the extent that realization of such
benefits is considered to be more likely than not.

     FOREIGN CURRENCY TRANSLATION -- Results of operations for foreign
investments are translated from the designated functional currency to the U.S.
dollar using average exchange rates during the period, while assets and
liabilities are translated at the exchange rate in effect at the reporting date.
Resulting gains or losses from translating foreign currency financial statements
are accumulated in a separate component of stockholders' equity. There were no
translation gains or losses for the periods presented. All gains or losses
resulting from foreign currency transactions are included in other income
(expense) in the accompanying consolidated statements of operations. During the
year ended December 31, 1997, the Company recognized approximately $6.0 million
in transaction gains; no significant transaction gains or losses were recorded
during the years ended December 31, 1996 or 1995.

     During 1997, Comunicaciones Nextel de Mexico S.A. de C.V. ("Nextel
Mexico"), formerly known as Corporacion Mobilcom S.A. de C.V., and McCaw
International (Brazil), Ltd. ("Nextel Brazil"), formerly known as Wireless
Ventures of Brazil, Inc., were considered to be operating in highly inflationary
economies as defined by Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translation." Accordingly, Nextel Mexico and Nextel Brazil
used the U.S. dollar as their functional currency. Effective January 1, 1998,
Nextel Brazil will no longer be considered to be operating in a highly
inflationary economy and will begin using the Brazilian Real as its functional
currency.

     BASIC AND DILUTED LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS -- In
March 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"),
which supersedes Accounting Principles Board Opinion No. 15. SFAS 128 is
effective for 1997 and simplifies the computation of earnings per share by
replacing the presentation of primary and fully diluted earnings per share with
a presentation of basic and diluted earnings per share. SFAS 128 requires dual
presentation of basic and diluted earnings per share by entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of an entity, similar to fully diluted earnings per share.
As presented, the Company's basic and diluted net loss per share attributable to
common stockholders is based on the weighted-average number of common shares
outstanding during the period and does not include other potential common shares
(including shares issuable upon exercise of options, warrants or conversion
rights) since their effect would be antidilutive.

     NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS
130") that establishes standards for reporting and display of comprehensive
income and is effective for fiscal years beginning after December 15, 1997.
Components of comprehensive income include items such as net income, changes in
fair market value of available-for-sale securities and foreign currency
translation adjustments.

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
("SFAS 131") that changes the standards for reporting information about
operating segments in annual financial statements and requires reporting of
selected information in interim financial reports. SFAS 131 is effective for
fiscal years beginning after December 15, 1997.

     Both SFAS 130 and SFAS 131 require additional disclosure, but will not
result in a material effect on the Company's financial position or results of
operations.

     RECLASSIFICATIONS -- Certain prior year amounts have been reclassified to
conform to the current year presentation.

                                      F-10
<PAGE>   59
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.  SIGNIFICANT BUSINESS COMBINATIONS AND INVESTMENTS

     DOMESTIC TRANSACTIONS -- On November 12, 1997, the merger with Pittencrieff
Communications, Inc. ("Pittencrieff"), an operator of analog SMR systems in
Texas, Oklahoma, New Mexico and Arizona, was consummated (the "Pittencrieff
Transaction"), whereby the stockholders of Pittencrieff received approximately
6.2 million shares of Nextel Class A Common Stock (or rights to receive such
stock), par value $0.001 per share ("Common Stock"), having an aggregate value
of approximately $169.6 million at closing. The Company does not believe that
the final purchase price allocation will differ significantly from the
preliminary purchase price allocation recorded at December 31, 1997.

     In January 1996, the merger with Dial Page, Inc. ("Dial Page"), an operator
of analog SMR systems in the southeastern United States, was consummated (the
"Dial Page Transaction"), whereby the stockholders of Dial Page received
approximately 26.8 million shares of Common Stock (or rights to receive such
stock), having an aggregate value of approximately $277.9 million on the
contract date.

     In July 1995, the Company acquired from Motorola substantially all of its
owned or managed 800 MHz SMR licenses and related assets located throughout the
continental United States in exchange for approximately 41.7 million shares of
Common Stock and 17.8 million shares of Nextel Class B Non-Voting Common Stock,
par value $0.001 per share (the "Non-Voting Common Stock") (the "Motorola
Transaction"), having an aggregate market value of approximately $1,160.0
million at closing.

     In July 1995, the merger with OneComm Corporation ("OneComm"), an operator
of SMR systems in the Rocky Mountain, Pacific Northwest, Midwest, North Central
and Ohio Valley areas, was consummated (the "OneComm Transaction") whereby the
stockholders of OneComm received approximately 22.5 million shares of Common
Stock (or rights to receive such stock), having an aggregate market value of
approximately $402.0 million at closing.

     In July 1995, the merger with American Mobile Systems Incorporated ("AMS"),
an operator of SMR systems in Florida, was consummated, whereby the stockholders
of AMS received approximately 4.2 million shares of Common Stock (or rights to
receive such stock), having an aggregate market value of approximately $81.3
million at closing.

     In October 1995, the Company acquired certain SMR properties from Comcast
Corporation in exchange for approximately 463,000 shares of Common Stock, having
an aggregate market value of approximately $7.2 million at closing.

     INTERNATIONAL TRANSACTIONS -- Through a series of investments in 1995 and
1996, Nextel International acquired approximately 30.1% of the outstanding
shares of Nextel Mexico, a Mexican SMR operator. Upon acquiring a 30.1%
ownership interest, Nextel International commenced accounting for Nextel Mexico
using the equity method of accounting.

     Through a series of transactions during 1997, the Company acquired
substantially all of the remaining shares of Nextel Mexico in exchange for 1.3
million shares of Common Stock valued at $16.5 million at closing and $115.6
million in cash, thereby increasing Nextel International's equity interest to
approximately 100% (the "Mexico Transaction"). Nextel International commenced
consolidating the accounts of Nextel Mexico on September 1, 1997, as a result of
its having obtained greater than 50% of the outstanding common stock and control
of Nextel Mexico.

     In August 1996, the Company, through a wholly-owned subsidiary, loaned
Grupo Comunicaciones San Luis S.A. de C.V ("Grupo") $12.0 million of which $3.4
million in principal and accrued interest was outstanding as of December 31,
1996. The note was subsequently transferred to Unrestricted Subsidiary Funding
Company, a wholly-owned subsidiary of Nextel ("USFC"). The principal and accrued
interest of $5.7 million outstanding as of December 12, 1997 was forgiven in
connection with the acquisition of the minority interest in Nextel Mexico held
by Grupo.

                                      F-11
<PAGE>   60
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During the year ended December 31, 1996, Nextel International recorded a
$10.8 million charge as a result of changing from the cost method to the equity
method of accounting. During the year ended December 31, 1995, Nextel
International recorded a $15.0 million charge to operations representing an
other than temporary decline in this cost method investment as a result of the
decline in the Mexican Peso during 1995.

     On January 30, 1997, Nextel acquired 81% of the outstanding shares of
Nextel Brazil, an operator of SMR systems in Brazil, from Telcom Ventures,
Inc.("Telcom Ventures") for a purchase price of $186.3 million, which was paid
with approximately 12.0 million shares of Common Stock (the "Brazil
Transaction"). Nextel simultaneously contributed its interest in Nextel Brazil
to Nextel International. Telcom Ventures has the right between October 31, 2001
and November 1, 2003, to require Nextel International to redeem its 19% interest
in Nextel Brazil at fair market value as determined pursuant to an appraisal
procedure. Nextel International is currently required to fund 100% of Nextel
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 may be declared at the discretion of Nextel
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.
In September 1997, a subsidiary of Nextel Brazil acquired 49% of the capital
stock and certain assets of a Brazilian indirect wholly-owned subsidiary of
Motorola for total consideration of approximately $19.3 million. In connection
with this transaction Nextel International's ownership in its Brazilian
operations was effectively reduced to 77%.

     In August 1996, Nextel International acquired all of the outstanding shares
of Com Control Comunicacion Controlada S.A., (renamed McCaw Argentina S.A.L.,
"Nextel Argentina") an Argentine SMR operator. On May 6, 1997, Nextel
International contributed its 100% ownership interest in Nextel Argentina into a
joint venture (the "Argentina Joint Venture") between the Company and Wireless
Ventures of Argentina, L.L.C. ("WVA"). As of December 31, 1997, Nextel
International had a 50% voting interest and shared equally in the profits and
losses of the joint venture. Capital contributions are to be made equally unless
otherwise agreed to by both Nextel International and WVA. Commencing on May 6,
1997, Nextel International accounted for its investment in the joint venture
under the equity method of accounting.

     On January 30, 1998, Nextel International acquired the remaining 50%
interest in the Argentina Joint Venture from WVA for a purchase price of $46.0
million. As a result of the purchase, Nextel International commenced
consolidating the accounts of Nextel Argentina effective February 1, 1998.

     PRO FORMA RESULTS -- The following presents the unaudited pro forma
consolidated results of operations for the year ended December 31, 1995, as if
the acquisitions consummated in 1995 and the Dial Page Transaction described
above had occurred on January 1, 1995. Results of operations for the years ended
December 31, 1997 and 1996 were not materially affected by the acquisitions
consummated in 1997 and 1996; accordingly, pro forma results are not presented.
The pro forma results are not necessarily indicative of the actual results of
operations that would have occurred had the transactions been consummated as
indicated nor are they intended to indicate results that may occur in the
future.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED
                                                              DECEMBER 31, 1995
                                                              -----------------
                                                            (IN THOUSANDS, EXCEPT
                                                               PER SHARE DATA)
<S>                                                         <C>
Revenues..................................................        $ 261,393
                                                                  =========
Net loss..................................................        $(526,699)
                                                                  =========
Loss per share attributable to common stockholders........        $   (2.34)
                                                                  =========
</TABLE>

                                      F-12
<PAGE>   61
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     All of the acquisitions described above were accounted for by the purchase
method. Accordingly, assets and liabilities have been reflected at fair value at
the date of acquisition. The operating results of the acquired companies are
included in the consolidated statements of operations from their respective
acquisition dates.

     The total purchase price and net assets acquired for domestic and
international acquisitions completed are as follows:

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                    ----------------------------------
                                                      1997        1996         1995
                                                    ---------   ---------   ----------
                                                              (IN THOUSANDS)
<S>                                                 <C>         <C>         <C>
Direct cost of acquisitions:
  Cash and accrued transaction costs..............  $ 154,462   $  30,487   $   89,626
  Common stock, warrants and options..............    382,910     296,881    1,654,525
  Expenses related to corporate reorganization....         --          --        9,915
                                                    ---------   ---------   ----------
                                                    $ 537,372   $ 327,368   $1,754,066
                                                    =========   =========   ==========
Net assets acquired:
  Working capital -- net..........................  $ (29,218)  $  53,641   $  (44,992)
  Property, plant and equipment...................     51,661     202,420      207,070
  Intangible assets...............................    700,582     556,250    2,278,310
  Other assets....................................      7,377       4,290       37,790
  Long-term debt..................................    (15,280)   (379,017)    (215,835)
  Deferred income taxes...........................   (177,750)   (110,216)    (508,277)
                                                    ---------   ---------   ----------
                                                    $ 537,372   $ 327,368   $1,754,066
                                                    =========   =========   ==========
</TABLE>

     CORPORATE REORGANIZATION -- As a result of the business combinations
consummated in 1995, the Company began to implement a plan to consolidate,
resize and relocate the corporate headquarters and certain other functions of
the various combining entities (the "Corporate Reorganization"). Accordingly, in
1995 the Company recorded a charge to operations of approximately $17.4 million
for certain estimated expenses directly related to such Corporate Reorganization
activities, including employee severance and closure of duplicate facilities. As
of December 31, 1997, all such costs relating to the Corporate Reorganization
have been paid.

