##### 









UNITED STATES





FORM 10-Q

(Mark One)

|                                                 |  |                                                                                                
|------------------------------------------------ |  | -----------------------------------------------------------------------------------------------
|[X]                                              |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
    15(d) OF
    THE SECURITIES EXCHANGE ACT OF 1934
|                                                
|For the quarterly period ended June 30,
    2004
|                                                
|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(State or other jurisdiction of
    incorporation or organization)                 |  | 36-3939651(I.R.S. Employer Identification No.)
|                                                                                          
|2001 Edmund Halley Drive, Reston,
    Virginia(Address of principal executive
    offices) |  | 20191(Zip Code)                               
|                                                                                          
|Registrants telephone number, including
    area code: (703) 433-4000                    

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past 90 days. Yes [X]     No
[  ]

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Yes [X]     No
[  ]

Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.

|                                                     |  |                              |               | 
|---------------------------------------------------- |  | ---------------------------- | ------------- | 
|                                                     |  | Number of Shares Outstanding
|Title of Class                                       |  | on July 30, 2004            
|                                                     |  |                             
|Class A Common Stock, $0.001 par value               |  |                              | 1,077,892,064 | 
|Class B Nonvoting Common Stock, $0.001 par
    value |  |                              | 35,660,000    | 



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

INDEX

| |          |  |  |                        |  |                                                                                                                                            |  |  |    | 
| | -------- |  |  | ---------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------ |  |  | -- | 
| |          |  |  |                        |  | Page                                                                                                                                      
| |          |  |  |                        |  |                                                                                                                                           
| | Part  I  |  |  | Financial Information.
| |          |  |  | Item 1.                |  | Financial Statements  Unaudited.                                                                                                          |  |  |    | 
| |          |  |  |                        |  | Condensed Consolidated Balance Sheets As of
    June 30, 2004 and December 31, 2003                                                        |  |  | 3  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Operations
    and Comprehensive Income For the Six and Three Months Ended
    June 30, 2004 and 2003 |  |  | 4  | 
| |          |  |  |                        |  | Condensed Consolidated Statement of Changes in
    Stockholders Equity For the Six Months Ended June 30,
    2004                         |  |  | 5  | 
| |          |  |  |                        |  | Condensed Consolidated Statements of Cash Flows
    For the Six Months Ended June 30, 2004 and 2003                                        |  |  | 6  | 
| |          |  |  |                        |  | Notes to Condensed Consolidated Financial
    Statements                                                                                   |  |  | 7  | 
| |          |  |  |                        |  | Report of Independent Registered Public
    Accounting Firm                                                                                |  |  | 18 | 
| |          |  |  | Item 2.                |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                                                  |  |  | 19 | 
| |          |  |  | Item 3.                |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                                             |  |  | 43 | 
| |          |  |  | Item 4.                |  | Controls and Procedures                                                                                                                    |  |  | 44 | 
| | Part  II |  |  | Other Information.    
| |          |  |  | Item 1.                |  | Legal Proceedings                                                                                                                          |  |  | 45 | 
| |          |  |  | Item 4.                |  | Submission of Matters to a Vote of Security
    Holders                                                                                    |  |  | 45 | 
| |          |  |  | Item 5.                |  | Other Information                                                                                                                          |  |  | 46 | 
| |          |  |  | Item 6.                |  | Exhibits and Reports on Form 8-K                                                                                                           |  |  | 48 | 



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##### 



PART I  FINANCIAL INFORMATION.

Item 1.     Financial
Statements  Unaudited.

NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Balance
Sheets

As of June 30, 2004 and December 31,
2003


(in millions)


Unaudited


|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |        |       |        |       | 
|------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -------------------------- | ------------------------- | -------------------- | ----- | ------ | ------ | ------ | ----- | ------ | ----- | 
|                                                                                                              |                                                                                        | 2004                       |                           | 2003                
|                                                                                                              |                                                                                        |                            |                           |                     
|ASSETS                                                                                                       
|Current assets                                                                                                |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Cash and cash equivalents                                                              |                            | $                         | 1,082                |       |        | $      | 806    |      
|                                                                                                              | Short-term investments                                                                 |                            |                           | 1,012                |       |        |        | 1,165  |      
|                                                                                                              | Accounts and notes receivable, less allowance for
    doubtful accounts of $77 and $86 |                            |                           | 1,369                |       |        |        | 1,276  |      
|                                                                                                              | Due from related parties                                                               |                            |                           | 131                  |       |        |        | 70     |      
|                                                                                                              | Handset and accessory inventory                                                        |                            |                           | 461                  |       |        |        | 223    |      
|                                                                                                              | Prepaid expenses and other current assets                                              |                            |                           | 331                  |       |        |        | 148    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            |                           | Total current assets |       |        | 4,386  |        |       |        | 3,688 | 
|Investments                                                                                                   |                                                                                        |                            | 460                       |                      |       |        | 408    |       
|Property, plant and equipment,net of accumulated depreciation of
    $6,437 and $5,562                        |                                                                                        |                            | 9,327                     |                      |       |        | 9,093  |       
|Intangible assets,net of accumulated amortization of $85
    and $92.                                         |                                                                                        |                            | 7,220                     |                      |       |        | 7,038  |       
|Other assets                                                                                                  |                                                                                        |                            | 276                       |                      |       |        | 283    |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | $                          | 21,669                    |                      |       | $      | 20,510 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                     
|Current liabilities                                                                                           |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Accounts payable                                                                       |                            | $                         | 855                  |       |        | $      | 663    |      
|                                                                                                              | Accrued expenses and other                                                             |                            |                           | 1,265                |       |        |        | 1,382  |      
|                                                                                                              | Due to related parties                                                                 |                            |                           | 656                  |       |        |        | 285    |      
|                                                                                                              | Current portion of long-term debt and capital
    lease obligation                     |                            |                           | 385                  |       |        |        | 487    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            | Total current liabilities |                      |       | 3,161  |        |        |       | 2,817  |      
|Long-term debt                                                                                                |                                                                                        |                            | 9,222                     |                      |       |        | 9,725  |       
|Deferred income taxes (note 4)                                                                                |                                                                                        |                            | 670                       |                      |       |        | 1,867  |       
|Other liabilities                                                                                             |                                                                                        |                            | 205                       |                      |       |        | 166    |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        |                            | Total liabilities         |                      |       | 13,258 |        |        |       | 14,575 |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|Commitments and contingencies
    (note 7)                                                                    |                                                                                        |                            |                           |                      |       |        |        |       
|Zero coupon mandatorily redeemable preferred
    stock,convertible, 245,245 shares issued and
    outstanding |                                                                                        |                            | 103                       |                      |       |        | 99     |       
|Stockholders equity                                                                                          |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              | Common stock, class A, 1,077 and 1,068 shares
    issued and outstanding               |                            |                           | 1                    |       |        |        | 1      |      
|                                                                                                              | Common stock, class B, nonvoting convertible, 36
    shares issued and outstanding     |                            |                           |                     |       |        |        |       |      
|                                                                                                              | Paid-in capital                                                                        |                            |                           | 12,484               |       |        |        | 11,942 |      
|                                                                                                              | Accumulated deficit                                                                    |                            |                           | (4,361               | )     |        |        | (6,256 | )    
|                                                                                                              | Deferred compensation, net                                                             |                            |                           | (38                  | )     |        |        | (16    | )    
|                                                                                                              | Accumulated other comprehensive income                                                 |                            |                           | 222                  |       |        |        | 165    |      
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | Total stockholders equity |                           |                      | 8,308 |        |        |        | 5,836 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       
|                                                                                                              |                                                                                        | $                          | 21,669                    |                      |       | $      | 20,510 |       
|                                                                                                              |                                                                                        |                            |                           |                      |       |        |        |       

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


3



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of
Operations and Comprehensive Income

For the Six and Three Months Ended
June 30, 2004 and 2003


(in millions, except per share
amounts)


Unaudited


|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |       |   | 
|-------------------------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | ----- | ------------------ | --- | ---- | ----- | ----- | -- | - | ----- | ----- | --- | - | ----- | ----- | - | 
|                                                         |                                                                    |                                                                      |       |                   
|                                                         |                                                                    | Six Months Ended                                                     |       | Three Months Ended
|                                                         |                                                                    | June 30,                                                             |       | June 30,          
|                                                         |                                                                    |                                                                      |       |                   
|                                                         |                                                                    | 2004                                                                 |       | 2003               |     | 2004 |       | 2003 
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |      
|Operating revenues                                       |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Service revenues                                                   |                                                                      | $     | 5,715              |     |      | $     | 4,595 |    |   | $     | 2,939 |     |   | $     | 2,385 |  
|                                                         | Handset and accessory revenues                                     |                                                                      |       | 677                |     |      |       | 332   |    |   |       | 350   |     |   |       | 171   |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | 6,392 |                    |     |      | 4,927 |       |    |   | 3,289 |       |     |   | 2,556 |      
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Operating expenses                                       |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Cost of service (exclusive of depreciation
    included below)     |                                                                      |       | 895                |     |      |       | 777   |    |   |       | 457   |     |   |       | 408   |  
|                                                         | Cost of handset and accessory revenues                             |                                                                      |       | 985                |     |      |       | 625   |    |   |       | 496   |     |   |       | 315   |  
|                                                         | Selling, general and administrative                                |                                                                      |       | 2,049              |     |      |       | 1,615 |    |   |       | 1,078 |     |   |       | 829   |  
|                                                         | Depreciation                                                       |                                                                      |       | 874                |     |      |       | 807   |    |   |       | 442   |     |   |       | 408   |  
|                                                         | Amortization                                                       |                                                                      |       | 22                 |     |      |       | 28    |    |   |       | 11    |     |   |       | 14    |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | 4,825 |                    |     |      | 3,852 |       |    |   | 2,484 |       |     |   | 1,974 |      
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Operating income                                         |                                                                    |                                                                      | 1,567 |                    |     |      | 1,075 |       |    |   | 805   |       |     |   | 582   |      
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Other income (expense)                                   |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Interest expense                                                   |                                                                      |       | (309               | )   |      |       | (444  | )  |   |       | (155  | )   |   |       | (219  | )
|                                                         | Interest income                                                    |                                                                      |       | 15                 |     |      |       | 22    |    |   |       | 7     |     |   |       | 10    |  
|                                                         | Loss on retirement of debt                                         |                                                                      |       | (51                | )   |      |       | (7    | )  |   |       | (34   | )   |   |       | (2    | )
|                                                         | Equity in losses of unconsolidated affiliates, net                 |                                                                      |       | (2                 | )   |      |       | (48   | )  |   |       | (2    | )   |   |       | (35   | )
|                                                         | Realized gain on sale of investments                               |                                                                      |       | 26                 |     |      |       |      |    |   |       |      |     |   |       |      |  
|                                                         | Other, net                                                         |                                                                      |       | 3                  |     |      |       |      |    |   |       | 2     |     |   |       |      |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         |                                                                    |                                                                      | (318  | )                  |     |      | (477  | )     |    |   | (182  | )     |     |   | (246  | )    
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Income before income tax benefit
    (provision)         |                                                                    |                                                                      | 1,249 |                    |     |      | 598   |       |    |   | 623   |       |     |   | 336   |      
|Income tax benefit (provision) (note
    4)              |                                                                    |                                                                      | 646   |                    |     |      | (49   | )     |    |   | 679   |       |     |   | (27   | )    
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Net income                                               |                                                                    |                                                                      | 1,895 |                    |     |      | 549   |       |    |   | 1,302 |       |     |   | 309   |      
|                                                         | Loss on retirement of mandatorily redeemable
    preferred stock   |                                                                      |       |                   |     |      |       | (7    | )  |   |       |      |     |   |       | (5    | )
|                                                         | Mandatorily redeemable preferred stock dividends
    and accretion |                                                                      |       | (4                 | )   |      |       | (53   | )  |   |       | (2    | )   |   |       | (23   | )
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Income available to common
    stockholders              |                                                                    | $                                                                    | 1,891 |                    |     | $    | 489   |       |    | $ | 1,300 |       |     | $ | 281   |      
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Earnings per common share                                |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Basic                                                              |                                                                      | $     | 1.71               |     |      | $     | 0.48  |    |   | $     | 1.17  |     |   | $     | 0.27  |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Diluted                                                            |                                                                      | $     | 1.64               |     |      | $     | 0.47  |    |   | $     | 1.12  |     |   | $     | 0.27  |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Weighted average number of common shares
    outstanding |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Basic                                                              |                                                                      |       | 1,108              |     |      |       | 1,020 |    |   |       | 1,110 |     |   |       | 1,029 |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Diluted                                                            |                                                                      |       | 1,168              |     |      |       | 1,050 |    |   |       | 1,173 |     |   |       | 1,052 |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Unrealized gains (losses) on
    available-for-sale securities:    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |       |  
|                                                         |                                                                    | Net unrealized holding gains
    (losses) arising during the period  |       | $                  | 67  |      |       | $     | 4  |   |       | $     | (10 | ) |       | $     | 4 | 
|                                                         |                                                                    | Reclassification adjustment for gain included in
    net income      |       |                    | (12 | )    |       |       |   |   |       |       |    |   |       |       |  | 
|                                                         | Foreign currency translation adjustment                            |                                                                      |       | 2                  |     |      |       | (3    | )  |   |       |      |     |   |       | (4    | )
|                                                         | Cash flow hedge:                                                   |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |       |  
|                                                         |                                                                    | Reclassification of transition adjustment
    included in net income |       |                    |    |      |       |       | 3  |   |       |       |    |   |       |       | 1 | 
|                                                         |                                                                    | Unrealized gain on cash flow hedge                                   |       |                    |    |      |       |       | 11 |   |       |       |    |   |       |       | 6 | 
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|                                                         | Other comprehensive income (loss)                                  |                                                                      |       | 57                 |     |      |       | 15    |    |   |       | (10   | )   |   |       | 7     |  
|                                                         | Net income                                                         |                                                                      |       | 1,895              |     |      |       | 549   |    |   |       | 1,302 |     |   |       | 309   |  
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      
|Comprehensive income, net of income
    tax              |                                                                    | $                                                                    | 1,952 |                    |     | $    | 564   |       |    | $ | 1,292 |       |     | $ | 316   |      
|                                                         |                                                                    |                                                                      |       |                    |     |      |       |       |    |   |       |       |     |   |       |      

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


4



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statement of Changes in
Stockholders Equity

For the Six Months Ended June 30,
2004


(in millions)


Unaudited


|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       |       |  
|------------------------ | ---------------------------------------------------------------------------- | ------------ | ----- | ------------ |  | ------- | - | ----------- |  | -------- | -- | -------------------- |  | ------------ | - | ----------------- |  | ---------- | ------ | ----- | - | - | ------ | ----- |  | - | --- | --- | - | - | --- | -- |  | - | -- | - |  | - | ----- | ----- | -
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |           
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   | Accumulated Other |  |           
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    | Comprehensive Income |  |             
|                         |                                                                              | Class A      |       | Class B      |  |         |   |             |  |          |    |                      |  |             
|                         |                                                                              | Common Stock |       | Common Stock |  |         |   |             |  |          |    | Unrealized           |  | Cumulative   |   |                  
|                         |                                                                              |              |       |              |  | Paid-in |   | Accumulated |  | Deferred |    | Gain on              |  | Translation  |   |                  
|                         |                                                                              | Shares       |       | Amount       |  | Shares  |   | Amount      |  | Capital  |    | Deficit              |  | Compensation |   | Investments       |  | Adjustment |        | Total
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |      
|Balance, January 1, 2004 |                                                                              |              | 1,068 |              |  | $       | 1 |             |  |          | 36 |                      |  | $            |  |                   |  | $          | 11,942 |       |   | $ | (6,256 | )     |  | $ | (16 | )   |   | $ | 170 |    |  | $ | (5 | ) |  | $ | 5,836 |      
|                         | Net income                                                                   |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        | 1,895 |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       | 1,895 |  
|                         | Other comprehensive income                                                   |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |       |  |   |     |     |   |   |     | 55 |  |   |    | 2 |  |   |       | 57    |  
|                         | Common stock issued under equity plans                                       |              |       | 9            |  |         |   |            |  |          |    |                      |  |              |   |                   |  |            |        | 128   |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       | 128   |  
|                         | Deferred compensation                                                        |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        | 28    |   |   |        |       |  |   |     | (22 | ) |   |     |    |  |   |    |   |  |   |       | 6     |  
|                         | Release of valuation allowance attributable to
    stock options (note 4)    |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        | 389   |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       | 389   |  
|                         | Increase on issuance of equity by affiliates, net
    of deferred income tax |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        | 1     |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       | 1     |  
|                         | Accretion on zero coupon mandatorily redeemable
    preferred stock          |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        | (4    | ) |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       | (4    | )
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       |      
|Balance, June 30, 2004.  |                                                                              |              | 1,077 |              |  | $       | 1 |             |  |          | 36 |                      |  | $            |  |                   |  | $          | 12,484 |       |   | $ | (4,361 | )     |  | $ | (38 | )   |   | $ | 225 |    |  | $ | (3 | ) |  | $ | 8,308 |      
|                         |                                                                              |              |       |              |  |         |   |             |  |          |    |                      |  |              |   |                   |  |            |        |       |   |   |        |       |  |   |     |     |   |   |     |    |  |   |    |   |  |   |       |      

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


5



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Condensed Consolidated Statements of Cash
Flows

For the Six Months Ended June 30, 2004
and 2003


(in millions)


Unaudited


|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |        |     |      |        |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------- | ----------------------------------------- | ---- | ---- | ------ | ------ | --- | ---- | ------ | -
|                                                         |                                                                                           | 2004                                                                               |                                              | 2003                                     
|                                                         |                                                                                           |                                                                                    |                                              |                                          
|Cash flows from operating activities                     |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         | Net income                                                                                |                                                                                    | $                                            | 1,895                                     |      |      | $      | 549    |    
|                                                         | Adjustments to reconcile net income to net cash
    provided by operating activities:     |                                                                                    |                                              |                                           |      |      |        |        |    
|                                                         |                                                                                           | Amortization of debt financing costs and
    accretion of senior notes             |                                              |                                           | 11   |      |        |        | 32  |     
|                                                         |                                                                                           | Provision for losses on accounts receivable                                        |                                              |                                           | 68   |      |        |        | 81  |     
|                                                         |                                                                                           | Amortization of deferred gain from sale of towers                                  |                                              |                                           | (53  | )    |        |        | (53 | )   
|                                                         |                                                                                           | Depreciation and amortization                                                      |                                              |                                           | 896  |      |        |        | 835 |     
|                                                         |                                                                                           | Loss on retirement of debt                                                         |                                              |                                           | 51   |      |        |        | 7   |     
|                                                         |                                                                                           | Equity in losses of unconsolidated affiliates, net                                 |                                              |                                           | 2    |      |        |        | 48  |     
|                                                         |                                                                                           | Realized gain on sale of investments                                               |                                              |                                           | (26  | )    |        |        |    |     
|                                                         |                                                                                           | Net tax benefit from the release of the net
    operating loss valuation allowance |                                              |                                           | (726 | )    |        |        |    |     
|                                                         |                                                                                           | Income tax provision                                                               |                                              |                                           | 33   |      |        |        | 29  |     
|                                                         |                                                                                           | Other, net                                                                         |                                              |                                           | 19   |      |        |        | 15  |     
|                                                         |                                                                                           | Change in assets and liabilities, net of effects
    from acquisitions:            |                                              |                                           |      |      |        |        |     |     
|                                                         |                                                                                           |                                                                                    | Accounts and notes receivable                |                                           |      | (173 | )      |        |     | (140 | )     
|                                                         |                                                                                           |                                                                                    | Handset and accessory inventory              |                                           |      | (246 | )      |        |     | 24   |       
|                                                         |                                                                                           |                                                                                    | Prepaid expenses and other assets            |                                           |      | (237 | )      |        |     | 9    |       
|                                                         |                                                                                           |                                                                                    | Accounts payable, accrued expenses and other |                                           |      | 491  |        |        |     | 80   |       
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         |                                                                                           |                                                                                    |                                              | Net cash provided by operating activities |      |      | 2,005  |        |     |      | 1,516  |  
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|Cash flows from investing activities                     |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         | Capital expenditures                                                                      |                                                                                    |                                              | (1,188                                    | )    |      |        | (727   | )  
|                                                         | Purchases of short-term investments                                                       |                                                                                    |                                              | (1,116                                    | )    |      |        | (1,191 | )  
|                                                         | Proceeds from maturities and sales of short-term
    investments                          |                                                                                    |                                              | 1,275                                     |      |      |        | 1,057  |    
|                                                         | Payments for purchases of licenses, investments
    and other, net of cash acquired       |                                                                                    |                                              | (243                                      | )    |      |        | (238   | )  
|                                                         | Proceeds from sale of investments and other                                               |                                                                                    |                                              | 77                                        |      |      |        |       |    
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         |                                                                                           |                                                                                    |                                              | Net cash used in investing activities     |      |      | (1,195 | )      |     |      | (1,099 | )
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|Cash flows from financing activities                     |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         | Purchase and retirement of debt securities and
    mandatorily redeemable preferred stock |                                                                                    |                                              | (827                                      | )    |      |        | (707   | )  
|                                                         | Proceeds from issuance of debt securities                                                 |                                                                                    |                                              | 494                                       |      |      |        |       |    
|                                                         | Proceeds from issuance of stock                                                           |                                                                                    |                                              | 104                                       |      |      |        | 36     |    
|                                                         | Repayments under long-term credit facility                                                |                                                                                    |                                              | (139                                      | )    |      |        | (99    | )  
|                                                         | Borrowings under long-term credit facility                                                |                                                                                    |                                              |                                          |      |      |        | 69     |    
|                                                         | Payment for capital lease buy-out                                                         |                                                                                    |                                              | (156                                      | )    |      |        | (54    | )  
|                                                         | Repayments under capital lease obligation                                                 |                                                                                    |                                              | (9                                        | )    |      |        | (25    | )  
|                                                         | Mandatorily redeemable preferred stock dividends
    paid                                 |                                                                                    |                                              |                                          |      |      |        | (42    | )  
|                                                         | Other                                                                                     |                                                                                    |                                              | (1                                        | )    |      |        | (1     | )  
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|                                                         |                                                                                           |                                                                                    |                                              | Net cash used in financing activities     |      |      | (534   | )      |     |      | (823   | )
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|Net increase (decrease) in cash and cash
    equivalents |                                                                                           |                                                                                    | 276                                          |                                           |      |      | (406   | )     
|Cash and cash equivalents, beginning of
    period       |                                                                                           |                                                                                    | 806                                          |                                           |      |      | 1,846  |       
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       
|Cash and cash equivalents, end of
    period             |                                                                                           | $                                                                                  | 1,082                                        |                                           |      | $    | 1,440  |       
|                                                         |                                                                                           |                                                                                    |                                              |                                           |      |      |        |       

The accompanying notes, including note 5
 Related Party Transactions, are an

integral part of these condensed consolidated
financial statements.


6



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES

Notes to Condensed Consolidated Financial
Statements

Unaudited


Note 1.     Basis of
Presentation

Our unaudited condensed consolidated financial
statements have been prepared in accordance with the rules and
regulations of the Securities and Exchange Commission and
reflect all adjustments that are necessary for a fair
presentation of the results for interim periods. All adjustments
made were normal recurring accruals. You should not expect the
results of operations of interim periods to be an indication of
the results for a full year. You should read the condensed
consolidated financial statements in conjunction with the
consolidated financial statements and notes contained in our
annual report on Form 10-K for the year ended
December 31, 2003 and our subsequent quarterly report on
Form 10-Q for the quarter ended March 31, 2004.

Earnings Per Common Share.Basic earnings per common share is
calculated by dividing income available to common stockholders
by the weighted average number of common shares outstanding
during the period. Diluted earnings per common share adjusts
basic earnings per common share for the effects of potentially
dilutive common shares. Potentially dilutive common shares
primarily include the dilutive effects of shares issuable under
our equity plans computed using the treasury stock method, and
the dilutive effects of shares issuable upon the conversion of
our convertible senior notes and convertible preferred stock
computed using the if-converted method.

|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |    | 
|------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------------------------------------- | ----- | ------------------ | -- | ---- | ----- | ---- | -- | - | ----- | ---- | -- | - | ----- | ---- | -- | 
|                                                                   |                                                                 |                                                                         |       |                   
|                                                                   |                                                                 | Six Months Ended                                                        |       | Three Months Ended
|                                                                   |                                                                 | June 30,                                                                |       | June 30,          
|                                                                   |                                                                 |                                                                         |       |                   
|                                                                   |                                                                 | 2004                                                                    |       | 2003               |    | 2004 |       | 2003
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |     
|                                                                   |                                                                 |                                                                        
|                                                                   |                                                                 | (in millions, except per share amounts)                                
|Income available to common
    stockholders  basic                |                                                                 | $                                                                       | 1,891 |                    |    | $    | 489   |      |    | $ | 1,300 |      |    | $ | 281   |     
|                                                                   | Interest expense eliminated upon the assumed
    conversion of: |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |   
|                                                                   |                                                                 | 5.25% convertible senior notes due 2010.                                |       |                    |   |      |       |      |   |   |       |      | 8  |   |       |      |   | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                   |       |                    | 16 |      |       |      |   |   |       |      | 7  |   |       |      |   | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |                    | 5  |      |       |      |   |   |       |      | 3  |   |       |      |   | 
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Income available to common
    stockholders  diluted              |                                                                 | $                                                                       | 1,912 |                    |    | $    | 489   |      |    | $ | 1,318 |      |    | $ | 281   |     
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  basic   |                                                                 |                                                                         | 1,108 |                    |    |      | 1,020 |      |    |   | 1,110 |      |    |   | 1,029 |     
|                                                                   | Effect of dilutive securities:                                  |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |      |   
|                                                                   |                                                                 | Equity plans                                                            |       |                    | 33 |      |       |      | 22 |   |       |      | 31 |   |       |      | 23 | 
|                                                                   |                                                                 | 5.25% convertible senior notes due 2010.                                |       |                    |   |      |       |      |   |   |       |      | 8  |   |       |      |   | 
|                                                                   |                                                                 | 6% convertible senior notes due 2011.                                   |       |                    | 22 |      |       |      |   |   |       |      | 19 |   |       |      |   | 
|                                                                   |                                                                 | Zero coupon convertible preferred stock
    mandatorily redeemable 2013 |       |                    | 5  |      |       |      |   |   |       |      | 5  |   |       |      |   | 
|                                                                   |                                                                 | Class A convertible preferred stock                                     |       |                    |   |      |       |      | 8  |   |       |      |   |   |       |      |   | 
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Weighted average number of common shares
    outstanding  diluted |                                                                 |                                                                         | 1,168 |                    |    |      | 1,050 |      |    |   | 1,173 |      |    |   | 1,052 |     
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|Earnings per common share                                          |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|                                                                   | Basic                                                           |                                                                         | $     | 1.71               |    |      | $     | 0.48 |    |   | $     | 1.17 |    |   | $     | 0.27 |   
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     
|                                                                   | Diluted                                                         |                                                                         | $     | 1.64               |    |      | $     | 0.47 |    |   | $     | 1.12 |    |   | $     | 0.27 |   
|                                                                   |                                                                 |                                                                         |       |                    |    |      |       |      |    |   |       |      |    |   |       |     

7



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

About 8 million shares issuable upon the
assumed conversion of our convertible senior notes could
potentially dilute earnings per share in the future but were
excluded from the calculation of diluted earnings per common
share for the six months ended June 30, 2004 due to their
antidilutive effects. All shares issuable upon the assumed
conversion of our convertible senior notes were included in the
calculation of diluted earnings per common share for the three
months ended June 30, 2004 due to their dilutive effects.
Additionally, about 63 million and 65 million shares
issuable under our equity plans that could also potentially
dilute earnings per share in the future were excluded from the
calculation of diluted earnings per common share for the six and
three months ended June 30, 2004 as the exercise prices
exceeded the average market price of our class A common stock
during those periods.