3.  ACCOUNTS AND NOTES RECEIVABLE

<TABLE>
<CAPTION>
                                                             DECEMBER 31,
                                                          -------------------
                                                            1997       1996
                                                          --------   --------
                                                            (IN THOUSANDS)
<S>                                                       <C>        <C>
Trade...................................................  $284,053   $ 80,644
Notes receivable........................................     2,964     12,295
Other...................................................    10,210      8,227
Allowance for doubtful accounts.........................   (56,590)   (10,774)
                                                          --------   --------
                                                          $240,637   $ 90,392
                                                          ========   ========
</TABLE>

                                      F-13
<PAGE>   62
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  PROPERTY, PLANT AND EQUIPMENT

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1997         1996
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
Land.................................................  $    3,047   $    1,995
Buildings and improvements...........................      37,901       20,279
Equipment............................................   3,054,607    1,427,159
Furniture and fixtures...............................      28,779       18,182
Less accumulated depreciation and amortization.......    (594,473)    (314,808)
                                                       ----------   ----------
                                                        2,529,861    1,152,807
Construction in progress.............................     695,742      650,932
                                                       ----------   ----------
                                                       $3,225,603   $1,803,739
                                                       ==========   ==========
</TABLE>

5.  INTANGIBLE ASSETS

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1997         1996
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
FCC licenses.........................................  $3,945,838   $3,300,176
Excess of purchase price over fair value of net
  assets acquired....................................   1,258,400    1,083,963
Customer lists.......................................     173,673      134,320
Noncompetition covenants.............................      55,109       85,385
Other................................................      31,280       38,783
                                                       ----------   ----------
                                                        5,464,300    4,642,627
Less accumulated amortization........................     764,554      566,327
                                                       ----------   ----------
                                                       $4,699,746   $4,076,300
                                                       ==========   ==========
</TABLE>

                                      F-14
<PAGE>   63
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6.  LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1997         1996
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
11.5% Senior Redeemable Discount Notes due 2003, net
  of unamortized discount of $24,564 and $89,024.....  $  318,801   $  436,831
9.75% Senior Redeemable Discount Notes due 2004, net
  of unamortized discount of $113,926 and $205,773...   1,012,509      920,662
10.125% Senior Redeemable Discount Notes due 2004
  (originally issued by OneComm), net of unamortized
  discount of $111,870 and $151,810..................     298,006      258,066
12.25% Senior Redeemable Discount Notes due 2004
  (originally issued by Dial Call Communications,
  Inc.), net of unamortized discount of $104,504 and
  $186,584...........................................     326,966      355,246
10.25% Senior Redeemable Discount Notes due 2005
  (originally issued by Dial Call Communications,
  Inc.), net of unamortized discount of $34,320 and
  $45,192............................................      80,845       69,973
13.0% Senior Redeemable Discount Notes due 2007, net
  of unamortized discount of $411,571................     539,892           --
10.65% Senior Redeemable Discount Notes due 2007, net
  of unamortized discount of $324,329................     515,671           --
9.75% Senior Serial Redeemable Discount Notes due
  2007, net of unamortized discount of $416,021......     713,079           --
Bank credit facility, interest payable quarterly at
  an adjusted rate calculated either on the prime
  rate or LIBOR (8.25% to 9.0% -- 1997 and 8.0% to
  9.75% -- 1996).....................................   1,021,000      590,000
Vendor credit facility, interest payable quarterly at
  2.0% over the prime rate (10.5% -- 1997 and
  10.25% -- 1996)....................................     152,021      150,000
Nextel International vendor credit facility, interest
  payable semiannually at 2.5% over the prime rate
  (11.0% -- 1997)....................................      50,250           --
Other................................................      16,787        3,787
                                                       ----------   ----------
                                                        5,045,827    2,784,565
Less current portion.................................       7,577        1,524
                                                       ----------   ----------
                                                       $5,038,250   $2,783,041
                                                       ==========   ==========
</TABLE>

SENIOR REDEEMABLE DISCOUNT NOTES

     OLD SENIOR NOTES -- In 1993, the Company completed the issuance of $525.9
million principal amount at maturity of 11.5% Senior Redeemable Discount Notes
due 2003 (the "Nextel 2003 Notes"). The Nextel 2003 Notes, which are unsecured
obligations and noncallable until September 1, 1998, generated $300.0 million of
gross proceeds. Cash interest on the Nextel 2003 Notes accrues beginning on
September 1, 1998 and is payable semi-annually beginning March 1, 1999 at a rate
of 11.5% per annum.

     In 1994, the Company completed the issuance of $1,126.4 million principal
amount at maturity of 9.75% Senior Redeemable Discount Notes due 2004 (the
"Nextel 2004 Notes"). The Nextel 2004 Notes, which are unsecured obligations and
noncallable until February 15, 1999, generated $700.0 million of gross proceeds.
Cash interest on the Nextel 2004 Notes accrues beginning on February 15, 1999
and is payable semi-annually beginning August 15, 1999 at a rate of 9.75% per
annum.

                                      F-15
<PAGE>   64
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The $409.9 million principal amount at maturity of 10.125% Senior
Redeemable Discount Notes due 2004 originally issued by OneComm (the "OneComm
2004 Notes") are unsecured obligations, noncallable until January 15, 1999, and
were assumed in connection with the OneComm Transaction and adjusted to fair
value at the date of acquisition at an annual yield to stated maturity of
approximately 14.2%. Cash interest on the OneComm 2004 Notes accrues beginning
on January 15, 1999 and is payable semi-annually beginning July 15, 1999 at a
rate of 10.125% per annum.

     The $541.8 million principal amount at maturity of 12.25% Senior Redeemable
Discount Notes due 2004 originally issued by Dial Call Communications, Inc. (the
"Dial Page 2004 Notes") are unsecured obligations, noncallable until April 15,
1999, and were assumed in connection with the Dial Page Transaction and adjusted
to fair value at the date of acquisition at an annual yield to stated maturity
of approximately 14.3%. Cash interest on the Dial Page 2004 Notes accrues
beginning on April 15, 1999 and is payable semi-annually beginning October 15,
1999 at a rate of interest of 12.25% per annum.

     The $115.2 million principal amount at maturity of 10.25% Senior Redeemable
Discount Notes due 2005 originally issued by Dial Call Communication, Inc. (the
"Dial Page 2005 Notes") are unsecured obligations, noncallable until December
15, 1998, and were assumed in connection with the Dial Page Transaction and
adjusted to fair value at the date of acquisition at the annual yield to stated
maturity of approximately 14.3%. Cash interest on the Dial Page 2005 Notes
accrues beginning on December 15, 1998 and is payable semi-annually beginning
June 15, 1999 at a rate of 10.25% per annum.

     EXTRAORDINARY ITEM -- During the fourth quarter of 1997, the Company
utilized $283.3 million of the proceeds from the issuance of $1,129.1 million in
principal amount at maturity of 9.75% Senior Serial Redeemable Discount Notes
due 2007 (the "October 2007 Notes") to repurchase $182.5 million in principal
amount at maturity of Nextel 2003 Notes and $110.4 million in principal amount
at maturity of Dial Page 2004 Notes (collectively, the "Targeted Notes") at a
cost in excess of related carrying amounts. Accordingly, the Company recognized
an extraordinary loss of approximately $45.8 million related to the early
retirement of debt representing the excess of the purchase price over carrying
value as well as unamortized deferred financing costs. In March 1998 the Company
commenced a cash tender offer and consent solicitation related to the remaining
outstanding Targeted Notes.

     INDENTURE AMENDMENTS -- On June 13, 1997, Nextel obtained the consent of
the requisite number of holders of the Nextel 2003 Notes, Nextel 2004 Notes,
OneComm 2004 Notes, Dial Page 2004 Notes and Dial Page 2005 Notes (collectively
the "Old Senior Notes") to certain amendments and waivers to specific provisions
of the indentures governing the Old Senior Notes (as amended and modified, the
"Old Indentures"). The amendments included certain modifications to the debt
incurrence limitations to allow Nextel to incur additional indebtedness and
modifications to make the terms and covenants uniform among the Old Indentures.
The covenants of the Old Indentures restrict the ability of the Company and
certain of its subsidiaries to: incur additional indebtedness; pay dividends or
make distributions in respect of its capital stock or make certain other
restricted payments; enter into transactions with affiliates or related persons;
sell certain assets; engage in any business other than the telecommunications
business; or consolidate, merge or sell all or substantially all of its assets.
The maximum permitted indebtedness pursuant to the Old Indentures was limited to
approximately $3.0 billion as of December 31, 1997. At December 31, 1997, the
Company has incurred approximately $2.1 billion constituting permitted debt
which had the effect of limiting the amount available under the Old Facilities
(as defined below) as of that date by approximately $390.0 million.

     NEXTEL INTERNATIONAL 2007 NOTES -- On March 3, 1997, Nextel International
completed the sale of 951,463 units generating approximately $500.0 million in
gross proceeds. Each unit is comprised of a 10-year senior discount note (the
"1997 NI Notes") (with a principal amount due at maturity of $1,000) and one
warrant to purchase 0.38748 shares of Nextel International's common stock at an
exercise price of $9.99 per share any time after March 6, 1998 and prior to
March 6, 2007. The warrants entitle the holders to purchase, in the aggregate,
approximately 1% of the current outstanding shares of Nextel International on a
fully diluted

                                      F-16
<PAGE>   65
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

basis. The 1997 NI Notes have a 13% yield to maturity, are noncallable until
April 15, 2002, and require no interest payments for the first five years.
Interest on the 1997 NI Notes is payable in cash on each April 15 and October
15, commencing October 15, 2002. Nextel International is restricted from paying
dividends under the terms of the 1997 NI Notes Indenture, and such indenture
contains covenants restricting certain transactions. The 1997 NI Notes are
senior unsecured indebtedness of Nextel International and rank pari passu in
right of payment with all unsubordinated, unsecured indebtedness of Nextel
International.

     SEPTEMBER 2007 NOTES -- On September 17, 1997, Nextel completed the sale of
$840.0 million in principal amount at maturity of 10.65% Senior Redeemable
Discount Notes due 2007 (the "September 2007 Notes"). The sale of the September
2007 Notes generated approximately $500.3 million in aggregate gross proceeds.
Nextel received approximately $486.0 million in net cash proceeds from the sale
of the September 2007 Notes. Cash interest will not accrue on the September 2007
Notes prior to September 15, 2002 and will be payable on March 15 and September
15 of each year, commencing March 15, 2003, at a rate of 10.65% per annum. The
September 2007 Notes are redeemable, at the option of Nextel at any time, in
whole or in part, on or after September 15, 2002, at specified redemption prices
plus accrued and unpaid interest. The September 2007 Notes are senior unsecured
indebtedness of Nextel and rank pari passu in right of payment with all
unsubordinated, unsecured indebtedness of Nextel.

     OCTOBER 2007 NOTES -- On October 22, 1997, Nextel completed the sale of
$1,129.1 million in principal amount at maturity of 9.75% Senior Redeemable
Discount Notes due 2007 (the "October 2007 Notes"). The sale of the October 2007
generated approximately $700.0 million in aggregate gross proceeds. Nextel
received approximately $682.0 million in net cash proceeds from the sale of the
October 2007 Notes. Cash interest will not accrue on the October 2007 Notes
prior to October 31, 2002 and will be payable on April 30 and October 31 of each
year, commencing April 30, 2003, at a rate of 9.75% per annum. The October 2007
Notes are redeemable, at the option of Nextel at any time, in whole or in part,
on or after October 31, 2002, at specified redemption prices plus accrued and
unpaid interest. The October 2007 Notes are senior unsecured indebtedness of
Nextel and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel.

     FEBRUARY 2008 NOTES -- On February 11, 1998, Nextel completed the sale of
$1,627.0 million in principal amount at maturity of 9.95% Senior Serial
Redeemable Discount Notes due 2008 (the "February 2008 Notes"). The sale of the
February 2008 Notes generated approximately $1,000.1 million in gross proceeds.
Nextel received approximately $975.9 million in net cash proceeds from the sale
of the February 2008 Notes. Cash interest will not accrue on the February 2008
Notes prior to February 15, 2003, and will be payable on February 15 and August
15 commencing August 15, 2003 at a rate of 9.95%. The February 2008 Notes are
redeemable, at the option of Nextel at any time, in whole or in part, on or
after February 15, 2003, at specified redemption prices plus accrued and unpaid
interest. The February 2008 Notes are senior unsecured indebtedness of Nextel
and rank pari passu in right of payment with all unsubordinated, unsecured
indebtedness of Nextel.

     NEXTEL INTERNATIONAL 2008 NOTES -- On March 12, 1998, Nextel International
completed the sale of $730.0 million in principal amount at maturity of 12.125%
Senior Discount Notes due 2008 (the "1998 NI Notes"). The sale of the 1998 NI
Notes generated approximately $400.9 million in gross proceeds and become
redeemable at Nextel International's option at any time, in whole or in part, on
or after April 15, 2003. Nextel International received approximately $387.0
million in net cash proceeds from the sale of the 1998 NI Notes to be used for
system and related capital expenditures and other general corporate purposes of
Nextel International and its subsidiaries and restricted affiliates. Cash
interest will not accrue on the 1998 NI Notes prior to April 15, 2003, and will
be payable on April 15 and October 15 commencing October 15, 2003 at a rate of
12.125%. The 1998 NI Notes are senior unsecured indebtedness of Nextel
International and rank pari passu in right of payment with all unsubordinated,
unsecured indebtedness of Nextel International.

                                      F-17
<PAGE>   66
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

BANK AND VENDOR CREDIT FACILITIES

     DOMESTIC FACILITIES -- On September 30, 1996, Nextel, Nextel Finance
Company ("NFC"), a wholly-owned subsidiary of Nextel, and certain other domestic
subsidiaries of Nextel entered into definitive agreements with respect to a
secured credit facility arranged by a group of banks (the "Old Bank Credit
Facility"). The Old Bank Credit Facility provided for up to $1,905.0 million of
secured financing, consisting of $1,085.0 million in revolving loans and $820.0
million in term loans. The commitments to make revolving loans were to be
reduced beginning March 31, 2001 with final maturities of the revolving loans
occurring on March 31, 2003. Quarterly principal payments on the term loans were
to commence March 31, 2001 with final maturities on June 30, 2003. Concurrently
therewith, Nextel, NFC and certain other subsidiaries of Nextel entered into
definitive agreements, which also became effective on September 30, 1996, with
respect to the amendment, restatement and consolidation of the previously
existing financing arrangements with Motorola and NTFC Capital Corporation (the
"Vendor Credit Facility"). The Vendor Credit Facility superseded the previous
financing agreements and provided for up to $395.0 million of secured financing,
consisting of a $195.0 million revolving loan and $200.0 million in term loans,
with revolving credit commitment reductions and term loan payments parallel to
those of the Old Bank Credit Facility. In addition, in July 1997 the Company
entered into a credit facility providing for up to $200.0 million in additional
secured term loans that were to be second in ranking to the borrowings made
pursuant to the Old Bank Facility and Vendor Credit Facility, and were to be
made available to the Company by Motorola through March 31, 1999 (the "Second
Secured Facility").