About 50 million shares issuable upon the
assumed conversion of our convertible senior notes and zero
coupon convertible preferred stock could potentially dilute
earnings per share in the future but were excluded from the
calculation of diluted earnings per common share for the six and
three months ended June 30, 2003 due to their antidilutive
effects. Additionally, about 72 million and 71 million
shares issuable under our equity plans that could also
potentially dilute earnings per share in the future were
excluded from the calculation of diluted earnings per common
share for the six and three months ended June 30, 2003 as
the exercise prices exceeded the average market price of our
class A common stock during those periods.

Stock-Based Compensation.We account for stock-based
compensation for employees and non-employee members of our board
of directors in accordance with Accounting Principles Board, or
APB, Opinion No. 25, Accounting for Stock Issued to
Employees. Under APB Opinion No. 25, compensation
expense is based on the intrinsic value on the measurement date,
calculated as the difference between the fair value of the class
A common stock and the relevant exercise price. We account for
stock-based compensation for non-employees, who are not members
of our board of directors, at fair value using a Black-Scholes
option-pricing model in accordance with the provisions of
Statement of Financial Accounting Standards, or SFAS,
No. 123, Accounting for Stock-Based
Compensation and other applicable accounting principles.
We recorded stock-based compensation expense of $5 million
and $4 million for the six months ended June 30, 2004
and 2003, and $4 million and $2 million for the three
months ended June 30, 2004 and 2003.

We comply with the disclosure provisions of SFAS
No. 123 and SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and
Disclosure. Consistent with the provisions of SFAS
No. 123, had compensation costs been determined based on
the fair value of the awards granted since 1995, our income
available to common stockholders and earnings per common share
would have been as follows:

|                                                         |                                                                               |                                         |       |                    |   |      |     |      |   |   |       |     |   |   |     |     |  
|-------------------------------------------------------- | ----------------------------------------------------------------------------- | --------------------------------------- | ----- | ------------------ | - | ---- | --- | ---- | - | - | ----- | --- | - | - | --- | --- | -
|                                                         |                                                                               |                                         |       |                   
|                                                         |                                                                               | Six Months Ended                        |       | Three Months Ended
|                                                         |                                                                               | June 30,                                |       | June 30,          
|                                                         |                                                                               |                                         |       |                   
|                                                         |                                                                               | 2004                                    |       | 2003               |   | 2004 |     | 2003
|                                                         |                                                                               |                                         |       |                    |   |      |     |     
|                                                         |                                                                               |                                        
|                                                         |                                                                               | (in millions, except per share amounts)
|Income available to common stockholders, as
    reported |                                                                               | $                                       | 1,891 |                    |   | $    | 489 |      |   | $ | 1,300 |     |   | $ | 281 |    
|                                                         | Stock-based compensation expense included in
    reported net income          |                                         |       | 5                  |   |      |     | 4    |   |   |       | 4   |   |   |     | 2   |  
|                                                         | Stock-based compensation expense determined under
    fair value based method |                                         |       | (118               | ) |      |     | (163 | ) |   |       | (63 | ) |   |     | (81 | )
|                                                         |                                                                               |                                         |       |                    |   |      |     |      |   |   |       |     |   |   |     |    
|Income available to common stockholders, pro
    forma   |                                                                               | $                                       | 1,778 |                    |   | $    | 330 |      |   | $ | 1,241 |     |   | $ | 202 |    
|                                                         |                                                                               |                                         |       |                    |   |      |     |      |   |   |       |     |   |   |     |    

8



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

|                          |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |   |      | 
|------------------------- | ----------- | --------------------------------------- |  | ------------------ | ---- | ---- |  | ---- | ---- |  |  | - | ---- |  |  | - | ---- | 
|                          |             |                                         |  |                   
|                          |             | Six Months Ended                        |  | Three Months Ended
|                          |             | June 30,                                |  | June 30,          
|                          |             |                                         |  |                   
|                          |             | 2004                                    |  | 2003               |      | 2004 |  | 2003
|                          |             |                                         |  |                    |      |      |  |     
|                          |             |                                        
|                          |             | (in millions, except per share amounts)
|Earnings per common share |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |  
|                          | As reported |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |   |     
|                          |             | Basic                                   |  | $                  | 1.71 |      |  | $    | 0.48 |  |  | $ | 1.17 |  |  | $ | 0.27 | 
|                          |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |  
|                          |             | Diluted                                 |  | $                  | 1.64 |      |  | $    | 0.47 |  |  | $ | 1.12 |  |  | $ | 0.27 | 
|                          |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |  
|                          | Pro forma   |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |   |     
|                          |             | Basic                                   |  | $                  | 1.60 |      |  | $    | 0.32 |  |  | $ | 1.12 |  |  | $ | 0.20 | 
|                          |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |  
|                          |             | Diluted                                 |  | $                  | 1.54 |      |  | $    | 0.31 |  |  | $ | 1.07 |  |  | $ | 0.19 | 
|                          |             |                                         |  |                    |      |      |  |      |      |  |  |   |      |  |  |  

Supplemental
Cash Flow Information.

|                                                         |                                                                 |                  |       |       |   |   |     |     | 
|-------------------------------------------------------- | --------------------------------------------------------------- | ---------------- | ----- | ----- | - | - | --- | --- | 
|                                                         |                                                                 |                 
|                                                         |                                                                 | Six Months Ended
|                                                         |                                                                 | June 30,        
|                                                         |                                                                 |                 
|                                                         |                                                                 | 2004             |       | 2003 
|                                                         |                                                                 |                  |       |      
|                                                         |                                                                 |                 
|                                                         |                                                                 | (in millions)   
|Capital expenditures, including capitalized
    interest |                                                                 |                  |       |       |   |   |     |    
|                                                         | Cash paid for capital expenditures                              |                  | $     | 1,188 |   |   | $   | 727 | 
|                                                         | Changes in capital expenditures accrued, unpaid
    or financed |                  |       | (65   | ) |   |     |    | 
|                                                         |                                                                 |                  |       |       |   |   |     |    
|                                                         |                                                                 | $                | 1,123 |       |   | $ | 727 |    
|                                                         |                                                                 |                  |       |       |   |   |     |    
|Interest costs                                           |                                                                 |                  |       |       |   |   |     |    
|                                                         | Interest expense                                                |                  | $     | 309   |   |   | $   | 444 | 
|                                                         | Interest capitalized                                            |                  |       | 5     |   |   |     | 20  | 
|                                                         |                                                                 |                  |       |       |   |   |     |    
|                                                         |                                                                 | $                | 314   |       |   | $ | 464 |    
|                                                         |                                                                 |                  |       |       |   |   |     |    
|Cash paid for interest, net of amounts
    capitalized   |                                                                 | $                | 310   |       |   | $ | 368 |    
|                                                         |                                                                 |                  |       |       |   |   |     |    
|Cash received for interest                               |                                                                 | $                | 13    |       |   | $ | 16  |    
|                                                         |                                                                 |                  |       |       |   |   |     |    
|Cash paid for income taxes                               |                                                                 | $                | 38    |       |   | $ | 47  |    
|                                                         |                                                                 |                  |       |       |   |   |     |    

New Accounting Pronouncements.In January 2003, the Financial
Accounting Standards Board, or FASB, issued FASB Interpretation
No. 46, Consolidation of Variable Interest
Entities  an interpretation of ARB No. 51,
to address perceived weaknesses in accounting for entities
commonly known as special-purpose or off-balance-sheet. In
addition to numerous FASB Staff Positions written to clarify and
improve the application of Interpretation No. 46, the FASB
announced a deferral for certain entities, and an amendment to
Interpretation No. 46 entitled FASB Interpretation
No. 46R, Consolidation of Variable Interest
Entities. Interpretation No. 46 establishes
consolidation criteria for entities for which
control is not easily discernable under Accounting
Research Bulletin No. 51, Consolidated Financial
Statements, which is based on the premise that holders of
the equity of an entity control the entity by virtue of voting
rights. Interpretation No. 46 provides guidance for
identifying the party with a controlling financial interest
resulting from arrangements or financial interests rather than
from voting interests. Interpretation No. 46 defines the
term variable interest entity, or VIE, and is based on the
premise that if a business enterprise absorbs a

9



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

majority of the VIEs expected losses
and/or receives a majority of its expected residual returns
(measures of risk and reward), that enterprise (the primary
beneficiary) has a controlling financial interest in the VIE.
The assets, liabilities, and results of the activities of the
VIE should be included in the consolidated financial statements
of the primary beneficiary.

We were required to apply the provisions of
Interpretation No. 46R in the first quarter 2004. As we did
not have any VIEs during the six months ended June 30,
2004, the adoption of this new method of accounting for VIEs did
not affect our financial condition or results of operations.

Reclassifications.We have reclassified some prior
period amounts to conform to our current period presentation.

Note
2.     Intangible Assets

|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |       | 
|----------------------------- | -------------------------------------------------------- | ------------ |  | -------------- |  | ----------------- | ----- | -------- |  | -------- | -- | ------------ |  | -------- | ----- | ----- |  | - | ----- | ----- |  | - | -- | -- |  | - | ----- | ----- | 
|                              |                                                          |              |  |                |  |                  
|                              |                                                          |              |  | June 30, 2004  |  | December 31, 2003
|                              |                                                          |              |  |                |  |                  
|                              |                                                          |              |  | Gross          |  |                   |       | Net      |  | Gross    |    |              |  | Net     
|                              |                                                          |              |  | Carrying       |  | Accumulated       |       | Carrying |  | Carrying |    | Accumulated  |  | Carrying
|                              |                                                          | Useful Lives |  | Value          |  | Amortization      |       | Value    |  | Value    |    | Amortization |  | Value   
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |         
|                              |                                                          |              |  |               
|                              |                                                          |              |  | (in millions) 
|Amortized intangible assets   |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | Customer lists                                           |              |  | 3 years        |  |                   | $     | 73       |  |          | $  | 64           |  |          | $     | 9     |  |   | $     | 98    |  |   | $  | 75 |  |   | $     | 23    | 
|                              | Spectrum sharing and noncompete agreements and
    other |              |  | Up to 20 years |  |                   |       | 80       |  |          |    | 21           |  |          |       | 59    |  |   |       | 82    |  |   |    | 17 |  |   |       | 65    | 
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                |  |                   | 153   |          |  |          | 85 |              |  |          | 68    |       |  |   | 180   |       |  |   | 92 |    |  |   | 88    |      
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Unamortized intangible assets |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              | FCC licenses                                             |              |  | Indefinite     |  |                   |       | 7,124    |  |          |    |              |  |          |       | 7,124 |  |   |       | 6,922 |  |   |    |    |  |   |       | 6,922 | 
|                              | Goodwill                                                 |              |  | Indefinite     |  |                   |       | 28       |  |          |    |              |  |          |       | 28    |  |   |       | 28    |  |   |    |    |  |   |       | 28    | 
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|                              |                                                          |              |  |                |  |                   | 7,152 |          |  |          |    |              |  |          | 7,152 |       |  |   | 6,950 |       |  |   |    |    |  |   | 6,950 |      
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      
|Total intangible assets       |                                                          |              |  |                |  | $                 | 7,305 |          |  | $        | 85 |              |  | $        | 7,220 |       |  | $ | 7,130 |       |  | $ | 92 |    |  | $ | 7,038 |      
|                              |                                                          |              |  |                |  |                   |       |          |  |          |    |              |  |          |       |       |  |   |       |       |  |   |    |    |  |   |       |      

During the six months ended June 30, 2004,
we acquired Federal Communications Commission, or FCC, licenses
for an aggregate purchase price of $210 million, including
deposits for licenses paid prior to 2004 that were recorded in
other assets until we acquired the relevant licenses. These
acquisitions consisted primarily of two transactions. In May
2004, we purchased certain multichannel multipoint distribution
service, or MMDS, FCC licenses, interests in certain other MMDS
FCC licenses and other immaterial network assets of WorldCom,
Inc. We paid an aggregate cash purchase price of $144 million,
of which $137 million was paid in 2004 and the remainder
was paid prior to 2004. Also, in June 2004, we purchased certain
MMDS FCC licenses and other immaterial network assets of
Nucentrix Broadband Networks, Inc. We paid an aggregate cash
purchase price of $51 million, of which $49 million
was paid in 2004 and the remainder was paid prior to 2004. Both
of these transactions were accounted for as asset purchases.
These licenses relate to spectrum that we may use in connection
with the deployment of certain broadband or other wireless
services. During the six months ended June 30, 2004, we
also wrote off $25 million of fully amortized customer
lists, which did not have an impact on our results of operations
or financial condition.

For intangible assets with finite lives, we
recorded aggregate amortization expense of $22 million and
$11 million for the six months and three months ended
June 30, 2004. We recorded aggregate amortization expense
of $26 million and $13 million for the six months and
three months ended June 30, 2003. Based only on the
amortized intangible assets existing at June 30, 2004, we
estimate amortization expense to be $12 million for the
remainder of 2004, $9 million during 2005, $5 million
during 2006, $4 million during 2007 and $3 million
during 2008. Actual amortization expense to be reported in
future periods could differ from

10



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

these estimates as a result of new intangible
asset acquisitions, changes in useful lives and other relevant
factors.

In connection with the adoption of SFAS
No. 142, Goodwill and Other Intangible Assets,
we ceased amortizing FCC license costs, as we believe that our
portfolio of FCC licenses represents an intangible asset with an
indefinite useful life. As these FCC licenses are no longer
amortized for book purposes but are amortized for tax purposes,
we record additional deferred tax liabilities only as such
licenses are amortized for tax purposes. We have recorded an
incremental non-cash charge of $33 million and
$29 million for the six months ended June 30, 2004 and
2003, to the income tax provision related to FCC licenses for
which we have a tax basis.

As discussed in note 8 below, as part of the
ongoing FCC proceeding to eliminate interference with public
safety operators in the 800 megahertz, or MHz, band, the
FCC has indicated that we will be required to exchange some of
our FCC licenses for other FCC licenses. Among the licenses that
we would exchange are licenses for spectrum in the 700 MHz
band with a book value of $350 million, which currently are
not being used in our network.

After 6:30 p.m. on the evening of
August 6, 2004, the date of this report, the FCC released
the 256-page Report and Order, which we have not had an
opportunity to review to fully understand the implications to
us, including any potential impairment of our 700 MHz
licenses.



|        |                                                                                        
|------- | ---------------------------------------------------------------------------------------
|Note 3. | Long-Term Debt, Mandatorily Redeemable
    Preferred Stock and Capital Lease Obligation

Long-Term
Debt and Mandatorily Redeemable Preferred Stock.

|                                                                                                                                                                            |                      |                       |       |              |      |               |      |          |   |   |      |     |  |   |       |       |      |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | --------------------- | ----- | ------------ | ---- | ------------- | ---- | -------- | - | - | ---- | --- |  | - | ----- | ----- | ---- | -
|                                                                                                                                                                            |                      |                       |       | Retirements  |      |               |      |         
|                                                                                                                                                                            |                      | December 31,          |       | and          |      | Debt-for-Debt |      | June 30,
|                                                                                                                                                                            |                      | 2003                  |       | Repayments   |      | Exchange and  |      | 2004    
|                                                                                                                                                                            |                      | Balance               |       | of Principal |      | Other         |      | Balance 
|                                                                                                                                                                            |                      |                       |       |              |      |               |      |         
|                                                                                                                                                                            |                      |                      
|                                                                                                                                                                            |                      | (dollars in millions)
|9.375% senior serial redeemable notes due
    2009                                                                                                                          |                      | $                     | 1,599 |              |      | $             |     |          |   | $ | (326 | )   |  | $ | 1,273 |      
|5.25% convertible senior notes due
    2010                                                                                                                                 |                      |                       | 607   |              |      |               |     |          |   |   |     |     |  |   | 607   |      
|9.5% senior serial redeemable notes due
    2011,
    net of a deferred premium of $36 and $27                                                                              |                      |                       | 895   |              |      |               | (171 | )        |   |   | (9   | )   |  |   | 715   |      
|6% convertible senior notes due 2011                                                                                                                                        |                      |                       | 608   |              |      |               | (608 | )        |   |   |     |     |  |   |      |      
|6.875% senior serial redeemable notes due
    2013,
    net of an unamortized discount of $0 and $16                                                                        |                      |                       | 500   |              |      |               |     |          |   |   | 197  |     |  |   | 697   |      
|5.95% senior serial redeemable notes due
    2014,
    net of an unamortized discount of $0 and $6                                                                          |                      |                       |      |              |      |               |     |          |   |   | 494  |     |  |   | 494   |      
|7.375% senior serial redeemable notes due
    2015,
    net of an unamortized premium of $8 and unamortized discount of
    $3                                              |                      |                       | 2,008 |              |      |               |     |          |   |   | 126  |     |  |   | 2,134 |      
|Bank credit facility                                                                                                                                                        |                      |                       | 3,804 |              |      |               | (139 | )(a)     |   |   |     |     |  |   | 3,665 |      
|Other                                                                                                                                                                       |                      |                       | 26    |              |      |               | (1   | )        |   |   | (3   | )   |  |   | 22    |      
|                                                                                                                                                                            |                      |                       |       |              |      |               |      |          |   |   |      |     |  |   |       |      
|                                                                                                                                                                            | Total long-term debt |                       |       | 10,047       |      |               | $    | (919     | ) |   | $    | 479 |  |   |       | 9,607 |     
|                                                                                                                                                                            |                      |                       |       |              |      |               |      |          |   |   |      |     |  |   |       |      
|                                                                                                                                                                            |                      | Less current portion  |       |              | (322 | )             |      |          |   |   |      |     |  |   |       |       | (385 | )
|                                                                                                                                                                            |                      |                       |       |              |      |               |      |          |   |   |      |     |  |   |       |      
|                                                                                                                                                                            |                      | $                     | 9,725 |              |      |               |      |          |   |   |      |     |  | $ | 9,222 |      
|                                                                                                                                                                            |                      |                       |       |              |      |               |      |          |   |   |      |     |  |   |       |      
|Zero coupon convertible preferred stock
    mandatorily redeemable 2013, no
    dividend; stated at accreted liquidation preference value at
    9.25% compounded quarterly |                      | $                     | 99    |              |      | $             |     |          |   | $ | 4    |     |  | $ | 103   |      



---



|    |                                         
|--- | ----------------------------------------
|(a) | Represents scheduled principal payments.

11



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##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

5.95% Senior Notes.In March 2004, we completed the
sale of $500 million in principal amount of our 5.95%
senior serial redeemable notes due 2014, which generated about
$494 million in net cash proceeds to us. Cash interest on
these notes is payable semiannually in arrears on March 15
and September 15 commencing September 15, 2004, at an
annual rate of 5.95%. We may choose to redeem some or all of
these notes commencing on March 15, 2009 at an initial
redemption price of 102.975% of the aggregate principal amount
of these notes, plus accrued and unpaid interest. On or before
March 15, 2007, we may choose to redeem a portion of the
principal amount of the outstanding notes using the proceeds of
one or more sales of qualified equity securities at a redemption
price of 105.95% of the notes principal amount, plus
accrued and unpaid interest to the date of redemption, so long
as a specified principal amount of notes remains outstanding
immediately following the redemption. These notes are senior
unsecured indebtedness and rank equal in right of payment with
all our other unsubordinated, unsecured indebtedness.

2004 Debt Retirements.During the six months ended
June 30, 2004, we purchased and retired a total of
$779 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes in
exchange for $827 million in cash. As part of these
transactions, we recognized a $51 million loss in other
income (expense) in the accompanying condensed consolidated
statements of operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired notes and the write-off of unamortized debt financing
costs, net of the recognition of a portion of the deferred
premium associated with the termination of some of our interest
rate swaps. Additional information regarding our interest rate
swaps and the deferred premium can be found in note 6.

During the three months ended June 30, 2004,
we purchased and retired a total of $612 million in
aggregate principal amount at maturity of our outstanding senior
notes and convertible senior notes in exchange for $636 million
in cash. As part of these transactions, we recognized a
$34 million loss in other income (expense) in the
accompanying condensed consolidated statements of operations,
representing the excess of the purchase price over the carrying
value of the purchased and retired notes and the write-off of
unamortized debt financing costs, net of the recognition of a
portion of the deferred premium associated with the termination
of some of our interest rate swaps.

2003 Debt and Preferred Stock Retirements.During the six months ended
June 30, 2003, we purchased and retired a total of
$534 million in aggregate principal amount at maturity of
our outstanding senior notes and convertible senior notes in
exchange for $536 million in cash. As part of these
transactions, we recognized a $7 million loss in other
income (expense) in the accompanying condensed consolidated
statements of operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired notes and the write-off of unamortized debt financing
costs. During the same period, we also purchased and retired a
total of $165 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for $171 million in cash. As part of these transactions, we
recognized a $7 million loss in the accompanying condensed
consolidated statements of operations, representing the excess
of the purchase price over the carrying value of the purchased
and retired preferred stock and the write-off of unamortized
financing costs.

During the three months ended June 30, 2003,
we purchased and retired a total of $43 million in
aggregate principal amount at maturity of our outstanding senior
notes in exchange for $45 million in cash. As part of these
transactions, we recognized a $2 million loss in other
income (expense) in the accompanying condensed consolidated
statements of operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired notes and the write-off of unamortized debt financing
costs. During the same period, we also purchased and retired a
total of $88 million in aggregate face amount of our
outstanding mandatorily redeemable preferred stock in exchange
for $92 million in cash. As part of these transactions, we
recognized a $5 million loss in the accompanying condensed
consolidated statements of

12



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

operations, representing the excess of the
purchase price over the carrying value of the purchased and
retired preferred stock and the write-off of unamortized
financing costs.

2004 Debt-for-Debt Exchanges.During the three months ended
June 30, 2004, we entered into several non-cash
debt-for-debt exchange transactions with holders of our
securities. As a result, we exchanged $326 million in
principal amount of the 9.375% senior notes for a total of
$350 million in principal amount of new senior notes. The
new senior notes consist of $213 million in principal
amount of 6.875% senior notes issued at a $16 million
discount to their principal amount, and $137 million in
principal amount of 7.375% senior notes issued at an
$11 million discount to their principal amount.

Capital Lease Obligation.In February 2004, we exercised the
early buy out option for our remaining capital lease in which we
paid $191 million in cash, $156 million of which
related to the reduction of the capital lease obligation and
recorded the $35 million difference as an adjustment to the
book basis of the switch assets that were being leased.

Bank Credit Facility.In July 2004, we amended our bank
credit facility to provide for a new $4,000 million
revolving credit facility that replaced our then-existing
revolving credit facility and one of our existing term loans.
See note 8 for additional information regarding this new
facility.

We may, from time to time, as we deem
appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt and other long-term obligations, and
redemption, repurchase or retirement transactions that in the
aggregate may be material.

Note 4.     Income
Taxes

Our valuation allowance includes reserves
primarily for the tax benefit of net operating loss
carryforwards, as well as for capital loss carryforwards,
separate return net operating loss carryforwards and
transactions associated with the tax benefit of stock option
deductions. As of March 31, 2004, we had recorded a full
reserve against the tax benefits relating to our net operating
loss carryforwards because, at that time, we did not have a
sufficient history of taxable income to conclude that it was
more likely than not that we would be able to realize the tax
benefits of the net operating loss carryforwards. Prior to
June 30, 2004, we recorded in our income statement only a
small provision for income taxes as our net operating loss
carryforwards resulting from losses generated in prior years
offset virtually all of the taxes that we would have otherwise
realized.

Based on our cumulative operating results through
June 30, 2004 and an assessment of our expected future
operations, we concluded that it was more likely than not that
we would be able to realize the tax benefits of our net
operating loss carryforwards. Therefore, we decreased the
valuation allowance attributable to our net operating loss
carryforwards by $866 million as a credit to tax expense.
Additionally, we released the valuation allowance attributable
to the tax benefit of stock option deductions and credited
stockholders equity by $389 million. For the three months
ended June 30, 2004, we recorded a $679 million tax
benefit that includes the valuation allowance reversal discussed
above, net of accrued amounts for current and prior years
federal and state income taxes.

13



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

The valuation allowance balance as of
June 30, 2004 of about $800 million is comprised primarily
of the tax impact of capital losses incurred in prior years for
which an allowance is still required.

Our income tax benefit (provision) is as follows:

|                                                              |                                |                  |        |                    |  |      |       |       |  |  |        |      |  |  |       |       | 
|------------------------------------------------------------- | ------------------------------ | ---------------- | ------ | ------------------ |  | ---- | ----- | ----- |  |  | ------ | ---- |  |  | ----- | ----- | 
|                                                              |                                |                  |        |                   
|                                                              |                                | Six Months Ended |        | Three Months Ended
|                                                              |                                | June 30,         |        | June 30,          
|                                                              |                                |                  |        |                   
|                                                              |                                | 2004             |        | 2003               |  | 2004 |       | 2003 
|                                                              |                                |                  |        |                    |  |      |       |      
|                                                              |                                |                 
|                                                              |                                | (in millions)   
|Federal and state current and deferred income tax
    expense |                                |                  | $(220) |                    |  |      | $(49) |       |  |  | $(187) |      |  |  | $(27) |      
|Valuation allowance release                                   |                                |                  | 866    |                    |  |      |      |       |  |  | 866    |      |  |  |      |      
|                                                              |                                |                  |        |                    |  |      |       |       |  |  |        |      |  |  |       |      
|                                                              | Income tax benefit (provision) |                  |        | $646               |  |      |       | $(49) |  |  |        | $679 |  |  |       | $(27) | 
|                                                              |                                |                  |        |                    |  |      |       |       |  |  |        |      |  |  |       |      

Beginning in the third quarter 2004, we expect
that our income tax provision will be recorded based on an
estimated statutory rate of 39%.

Note 5.     Related
Party Transactions

We have a number of strategic and commercial
relationships with third parties that have had a significant
impact on our business, operations and financial results and
have the potential to have such an impact in the future. Of
these, we believe that our operating and other arrangements with
Motorola, Inc., Nextel Partners, Inc., and NII Holdings, Inc.,
all of which are related parties of ours for purposes of
financial reporting, are the most significant. Motorola and we
have extended through 2004 the terms of our handset and
infrastructure supply agreements and are in the process of
negotiating a long-term master supply agreement. We paid a total
of $1,563 million during the six months ended June 30,
2004 and $1,066 million during the six months ended
June 30, 2003 to these related parties, net of discounts
and rebates, for infrastructure, handsets and related costs, net
roaming charges and other costs. We received a total of
$33 million during the six months ended June 30, 2004
and $30 million during the six months ended June 30,
2003 from these related parties for providing telecommunication
switch, engineering and technology, marketing and administrative
services, and also in 2003 from the sale of FCC licenses and
some network assets. As of June 30, 2004, we had $131
million due from these related parties and $654 million due
to these related parties. We also had a $154 million
prepayment recorded in prepaid expenses on our condensed
consolidated balance sheet related to handset and network
infrastructure to be provided by Motorola in the future. As of
December 31, 2003, we had $70 million due from these
related parties and $284 million due to these related
parties.

As of June 30, 2004, we owned about 18% of
the outstanding common stock of NII Holdings, which is accounted
for as an available-for-sale cost method investment and recorded
on our balance sheet at the current market value of that common
stock. In March 2004, NII Holdings completed the redemption
of the NII Holdings 13% senior notes that we held, in exchange
for $77 million in cash resulting in a $28 million
realized gain in other (expense) income in the accompanying
condensed consolidated statements of operations.

As of June 30, 2004, we owned about 30% of
the outstanding common stock of Nextel Partners.