     Borrowings under the Old Bank Credit Facility, the Vendor Credit Facility
and the Second Secured Facility (collectively, the "Old Facilities") were
ratably secured by liens on certain assets and capital stock of Nextel's
subsidiaries that are "restricted" subsidiaries under the terms of Nextel's
public indentures (the "Nextel Indentures") relating to the Company's various
outstanding issues of senior discount notes (the "Nextel Notes"). At December
31, 1997, substantially all of the Company's assets were pledged in connection
with the Old Facilities. As of December 31, 1997, Nextel had drawn $1,021.0
million of its available financing under the Old Bank Credit Facility, leaving
an aggregate of $884.0 million available for borrowing under such facility.
Additionally, Nextel had drawn $150.0 million of its available financing under
the Vendor Credit Facility, leaving an aggregate of $245.0 million available for
borrowing under such facility. None of the amounts available under the Second
Secured Facility had been drawn at December 31, 1997. As a result of the debt
incurrence restrictions under the Old Indentures, at December 31, 1997 the
amount available for borrowing under the Old Facilities (in addition to the
outstanding borrowings on such date) was limited to approximately $940.0
million.

     On March 13, 1998, the Old Facilities were repaid and terminated in
connection with the transactions relating to the new Bank Credit Facility
described below. The agreements relating to the Old Facilities contained
covenants similar to those in effect under the Bank Credit Facility.

     NEW BANK FINANCING -- Nextel, NFC and certain other subsidiaries of Nextel
entered into definitive agreements, which became effective on March 13, 1998,
with respect to a secured credit facility arranged by a group of banks (the
"Bank Credit Facility"). The Bank Credit Facility replaces the Old Facilities.
The credit agreement relating to the Bank Credit Facility (the "Bank Credit
Agreement") provides for up to $3.0 billion of secured financing, consisting of
a $1.5 billion revolving loan and $1.5 billion in term loans. Concurrently with
the effectiveness of the Bank Credit Facility, the Company made and applied
borrowings pursuant to certain of the term loans thereunder to repay the
indebtedness outstanding under the Old Bank and Vendor Credit Facilities and
terminated the Old Facilities. Borrowings under the Bank Credit Facility are
secured by liens on assets of Nextel's subsidiaries that are "restricted"
subsidiaries under the terms of the Nextel Indentures and bear interest payable
quarterly at an adjustable rate calculated based either on the prime rate or
LIBOR. The Nextel Indentures contain provisions that may operate to limit the
amount of borrowings available under the Bank Credit Facility in certain
circumstances. With the limitations on permitted debt

                                      F-18
<PAGE>   67
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurrence under the Nextel Indentures, the amount of borrowings available to be
drawn under the Bank Credit Facility on its March 13, 1998 effective date was
limited by approximately $250.0 million.

     The agreements relating to the Bank Credit Facility contain covenants which
limit the ability of the Company and certain of its subsidiaries to incur
additional indebtedness; create liens; pay dividends or make distributions in
respect of its capital stock or make certain other restricted payments;
consolidate, merge or sell all or substantially all of its assets; guarantee
obligations of other entities; enter into hedging agreements; enter into
transactions with affiliates or related persons; or engage in any business other
than the telecommunications business. Except for distributions for certain
limited purposes, these covenants and the 1997 NI Notes Indenture impose
limitations which restrict the distribution of substantially all of the net
assets of the Company's subsidiaries to Nextel Communications, Inc.
Additionally, the agreement requires Nextel and its relevant subsidiaries at
specified times is required to maintain compliance with certain operating and
financial covenants or ratios including certain covenants and ratios
specifically related to leverage which may become more stringent over time.

     INTERNATIONAL FACILITIES -- In October 1997, Nextel 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
$125.0 million in multi-draw term loans (the "Brazil Motorola Financing") to
Nextel Brazil to be used to acquire infrastructure equipment and related
services from Motorola. The Brazil Motorola Financing is repayable in U.S.
dollars in semi-annual installments over 42 months commencing June 30, 2000 and
bears interest at an adjustable rate calculated based either on the prime rate
or LIBOR. Pursuant to the Brazil Motorola Financing, the revolving loans are
secured by a first priority lien on substantially all of Nextel Brazil's assets
totaling approximately $420.2 million at December 31, 1997, a pledge of all of
the stock of Nextel Brazil and its subsidiaries, including Nextel S.A., and
guarantees by Nextel International and Motorola International Development
Corporation (which indirectly holds a 5% equity interest in Nextel S.A.) of
93.9% and 6.1%, respectively, of Nextel Brazil's obligations under such
financing. The Brazil Motorola Financing prohibits the payment of dividends by
Nextel S.A. until the existing loan balance is paid in full and contains
covenants restricting certain transactions and requiring the maintenance of
certain financial ratios.

     As of February 27, 1998, Nextel Argentina entered into an $83.0 million
senior secured credit facility (the "Argentina Credit Facility"). In addition,
Nextel Argentina and The Chase Manhattan Bank entered into an agreement, dated
February 27, 1998, pursuant to which the parties agreed that the aggregate
commitments under the Argentina Credit Facility shall automatically be increased
by $17 million to the extent that additional lenders agree to provide such
commitments. Borrowings under the Argentina Credit Facility are subject to
finalizing certain security arrangements as well as the satisfaction or waiver
of certain other conditions. Loans under the Argentina Credit Facility will bear
interest at a rate equal to either (i) the ABR plus 2.75% (ABR is the highest of
the prime rate, the base CD rate plus 1% and the federal funds rate plus 0.5%)
or (ii) the Eurodollar rate plus 3.75% (the Eurodollar rate is the LIBOR rate
multiplied by the statutory reserve rate). The loans under the Argentina Credit
Facility will be repaid in U.S. dollars in quarterly installments beginning
September 30, 2000 and ending March 31, 2003.

DEFERRED FINANCING COSTS

     During 1997, the Company paid $138.8 million in deferred financing costs
primarily related to the issuances of the 1997 NI Notes, the September 2007
Notes, the October 2007 Notes, the consent solicitation and the Series D
Preferred Stock (Note 10). Costs incurred in connection with the consent
solicitation of $67.2 million were partially reduced by approximately $63.7
million in proceeds that were received from the sale of approximately 3.9
million shares of Common Stock offered exclusively to validly consenting holders
of the Old Senior Notes at a price of $16.14 per share.

                                      F-19
<PAGE>   68
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FUTURE MATURITIES OF LONG-TERM DEBT

     For the years subsequent to December 31, 1997, scheduled annual maturities
of long-term debt outstanding as of December 31, 1997 under the then existing
long-term debt agreements are as follows (in thousands):

<TABLE>
<S>                                                           <C>
1998........................................................  $    7,577
1999........................................................      19,886
2000........................................................      44,516
2001........................................................     171,115
2002........................................................     213,397
Thereafter..................................................   6,130,441
                                                              ----------
                                                               6,586,932
Less unamortized discount...................................   1,541,105
                                                              ----------
                                                              $5,045,827
                                                              ==========
</TABLE>

7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosure of the estimated fair value of financial
instruments as of December 31, 1997 and 1996 is made in accordance with the
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that the Company could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                -------------------------------------------------
                                                         1997                      1996
                                                -----------------------   -----------------------
                                                 CARRYING    ESTIMATED     CARRYING    ESTIMATED
                                                  AMOUNT     FAIR VALUE     AMOUNT     FAIR VALUE
                                                ----------   ----------   ----------   ----------
                                                                 (IN THOUSANDS)
<S>                                             <C>          <C>          <C>          <C>
Marketable securities (including equity
  securities classified within other long-term
  assets).....................................  $  226,656   $  226,656   $   97,356   $   97,344
Other assets..................................  $   68,623   $   68,623   $   10,082   $   10,082
Long-term debt................................  $5,045,827   $5,243,627   $2,784,612   $2,660,572
Interest rate risk management agreements......  $       --   $   (7,919)  $       --   $     (730)
Series D preferred stock......................  $  529,119   $  587,289   $       --   $       --
</TABLE>

     CASH AND CASH EQUIVALENTS, ACCOUNTS AND NOTES RECEIVABLE, ACCOUNTS PAYABLE
AND ACCRUED EXPENSES -- The carrying amounts of these items are a reasonable
estimate of their fair value.

                                      F-20
<PAGE>   69
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     MARKETABLE SECURITIES -- The fair value of these securities are estimated
based on quoted market prices. At December 31, 1997 and 1996, marketable
securities consist of the following:

<TABLE>
<CAPTION>
                                                                       UNREALIZED
                                                 COST     FAIR VALUE   GAIN (LOSS)
                                               --------   ----------   -----------
                                                         (IN THOUSANDS)
<S>                                            <C>        <C>          <C>
1997
Available for sale:
  Debt securities due in one year or less....  $129,978    $131,404      $ 1,426
  Equity securities, included in other
     long-term assets........................  $ 69,159    $ 95,252      $26,093
1996
Available for sale:
  Debt securities due in one year or less....  $  4,991    $  5,000      $     9
  Equity securities, included in other
     long-term assets........................  $ 69,159    $ 92,344      $23,185
</TABLE>

     OTHER ASSETS -- The fair value of other assets, consisting primarily of
investments in promissory notes and escrow deposits, are estimated by
discounting future cash flows using current rates at which similar notes would
be issued to similar borrowers and quoted market prices, as applicable. At
December 31, 1997 and 1996, it was not practicable to value investments in
nonmarketable equity securities of foreign entities with a carrying value of
approximately $19.7 million. Accordingly, these investments are excluded from
the above table.

     LONG-TERM DEBT -- The fair value of these securities are estimated based on
quoted market prices of the Nextel 2003 Notes, Nextel 2004 Notes, OneComm 2004
Notes, Dial Page 2004 Notes, Dial Page 2005 Notes, 1997 NI Notes, September 2007
Notes, and October 2007 Notes. Carrying value approximates fair value for the
Old Facilities and the Brazil Motorola Financing, as interest rates are reset
periodically.

     INTEREST RATE RISK MANAGEMENT AGREEMENTS -- The Company uses derivative
financial instruments consisting of interest rate swap and interest rate
protection agreements to manage its exposure to adverse movements in interest
rates. While these instruments are subject to fluctuations in value, such
fluctuations are generally offset by fluctuations in the value of the underlying
instrument or anticipated transaction.

     The Company attempts to achieve a desired proportion of fixed versus
floating rate debt by using interest rate swaps to change the interest rate
characteristics of certain of its debt obligations. In an interest rate swap,
the Company agrees to exchange, at specified intervals, the difference between a
variable interest rate and either a fixed or another variable interest rate
calculated by reference to an agreed-upon notional principal amount. The
resulting interest rate differential is reflected as an adjustment to interest
expense over the life of the swap. The incremental effect on interest expense
for the years ended December 31, 1997 and 1996 was not material. The notional
amounts of interest rate swaps were $450.0 million and $420.0 million at
December 31, 1997 and 1996, respectively. At December 31, 1997, based on
estimates obtained from dealers, the Company would be obligated to pay an
aggregate of $1.9 million to settle these contracts.

                                      F-21
<PAGE>   70
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the Company's off-balance sheet interest
rate swap agreements at December 31, 1997:

<TABLE>
<CAPTION>
                                                                          WEIGHTED AVERAGE
                                                                     ---------------------------
                                                NOTIONAL    FAIR                  PAY    RECEIVE
                                                 AMOUNT     VALUE    MATURITY     RATE    RATE
                                                --------   -------   ---------   ------  -------
                                                  (IN THOUSANDS)
<S>                                             <C>        <C>       <C>         <C>     <C>
Pay fixed rate, receive floating rate.........  $300,000   $   151   2.8 years   5.434%  5.824%
Pay floating rate, receive floating rate......   150,000    (2,002)  3.2 years   5.718%  5.915%
</TABLE>

     At December 31, 1997, the Company had one interest rate protection
agreement with a notional amount of $570.0 million and a 10-year U.S. Treasury
note reference rate of 5.9545%, with an expiration date of November 2, 1998. The
agreement can be settled at expiration, or earlier, through a single payment by
either party determined by comparison of the actual 10-year U.S. Treasury note
rate to the contract reference rate. This agreement requires the Company to make
cash payments in the event that the actual interest rate on 10-year U.S.
Treasury notes during the term of the agreement is below the reference rate and
requires the counterparty to make payments to the Company if such actual rate
exceeds the reference rate. This agreement was entered into in order to protect
the Company against increases in the 10-year U.S. Treasury note rate which was
expected to serve as a reference in determining the interest rate that would be
applicable to the February 2008 Notes which have a comparable term (see Note 6).
At December 31, 1997, the Company would be obligated to pay approximately $6.1
million to settle the interest rate protection agreement.

     SERIES D PREFERRED STOCK -- The fair value is estimated based on quoted
market prices.