Note
6.     Derivative Instruments and
Hedging Activities

From time to time, we hedge the cash flows and
fair values of some of our long-term debt using interest rate
swaps. We enter into these derivative contracts to manage our
exposure to interest rate changes by achieving a desired
proportion of fixed rate versus variable rate debt. In an
interest rate swap, we agree to exchange the difference between
a variable interest rate and either a fixed or another variable
interest rate,

14



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

multiplied by a notional principal amount. During
the third quarter 2003, we terminated all of our interest rate
swap agreements, which are described in further detail below.
From that time through June 30, 2004, we have not been a
party to any material derivative instruments.

In July 2001, we entered into three interest rate
swap agreements to hedge the risk of changes in fair value of a
portion of our long-term fixed rate debt, which were
attributable to changes in the London Interbank Offered Rate, or
LIBOR, as the benchmark interest rate. These fair value hedges
qualified for hedge accounting using the short-cut method since
the swap terms matched the critical terms of the hedged debt.
Accordingly, there was no net effect on our results of
operations for the six months and three months ended
June 30, 2003 relating to the ineffectiveness of these fair
value hedges. During the third quarter 2003, we terminated all
three swap agreements. As a result of the terminations, we
recorded a premium, which we recognize as an adjustment to
interest expense over the remaining life of the hedged debt. As
described in note 3, a portion of this premium associated with
our purchase and retirement of a portion of the hedged debt was
written off.

We have used interest rate swaps to hedge the
variability of future cash flows, which are caused by changes in
LIBOR, as the benchmark interest rate, associated with some of
our long-term variable rate debt. In February 2003, we
terminated a variable-to-variable interest rate swap in the
notional amount of $400 million in accordance with its
original terms. There was no realized gain or loss associated
with this termination. Since this swap did not qualify for cash
flow hedge accounting, we recognized changes in its fair value
up to the termination date in our statements of operations in
the period of the change. Interest expense includes a gain of
$2 million for the six months ended June 30, 2003,
representing changes in the fair value of this swap. As of
June 30, 2003, we had one cash flow hedge remaining. Since
this interest rate swap qualified for cash flow hedge
accounting, an unrealized loss of $12 million, representing
the effective portion of the change in its fair value as of June
30, 2003, was reported in accumulated other comprehensive loss.
The ineffective portion of the change in fair value of this swap
was recognized in our statements of operations in the period of
the change. Interest expense includes a loss of $8 million
and $6 million for the six and three months ended
June 30, 2003 relating to the ineffective portion of the
change in fair value of this swap.

Interest expense related to the periodic net cash
settlements on all swaps was $9 million and $3 million
for the six and three months ended June 30, 2003.

Note
7.     Commitments and
Contingencies

In April 2001, a purported class action lawsuit
was filed in the Circuit Court in Baltimore, Maryland by the Law
Offices of Peter Angelos, and subsequently in other state courts
in Pennsylvania, New York and Georgia by Mr. Angelos and other
firms, alleging that wireless telephones pose a health risk to
users of those telephones and that the defendants failed to
disclose these risks. We, along with numerous other companies,
were named as defendants in these cases. The cases, together
with a similar case filed earlier in Louisiana state court, were
ultimately transferred to federal court in Baltimore, Maryland.
On March 5, 2003, the court granted the defendants
motions to dismiss. The plaintiffs have appealed this decision,
and arguments on appeal are scheduled for September 2004.

A number of lawsuits have been filed against us
in several state and federal courts around the United States,
challenging the manner by which we recover the costs to us of
federally mandated universal service, Telecommunications Relay
Service payment requirements imposed by the FCC, and the costs
(including costs to implement changes to our network) to comply
with federal regulatory requirements to provide enhanced 911, or
E911, telephone number pooling and telephone number portability.
In general, these plaintiffs claim that our rate structure that
breaks out and assesses federal program cost recovery fees on
monthly customer bills is misleading and unlawful. The
plaintiffs generally seek injunctive relief and damages

15



---



##### 



NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

on behalf of a class of customers, including a
refund of amounts collected under these regulatory line item
assessments. We have reached a preliminary settlement with the
plaintiff, who purports to represent a nationwide class of
affected customers, in one of the lawsuits that challenged the
manner by which we recover the costs to comply with federal
regulatory requirements to provide E911, telephone number
pooling and telephone number portability. The settlement, for
which we accrued an expense in 2003, has been approved by the
court, but that approval is being appealed by other plaintiffs.
If the courts approval of the settlement is upheld, it
would render moot a majority of these lawsuits, and would not
have a material effect on our business or results of operations.

We are subject to other claims and legal actions
that arise in the ordinary course of business. We do not believe
that any of these other pending claims or legal actions will
have a material effect on our business or results of operation.

Note
8.     Subsequent Events

Spectrum Realignment Plan.As part of the ongoing FCC
proceeding to eliminate interference with public safety
operators in the 800 MHz band discussed in more detail in our
2003 annual report on Form 10-K, on July 8, 2004, the
FCC adopted a Report and Order under which modifications would
be made to some of our FCC licenses and related rules would be
implemented in order to realign spectrum in the 800 MHz band in
order to resolve the problem of interference with public safety
systems operating in that band. The FCC has indicated in a news
release issued on July 8, 2004, that it intends to adopt
and implement a band realignment plan similar to the joint
proposals submitted by us and the leading public safety
associations, including our receipt of a license for 10 MHz of
spectrum in the 1.9 gigahertz, or GHz, band.

The FCC stated in its news release that it has
determined the value of the license for the 1.9 GHz spectrum to
be $4.8 billion, less the cost of relocating incumbent
users and that it would credit to us both the value of licenses
for spectrum in the 700 MHz and 800 MHz bands that we will
relinquish under the decision and the actual costs we incur to
relocate all incumbents in the 800 MHz band, but that we will be
required to make an anti-windfall payment to the
United States Department of the Treasury at the conclusion of
the relocation process to the extent that these combined credits
total less than the determined value of the license for the 1.9
GHz spectrum. The FCC also stated in its news release that, to
ensure that the band reconfiguration process will be completed,
it will require us to establish certain escrow accounts and a
letter of credit in the amount of $2.5 billion, for which
we currently have sufficient capacity under our amended credit
facility discussed below, in order to provide assurance that
funds will be available to pay specified costs relating to the
relocation of the incumbent users of the 800 MHz spectrum.

After 6:30 p.m. on the evening of
August 6, 2004, the date of this report, the FCC released
the 256-page Report and Order, which we have not had an
opportunity to review to fully understand the implications to
us, including any potential impairment of our 700 MHz
licenses.

Global Positioning System and Enhanced 911
Services.Our suite of advanced
wireless services includes a wide array of location-based
services, such as fleet and workforce management services, that
give our customers the ability to locate handsets in real time
using assisted global positioning system, or A-GPS, technology.
In addition, as described in more detail in our 2003 annual
report on Form 10-K, FCC regulations require that
commercial mobile radio service, or CMRS, providers, including
us, provide E911 services to their customers in two phases. The
Phase I E911 regulations require CMRS providers to transmit
the location of the transmitter and receiver site from which the
call is being made to the designated public safety answering
point, or PSAP, dispatch center. The Phase II E911
regulations require that the CMRS providers transmit more
accurate location information to the PSAP and mandate that, by
December 31, 2005, 95% of our total

16



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NEXTEL COMMUNICATIONS, INC. AND
SUBSIDIARIES


Notes to Condensed Consolidated Financial
Statements  (Continued)

subscriber base use handsets that enable us to
transmit the more accurate location information. To meet these
Phase II requirements, we have deployed technology that
enables us to transmit latitude and longitude information from a
handset equipped with A-GPS technology to PSAPs that are
equipped to receive such information. Although most handsets
that we currently offer are equipped with A-GPS technology, a
majority of handsets currently in use by our existing
subscribers are not A-GPS capable.

In July 2004, we discovered a latent software
design defect that impaired both the A-GPS location service and
Phase II E911 capabilities of a number of recently
introduced handsets manufactured by Motorola that incorporate
the A-GPS technology. Emergency 911 calls from these handsets
generally continued to meet the Phase I E911 requirements,
and the handsets were and continue to be fully operational with
regard to all other services, including cellular phone, Direct
Connect® walkie-talkie, and wireless data services.

In order to restore A-GPS capabilities, it will
be necessary to install a handset software upgrade developed by
Motorola. Motorola is making necessary handset production
modifications and is upgrading the software in our existing
handset inventory so that newly delivered handsets will have all
A-GPS functionality. Motorola and we are exploring ways in which
we can upgrade the software in A-GPS handsets of existing
subscribers in a customer-convenient and cost-effective manner
in order to restore all A-GPS functionality to those handsets.
Motorola, as the manufacturer of the handsets, is taking all
appropriate actions in response to this issue. Motorola has
indicated in discussions with our senior management that it is
responsible for, and will reimburse our costs to remedy, the
A-GPS software issue. Consequently, we do not believe that this
matter will materially impact our results of operations or
financial condition.

We described the impact of the software design
defect in our August 2, 2004 report to the FCC that
summarized our progress to date with regard to meeting the
Phase I and Phase II E911 requirements. Based on our
assessment of the impact of the design defect and our estimates
regarding the rate at which our customer base is expected to
transition to handsets equipped with A-GPS technology, we
notified the FCC in our August 2nd report that we may be
unable to satisfy by December 31, 2005 the Phase II
requirement that 95% of our total subscriber base use handsets
that enable us to transmit location information that meets the
Phase II requirements, and that the A-GPS software design
defect has exacerbated the situation.

Our ability to meet the Phase II
requirements and the costs we may incur in an effort to
accelerate our customers transition to A-GPS capable
handsets to meet these requirements could be significant, and
will be dependent on a number of factors, including the number
of new subscribers added to our network who purchase A-GPS
capable handsets, the number of existing subscribers who upgrade
from non-A-GPS capable handsets to A-GPS capable handsets, the
rate of our customer churn and the cost of A-GPS capable
handsets.

Bank Credit Facility.In July 2004, we amended our bank
credit facility to provide for a new $4,000 million
revolving credit facility that replaced our then-existing
revolving credit facility and one of our existing term loans. We
immediately drew down $1,000 million of this new facility
and used $476 million of cash on hand to repay the entire
outstanding balance of one of our existing term loans in the
amount of $1,360 million and our outstanding revolving loan
in the amount of $116 million. The new revolving credit
facility provides a variable interest rate payable quarterly at
1% over LIBOR, matures July 31, 2009 and can be used to
secure letters of credit for the full amount available under the
facility. An existing $2,189 million term loan that matures
December 15, 2010 remains outstanding under the terms of
the amended credit agreement.

17



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Report of Independent Registered Public
Accounting Firm

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

We have reviewed the accompanying condensed
consolidated balance sheet of Nextel Communications, Inc. and
subsidiaries (the Company) as of June 30, 2004,
and the related condensed consolidated statements of operations
and comprehensive income for the three-month and six-month
periods ended June 30, 2004 and 2003, and of cash flows for
the six-month periods ended June 30, 2004 and 2003, and the
condensed consolidated statement of changes in
stockholders equity for the six-month period ended
June 30, 2004. These interim financial statements are the
responsibility of the Companys management.

We conducted our reviews in accordance with
standards of the Public Company Accounting Oversight Board
(United States). A review of interim financial information
consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an
audit conducted in accordance with standards of the Public
Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.

Based on our reviews, we are not aware of any
material modifications that should be made to such condensed
consolidated interim financial statements for them to be in
conformity with accounting principles generally accepted in the
United States of America.

We have previously audited, in accordance with
standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheet of Nextel
Communications, Inc. and subsidiaries as of December 31,
2003, and the related consolidated statements of operations,
changes in stockholders equity, and cash flows for the
year then ended (not presented herein); and in our report dated
March 10, 2004, we expressed an unqualified opinion on
those consolidated financial statements (such report includes an
explanatory paragraph relating to the adoption of the provisions
of Emerging Issues Task Force Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables, in 2003, Statement of Financial Accounting
Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets, in 2002, and SFAS No. 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, in 2001). In our opinion, the
information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 2003 is fairly stated, in
all material respects, in relation to the consolidated balance
sheet from which it has been derived.

DELOITTE & TOUCHE LLP

McLean, Virginia 
 August 6, 2004

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|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis of
    Financial Condition and Results of Operations.

A. Overview

Company Overview.

The following is a discussion and analysis of our
consolidated financial condition and results of operations for
the three and six-month periods ended June 30, 2004 and
2003, and significant factors that could affect our prospective
financial condition and results of operations. Historical
results may not be indicative of future performance. See
 Forward-Looking Statements.

We are a leading provider of wireless
communications services in the United States. We provide a
comprehensive suite of advanced wireless services, including
digital wireless mobile telephone service, walkie-talkie
services including our Nextel Nationwide Direct
ConnectSM and Nextel International Direct
ConnectSM walkie-talkie services, and wireless data
transmission services. As of June 30, 2004, we provided
service to about 13.9 million subscribers, not including
the 605,000 subscribers who purchase pre-paid services under our
Boost MobileTM brand. For the second quarter 2004, we
had operating revenues of $3,289 million and income
available to common stockholders of $1,300 million. In the
second quarter 2004, we recorded a net tax benefit of
$726 million resulting from the reversal of a significant
portion of the valuation allowance attributable to our net
operating loss carryforwards. For the six months ended
June 30, 2004, we had operating revenues of
$6,392 million and income available to common stockholders
of $1,891 million. We ended the second quarter 2004 with
about 17,700 employees.

Our all-digital packet data network is based on
integrated Digital Enhanced Network, or iDEN®, wireless
technology provided by Motorola, Inc. We, together with Nextel
Partners, Inc., currently utilize the iDEN technology to serve
296 of the top 300 U.S. markets where about 252 million
people live or work. Nextel Partners provides digital wireless
communications services under the Nextel brand name in mid-sized
and tertiary U.S. markets, and has the right to operate in 97 of
the top 300 metropolitan statistical areas in the United States
ranked by population. As of June 30, 2004, we owned about
30% of the outstanding common stock of Nextel Partners. In
addition, as of June 30, 2004, we also owned about 18% of
the outstanding common stock of NII Holdings, Inc., which
provides wireless communications services primarily in selected
Latin American markets.