8.  INCOME TAXES

     The components of the income tax provision (benefit) were as follows:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                              --------------------------------
                                                1997       1996        1995
                                              --------   ---------   ---------
                                                       (IN THOUSANDS)
<S>                                           <C>        <C>         <C>
Current:
  State.....................................  $     --   $   1,070   $     825
                                              --------   ---------   ---------
Deferred:
  Federal...................................   266,753    (272,279)   (161,700)
  State.....................................        --     (35,983)    (39,727)
  Foreign...................................    (8,027)         --          --
                                              --------   ---------   ---------
                                               258,726    (308,262)   (201,427)
                                              --------   ---------   ---------
Income tax provision (benefit)..............  $258,726   $(307,192)  $(200,602)
                                              ========   =========   =========
</TABLE>

                                      F-22
<PAGE>   71
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of taxes computed at the statutory rate to the income
tax provision (benefit) is as follows:

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                             ---------------------------------
                                               1997        1996        1995
                                             ---------   ---------   ---------
                                                      (IN THOUSANDS)
<S>                                          <C>         <C>         <C>
Income tax benefit at statutory rate.......  $(458,269)  $(302,124)  $(186,118)
State tax benefit -- net...................    (62,487)    (22,701)    (25,286)
Amortization of goodwill...................     17,483      14,104       8,400
Increase in valuation allowance............    767,467          --          --
Other......................................     (5,468)      3,529       2,402
                                             ---------   ---------   ---------
                                             $ 258,726   $(307,192)  $(200,602)
                                             =========   =========   =========
</TABLE>

     Deferred tax assets and liabilities consist of the following:

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                       -----------------------
                                                          1997         1996
                                                       ----------   ----------
                                                           (IN THOUSANDS)
<S>                                                    <C>          <C>
Deferred tax assets:
  Operating loss carryforwards.......................  $1,213,250   $  725,452
  Deferred interest..................................      85,537       61,773
  Foreign affiliates.................................      11,958        6,143
  Other..............................................      46,629       22,316
                                                       ----------   ----------
                                                        1,357,374      815,684
Valuation allowance -- net operating losses..........    (832,069)     (41,065)
                                                       ----------   ----------
                                                          525,305      774,619
                                                       ----------   ----------
Deferred tax liabilities:
  Property, plant and equipment......................     138,763      112,012
  Intangibles........................................   1,269,759    1,103,047
  Unrealized gain....................................      23,276       22,724
  Other..............................................      44,699       42,352
                                                       ----------   ----------
                                                        1,476,497    1,280,135
                                                       ----------   ----------
Net deferred tax liability...........................  $  951,192   $  505,516
                                                       ==========   ==========
</TABLE>

     At December 31, 1997, the Company had approximately $2.7 billion of
consolidated net operating loss carryforwards for federal income tax purposes
which expire through 2012, and approximately $319.8 million of separate return
net operating loss carryforwards which expire through 2012. The utilization of
tax net operating losses may be subject to certain limitations.

     At December 31, 1997, the Company's foreign subsidiaries had approximately
$67.8 million of net operating loss carryforwards for Mexican income tax
purposes which expire through 2007. Additionally, the Company's foreign
subsidiaries had approximately $13.7 million of net operating loss carryforwards
for Brazilian income tax purposes which have no expiration date and can only be
utilized up to the limit of 30% of taxable income for the year. The Company's
foreign subsidiaries may be limited in their ability to use foreign tax net
operating losses in any single year depending on their ability to generate
sufficient taxable income.

     A significant portion of the Company's deferred tax liabilities will
reverse after current net operating losses expire. After considering this and
other factors, including the change in useful lives of certain intangible assets
and recent operating results, the Company has increased its valuation allowance
in 1997 by

                                      F-23
<PAGE>   72
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$767.5 million. Of this amount, approximately $384.1 million was recorded as a
charge in the fourth quarter of 1997.

9.  COMMITMENTS AND CONTINGENCIES

     OPERATING LEASE COMMITMENTS -- The Company leases various equipment and
office facilities under capital and operating leases. Leases for antenna sites
are generally month-to-month or cancelable after a short notice period. Office
facilities and equipment other than antenna sites are leased under agreements
with terms ranging from 1 to 10 years. The leases normally provide for the
payment of minimum annual rentals and certain leases include provisions for
renewal options of up to ten years.

     For years subsequent to December 31, 1997, future minimum payments for all
operating lease obligations that have initial noncancellable lease terms
exceeding one year are as follows (in thousands):

<TABLE>
<S>                                                         <C>
1998......................................................  $131,257
1999......................................................   104,126
2000......................................................    70,665
2001......................................................    60,613
2002......................................................    43,047
Thereafter................................................    71,580
                                                            --------
                                                            $481,288
                                                            ========
</TABLE>

     Total rental expense was approximately $119.4 million, $84.5 million and
$58.9 million for the years ended December 31, 1997, 1996 and 1995,
respectively.

     LEGAL CONTINGENCIES -- In July 1995, a lawsuit titled In Re Nextel
Communications Securities Litigation was filed in the United States District
Court in the District of New Jersey. This litigation, which is being pursued as
a class action suit, amends and consolidates three previously filed class action
complaints and seeks damages allegedly incurred by certain stockholders and
claimed to result from defendants' alleged violations of Section 10(b) of the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder. The litigation also makes claims of fraud and deceit. Specifically,
the plaintiffs claim that such damages resulted from certain alleged false and
misleading statements made by defendants regarding the digital communications
technology developed by Motorola and deployed by Nextel in its Digital Mobile
network. While Nextel cannot predict the outcome of this litigation, Nextel
believes that the claims against it are without merit and intends to vigorously
defend against them. On July 23, 1997, the United States District Court in the
District of New Jersey declined to grant Nextel's motions to dismiss, pursuant
to Federal Rule of Civil Procedure Rules 12(b)(6) and (9)(b), substantially all
of the causes of action alleged in the plaintiff's complaint filed in this
lawsuit. Most recently, Nextel filed a motion to deny class certification. A
ruling on the motion has not yet been made.

     In September 1994, a lawsuit titled Charles Dascal v. Morgan O'Brien,
Becker, Gurman, Lukas, Meyers, O'Brien and McGowan, P.C. and Nextel
Communications, Inc., was filed in the Circuit Court of Dade County, Florida.
The lawsuit, which has been transferred to the United States District Court for
the Southern District of Florida, seeks compensatory damages, lost profits and
special damages based on the defendants' alleged breach of fiduciary duty,
misappropriation of trade secrets, negligent misrepresentation, fraud,
conversion, civil theft, breach of good faith and fair dealing and unjust
enrichment. The claims, which primarily concern alleged conduct by Nextel's
current Vice Chairman and former Chairman of the Board, Morgan O'Brien, in the
1970s and early 1980s prior to the formation of Nextel, assert that business
plans allegedly formulated by the plaintiff relating to the development of a
wireless communications system were disclosed to, and have been improperly used
by, the defendants. Directors determined that Morgan O'Brien in his capacities
as an officer, director, and authorized representative of Nextel, was entitled
to indemnification in respect of this matter.

                                      F-24
<PAGE>   73
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Nextel has filed counterclaims against Mr. Dascal and has also filed third-party
claims against Tel Air Network, Inc. (Tel Air), and Knight-Ridder, Inc. (Knight
Ridder). The counterclaim against Mr. Dascal has been dismissed and the Company
is currently not aware of any other ruling with respect to the third-party
claims against Tel Air and Knight-Ridder. Nextel also has moved for summary
judgment for dismissal of Mr. Dascal's claims against Nextel and Mr. O'Brien. To
date there has been no ruling on that motion. While Nextel cannot predict the
outcome of this litigation, Nextel believes that the claim against it are
without merit and intends to vigorously defend against them. A trial date has
been set for mid-1998.

     Unless otherwise indicated, the relevant plaintiffs have not specified
amounts of damages being sought. Given the Company's assessment of the claims
asserted against it in each such lawsuit, and in other pending or threatened
litigation (including litigation incidental to the conduct of its business), the
Company does not believe that such lawsuits, individually or in the aggregate,
will have a material adverse effect on the Company's financial condition,
results of operations or liquidity.

     REGULATORY MATTERS -- The FCC issues SMR licenses on both a site-specific
and wide-area basis. Each license enables SMR carriers to provide service either
on a site-specific basis, in specific 800 MHz Economic Areas ("EA") or 900 MHz
Metropolitan Trading Areas ("MTA") in the U.S. Currently, SMR licenses are
issued for a period of ten years, and are subject to certain construction and
operational requirements. The FCC has routinely granted license renewals
providing the licensees have complied with applicable rules, policies, and the
Communications Act of 1934, as amended. The Company believes that it has met and
will continue to meet all requirements necessary to secure the retention and
renewal of its SMR licenses.

     In December 1997, the FCC auctioned geographic-area based SMR licenses in
the upper 200 SMR channels on an EA basis in blocks of 120 channels, 60 channels
and 20 channels. Nextel submitted bids totaling approximately $88.8 million,
representing the highest bids, to obtain 475 of the 525 available EA licenses
covering all 50 states. As of December 31, 1997, a deposit of $17.8 million had
been paid and is included in other long-term assets in the accompanying balance
sheet.

10.  CAPITAL STOCK AND STOCK RIGHTS

     Pursuant to the Certificate of Incorporation, the Company has the authority
to issue 613,883,948 shares of capital stock, divided into six classes as
follows: (i) 515,000,000 shares of Common Stock, (ii) 35,000,000 shares of
Non-Voting Common Stock, (iii) 26,941,933 shares of Class A Convertible
Redeemable Preferred Stock, stated value $36.75 per share, ("Class A Preferred
Stock,") (iv) 82 shares of Class B Convertible Preferred Stock, stated value
$1.00 per share, ("Class B Preferred Stock,") (v) 26,941,933 shares of Class C
Convertible Redeemable Preferred Stock, stated value $36.75 per share, (vi)
1,600,000 shares of Series D Exchangeable Preferred Stock, liquidation
preference $1,000 per share, ("Series D Preferred Stock,") and (vii) 8,400,000
shares of undesignated preferred stock.

     SERIES D PREFERRED STOCK -- On July 21, 1997, Nextel completed the sale of
500,000 shares of Series D Preferred Stock with a liquidation preference of
$1,000 per share. Nextel received approximately $482.0 million in net cash
proceeds from the sale of the Series D Preferred Stock. Dividends on the Series
D Preferred Stock accrue at an annual rate of 13% of the liquidation preference,
are cumulative from the date of issuance and are payable quarterly in cash or,
on or prior to July 15, 2002, at the sole option of Nextel, in additional shares
of Series D Preferred Stock. Nextel elected to pay the first quarterly dividend
on the Series D Preferred Stock in kind, resulting in the issuance of an
additional 15,166 shares of Series D Preferred Stock on October 15, 1997. At
December 31, 1997, accrued but unpaid dividends were approximately $14.0
million. The Series D Preferred Stock is mandatorily redeemable on July 15, 2009
at the liquidation preference plus accrued and unpaid dividends, and is
redeemable in whole or in part, at the option of Nextel, at any time after
December 15, 2005, at a price equal to the liquidation preference plus accrued
and unpaid dividends, and, in certain circumstances, after July 15, 2002 at
specified redemption prices. Up to 35% of the Series D Preferred Stock may be
redeemed on or prior to July 15, 2000, in whole or in part, at the option of
Nextel, in certain
                                      F-25
<PAGE>   74
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

circumstances, at 113% of the liquidation preference plus accrued and unpaid
dividends from the proceeds of one or more sales of Common Stock. The Series D
Preferred Stock is also exchangeable, in whole but not in part, at the option of
Nextel, at any time after December 15, 2005 and in certain circumstances sooner,
into Nextel subordinated debentures.

     SERIES E PREFERRED STOCK -- On February 11, 1998, Nextel completed the sale
of 750,000 shares of 11.125% Series E Exchangeable Preferred Stock ("Series E
Preferred Stock") with a liquidation preference of $1,000 per share. Nextel
received approximately $727.9 million in net cash proceeds from the sale of the
Series E Preferred Stock. Dividends on the Series E Preferred Stock accrue at an
annual rate of 11.125% of the liquidation preference, are cumulative from the
date of issuance and are payable quarterly in cash or, on or prior to February
15, 2003 at the sole option of Nextel, in additional shares of Series E
Preferred Stock. The Series E Preferred Stock is mandatorily redeemable on
February 15, 2010 at the liquidation preference plus accrued and unpaid
dividends, and is redeemable in whole or in part, at the option of Nextel, at
any time after December 15, 2005, at a price equal to the liquidation preference
plus accrued and unpaid dividends, and, in certain circumstances, after February
15, 2003 at specified redemption prices. Up to 35% of the Series E Preferred
Stock may be redeemed on or prior to February 15, 2001, in whole or in part, at
the option of Nextel in certain circumstances, at 111.125% of the liquidation
preference plus accrued and unpaid dividends from the proceeds of one or more
sales of Common Stock. The Series E Preferred Stock is also exchangeable, in
whole but not in part, at the option of Nextel at any time after December 15,
2005 and in certain circumstances sooner, into Nextel subordinated debentures.

     COMMON STOCK RESERVED FOR ISSUANCE -- As of December 31, 1997, the Company
had reserved Common Stock for future issuance as detailed below.

<TABLE>
<S>                                                           <C>
Class A Preferred Stock conversion rights...................   23,718,000
Warrants and non-employee options outstanding...............   55,818,700
Employee options outstanding................................   15,204,500
Employee options available for grant........................    4,170,500
Deferred and restricted shares..............................    1,077,300
Employee Stock Purchase Plan................................    4,713,600
Acquisitions................................................    9,943,100
                                                              -----------
Total.......................................................  114,645,700
                                                              ===========
</TABLE>

     ISSUANCES OF COMMON STOCK AND OPTIONS -- In July 1995, the Company
consummated a securities purchase agreement with Digital Radio LLC, an affiliate
of Craig O. McCaw ("the McCaw Investor") (the "McCaw Securities Purchase
Agreement" or the "McCaw Transaction") pursuant to which the McCaw Investor
purchased for an aggregate price of $300.0 million, units consisting of
approximately 8.2 million shares of Class A Preferred Stock and 82 shares of
Class B Preferred Stock. The shares of Class A Preferred Stock are convertible
into approximately 24.5 million shares of Common Stock and are redeemable under
certain circumstances solely at the Company's option. The Class A Preferred
Stock only pays dividends under certain limited circumstances. In addition,
pursuant to three separate option agreements, the McCaw Investor obtained the
right to purchase for cash up to 35.0 million shares of Common Stock at exercise
prices ranging from $15.50 to $21.50 per share for periods of two to six years.
In April 1995, the McCaw Investor purchased approximately 1.2 million shares of
Common Stock for an aggregate purchase price of approximately $14.9 million
($12.6 million net of applicable expenses attributable to both such initial
investment and the additional investments described above).

     Pursuant to the McCaw Securities Purchase Agreement, the McCaw Investor was
granted antidilutive rights with respect to certain Nextel public or private
share issuances. Upon the issuance of shares in

                                      F-26
<PAGE>   75
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

connection with an acquisition, in November 1996 the McCaw Investor exercised
its antidilutive rights, which resulted in the sale of 373,846 treasury shares
of Common Stock to the McCaw Investor for $6.5 million.

     On July 28, 1997, the McCaw Investor exercised in full the outstanding
option that was scheduled to expire on that date (the "First Option") to
purchase 15.0 million shares of Common Stock for an aggregate purchase price of
$232.5 million (the "McCaw Option Proceeds"). In connection with the exercise of
the First Option, the McCaw Investor also agreed to provide up to $50.0 million
in debt financing (subject to certain conditions) to Nextel (the "McCaw Investor
Borrowings"). At the present time, however, Nextel is not taking steps to meet
the conditions to access the McCaw Investor Borrowings.

     On November 4, 1997, the McCaw Investor exercised its right to convert
257,284 shares of Class A Preferred Stock into 771,852 shares of Common Stock.

     In connection with the McCaw Transaction, the Company also entered into a
management support agreement with Eagle River, Inc. ("Eagle River"), an
affiliate of the McCaw Investor, to provide management and consulting services
from time to time as requested. In consideration for these services, the Company
entered into an incentive option agreement granting Eagle River an option to
purchase an aggregate of up to 1.0 million shares of Common Stock at an exercise
price of $12.25 per share, exercisable over five years. For the years ended
December 31, 1997, 1996 and 1995 approximately $4.6 million, $1.8 million and
$0.9 million of compensation expense was charged to operations in connection
with these agreements. During the years ended December 31, 1997, 1996, and 1995
the Company paid Eagle River approximately $504,000, $348,000 and $247,000 under
the terms of this agreement for reimbursement of expenses.

     In connection with the agreements relating to the commitment to exercise
the First Option, Nextel reached an agreement with an affiliate of Mr. McCaw
(such affiliate, the "Purchaser"), pursuant to which the Purchaser acquired, for
an aggregate purchase price of $25.0 million, an option, in replacement of the
Comcast Option (as defined below), to purchase 25.0 million shares of Common
Stock (the "New Option"), 15.0 million of which are purchasable at an exercise
price of $16.00 per share and the remaining 10.0 million of which are
purchasable at an exercise price of $18.00 per share, at any time through July
28, 1998. The New Option, and any shares of Common Stock issued upon exercise
thereof, are transferable, subject to certain limitations.

     In 1992, the Company entered into a Stock Purchase Agreement (the "Comcast
Agreement") and related Option Agreement as amended and restated as of September
11,1995, (the "Comcast Option"), with Comcast Corporation and/or its
wholly-owned subsidiary, Comcast FCI, Inc. ("CFCI") (collectively, "Comcast").
Under the terms of the Comcast Option, Comcast was granted a five-year option to
acquire 25.0 million shares of Common Stock at an exercise price of $16.00 per
share. The purchase price for the Comcast Option was paid in the form of a $20.0
million five-year promissory note which accrued interest at 5% per annum. On
July 18, 1995, Comcast repaid the $20.0 million note, plus accrued interest.

     Pursuant to the Comcast Agreement, Comcast was granted certain rights to
purchase additional shares of Common Stock upon any public or private issuances
of such shares by the Company as specified in the Comcast Agreement (the
"Comcast Purchase Right"). On May 1, 1995, Comcast exercised its right to
purchase shares in connection with the Dial Page Transaction (see Note 2). On
February 9, 1996, Comcast purchased approximately 8.2 million shares of Common
Stock for approximately $99.9 million, pursuant to Comcast's exercise of its
antidilutive rights with respect to the Dial Page Transaction.

     On March 20, 1997, USFC purchased from CFCI, CFCI's rights pursuant to the
Comcast Option for an aggregate purchase price of $25.0 million in cash.

                                      F-27
<PAGE>   76
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     WARRANTS AND NON-EMPLOYEE OPTIONS -- The following is a summary of issued
and outstanding warrants and non-employee options for the purchase of Common
Stock:

<TABLE>
<CAPTION>
                                                           SHARES               PRICE
                                                         -----------   ------------------------
<S>                                                      <C>               <C>
Issued and outstanding, December 31, 1994..............   32,614,485       $ 0.001 - $16.00
Issued.................................................   36,000,000        12.25  -  21.50
Acquired...............................................      497,139                  17.64
Exercised..............................................     (580,000)        0.001 -   2.00
                                                         -----------       -------   ------
Issued and outstanding, December 31, 1995..............   68,531,624         2.00  -  21.50
Acquired...............................................    2,160,067        12.14  -  43.16
                                                         -----------       -------   ------
Issued and outstanding, December 31, 1996..............   70,691,691         2.00  -  43.16
Granted................................................   25,068,276        15.13  -  18.00
Acquired...............................................      151,539        20.09  -  56.95
Repurchased............................................  (25,000,000)                 16.00
Exercised..............................................  (15,092,816)        2.00  -  15.50
                                                         -----------       -------   ------
Issued and outstanding, December 31, 1997..............   55,818,690       $ 2.00  - $56.95
                                                         ===========       =======   ======
Exercisable, December 31, 1997.........................   55,218,690       $ 2.00  - $56.95
                                                         ===========       =======   ======
</TABLE>

11.  STOCK AND EMPLOYEE BENEFIT PLANS

     EMPLOYEE STOCK OPTION PLANS -- The Company's Incentive Equity Plan (the
"Plan") provides for the issuance of up to 24.0 million shares of Common Stock
to officers and key employees. Generally, options outstanding under the
Company's stock option plan: (1) are granted at prices equal to or exceeding the
market value of the stock on the grant date; (2) vest ratably over either a four
or five year service period; and (3) expire ten years subsequent to award.

                                      F-28
<PAGE>   77
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the Plan activity is as follows:

<TABLE>
<CAPTION>
                                                                                         WEIGHTED
                                                                      OPTION             AVERAGE
                                                SHARES             PRICE RANGE       EXERCISE PRICE
                                              ----------       -------------------   --------------
<S>                                           <C>                <C>                   <C>
Outstanding, December 31, 1994..............   5,457,621         $ 1.25 - $40.75        $17.47
Granted.....................................   3,246,050          13.50 -  36.75         23.52
Acquired....................................   1,382,835           2.82 -  19.09         11.34
Canceled....................................    (141,417)          3.50 -  40.25         21.59
Exercised...................................    (728,766)          1.25 -  15.00          2.79
                                              ----------         ------   ------        ------
Outstanding, December 31, 1995..............   9,216,323           1.25 -  40.75         18.60
Granted.....................................   5,332,995          13.50 -  19.75         15.64
Acquired....................................   2,198,192          10.28 -  42.97         12.77
Canceled....................................  (2,969,568)          1.75 -  40.25         17.11
Exercised...................................  (1,522,873)          1.25 -  15.00          7.39
                                              ----------         ------   ------        ------
Outstanding, December 31, 1996..............  12,255,069           1.75 -  42.97         16.50
Granted.....................................   6,087,340          13.88 -  26.94         15.78
Acquired....................................     200,240          17.88 -  64.82         23.83
Canceled....................................    (787,617)          2.82 -  40.25         16.95
Exercised...................................  (2,550,543)          1.75 -  20.12          9.51
                                              ----------         ------   ------        ------
Outstanding, December 31, 1997..............  15,204,489         $ 1.75 - $64.82        $17.32
                                              ==========         ======   ======        ======
Exercisable, December 31, 1997..............   4,500,801         $ 1.75 - $64.82        $17.41
                                              ==========         ======   ======        ======
</TABLE>

     Following is a summary of the status of employee stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
                               OUTSTANDING   OUTSTANDING                   EXERCISABLE
   EXERCISE      OUTSTANDING    WEIGHTED       AVERAGE     EXERCISABLE   WEIGHTED AVERAGE
     PRICE        NUMBER OF       LIFE        EXERCISE      NUMBER OF        EXERCISE
     RANGE         SHARES       REMAINING       PRICE        SHARES           PRICE
---------------  -----------   -----------   -----------   -----------   ----------------
<S>              <C>           <C>           <C>           <C>           <C>
 $1.75 - $7.00      929,915        2.8         $ 5.17         895,379         $ 5.23
 10.28 - 13.93    1,554,202        6.3          12.96         849,986          12.40
 14.01 - 16.58    9,589,538        8.6          15.12       1,495,031          14.89
 17.00 - 20.12    1,084,140        8.3          18.44         310,919          18.51
 23.47 - 26.94      600,114        8.5          25.26         200,381          24.29
 30.75 - 64.82    1,446,580        5.9          40.28         749,105          40.37
                 ----------                                 ---------
                 15,204,489        7.7         $17.32       4,500,801         $17.41
                 ==========                                 =========
</TABLE>

     The Plan also provides for the grant of deferred shares at no cost to the
participants in consideration of services performed. Generally, these deferred
shares vest over a three-year period. An accelerated vesting schedule may be
triggered in the event of a change in control of the Company. During the years
ended December 31, 1996 and 1995, the Company granted 1,100,000, and 77,000
deferred shares having a weighted-average fair value at grant date of $16.28 and
$13.37 per share, respectively. Compensation expense of $5.6 million, $4.2
million and $1.7 million has been recognized in relation to the deferred share
grants for the years ended December 31, 1997, 1996 and 1995, respectively.

     EMPLOYEE STOCK PURCHASE PLAN -- Under the 1996 Employee Stock Purchase Plan
("ESPP"), eligible employees may subscribe to purchase shares of Common Stock
through payroll deductions of up to 10% of eligible compensation. The purchase
price is the lower of 85% of market value at the beginning or the end of each
quarter. The aggregate number of shares purchased by an employee may not exceed
$25,000 of fair market value annually (subject to limitations imposed by Section
423 of the Internal Revenue Code). A total

                                      F-29
<PAGE>   78
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of 5.0 million shares are available for purchase under the plan. The ESPP will
terminate on the tenth anniversary of its adoption. During 1997 and 1996,
279,045 and 7,360 treasury shares were issued pursuant to the ESPP at a weighted
average price per share of $12.813 and $15.725, respectively.

     FAIR VALUE OF EMPLOYEE OPTION AND ESPP GRANTS -- In October 1995, the FASB
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages but does not require
companies to account for employee stock compensation awards based on their
estimated fair value at the grant date with the resulting cost charged to
operations. The Company has elected to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. If the Company had elected to recognize compensation
expense based on the fair value of the awards granted in 1997, 1996 and 1995,
consistent with the provisions of SFAS 123, the Company's loss and loss per
common share attributable to common stockholders would have been increased to
the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                   -----------------------------------
                                                      1997         1996        1995
                                                   -----------   ---------   ---------
<S>                                                <C>           <C>         <C>
Loss attributable to common stockholders (in
  thousands):
  As reported....................................  $(1,642,973)  $(556,020)  $(331,165)
                                                   ===========   =========   =========
  Pro forma......................................  $(1,685,065)  $(570,467)  $(337,271)
                                                   ===========   =========   =========
Basic and diluted loss per common share
  attributable to common stockholders:
  As reported....................................  $     (6.59)  $   (2.50)  $   (2.31)
                                                   ===========   =========   =========
  Pro forma......................................  $     (6.76)  $   (2.56)  $   (2.35)
                                                   ===========   =========   =========
Weighted average fair value of options granted...  $     10.91   $   10.56   $   14.79
                                                   ===========   =========   =========
</TABLE>

     The effects of applying SFAS 123 in this pro forma disclosure are not
necessarily indicative of the effect on future amounts. SFAS 123 does not apply
to awards granted prior to 1995.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                           1997          1996          1995
                                        -----------   -----------   -----------
<S>                                     <C>           <C>           <C>
Expected stock price volatility.......      53%           55%           55%
Risk-free interest rate...............  6.0% - 7.1%   5.7% - 7.1%   5.7% - 7.1%
Expected life of options..............    8 years       8 years       8 years
Expected dividend yield...............     0.00%         0.00%         0.00%
</TABLE>

     The Company's stock options are non-transferable, and the actual value of
the stock options that an employee may realize, if any, will depend on the
excess of the market price on the date of exercise over the exercise price. The
Company has based its assumption for stock price volatility on the variance of
weekly closing prices of the Company's stock from its initial offering date to
the present. The risk-free rate of return used equals the yield on 10-year
zero-coupon U.S. Treasury issues on the grant date. No discount was applied to
the value of the grants for non-transferability or risk of forfeiture.

     NEXTEL INTERNATIONAL PLANS -- On June 23, 1997, Nextel International's
board of directors adopted the 1997 Nextel International Employee Stock Option
Plan (the "Nextel International Plan"), under which certain of Nextel
International's employees participate. Generally, options outstanding under the
Nextel

                                      F-30
<PAGE>   79
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

International Plan (1) are granted at fair value, based on periodic valuations
of Nextel International using industry valuation techniques; (2) vest ratably
over a four-year service period; and (3) expire ten years subsequent to award.

     On November 1, 1996, Nextel International adopted a Stock Appreciation
Rights Plan (the "SAR Plan"), which was effective as of November 1, 1995,
whereby selected employees and agents of Nextel International were granted
rights (not an equity interest) to share in the future appreciation in the value
of Nextel International. Nextel International retroactively granted 1,140,000
rights under the SAR plan, at an exercise price of $10.00 per right, on dates
ranging from October 1, 1995 to December 31, 1996, with vesting periods of four
years.