The Federal Communications Commission, or FCC,
regulates the licensing, operation, acquisition and sale of the
licensed spectrum that is essential to our business. Future
changes in FCC regulation or congressional legislation related
to spectrum licensing or other matters related to our business
could impose significant additional costs on us either in the
form of direct out-of-pocket costs or additional compliance
obligations.

Managements Summary.

Our business strategy is to provide
differentiated products and services in order to acquire and
retain the most valuable customers in the wireless
telecommunications industry. Our services include:



| |   |                                                                                                                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Direct Connect® long-range walkie-talkie
    services that allow communication at the touch of one button,
    including our Nationwide Direct Connect and International Direct
    Connect walkie-talkie services;                                                                   
|
| |  | mobile telephone services, including advanced
    digital features such as speakerphones, additional line service,
    conference calling, voice-activated dialing for hands-free
    operation, a voice recorder for calls and memos, advanced
    phonebook and date book tools; and
|
| |  | data services, including email, mobile messaging
    services and our Nextel Online® services.                                                                                                                                                                                        

We offer a variety of handsets that support all
of our services. We believe that we also differentiate ourselves
from our competition by focusing on the quality of our customer
care, in large part through our

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customer Touch Point strategy designed to
improve our customer relationship by focusing on eliminating
situations that create customer dissatisfaction at each point
where we interact with, or touch, our customers.


We believe that the wireless communications
industry has been and will continue to be highly competitive on
the basis of price, the types of services offered and quality of
service. Past and expected consolidation within the industry has
created and will continue to create large, well-capitalized
competitors with substantial financial and other resources,
increasing the level of competition. Although competitive
pricing is often an important factor in potential
customers purchase decisions, we believe that our targeted
customer base of business users, government agencies and
individuals who utilize premium mobile communications features
and services are also likely to base their purchase decisions on
quality of service and the availability of differentiated
features and services that make it easier for them to get things
done quickly and efficiently. A number of our competitors have
launched or announced plans to launch services that are designed
to compete with our Direct Connect walkie-talkie services.
Although we do not believe that the current versions of these
services compare favorably with our service in terms of latency,
quality, reliability or ease of use, in the event that our
competitors are able to provide walkie-talkie service comparable
to ours, one of our key competitive advantages would be reduced.
Consequently, in an effort to continue to provide differentiated
products and services that are attractive to this targeted
customer base, and to enhance the quality of our service:



| |   |                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we extended the reach of Direct Connect service
    in North America and into selected markets in Latin America in
    the second quarter 2004;                                                                                                                                                                                      
|
| |  | we placed about 800 transmitter and receiver
    sites in service in the first six months of 2004 to improve both
    our geographic coverage and to meet the capacity needs of our
    growing customer base, and plan to place additional sites in
    service by the end of the year;                                             
|
| |  | we have begun to introduce handsets in the third
    quarter 2004, that, together with software installed on our
    network infrastructure, are designed to more efficiently utilize
    radio spectrum to significantly increase our network capacity
    once these handsets are in use and the network software is
    activated;
|
| |  | we plan to begin the deployment of an enhancement
    to our existing iDEN technology, known as WiDENSM,
    designed to increase the data speeds of our network by up to
    four times the current speeds by the end of the year; and                                                                                              
|
| |  | we are continuing the field trial of Nextel
    Wireless BroadbandSM, an easy-to-use and secure
    service that connects customers to the Internet at broadband
    speeds, with the full mobility of wireless service.                                                                                                             

We continually seek the appropriate balance
between our cost to acquire a new customer and the lifetime
value for that customer. We focus our marketing efforts
principally on identifying and targeting high-value customers
that recognize the value of our unique service offerings, and
focus our advertising efforts on communicating the benefits of
our services to those targeted groups. We are the title sponsor
of the NASCAR NEXTEL Cup SeriesTM, the premier racing
series of the National Association for Stock Car Auto Racing, or
NASCAR®, and one of the most popular sports in the United
States. Our marketing and advertising initiatives associated
with this 10-year sponsorship provide unique exposure for our
products and services to an estimated 75 million loyal
NASCAR racing fans throughout the United States, many of whom
fall within our targeted customer groups. We continue to build
upon our Nextel. Done.TM branding and
related advertising initiatives launched in 2003, which focus
attention on productivity, speed, and getting things done. We
are also exploring other markets and customers that have the
potential to support future profitable growth. In the second
quarter 2004, we began to offer pre-paid services in six new
markets under our Boost Mobile brand, which targets the youth
and pre-paid calling wireless markets, expanding that service
from the southern California and Nevada markets where it was
originally offered.

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Our focus on offering innovative and
differentiated services requires that we continue to invest in,
evaluate and, if appropriate, deploy new services and
enhancements to our existing services. We have expended, and
will continue to expend, significant amounts of capital on the
development and evaluation of these services and enhancements.
In addition, we have acquired, and will continue to acquire,
licenses for spectrum that we may use to deploy some of these
new services and enhancements. For instance, in the second
quarter 2004, we completed the purchase of spectrum licenses
from WorldCom, Inc. and Nucentrix Broadband Networks, Inc. that
we may use in connection with the deployment of broadband or
other wireless services, for a total purchase price of
$195 million. If we were to determine that any of these
services, enhancements or spectrum licenses will not provide
sufficient returns to support continued investment of financial
or other resources, we would have to write-off the assets
associated with them.

Because the wireless communications industry
continues to be highly competitive, particularly with regard to
customer pricing plans, we are continually seeking new ways to
create or improve capital and operating efficiencies in our
business in order to maintain our operating margins. In 2004, we
also have continued to expand our customer convenient, and
cost-efficient, distribution channels by opening additional
retail stores. We had nearly 700 Nextel stores as of
June 30, 2004.

We continually seek to cost-efficiently optimize
the performance of our nationwide network. As described in more
detail in our 2003 annual report on Form 10-K, we are
implementing modifications to our handsets and network
infrastructure software necessary to support deployment of the
6:1 voice coder that is designed to more efficiently utilize
radio spectrum and, thereby, significantly increase the capacity
of our network. We will realize the benefits of this upgrade as
handsets that operate using the 6:1 voice coder for wireless
interconnection are introduced into our customer base and the
related network infrastructure software is activated. We have
begun to sell certain handset models that operate in both the
6:1 and current 3:1 modes and, in the third quarter 2004, we
plan to expand the number of handset models that operate in both
modes so that substantially all of the handset models being sold
will operate in both modes. We also plan to activate an updated
version of the 6:1 voice coder software in our network
infrastructure in selected markets during the third quarter 2004
and we expect to activate the network software in substantially
all of our other markets by the first quarter 2005. The updated
version of the network infrastructure software that we plan to
deploy includes modifications that allow handsets to shift
between 3:1 and 6:1 modes, which are designed to improve the
overall audio experience as compared to the current experience
while allowing us to realize significant increases in network
capacity. If there are substantial delays in the availability or
sale of handsets that are capable of operating in the 6:1 mode
or in the deployment or activation of the network software, or
if we are unable to deploy the network software due to the
performance of the technology or otherwise, the related network
capacity benefits would be delayed or reduced, and over time we
would be required to invest additional capital in our
infrastructure to satisfy our network capacity needs. We rely on
Motorola to provide us with handsets and the infrastructure and
software enhancements discussed above and others that are
designed to improve the capacity and quality of our network.
Motorola is and is expected to continue to be our sole source
supplier of iDEN infrastructure and all of our handsets except
the BlackBerry 7510TM, which is manufactured by
Research In Motion.

We also continue to focus on reducing our
financing expenses by taking steps to reduce both the amount of
our overall debt and our borrowing costs while extending our
debt maturities and maintaining or increasing our overall
liquidity. The first quarter 2004 was the first full quarter in
which we realized the benefit of our 2003 debt and preferred
stock retirement and financing activities, which consisted of
retirements of an aggregate of $7,755 million in principal
amount of long-term debt and preferred stock and issuances of
$4,700 million in lower cost debt. During the six-month
period ended June 30, 2004, we retired $171 million in
principal amount of our 9.5% senior notes due 2011, redeemed the
$608 million in principal amount outstanding of our 6%
convertible senior notes due 2011, made $139 million of
scheduled payments under our secured credit facility and issued
$500 million in principal amount of 5.95% senior notes due
2014. During that same period, we also issued $126 million of
our 7.375% senior notes due 2015 and $197 million of our
6.875% senior notes due 2013 in exchange for $326 million
in principal amount of our 9.375% senior notes due 2009. In July
2004, we amended our bank credit facility to provide for a new
$4,000 million revolving credit facility that replaced our
then-existing revolving credit facility and one of our existing
term loans. Under this

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new facility, we have increased our borrowing
capacity by $1,440 million and reduced our borrowing costs.
An existing $2,189 million term loan that matures
December 15, 2010 remains outstanding under the terms of
the amended credit agreement. We may, from time to time, as we
deem appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt obligations, and redemption, repurchase
or retirement transactions that in the aggregate may be material.


As part of the ongoing FCC proceeding to
eliminate interference with public safety operators in the
800 megahertz, or MHz, band discussed in more detail in our
2003 annual report on Form 10-K, on July 8, 2004, the
FCC adopted a Report and Order under which modifications would
be made to some of our FCC licenses and related rules would be
implemented in order to realign spectrum in the 800 MHz
band in order to resolve the problem of interference with public
safety systems operating in that band. The FCC has indicated in
a news release issued on July 8, 2004, that it intends to
adopt and implement a band realignment plan similar to the joint
proposals submitted by us and the leading public safety
associations, including our receipt of a license for 10 MHz
of spectrum in the 1.9 gigahertz, or GHz, band.

The FCC stated in its news release that it has
determined the value of the license for the 1.9 GHz spectrum to
be $4.8 billion, less the cost of relocating incumbent
users and that it would credit to us both the value of licenses
for spectrum in the 700 MHz and 800 MHz bands that we will
relinquish under the decision and the actual costs we incur to
relocate all incumbents in the 800 MHz band, but that we
will be required to make an anti-windfall payment to
the United States Department of the Treasury at the conclusion
of the relocation process to the extent that these combined
credits total less than the determined value of the license for
the 1.9 GHz spectrum. The FCC also stated in its news
release that, to ensure that the band reconfiguration process
will be completed, it will require us to establish certain
escrow accounts and a letter of credit in the amount of
$2.5 billion, for which we currently have sufficient
capacity under our amended credit facility discussed above, in
order to provide assurance that funds will be available to pay
specified costs relating to the relocation of the incumbent
users of the 800 MHz spectrum.

After 6:30 p.m. on the evening of
August 6, 2004, the date of this report, the FCC released
the 256-page Report and Order, which we have not had an
opportunity to review to fully understand the implications to
us, including any potential impairment of our 700 MHz
licenses.

Global Positioning System and Enhanced 911
Services.

In July 2004, we discovered a latent software
design defect that impaired capabilities related to both
assisted global positioning system, or A-GPS, location and
certain enhanced 911, or E911, services of a number of recently
introduced handsets manufactured by Motorola that incorporate
the A-GPS technology. Emergency 911 calls from these handsets
generally continued to meet current E911 FCC requirements, and
the handsets were and continue to be fully operational with
regard to all other services, including cellular phone, Direct
Connect walkie-talkie, and wireless data services. Motorola, as
the manufacturer of the handsets, is taking all appropriate
actions in response to this issue. Motorola has indicated in
discussions with our senior management that it is responsible
for, and will reimburse our costs to remedy, the A-GPS software
issue. Consequently, we do not believe that this matter will
materially impact our results of operations or financial
condition.

We described the impact of the software design
defect in our August 2, 2004 report to the FCC that
summarized our progress to date with regard to meeting the
FCCs E911 requirements. Based on our assessment of the
impact of the design defect and our estimates regarding the rate
at which our customer base is expected to transition to handsets
equipped with A-GPS technology, we notified the FCC in our
August 2nd report that we may be unable to satisfy by
December 31, 2005 the requirement that 95% of our total
subscriber base use handsets that enable us to transmit location
information that meets the Phase II requirements of the
E911 regulations, and that the A-GPS software design defect has
exacerbated the situation.

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Our ability to meet the Phase II
requirements and the costs we may incur in an effort to
accelerate our customers transition to A-GPS capable
handsets to meet these requirements could be significant, and
will be dependent on a number of factors, including the number
of new subscribers added to our network who purchase A-GPS
capable handsets, the number of existing subscribers who upgrade
from non-A-GPS capable handsets to A-GPS capable handsets, the
rate of our customer churn and the cost of A-GPS capable
handsets.

For further discussion, see Part II,
Item 5 Other Information  Global
Positioning System and Enhanced 911 Services of this
report.

Critical Accounting Policies and
Estimates.

We consider the following accounting policies and
estimates to be the most important to our financial position and
results of operations, either because of the significance of the
financial statement item or because they require the exercise of
significant judgment and/or use of significant estimates. While
we believe that the estimates we use are reasonable, actual
results could differ from those estimates.

Revenue Recognition.Operating revenues primarily
consist of wireless service revenues and revenues generated from
handset and accessory sales. Service revenues primarily include
fixed monthly access charges for mobile telephone, Nextel Direct
Connect and other wireless services, variable charges for mobile
telephone and Nextel Direct Connect usage in excess of plan
minutes, long-distance charges derived from calls placed by our
customers and activation fees. We recognize revenue for access
charges and other services charged at fixed amounts ratably over
the service period, net of credits and adjustments for service
discounts, billing disputes and fraud or unauthorized usage. We
recognize excess usage and long distance revenue at contractual
rates per minute as minutes are used. As a result of the cutoff
times of our multiple billing cycles each month, we are required
to estimate the amount of subscriber revenues earned but not
billed from the end of each billing cycle to the end of each
reporting period. These estimates are based primarily on rate
plans in effect and historical minutes and represented less than
10% of our accounts receivable balance as of June 30, 2004.
Our estimates have been consistent with our actual results.