     In connection with adoption of the Nextel International Plan, Nextel
International's board of directors approved a plan to terminate the SAR Plan.
Each holder of previously granted SARs has been given the option to exchange the
rights for stock options to be granted under the Nextel International Plan.

     As of December 31, 1997 and 1996, there were 25,000 and 1,240,000 rights
outstanding, respectively, none of which were exercisable under the terms of the
SAR Plan. Nextel International had no commitment to make payments under the plan
at December 31, 1997 and no compensation expense had been recognized for the
years ended December 31, 1997, 1996, and 1995.

     EMPLOYEE BENEFIT PLAN -- The Company has a defined contribution plan
pursuant to Section 401(k) of the Internal Revenue Code covering all eligible
officers and employees. The Company provides a matching contribution of $0.50
for every $1.00 contributed by the employee up to 4% of each employee's salary.
Such contributions were approximately $3.3 million, $2.0 million and $1.0
million for the years ended December 31, 1997, 1996 and 1995, respectively. At
December 31, 1997, the Company had no other pension or postemployment benefit
plans.

12.  RELATED PARTY TRANSACTIONS

     Pursuant to the equipment purchase agreements between Nextel and Motorola,
Motorola provides the iDEN infrastructure and subscriber handset equipment to
Nextel throughout its markets (such equipment purchase agreements, as amended,
being referred to herein as the "Equipment Purchase Agreements"). The Company
expects to rely on Motorola for the manufacture of a substantial portion of the
equipment necessary to construct its Digital Mobile network and handset
equipment for the foreseeable future. The Equipment Purchase Agreements govern
Nextel's rights and obligations regarding purchases of system infrastructure
equipment manufactured by Motorola. Nextel has, among other things, agreed
(subject to certain conditions) to purchase and install iDEN equipment during
the four-year and six-year periods beginning on August 4, 1994 sufficient to
cover 70% and 85%, respectively, of the United States population. In addition,
Nextel has agreed to deploy Reconfigured iDEN technology and, until August 4,
1999 and subject to certain conditions, to purchase from Motorola at least 50%
of the base radios Nextel purchases in any calendar year.

     During the years ended December 31, 1997, 1996 and 1995, the Company
purchased approximately $1,086.1 million, $490.8 million and $217.2 million,
respectively, for infrastructure and other equipment, handsets, warranties, rent
and services from Motorola. At December 31, 1997 and 1996, amounts payable to
Motorola, classified within accounts payable, accrued expense and other,
approximated $104.9 million and $61.0 million, respectively.

     In June 1996, the Company completed the acquisition of certain 800 MHz
trunked SMR systems located in Hawaii from Motorola for approximately $5.4
million in cash.

     In January 1998, an affiliate of the McCaw Investor sold an aircraft to an
unrestricted subsidiary of the Company for approximately $8.2 million in cash
and 50,000 shares of Common Stock.

                                      F-31
<PAGE>   80
                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

13.  QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                            FIRST      SECOND       THIRD      FOURTH
                                          ---------   ---------   ---------   ---------
                                            (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                       <C>         <C>         <C>         <C>
1997
----------------------------------------
Revenues................................  $ 110,676   $ 145,938   $ 207,224   $ 275,059
Operating loss..........................   (190,064)   (215,035)   (256,009)   (276,712)
Income tax (benefit) provision..........    (39,436)    (46,494)    (39,472)    384,128
Loss before extraordinary item and
  preferred stock dividends.............   (220,850)   (261,623)   (306,134)   (779,460)
Loss attributable to common
  stockholders..........................   (220,850)   (261,623)   (318,956)   (841,544)
Loss per share before extraordinary item
  attributable to common stockholders...  $   (0.93)  $   (1.08)  $   (1.26)  $   (3.01)
Extraordinary item, net of income tax...         --          --          --       (0.17)
                                          ---------   ---------   ---------   ---------
Basic and diluted loss per share
  attributable to common stockholders...  $   (0.93)  $   (1.08)  $   (1.26)  $   (3.18)
                                          =========   =========   =========   =========
1996
----------------------------------------
Revenues................................  $  68,318   $  77,619   $  91,040   $  95,961
Operating loss..........................   (146,944)   (160,420)   (159,638)   (178,864)
Income tax (benefit)....................    (71,022)    (81,128)    (64,794)    (90,248)
Loss attributable to common
  stockholders..........................   (118,718)   (130,028)   (148,883)   (158,391)
Basic and diluted loss per share
  attributable to common stockholders...      (0.56)      (0.58)      (0.66)      (0.70)
</TABLE>

     The sum of the per share amounts may not equal the annual amounts because
of the changes in the weighted-average number of shares outstanding during the
year.

     Significant fourth quarter adjustments are described in Notes 1, 6 and 8.

                                      F-32
<PAGE>   81

                          NEXTEL COMMUNICATIONS, INC.
                                 (PARENT ONLY)

          SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                        AS OF DECEMBER 31, 1997 AND 1996
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                 1997         1996
                                                              ----------   ----------
<S>                                                           <C>          <C>
                                       ASSETS
CURRENT ASSETS
  Cash and cash equivalents.................................  $    3,678   $    8,837
  Other receivables.........................................         402           15
  Prepaids and other current assets.........................       2,431        4,446
                                                              ----------   ----------
          Total current assets..............................       6,511       13,298
PROPERTY, PLANT AND EQUIPMENT, net..........................      42,189        6,028
INTANGIBLE ASSETS, net......................................         536        4,541
DEFERRED INCOME TAXES.......................................      61,964       71,110
INVESTMENTS IN SUBSIDIARIES.................................   5,471,191    3,404,889
DUE FROM SUBSIDIARIES.......................................          --    1,309,583
OTHER ASSETS................................................     204,424      123,270
                                                              ----------   ----------
                                                              $5,786,815   $4,932,719
                                                              ==========   ==========

                        LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable, accrued expenses and other..............  $   48,941   $   81,090
  Current portion of long-term debt.........................         883          951
                                                              ----------   ----------
          Total current liabilities.........................      49,824       82,041
DUE TO SUBSIDIARIES.........................................      28,694           --
LONG-TERM DEBT..............................................   3,266,758    2,042,540
COMMITMENTS AND CONTINGENCIES
SERIES D EXCHANGEABLE PREFERRED STOCK MANDATORILY REDEEMABLE
  2009......................................................     529,119           --
STOCKHOLDERS' EQUITY........................................   1,912,420    2,808,138
                                                              ----------   ----------
                                                              $5,786,815   $4,932,719
                                                              ==========   ==========
</TABLE>

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

                                      F-33
<PAGE>   82
                          NEXTEL COMMUNICATIONS, INC.
                                 (PARENT ONLY)

   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

                       CONDENSED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              1997         1996        1995
                                                           -----------   ---------   ---------
<S>                                                        <C>           <C>         <C>
OPERATING EXPENSES
  Selling, general and administrative....................  $   141,962   $  80,559   $  28,293
  Expenses related to corporate reorganization...........           --          --       6,379
  Depreciation and amortization..........................        3,608       2,122       1,770
                                                           -----------   ---------   ---------
                                                               145,570      82,681      36,442
                                                           -----------   ---------   ---------
OTHER INCOME (EXPENSE)
  Interest expense.......................................     (276,012)   (202,035)   (116,034)
  Interest income ($125,293, $131,997 and $96,485
     intercompany).......................................      127,651     144,057     113,501
  Intercompany management fee............................      141,962      80,559      23,413
  Equity in net losses of subsidiaries...................   (1,403,107)   (532,483)   (361,805)
  Other..................................................          501          49         (30)
                                                           -----------   ---------   ---------
                                                            (1,409,005)   (509,853)   (340,955)
                                                           -----------   ---------   ---------
LOSS BEFORE INCOME TAX PROVISION (BENEFIT) AND
  EXTRAORDINARY ITEM.....................................   (1,554,575)   (592,534)   (377,397)
INCOME TAX PROVISION (BENEFIT)...........................       13,492     (36,514)    (46,232)
                                                           -----------   ---------   ---------
LOSS BEFORE EXTRAORDINARY ITEM...........................   (1,568,067)   (556,020)   (331,165)
EXTRAORDINARY ITEM -- LOSS ON EARLY RETIREMENT OF DEBT,
  NET OF INCOME TAX OF $0................................      (45,787)         --          --
                                                           -----------   ---------   ---------
NET LOSS.................................................   (1,613,854)   (556,020)   (331,165)
REDEEMABLE PREFERRED STOCK DIVIDENDS.....................      (29,119)         --          --
                                                           -----------   ---------   ---------
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS.................  $(1,642,973)  $(556,020)  $(331,165)
                                                           ===========   =========   =========
</TABLE>

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

                                      F-34
<PAGE>   83
                          NEXTEL COMMUNICATIONS, INC.
                                 (PARENT ONLY)

   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

                       CONDENSED STATEMENT OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              1997         1996        1995
                                                           -----------   ---------   ---------
<S>                                                        <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss...............................................  $(1,613,854)  $(556,020)  $(331,165)
  Adjustment to reconcile net loss to net cash provided
     by used in operating activities.....................      377,609     234,524     329,526
                                                           -----------   ---------   ---------
          Net cash used in operating activities..........   (1,236,245)   (321,496)     (1,639)
                                                           -----------   ---------   ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Investments in and advances to affiliates..............     (346,338)   (123,244)   (335,399)
  Payments for acquisitions, net of cash acquired........       (6,100)     73,183     (48,577)
  Capital expenditures...................................      (35,281)     (5,951)       (925)
  Decrease in marketable securities......................           --      65,692     102,616
                                                           -----------   ---------   ---------
          Net cash (used in) provided by investing
            activities...................................     (387,719)      9,680    (282,285)
                                                           -----------   ---------   ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Issuance of debt securities............................    1,200,276          --          --
  Issuance of preferred stock............................      500,000          --     300,000
  Retirement of debt securities..........................     (283,288)         --          --
  Other long-term (repayments) borrowings, net...........         (949)      1,969        (611)
  Consent solicitation proceeds..........................       63,456          --          --
  Deferred financing costs...............................     (118,694)         --          --
  Issuance of common stock and options...................      281,904     114,636      16,112
  Option repurchase......................................      (25,000)         --          --
  Notes receivable from stockholders.....................        1,100          --         227
                                                           -----------   ---------   ---------
          Net cash provided by financing activities......    1,618,805     116,605     315,728
                                                           -----------   ---------   ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.....       (5,159)   (195,211)     31,804
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...........        8,837     204,048     172,244
                                                           -----------   ---------   ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................  $     3,678   $   8,837   $ 204,048
                                                           ===========   =========   =========
</TABLE>

    The accompanying notes are an integral part of these condensed financial
                                  statements.
                                      F-35
<PAGE>   84
                          NEXTEL COMMUNICATIONS, INC.
                                 (PARENT ONLY)

   SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT -- (CONTINUED)

                    NOTES TO CONDENSED FINANCIAL STATEMENTS

1. For accounting policies and other information including the meaning of
   capitalized terms, see the Notes to the Consolidated Financial Statements of
   Nextel Communications Inc. and Subsidiaries, included elsewhere herein.

2. The parent company accounts for its investments in subsidiaries by the equity
   method of accounting.

3. The parent company income tax provision (benefit) represents the difference
   between taxes computed on a consolidated basis and taxes calculated by the
   subsidiaries on a separate return basis.

4. Effective October 9, 1997, the parent company assigned and transferred to a
   wholly-owned subsidiary all of the parent company's right, title and interest
   in and to accounts receivable and intercompany accounts now owing, or in the
   future owing, to the parent company from each of the subsidiaries designated
   as restricted under the Nextel Indentures. All assignments and transfers of
   such intercompany accounts were recorded as a contribution to capital to the
   extent of the amount of the accounts receivable and intercompany accounts
   assigned and transferred.

5. The parent company has an agreement with each of its wholly-owned
   subsidiaries whereby the parent company provides administrative services for
   each of its subsidiaries and charges the subsidiaries a fee equal to the
   actual costs incurred in performing these administrative services. The fees
   charged to the subsidiaries for the performance of administrative services
   totaled approximately $142.0 million, $80.6 million and $23.4 million for the
   years ended December 31, 1997, 1996 and 1995, respectively.

6. Subsequent to December 31, 1997, the parent company transferred its 15.7%
   equity interest in Clearnet Communications Inc. to Nextel International as a
   condition to the 1998 NI Notes offering. The investment is recorded at fair
   market value with a balance of $77.1 million at December 31, 1997.

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

                                      F-36
<PAGE>   85

                  NEXTEL COMMUNICATIONS, INC. AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                         BALANCE AT   CHARGED TO     CHARGED
                                         BEGINNING    COSTS AND     TO OTHER                   BALANCE AT
                                         OF PERIOD     EXPENSES    ACCOUNTS(1)   DEDUCTIONS   END OF PERIOD
                                         ----------   ----------   -----------   ----------   -------------
<S>                                      <C>          <C>          <C>           <C>          <C>
Year Ended December 31, 1997
  Allowance for Doubtful Accounts......   $10,774      $55,623       $7,118       $(16,925)      $56,590
                                          =======      =======       ======       ========       =======
Year Ended December 31, 1996
  Allowance for Doubtful Accounts......   $ 5,232      $ 6,968       $2,477       $ (3,903)      $10,774
                                          =======      =======       ======       ========       =======
Year Ended December 31, 1995
  Allowance for Doubtful Accounts......   $ 1,823      $ 1,936       $2,538       $ (1,065)      $ 5,232
                                          =======      =======       ======       ========       =======
</TABLE>

---------------
(1) Primarily allowances of acquired companies.

                                      F-37
<PAGE>   86

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of McLean,
Commonwealth of Virginia.

                                          NEXTEL COMMUNICATIONS, INC.