Cost of Handsets.Under our handset supply agreement
with Motorola, we receive various discounts based on purchases
of specified numbers of handsets and specified expenditures for
the purchase of handsets. In addition, we have made purchase
advances to Motorola, which are recoverable based on future
purchases of handsets. If we do not achieve specified minimum
purchases, a portion of the advances may not be recovered. Each
month, we estimate future handset purchases and related
discounts. To the extent that such estimates change period to
period, adjustments would be made to our estimates of discounts
earned and could impact our cost of handset revenues. The amount
of these discounts recorded as of June 30, 2004
approximated less than 5% of our cost of handset and accessory
revenues recorded for that period.

Allowance for Doubtful Accounts.We establish an allowance for
doubtful accounts receivable sufficient to cover probable and
reasonably estimable losses. Because we have over four million
accounts, it is not practical to review the collectibility of
each account individually when we determine the amount of our
allowance for doubtful accounts receivable each period.
Therefore, we consider a number of factors in establishing the
allowance for our portfolio of customers, including historical
collection experience, current economic trends, estimates of
forecasted write-offs, agings of the accounts receivable
portfolio and other factors. When collection efforts on
individual accounts have been exhausted, the account is written
off by reducing the allowance for doubtful accounts. Our
allowance for doubtful accounts was $77 million as of
June 30, 2004. Since the first quarter 2003, we experienced
increased collections, an improvement in our accounts receivable
agings, and a reduction in write-offs. As a result, our
allowance for doubtful accounts as of June 30, 2004 was
lower than it was at June 30, 2003. Write-offs in the
future could be impacted by general economic and business
conditions that are difficult to predict. In addition, it is
difficult to predict with certainty the impact that recent
events, such as number portability, could have on our account
write-offs because we have limited experience with actual
results from these events.

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Valuation and Recoverability of Long-Lived
Assets.Long-lived assets such as
property, plant, and equipment represented $9,327 million
of our $21,669 million in total assets as of June 30,
2004. We calculate depreciation on these assets using the
straight-line method based on estimated economic useful lives as
follows:

|                                                                         |  |             |                | 
|------------------------------------------------------------------------ |  | ----------- | -------------- | 
|                                                                         |  | Estimated  
|Long-Lived Assets                                                        |  | Useful Life
|                                                                         |  |            
|Buildings                                                                |  |             | 31 years       | 
|Network equipment and internal-use software                              |  |             | 3 to 20  years | 
|Non-network internal-use software, office
    equipment and other assets |  |             | 3 to 12  years | 

The substantial majority of property, plant, and
equipment is comprised of our iDEN network equipment and
software. Our iDEN nationwide network is highly complex and, due
to constant innovation and enhancements, some network assets may
lose their utility faster than anticipated. We periodically
review the estimated useful lives and salvage value of these
assets and make adjustments to those estimates after considering
historical experience and capacity requirements, consulting with
the vendor, and assessing new product and market demands. While
the remaining useful lives for iDEN network equipment and
software represent our best estimate at this time, we recognize
that at some point in the future we may migrate to a next
generation technology, which could impact the remaining economic
lives of our iDEN network equipment and software.

Included in our property, plant and equipment
balance are costs for activities incurred in connection with the
early phase of cell site construction. Such activities include,
among others, engineering studies, design layout and zoning.
Because we need to be able to respond quickly to business needs,
we incur these costs well in advance of when the cell site asset
is placed into service. Our current plan is to use all of these
cell sites for expansion and quality improvements, future
capacity demands and other strategic reasons; however, to the
extent there are changes in economic conditions, technology or
the regulatory environment, our plans could change and some of
these assets could be abandoned and written off.

We review our long-lived assets for impairment
whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the total of the
expected undiscounted future cash flows is less than the
carrying amount of our assets, a loss, if any, is recognized for
the difference between the fair value and carrying value of the
assets. Impairment analyses, when performed, are based on our
current business and technology strategy, our views of growth
rates for our business, anticipated future economic and
regulatory conditions and expected technological availability.
For purposes of recognition and measurement of impairment
losses, we group our domestic long-lived assets with other
assets and liabilities at the domestic enterprise level, which
for us is the lowest level for which identifiable cash flows are
largely independent of the cash flows of other assets and
liabilities. We did not perform an impairment analysis for our
domestic long-lived assets in any of the periods presented as
there were no indicators of impairment; however, we may have to
perform such analyses in the future to the extent there are
changes in our industry, economic conditions, technology or the
regulatory environment.

Valuation and Recoverability of Intangible
Assets.Intangible assets with
indefinite useful lives represented $7,152 million of our
$21,669 million in total assets as of June 30, 2004.
Intangible assets with indefinite useful lives primarily consist
of our FCC licenses. We performed our annual impairment tests of
FCC licenses as of October 1, 2003 and concluded that there
was no impairment as the fair values of these intangible assets
were greater than their carrying values. Using a residual value
approach, we measured the fair value of our 800 and 900 MHz
licenses in our national footprint by deducting the fair values
of our net assets as well as the fair values of certain
unrecorded identified intangible assets, other than these FCC
licenses, from our reporting units, that is, our
companys fair value, which was determined using a
discounted cash flow analysis. The analysis was based on our
long-term cash flow projections, discounted at our corporate
weighted average cost of capital. The residual value approach
yielded a value substantially in excess of the recorded balance
of our 800 and 900 MHz licenses as of June 30, 2004.

24



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##### 



We have invested about $350 million in 700
MHz licenses that are currently not used in our network. The FCC
has stated that, as part of its Report and Order to resolve the
problem of interference with public safety systems operating in
the 800 MHz band, it will require us to exchange these
700 MHz licenses.

After 6:30 p.m. on the evening of
August 6, 2004, the date of this report, the FCC released
the 256-page Report and Order, which we have not had an
opportunity to review to fully understand the implications to
us, including any potential impairment of our 700 MHz
licenses.

Recoverability of Capitalized Software.As of June 30, 2004, we have
about $85 million in net unamortized costs for software
that will be sold, leased, or otherwise marketed and/or used in
our network. Our current plans indicate that we will recover the
value of the assets; however, to the extent there are changes in
economic conditions, technology or the regulatory environment,
or demand for the software, our plans could change and some or
all of these assets could become impaired.

Net Operating Loss Valuation Allowance.As of March 31, 2004, we had
recorded a full reserve against the tax benefits of our net
operating loss carryforwards because, at that time, we did not
have a sufficient history of taxable income to conclude that it
was more likely than not that we would be able to realize the
tax benefits of the net operating loss carryforwards. Based on
our cumulative operating results through June 30, 2004 and
an assessment of our expected future operations, we concluded
that it was more likely than not that we would be able to
realize the tax benefits of our net operating loss
carryforwards. Therefore, we decreased the valuation allowance
attributable to our net operating loss carryforwards by
$866 million as a credit to tax expense. Additionally, we
released the valuation allowance attributable to the tax benefit
of stock option deductions and credited stockholders
equity by $389 million. The valuation allowance balance as
of June 30, 2004 of about $800 million is comprised
primarily of the tax impact of capital losses incurred in prior
years for which an allowance is still required.

B. Results of Operations

Operating revenues primarily consist of wireless
service revenues and revenues generated from handset and
accessory sales. Service revenues primarily include fixed
monthly access charges for mobile telephone, Nextel Direct
Connect and other wireless services, variable charges for mobile
telephone and Nextel Direct Connect usage in excess of plan
minutes, long-distance charges derived from calls placed by our
customers and activation fees. We recognize revenue for access
charges and other services charged at fixed amounts ratably over
the service period, net of credits and adjustments for service
discounts, billing disputes and fraud or unauthorized usage. We
recognize excess usage and long distance revenue at contractual
rates per minute as minutes are used.

We recognize revenue from accessory sales when
title to the accessory passes to the customer. Effective
July 1, 2003, we began to recognize revenues from handset
sales when title to the handset passes to the customer pursuant
to Emerging Issues Task Force, or EITF, Issue No. 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. Prior to July 1, 2003, in accordance
with Staff Accounting Bulletin, or SAB, No. 101,
Revenue Recognition in Financial Statements, we
recognized revenue from handset sales on a straight-line basis
over the expected customer relationship period of
3.5 years, beginning when title to the handset passed to
the customer. Therefore, handset revenues, prior to July 1,
2003, largely reflected the recognition of handset sales that
occurred and were deferred in prior periods.

Cost of providing wireless service consists
primarily of:



| |   |                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | costs to operate and maintain our network,
    primarily including direct switch and transmitter and receiver
    site costs, such as rent, utilities, property taxes and
    maintenance for the network switches and sites, payroll and
    facilities costs associated with our network engineering
    employees, frequency leasing costs and roaming fees paid to
    other carriers;
|
| |  | fixed and variable interconnection costs, the
    fixed component of which consists of monthly flat-rate fees for
    facilities leased from local exchange carriers based on the
    number of transmitter and receiver sites                                                                                                                                                            

25



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##### 



| |   |                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | and switches in service in a particular period
    and the related equipment installed at each site, and the
    variable component of which generally consists of per-minute use
    fees charged by wireline and wireless providers for wireless
    calls terminating on their networks and fluctuates in relation
    to the level and duration of wireless calls;
|
| |  | costs to operate our handset service and repair
    program; and                                                                                                                                                                                                                                                                                                      
|
| |  | the costs to activate service for new subscribers.                                                                                                                                                                                                                                                                                                                    

Cost of handset and accessory revenues consists
primarily of the cost of the handsets and accessories sold,
order fulfillment related expenses and write-downs of handset
and related accessory inventory for shrinkage. We recognize cost
of accessory revenues, other than costs related to write-downs
of handset and related accessory inventory for shrinkage, when
title to the accessory passes to the customer. Consistent with
the related handset revenue recognition policy described above,
effective July 1, 2003, we began to recognize the cost of
handset revenues, including the handset costs in excess of the
revenues generated from handset sales, when title to the handset
passes to the customer, pursuant to EITF Issue No. 00-21.
Prior to July 1, 2003, in accordance with SAB No. 101,
we recognized cost of handset revenues in amounts equivalent to
revenues recognized from handset sales on a straight-line basis
over the expected customer relationship period of 3.5 years
and handset costs in excess of the revenues generated from
handset sales, or subsidies, were expensed at the time of sale.

Selling and marketing costs primarily consist of
customer acquisition costs, including residual payments to our
indirect dealers, commissions earned by our indirect dealers,
distributors and our direct sales force for new handset
activations, payroll and facilities costs associated with our
direct sales force, Nextel stores and marketing employees,
telemarketing, advertising, media programs and sponsorships,
including costs related to branding.

General and administrative costs primarily
consist of fees paid for billing, customer care and information
technology operations, bad debt expense and back office support
activities including customer retention, collections, legal,
finance, human resources, strategic planning and technology and
product development, along with the related payroll and
facilities costs. Also included in general and administrative
costs are research and development costs associated with our
broadband field trial.

Selected Financial and Operating
Data.

|                                                             |  |                  |        |                    |  |      |        |      |  |  |        |  |  |  |        | 
|------------------------------------------------------------ |  | ---------------- | ------ | ------------------ |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ | 
|                                                             |  |                  |        |                   
|                                                             |  | Six Months Ended |        | Three Months Ended
|                                                             |  | June 30,         |        | June 30,          
|                                                             |  |                  |        |                   
|                                                             |  | 2004             |        | 2003               |  | 2004 |        | 2003
|                                                             |  |                  |        |                    |  |      |        |     
|Handsets in service, end of period (in
    thousands)(1)     |  |                  | 13,902 |                    |  |      | 11,683 |      |  |  | 13,902 |  |  |  | 11,683 | 
|Net handset additions (in thousands)(1)                      |  |                  | 1,020  |                    |  |      | 1,071  |      |  |  | 546    |  |  |  | 591    | 
|Average monthly minutes of use per handset(1)                |  |                  | 765    |                    |  |      | 680    |      |  |  | 780    |  |  |  | 720    | 
|System minutes of use (in billions)(1)                       |  |                  | 61.5   |                    |  |      | 45.7   |      |  |  | 31.9   |  |  |  | 24.5   | 
|Net transmitter and receiver sites placed in
    service     |  |                  | 820    |                    |  |      | 270    |      |  |  | 420    |  |  |  | 170    | 
|Transmitter and receiver sites in service, end of
    period |  |                  | 18,320 |                    |  |      | 16,570 |      |  |  | 18,320 |  |  |  | 16,570 | 
|Nextel stores in service, end of period                      |  |                  | 697    |                    |  |      | 501    |      |  |  | 697    |  |  |  | 501    | 



---



|    |                                                                     
|--- | --------------------------------------------------------------------
|(1) | Excludes amounts attributable to Boost Mobile
    pre-paid services.

An additional measurement we use to manage our
business is the rate of customer churn, which is an indicator of
customer retention and represents the monthly percentage of the
customer base that disconnects from service. The churn rate
consists of both involuntary churn and voluntary churn.
Involuntary churn occurs when we have taken action to disconnect
the handset from service, usually due to lack of payment.
Voluntary churn occurs when a customer elects to disconnect
service. Customer churn is calculated by dividing the number of
handsets disconnected from commercial service during the period
by the average number of handsets in commercial service during
the period. We focus our efforts on retaining customers, and
keeping

26



---



##### 



our churn rate low, because the cost to acquire
new customers generally is higher than the cost to retain
existing customers.


Our average monthly customer churn rate during
both the second quarter 2004 and the second quarter 2003 was
about 1.6%. We believe that the stability in our churn rate is
attributable to our ongoing focus on customer retention efforts
through our Touch Point strategy, acquiring high quality
subscribers, including add-on subscribers from existing customer
accounts, and the attractiveness of our differentiated products
and services. These customer retention initiatives include such
programs as strategic care provided to customers with certain
attributes and efforts to migrate customers to more optimal
service pricing plans, as well as targeted handset upgrade
programs. Our churn also reflects the strength of our credit
policies and procedures and the ongoing optimization of our
integrated billing, customer care and collections system, which
allow us to better manage our customer relationships.

If general economic conditions worsen, if our
products or services are not well received by prospective or
existing customers or if competitive conditions in the wireless
telecommunications industry intensify, including, for example,
the introduction of competitive services, demand for our
products and services may decline, which could adversely affect
our ability to attract and retain customers and our results of
operations. See  Forward-Looking
Statements.