                                          By:    /s/ STEVEN M. SHINDLER
                                            ------------------------------------
March 30, 1998                              Steven M. Shindler
                                            Vice President and Chief Financial
                                                             Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated
below.

<TABLE>
<CAPTION>
             SIGNATURE                                               TITLE
             ---------                                               -----
<C>                                       <S>

       /s/ DANIEL F. AKERSON              Chairman of the Board and Chief Executive Officer
-----------------------------------       (Principal Executive Officer)
         Daniel F. Akerson

      /s/ TIMOTHY M. DONAHUE              President, Chief Operating Officer and Director
-----------------------------------
        Timothy M. Donahue

      /s/ STEVEN M. SHINDLER              Vice President and Chief Financial Officer
-----------------------------------       (Principal Financial Officer)
        Steven M. Shindler

       /s/ WILLIAM G. ARENDT              Vice President and Controller
-----------------------------------       (Principal Accounting Officer)
         William G. Arendt

       /s/ MORGAN E. O'BRIEN              Vice Chairman of the Board
-----------------------------------
         Morgan E. O'Brien

          /s/ KEITH BANE                  Director
-----------------------------------
            Keith Bane

        /s/ CRAIG O. MCCAW                Director
-----------------------------------
          Craig O. McCaw

       /s/ KEISUKE NAKASAKI               Director
-----------------------------------
         Keisuke Nakasaki

       /s/ MASAAKI TORIMOTO               Director
-----------------------------------
         Masaaki Torimoto

      /s/ DENNIS M. WEIBLING              Director
-----------------------------------
        Dennis M. Weibling

    /s/ WILLIAM E. CONWAY, JR.            Director
-----------------------------------
      William E. Conway, Jr.

       /s/ FRANK M. DRENDEL               Director
-----------------------------------
         Frank M. Drendel
</TABLE>
<PAGE>   87

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
 3.1.1       Restated Certificate of Incorporation of Nextel (filed on
             July 31, 1995 as Exhibits No. 4.1.1 and 4.1.2 to Nextel's
             Post-Effective Amendment No. 1 on Form S-8 to Registration
             Statement No. 33-91716 on Form S-4 (the "Nextel S-8
             Registration Statement") and incorporated herein by
             reference).
 3.1.2       Certificate of Designation of the Powers, Preferences and
             Relative, Participating, Optional and Other Special Rights
             of 13% Series D Exchangeable Preferred Stock and
             Qualifications, Limitations and Restrictions Thereof (filed
             on July 21, 1997 as Exhibit 4.1 to the Current Report on
             Form 8-K dated on July 21, 1997 and incorporated herein by
             reference).
 3.1.3       Certificate of Designation of the Powers, Preferences and
             Relative, Participating, Optional and Other Special Rights
             of 11.125% Series E Exchangeable Preferred Stock and
             Qualifications, Limitations and Restrictions Thereof (filed
             on February 12, 1998 as Exhibit 4.1 to the Current Report on
             Form 8-K dated on February 11, 1998 (the "February 11 Form
             8-K") and incorporated herein by reference).
 3.2         Amended and Restated By-Laws of Nextel (filed on July 31,
             1995 as Exhibit No. 4.2 to the Nextel S-8 Registration
             Statement and incorporated herein by reference).
 4.1         Restated Certificate of Incorporation of Nextel (see
             Exhibits No. 3.1.1 through 3.1.3 above).
 4.2         Amended and Restated By-Laws of Nextel (see Exhibit No. 3.2
             above).
 4.3.1       Indenture between Old Nextel and The Bank of New York, as
             Trustee, dated August 15, 1993 (the "August Indenture")
             (filed on December 23, 1993 as Exhibit 4.13 to Old Nextel's
             Registration Statement No. 33-73388 on Form S-4 and
             incorporated herein by reference).
 4.3.2       Form of Note issued pursuant to the August Indenture
             (included in Exhibit No. 4.3.1).
 4.3.3       Supplemental Indenture, dated as of June 30, 1995, to the
             August Indenture between Nextel and The Bank of New York
             (filed on November 14, 1995 as Exhibit 4.1 to Nextel's
             Quarterly Report on Form 10-Q for the quarter ended
             September 30, 1995 (the "November 14 Form 10-Q") and
             incorporated herein by reference).
 4.3.4       Second Supplemental Indenture, dated as of July 28, 1995, to
             the August Indenture between ESMR, Inc. (now known as
             Nextel), as Successor by Merger to Nextel and The Bank of
             New York (relating to the August Indenture) (filed on
             November 14, 1995 as Exhibit 4.3 to the November 14 Form
             10-Q and incorporated herein by reference).
 4.3.5       Third Supplemental Indenture, dated as of June 13, 1997, to
             the August Indenture between Nextel Communications, Inc. and
             The Bank of New York, as Trustee (filed on June 17, 1997 as
             Exhibit 4.1 to the Current Report on Form 8-K dated June 13,
             1997 (the "June 13 Form 8-K") and incorporated herein by
             reference).
 4.4.1       Indenture between Old Nextel and the Bank of New York, as
             Trustee, dated as of February 15, 1994 (the "February
             Indenture") (filed on March 1, 1994 as Exhibit 4.1 to Old
             Nextel's Current Report on Form 8-K dated February 16, 1994
             and incorporated herein by reference).
 4.4.2       Form of Note issued pursuant to the February Indenture
             (included in Exhibit 4.4.1).
 4.4.3       Supplemental Indenture dated as of June 30, 1995 to the
             February Indenture between Old Nextel and The Bank of New
             York (filed on November 14, 1995 as Exhibit 4.2 to the
             November 14 Form 10-Q and incorporated herein by reference).
 4.4.4       Second Supplemental Indenture, dated as of July 28, 1995, to
             the February Indenture between ESMR, Inc. (now known as
             Nextel), as Successor by Merger to Old Nextel and The Bank
             of New York (relating to the February Indenture) (filed on
             November 14, 1995 as Exhibit 4.4 to the November 14 Form
             10-Q and incorporated herein by reference).
</TABLE>

                                       E-1
<PAGE>   88

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
 4.4.5       Third Supplemental Indenture, dated as of June 13, 1997, to
             the February Indenture between Nextel Communications, Inc.,
             and The Bank of New York, as Trustee (filed on June 17, 1997
             as Exhibit 4.2 to the June 13 Form 8-K and incorporated
             herein by reference).
 4.5.1       Indenture for Senior Redeemable Discount Notes due 2004,
             dated as of January 13, 1994, between OneComm Corporation
             (formerly called CenCall Communications Corp.) and The Bank
             of New York (the "OneComm Indenture") (filed on June 7, 1995
             as Exhibit 99.2 to Nextel's Registration Statement No.
             33-93182 on Form S-4 (the "OneComm S-4 Registration
             Statement") and incorporated herein by reference).
 4.5.2       Form of Note issued pursuant to the OneComm Indenture
             (included in Exhibit 4.5.1).
 4.5.3       Supplemental Indenture, dated as of June 30, 1995, to the
             OneComm Indenture between OneComm Corporation (formerly
             called CenCall Communications Corp.) and The Bank of New
             York (filed on November 14, 1995 as Exhibit 10.12 to the
             November 14 Form 10-Q and incorporated herein by reference).
 4.5.4       Second Supplemental Indenture, dated as of July 28, 1995, to
             the OneComm Indenture between Nextel (formerly known as
             ESMR, Inc.), as successor to OneComm Corporation and The
             Bank of New York (filed on November 14, 1995 as Exhibit
             10.13 to the November 14 Form 10-Q and incorporated herein
             by reference).
 4.5.5       Third Supplemental Indenture, dated as of June 13, 1997, to
             the OneComm Indenture between Nextel and The Bank of New
             York (filed on June 17, 1997 as Exhibit 4.5 to the June 13
             Form 8-K and incorporated herein by reference).
 4.6.1       Indenture for Senior Redeemable Discount Notes due 2004,
             dated as of April 25,1994, between Dial Call Communications,
             Inc. and The Bank of New York (the "Dial Call 2004
             Indenture") (filed on June 7, 1995 as Exhibit 99.4 to the
             OneComm S-4 Registration Statement and incorporated herein
             by reference).
 4.6.2       Form of Note issued pursuant to the Dial Call 2004 Indenture
             (included in Exhibit 4.6.1).
 4.6.3       Supplemental Indenture, dated as of August 7, 1995, to the
             Dial Call 2004 Indenture between Dial Call Communications,
             Inc. and The Bank of New York (filed on December 5, 1995 as
             Exhibit 99.3 to the Nextel's Registration Statement No.
             33-80021 on Form S-4 (the "Dial Page S-4 Registration
             Statement") and incorporated herein by reference).
 4.6.4       Second Supplemental Indenture, dated as of January 30, 1996,
             to the Dial Call 2004 Indenture between Dial Page, Inc. (as
             successor to Dial Call Communications, Inc.) and The Bank of
             New York (filed on April 1, 1996 as Exhibit 4.26 to Nextel's
             Annual Report on Form 10-K for the year ended December 31,
             1995 (the "1995 Form 10-K") and incorporated herein by
             reference).
 4.6.5       Third Supplemental Indenture, dated as of January 30, 1996,
             to the Dial Call 2004 Indenture between Nextel (as successor
             to Dial Page, Inc.) and The Bank of New York (filed on April
             1, 1996 as Exhibit 4.27 to the 1995 Form 10-K and
             incorporated herein by reference).
 4.6.6       Fourth Supplemental Indenture, dated as of June 13, 1997, to
             the Dial Call 2004 Indenture between Nextel and The Bank of
             New York (filed on June 17, 1997 as Exhibit 4.3 to the June
             13 Form 8-K and incorporated herein by reference).
 4.7.1       Indenture for Senior Discount Notes due 2005, dated as of
             December 22, 1993, between Dial Call Communications, Inc.
             and The Bank of New York (the "Dial Call 2005 Indenture")
             (filed as Exhibit 99.3 to the OneComm S-4 Registration
             Statement and incorporated herein by reference).
 4.7.2       Form of Note issued pursuant to the Dial Call 2005 Indenture
             (included in Exhibit 4.7.1).
</TABLE>

                                       E-2
<PAGE>   89

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
 4.7.3       Supplemental Indenture, dated as of April 25, 1994, to the
             Dial Call 2005 Indenture between Dial Call Communications,
             Inc. and The Bank of New York (filed on April 1, 1996 as
             Exhibit 4.29 to the 1995 Form 10-K and incorporated herein
             by reference).
 4.7.4       Supplemental Indenture, dated as of June 30, 1995, to the
             Dial Call 2005 Indenture between Dial Call Communications,
             Inc. and The Bank of New York (filed on December 5, 1995 as
             Exhibit 99.4 to the Dial Page S-4 Registration Statement and
             incorporated herein by reference).
 4.7.5       Third Supplemental Indenture, dated as of January 30, 1996,
             to the Dial Call 2005 Indenture between Dial Page Inc. (as
             successor to Dial Call Communications, Inc.) and The Bank of
             New York (filed on April 1, 1996 as Exhibit 4.31 to the 1995
             Form 10-K and incorporated herein by reference).
 4.7.6       Fourth Supplemental Indenture, dated as of January 30, 1996,
             to the Dial Call 2005 Indenture between Nextel (as successor
             to Dial Page, Inc.) and The Bank of New York (filed on April
             1, 1996 as Exhibit 4.32 to the 1995 Form 10-K and
             incorporated herein by reference).
 4.7.7       Fifth Supplemental Indenture, dated as of June 13, 1997, to
             the Dial Call 2005 Indenture between Nextel and The Bank of
             New York (filed on June 17, 1997 as Exhibit 4.4 to the June
             13 Form 8-K and incorporated herein by reference).
 4.8.1       Indenture for Senior Discount Notes due 2007, dated as of
             March 6, 1997, between McCaw International, Ltd. (now known
             as Nextel International) and The Bank of New York, as
             Trustee (the "NI 2007 Indenture") (filed on March 31, 1997
             as Exhibit 4.24 to Nextel's Annual Report on Form 10-K for
             the year ended December 31, 1996 (the "1996 Form 10-K") and
             incorporated herein by reference).
 4.8.2       Form of Note issued pursuant to the NI 2007 Indenture
             (included in Exhibit 4.8.1).
 4.8.3       Warrant Agreement, dated as of March 6, 1997, between McCaw
             International, Ltd. and The Bank of New York (filed on March
             31, 1997 as Exhibit 4.26 to the 1996 Form 10-K and
             incorporated herein by reference).
 4.9.1       Indenture dated September 17, 1997 between Nextel
             Communications, Inc. and Harris Trust and Savings Bank, as
             Trustee (the "September 1997 Indenture"), relating to
             Nextel's 10.65% Senior Redeemable Discount Notes due 2007
             (filed on September 22, 1997 as Exhibit 4.1 to Nextel's
             Current Report on Form 8-K dated September 22, 1997 and
             incorporated herein by reference).
 4.9.2       Form of Note issued pursuant to the September 1997 Indenture
             (included in Exhibit 4.9.1).
 4.10.1      Indenture dated as of October 22, 1997 between Nextel
             Communications, Inc. and Harris Trust and Savings Bank, as
             Trustee (the "October 1997 Indenture"), relating to Nextel's
             9.75% Senior Serial Redeemable Discount Notes due 2007
             (filed on October 23, 1997 as Exhibit 4.1 to Nextel's
             Current Report on Form 8-K dated October 23, 1997 and
             incorporated herein by reference).
 4.10.2      Form of Note issued pursuant to the October 1997 Indenture
             (included in Exhibit 4.10.1).
 4.11.1      Indenture dated as of February 11, 1998, between Nextel
             Communications, Inc. and Harris Trust and Savings Bank, as
             Trustee, (the "February 1998 Indenture") relating to
             Nextel's Senior Serial Redeemable Discount Notes due 2008
             (filed on February 12, 1998 as Exhibit 4.2 to the February
             11 Form 8-K and incorporated herein by reference).
 4.11.2      Form of Note issued pursuant to the February 1998 Indenture
             (included in Exhibit 4.11.1).
 4.12        Credit Agreement dated as of March 12, 1998 among Nextel,
             NFC, the Restricted Companies party thereto, the Lenders
             party thereto, Toronto Dominion (Texas) Inc., as
             Administrative Agent, and The Chase Manhattan Bank as
             Collateral Agent (filed as Exhibit 4.12 hereto).
</TABLE>

                                       E-3
<PAGE>   90

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
10.1         Amended and Restated Current Stock Unit Purchase Warrant No.
             CM-1 dated June 15, 1990 issued by Old Nextel to Chase
             Manhattan Investment Holdings, Inc. (filed on October 17,
             1991 as Exhibit 10.8 to the Registration Statement No.
             33-43415 on Form S-1 (the "S-1 Registration Statement") and
             incorporated herein by reference).
10.2         Current Stock Unit Purchase Warrant No. CM-3 dated June 15,
             1990 issued by Old Nextel to Chase Manhattan Investment
             Holdings, Inc. (filed on October 17, 1991 as Exhibit 10.10
             to the S-1 Registration Statement and incorporated herein by
             reference).
10.3         Current Stock Unit Purchase Warrant No. 2 dated January 29,
             1988 issued by Old Nextel to Kansallis-Osake-Pankki (filed
             on October 17, 1991 as Exhibit 10.12 to the S-1 Registration
             Statement and incorporated herein by reference).
10.4         Registration Rights Agreement dated as of June 15, 1990
             between Old Nextel and Chase Manhattan Investment Holdings,
             Inc. (filed on October 17, 1991 as Exhibit 10.21 to the S-1
             Registration Statement and incorporated herein by
             reference.)
10.5*        Letter Agreement between Motorola, Inc. and Old Nextel,
             dated as of November 4, 1991 (filed on November 15, 1991 as
             Exhibit 10.47 to the S-1 Registration Statement and
             incorporated herein by reference).
10.6.1*      Enhanced Specialized Mobile Radio System Purchase Agreement
             between Motorola, Inc and Old Nextel, dated as of November
             4, 1991 (filed on November 15, 1991 as Exhibit 10.48 to the
             S-1 Registration Statement and incorporated herein by
             reference).
10.6.2*      Amendment, dated August 4, 1994, to the Enhanced Specialized
             Mobile Radio System Equipment Purchase Agreement, between
             Old Nextel and Motorola, Inc., dated November 1, 1991, as
             amended and to the Letter Agreement, between Old Nextel and
             Motorola, dated November 4, 1991, as amended (collectively
             the "Equipment Purchase Agreements") (filed as Exhibit 10.02
             to ESMR's Registration Statement No. 33-91716 on Form S-4
             (the "ESMR Form S-4 Registration Statement") and
             incorporated herein by reference).
10.6.3*      Second Amendment to Equipment Purchase Agreements, dated
             April 4, 1995, between Old Nextel and Motorola, Inc. (filed
             as Exhibit 10.03 to the ESMR Form S-4 Registration Statement
             and incorporated herein by reference).
10.6.4*      Amendment 004 to Enhanced Specialized Mobile Radio System
             Purchase Agreement, dated as of April 28, 1996, between
             Nextel and Motorola, Inc. (filed on July 5, 1996 as Exhibit
             99.1 to Nextel's Current Report on Form 8-K dated July 5,
             1996 and incorporated herein by reference).
10.6.5*      Nextel/Motorola Agreement (relating to equipment purchase):
             dated March 27, 1997, between Nextel and Motorola, Inc.
             (filed on May 14, 1997 as Exhibit 10.1 to Nextel's Quarterly
             Report on Form 10-Q for the quarter ended March 31, 1997
             (the "March 31, 1997 Form 10-Q") and incorporated herein by
             reference.
10.6.6       Term Sheet For Debt Financing, dated as of March 26, 1997,
             between Nextel and Motorola, Inc. filed on March 31, 1997 as
             Exhibit 10.39 to the 1996 Form 10-K and incorporated by
             reference herein).
10.7.1       Agreement and Plan of Contribution and Merger, dated August
             4, 1994, as amended, by and among Old Nextel, Motorola,
             Inc., ESMR, Inc. (now known as Nextel), ESMR Sub, Inc. and
             Others (filed on April 28, 1995 as Exhibit 2.01 to the ESMR
             S-4 Registration Statement and incorporated herein by
             reference).
10.7.2       Registration Rights Agreement, dated July 28, 1995, by and
             between Nextel and Motorola (filed on November 14, 1995 as
             Exhibit 10.8 to the November 14 Form 10-Q and incorporated
             herein by reference).
</TABLE>

                                       E-4
<PAGE>   91

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
10.8.1       Warrant Agreement between Motorola, Inc. and Old Nextel,
             dated November 1, 1991 (filed on November 15, 1991 as
             Exhibit 10.53 to the S-1 Registration Statement and
             incorporated herein by reference).
10.8.2       Amendment, dated as of April 26, 1996, to Warrant Agreement
             between Motorola, Inc. and Nextel (f/k/a Fleet Call, Inc.)
             (filed on August 14, 1996 as Exhibit 10.2 to Nextel's
             Quarterly Report on Form 10-Q for the quarter ended June 30,
             1996 and incorporated herein by reference).
10.9         Technical Services Agreement, dated as of January 20, 1994,
             between Old Nextel and NTT America, Inc. (filed as Exhibit
             10.49 on June 8, 1994 to Old Nextel's Annual Report on Form
             10-K for the year ended March 31, 1994 and incorporated
             herein by reference).
10.10.1      Warrant Acquisition Agreement, dated as of July 14, 1993, by
             and between OneComm Corporation and The Chase Manhattan Bank
             (National Association), and Form of Stock Purchase Warrant
             (filed as Exhibit 10.42 to the OneComm S-1 Registration
             Statement and incorporated herein by reference).
10.10.2      Registration Rights Agreement, dated July 28, 1995, by and
             among Nextel, The Chase Manhattan Bank (National
             Association), Canadian Imperial Bank of Commerce and Fleet
             National Bank (filed on April 1, 1996 as Exhibit 10.57 to
             the 1995 Form 10-K and incorporated herein by reference).
10.11.1      Securities Purchase Agreement between Old Nextel, Digital
             Radio, L.L.C. and Craig O. McCaw, dated April 4, 1995 (filed
             on April 11, 1995 as Exhibit 2.1 to Old Nextel's Current
             Report on Form 8-K dated April 10, 1995 and incorporated
             herein by reference).
10.11.2      Incentive Option Agreement, dated April 4, 1995, between Old
             Nextel and Eagle River, Inc. (filed on April 11, 1995 as
             Exhibit 99.3 to Old Nextel's Current Report on Form 8-K
             dated April 10, 1995 and incorporated herein by reference).
10.11.3      Forms of Option Agreements dated April 6, 1995 between Old
             Nextel, Digital Radio, L.L.C. and Craig O. McCaw (filed on
             March 31, 1997 as Exhibit 10.26 to the 1996 Form 10-K and
             incorporated herein by reference).
10.11.4      Form of Registration Rights Agreement, dated July 28, 1995,
             by and among the Company and Digital Radio, L.L.C. (filed on
             March 31, 1997 as Exhibit 10.38 to the 1996 Form 10-K and
             incorporated by reference herein).
10.11.5      First Amendment to Registration Rights Amendment (amending
             that certain Registration Rights Agreement dated July 28,
             1995) by and among Nextel, Digital Radio, L.L.C., and Option
             Acquisition, L.L.C., dated as of June 18, 1997 (filed on
             July 9, 1997 as Exhibit 10.7 to Current Report on Form 8-K
             (the "July 9 Form 8-K") and incorporated herein by
             reference).
10.12        Option Exercise and Lending Commitment Agreement by and
             among Nextel and Digital Radio, L.L.C., dated as of June 16,
             1997 (filed on July 9, 1997 as Exhibit 10.1 to the July 9
             Form 8-K and incorporated herein by reference).
10.13.1      Option Purchase Agreement by and among Nextel, Unrestricted
             Subsidiary Funding Company and Option Acquisition, L.L.C.,
             dated as of June 16, 1997 (filed on July 9, 1997 as Exhibit
             10.3 to the July 9 Form 8-K and incorporated herein by
             reference).
10.13.2      Option Agreement (First New Option) by and between Option
             Acquisition, L.L.C., and Nextel, dated as of June 18, 1997
             (filed on July 9, 1997 as Exhibit 10.4 to the July 9 Form
             8-K and incorporated herein by reference).
10.13.3      Option Agreement (Second New Option) by and between Option
             Acquisition, L.L.C., and Nextel, dated as of June 18, 1997
             (filed on July 9, 1997 as Exhibit 10.5 to the July 9 Form
             8-K and incorporated herein by reference).
</TABLE>

                                       E-5
<PAGE>   92

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
10.13.4      Registration Rights Agreement (Option Acquisition) by and
             among Nextel and Option Acquisition, L.L.C., dated as of
             June 18, 1997 (filed on July 9, 1997 as Exhibit 10.6 to the
             July 9 Form 8-K and incorporated herein by reference).
10.14***     Form of Indemnification Agreement, and Exhibits thereto
             between Old Nextel and each of its directors (filed on June
             24, 1992 as Exhibit 10.56 to Old Nextel's Annual Report on
             Form 10-K for the year ended March 31, 1992 and incorporated
             herein by reference).
10.15***     Employment Agreement, dated as of March 26, 1992, between
             Old Nextel and Robert Foosaner (filed on May 27, 1993 as
             Exhibit 10.41 to Old Nextel's Annual Report on Form 10-K for
             the year ended March 31, 1993 and incorporated herein by
             reference).
10.16***     The Nextel Stock Option Plan (filed on December 21, 1992 as
             Exhibit 4(c) to Old Nextel's Registration Statement No.
             33-56080 on Form S-8 and incorporated herein by reference).
10.17.1***   Nextel Amended and Restated Incentive Equity Plan ("Nextel
             Plan") (filed on June 21, 1996 as Exhibit 4.3 to Nextel's
             Registration Statement No. 333-06521 on Form S-8 and
             incorporated herein by reference).
10.17.2***   Amendment No. 1, adopted March 28, 1997, to Nextel Plan
             (filed on March 31, 1997 as Exhibit 10.40 to the 1996 Form
             10-K and incorporated by reference herein).
10.18***     Nextel Associate Stock Purchase Plan (filed on June 21, 1996
             as Exhibit 4.3 to Nextel's Registration Statement No.
             333-06523 on Form S-8 and incorporated herein by reference).
10.19***     Nextel Communications, Inc. Cash Compensation Deferral Plan
             (filed on December 17, 1997 as Exhibit 4.1 to Nextel's
             Registration Statement No. 333-42537 on Form S-8 and
             incorporated herein by reference).
10.20.1***   Employment Agreement dated as of March 5, 1996 between
             Daniel Akerson and Nextel (filed on March 31, 1997 as
             Exhibit 10.35 to the 1996 Form 10-K and incorporated by
             reference herein).
10.20.2***   Letter Amendment to Employment Agreement dated as of March
             24, 1998 between Daniel Akerson and Nextel (filed as Exhibit
             10.20.2 hereto).
10.21.1***   Employment Agreement dated February 1, 1996 between Timothy
             Donahue and Nextel (filed on March 31, 1997 as Exhibit 10.36
             to the 1996 Form 10-K and incorporated by reference herein).
10.21.2***   Addendum to Employment Agreement between Timothy Donahue and
             Nextel dated March 24, 1997 (filed on March 31, 1997 as
             Exhibit 10.37 to the 1996 Form 10-K and incorporated by
             reference herein).
10.22***     Employment Agreement, dated as of June 15, 1987, between Old
             Nextel and Morgan E. O'Brien, and Amendment dated January
             29, 1990 (filed on October 17, 1991 as Exhibit 10.34 to the
             S-1 Registration Statement and incorporated herein by
             reference).
10.23***     Employment Agreement dated as of October 17, 1994 between
             Thomas J. Sidman and Nextel (filed as Exhibit 10.23 hereto).
21           Subsidiaries of the Company.
23           Consent of Deloitte & Touche LLP.
27**         Financial Data Schedule.
99.1         Memorandum Opinion and Order of the Federal Communications
             Commission, dated as of February 13, 1991 (filed on December
             5, 1992 as Exhibit 28.1 to the S-1 Registration Statement
             and incorporated herein by reference).
99.2         Letter from Motorola, Inc. to Old Nextel, dated as of
             January 13, 1992 (filed on January 16, 1992 as Exhibit 28.2
             to the S-1 Registration Statement and incorporated by
             reference).
</TABLE>

                                       E-6
<PAGE>   93

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                         EXHIBIT DESCRIPTION
----------                       -------------------
<C>          <S>
99.3         Order entered by the United States District Court for the
             District of Columbia on July 25, 1995 approving the proposed
             consent decree between the Antitrust Division of the United
             States Justice Department, Motorola, Inc. and Nextel (filed
             on April 1, 1996 as Exhibit 99.3 to the 1995 Form 10-K and
             incorporated herein by reference).
</TABLE>

---------------
  * Portions of this exhibit have been omitted and filed separately with the
    Commission pursuant to a request for confidential treatment.

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

*** Management contract or compensatory plan or arrangement.

                                       E-7