Service Revenues and Cost of
Service.

|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |    |  
|------------------------------------------- | ------------------------------- | -------- | ----- | --------- | - | --------------------- | -- | --------- |  | ------------- | ----- | ------- | - |  | -- | - |  | - | ----- | ----- |  |  | -- | -- | -
|                                            |                                 |          |       |           |   |                       |    |           |  |              
|                                            |                                 |          |       |           |   |                       |    |           |  | Change from  
|                                            |                                 |          |       | % of      |   |                       |    | % of      |  | Previous Year
|                                            |                                 | June 30, |       | Operating |   | June 30,              |    | Operating |  |              
|                                            |                                 | 2004     |       | Revenues  |   | 2003                  |    | Revenues  |  | Dollars       |       | Percent
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |        
|                                            |                                 |          |       |           |   |                       |    |           |  |              
|                                            |                                 |          |       |           |   | (dollars in millions) |    |           |  |              
|Six Months Ended                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $        | 5,715 |           |   |                       | 89 | %         |  | $             | 4,595 |         |   |  | 93 | % |  | $ | 1,120 |       |  |  | 24 | % 
|Cost of service (exclusive of depreciation) |                                 |          | 895   |           |   |                       | 14 | %         |  |               | 777   |         |   |  | 16 | % |  |   | 118   |       |  |  | 15 | % 
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |          | $     | 4,820     |   |                       |    |           |  |               | $     | 3,818   |   |  |    |   |  |   | $     | 1,002 |  |  |    | 26 | %
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |          |       | 84        | % |                       |    |           |  |               |       | 83      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                           
|Three Months Ended                          |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|Service revenues                            |                                 | $        | 2,939 |           |   |                       | 89 | %         |  | $             | 2,385 |         |   |  | 93 | % |  | $ | 554   |       |  |  | 23 | % 
|Cost of service (exclusive of depreciation) |                                 |          | 457   |           |   |                       | 14 | %         |  |               | 408   |         |   |  | 16 | % |  |   | 49    |       |  |  | 12 | % 
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin            |          | $     | 2,482     |   |                       |    |           |  |               | $     | 1,977   |   |  |    |   |  |   | $     | 505   |  |  |    | 26 | %
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   
|                                            | Service gross margin percentage |          |       | 84        | % |                       |    |           |  |               |       | 83      | % |  |    |   |  |   |       |       |  |  |    |    |  
|                                            |                                 |          |       |           |   |                       |    |           |  |               |       |         |   |  |    |   |  |   |       |       |  |  |    |   

Service Revenues.Service revenues increased 24%
from the six months ended June 30, 2003 compared to the six
months ended June 30, 2004 and 23% from the three months
ended June 30, 2003 compared to the three months ended
June 30, 2004. These increases were primarily attributable
to the increase in the number of handsets in service
(volume) and, to a lesser extent, the slight increase in
the average monthly revenue per handset in service
(rate) in 2004.

From a volume perspective, our service revenues
increased principally as a result of a 19% increase in handsets
in service from June 30, 2003 to June 30, 2004. We
believe that the growth in the number of handsets in service is
the result of a number of factors, principally:



| |   |                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our differentiated products and services,
    including our Direct Connect walkie-talkie service, including
    the impact of the launch of our Nationwide Direct Connect
    service in July 2003, and our Nextel Online services;

27



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##### 





| |   |                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased brand name recognition as a result of
    increased advertising and marketing campaigns;                                                                                                                                           
|
| |  | the high quality of our network;                                                                                                                                                                                                             
|
| |  | the improvement in subscriber retention that we
    attribute to our ongoing focus on customer care and other
    retention efforts and our focus on attracting high quality
    subscribers;                                                
|
| |  | the introduction of more competitive service
    pricing plans targeted at meeting more of our customers
    needs, including a variety of fixed-rate plans offering bundled
    monthly minutes and other integrated services and features;
|
| |  | selected handset pricing promotions and improved
    handset choices; and                                                                                                                                                                    
|
| |  | increased sales and marketing staff, including
    staff associated with our Nextel stores, and selling efforts
    targeted at specific vertical markets.                                                                                   

Cost of Service.Cost of service increased 15% from
the six months ended June 30, 2003 compared to the six
months ended June 30, 2004 and 12% from the three months
ended June 30, 2003 compared to the three months ended
June 30, 2004, primarily due to increased minutes of use
resulting from the combined effect of the increase in handsets
in service and an increase in the average monthly minutes of use
per handset. Specifically, from the six and three months ended
June 30, 2003 compared to the six and three months ended
June 30, 2004, we experienced:



| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | a 17% and 14% net increase in costs incurred in
    the operation and maintenance of our network and fixed
    interconnection costs; and
|
| |  | a 29% and 26% increase in costs incurred to
    operate our handset service and repair program; partially offset
    by                  
|
| |  | a 5% and 8% decrease in variable interconnection
    fees.                                                                               

Costs related to the operation and maintenance of
our network and fixed interconnection fees increased primarily
due to:



| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in roaming fees paid to Nextel
    Partners due to the increase in our customer base and the launch
    of Nationwide Direct Connect service in July 2003;                                                                                                                                        
|
| |  | an increase in transmitter and receiver and
    switch related operational costs due to an 11% increase in
    transmitter and receiver sites placed into service from
    June 30, 2003 to June 30, 2004;                                                                                                    
|
| |  | an increase in headcount and related employee
    costs to support our expanding network and customer base; and                                                                                                                                                                                               
|
| |  | an increase in royalties paid to online service
    providers as we increase the data services available to
    subscribers, such as wireless email, ring-tones and wallpaper
    applications; partially offset by                                                                                           
|
| |  | a decrease in fixed interconnection costs as a
    result of initiatives implemented to gain efficiencies in our
    network by taking advantage of lower facility fees and more
    technologically advanced network equipment that provides for
    additional capacity but requires less leased facilities.

The increase in costs to operate our handset
service and repair program from June 30, 2003 to
June 30, 2004 is primarily the result of growth in the
subscriber base electing handset insurance and participating in
service and repair programs.

The decrease in variable interconnection fees
from the six months ended June 30, 2003 compared to the six
months ended June 30, 2004 and from the three months ended
June 30, 2003 compared to the three months ended
June 30, 2004 was principally due to a lower cost per
minute of use, partially offset by an increase in total system
minutes of use. Our lower variable interconnection cost per
minute of use was

28



---



##### 



primarily the result of rate savings achieved
through efforts to move long distance traffic to lower cost
carriers. Total system minutes of use increased 35% from the six
months ended June 30, 2003 compared to the six months ended
June 30, 2004 principally due to a 19% increase in the
number of handsets in service as well as a 13% increase in the
average monthly billable minutes of use per handset between the
periods. Total system minutes of use increased 30% from the
three months ended June 30, 2003 compared to the three
months ended June 30, 2004 principally due to a 19%
increase in the number of handsets in service as well as an 8%
increase in the average monthly billable minutes of use per
handset between the periods.


We expect the aggregate amount of cost of service
to increase as customer usage of our network increases and as we
add more sites and other equipment to expand the coverage and
capacity of our network. However, we expect the cost per minute
of network use in 2004 to decline as compared to 2003 due to
continued improvements in network operating efficiencies. See
 Forward-Looking Statements.
Additionally, annual rent expense will benefit through 2007 from
the amortization of the deferred gain that we recorded in
connection with the lease transactions with SpectraSite
Holdings, Inc. Additional information regarding the SpectraSite
lease transactions can be found in note 3 to the
consolidated financial statements of our 2003 annual report on
Form 10-K.

Service Gross Margin.Service gross margin, exclusive of
depreciation expense, as a percentage of service revenues
increased from 83% for the six months ended June 30, 2003
to 84% for the six months ended June 30, 2004 and from 83%
for the three months ended June 30, 2003 to 84% for the
three months ended June 30, 2004. Our service gross margin
percentage improved primarily due to the combination of
increased service revenues from subscriber growth and
achievement of economies of scale, such as our interconnection
fee rate savings.

Handset and Accessory Revenues and Cost of
Handset and Accessory Revenues.

During the six and three months ended
June 30, 2004, we recorded $677 million and
$350 million of handset and accessory revenues, an increase
of $345 million and $179 million over the six and
three months ended June 30, 2003. During the six and three
months ended June 30, 2004, we recorded $985 million
and $496 million of cost of handset and accessory revenues,
an increase of $360 million and $181 million over the
six and three months ended June 30, 2003. These results are
summarized in the table below.

|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |     |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ---- | --------- |  | -------- | -- | --------- | - | ------------- | ---- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | --- | -
|                                                   |                                            |                       |      |           |  |          |    |           |   |              
|                                                   |                                            |                       |      |           |  |          |    |           |   | Change from  
|                                                   |                                            |                       |      | % of      |  |          |    | % of      |   | Previous Year
|                                                   |                                            | June 30,              |      | Operating |  | June 30, |    | Operating |   |              
|                                                   |                                            | 2004                  |      | Revenues  |  | 2003     |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Six Months Ended                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period handset and accessory sales         |                                            | $                     | 677  |           |  |          | 11 | %         |   | $             | 502  |         |  |  | 10 | %  |   | $ | 175 |     |  |  | 35  | %  
|SAB No. 101                                        |                                            |                       |     |           |  |          |   | %         |   |               | (170 | )       |  |  | (3 | )% |   |   | 170 |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Handset and accessory revenues             |                       |      | 677       |  |          |    | 11        | % |               |      | 332     |  |  |    | 7  | % |   |     | 345 |  |  |     | 104 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 985  |           |  |          | 15 | %         |   |               | 795  |         |  |  | 16 | %  |   |   | 190 |     |  |  | 24  | %  
|SAB No. 101                                        |                                            |                       |     |           |  |          |   | %         |   |               | (170 | )       |  |  | (3 | )% |   |   | 170 |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |      | 985       |  |          |    | 15        | % |               |      | 625     |  |  |    | 13 | % |   |     | 360 |  |  |     | 58  | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy                  |                                            | $                     | (308 | )         |  |          |    |           |   | $             | (293 | )       |  |  |    |    |   | $ | (15 | )   |  |  | (5  | )% 
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy
    percentage   |                                            |                       | (45  | )%        |  |          |    |           |   |               | (58  | )%      |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    

29



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##### 



|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |     |  
|-------------------------------------------------- | ------------------------------------------ | --------------------- | ---- | --------- |  | -------- | -- | --------- | - | ------------- | ---- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | --- | --- | -
|                                                   |                                            |                       |      |           |  |          |    |           |   |              
|                                                   |                                            |                       |      |           |  |          |    |           |   | Change from  
|                                                   |                                            |                       |      | % of      |  |          |    | % of      |   | Previous Year
|                                                   |                                            | June 30,              |      | Operating |  | June 30, |    | Operating |   |              
|                                                   |                                            | 2004                  |      | Revenues  |  | 2003     |    | Revenues  |   | Dollars       |      | Percent
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |        
|                                                   |                                            |                      
|                                                   |                                            | (dollars in millions)
|Three Months Ended                                 |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period handset and accessory sales         |                                            | $                     | 350  |           |  |          | 11 | %         |   | $             | 252  |         |  |  | 10 | %  |   | $ | 98  |     |  |  | 39  | %  
|SAB No. 101                                        |                                            |                       |     |           |  |          |   | %         |   |               | (81  | )       |  |  | (3 | )% |   |   | 81  |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Handset and accessory revenues             |                       |      | 350       |  |          |    | 11        | % |               |      | 171     |  |  |    | 7  | % |   |     | 179 |  |  |     | 105 | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Current period cost of handset and accessory sales |                                            |                       | 496  |           |  |          | 15 | %         |   |               | 396  |         |  |  | 15 | %  |   |   | 100 |     |  |  | 25  | %  
|SAB No. 101                                        |                                            |                       |     |           |  |          |   | %         |   |               | (81  | )       |  |  | (3 | )% |   |   | 81  |     |  |  | 100 | %  
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   | Cost of handset and accessory
    revenues |                       |      | 496       |  |          |    | 15        | % |               |      | 315     |  |  |    | 12 | % |   |     | 181 |  |  |     | 57  | %
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy                  |                                            | $                     | (146 | )         |  |          |    |           |   | $             | (144 | )       |  |  |    |    |   | $ | (2  | )   |  |  | (1  | )% 
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    
|Handset and accessory net subsidy
    percentage   |                                            |                       | (42  | )%        |  |          |    |           |   |               | (57  | )%      |  |  |    |    |   |   |     |     |  |  |     |    
|                                                   |                                            |                       |      |           |  |          |    |           |   |               |      |         |  |  |    |    |   |   |     |     |  |  |     |    

Handset and Accessory Revenues.The number of handsets sold and
the sales prices of the handsets sold influence handset and
accessory revenues. Current period handset and accessory sales
increased $175 million or 35%, excluding the impact of
SAB No. 101, for the six months ended June 30,
2004 as compared to the same period in 2003. This increase
reflects an increase of about 44% in the number of handsets sold
and, to a lesser extent, an increase in revenues from accessory
sales due to the larger subscriber base, partially offset by
about a 7% decrease in the average sales price of the
handsets.

Current period handset and accessory sales
increased $98 million or 39%, excluding the impact of
SAB No. 101, for the three months ended June 30,
2004 as compared to the same period in 2003. This increase
reflects an increase of about 44% in the number of handsets sold
and, to a lesser extent, an increase in revenues from accessory
sales due to the larger subscriber base, partially offset by
about a 3% decrease in the average sales price of the handsets.
Additional information regarding SAB No. 101 and our
adoption of EITF Issue No. 00-21 can be found in
note 1 to the consolidated financial statements of our 2003
annual report on Form 10-K.

Cost of Handset and Accessory Revenues.The number of handsets sold and
the cost of the handsets sold influence cost of handset and
accessory revenues. Current period cost of handset and accessory
sales increased $190 million or 24%, excluding the impact
of SAB No. 101, for the six months ended June 30,
2004 as compared to the same period in 2003. This increase
reflects an increase of about 44% in the number of handsets
sold, partially offset by about a 14% decrease in the average
cost we paid for handsets.

Current period cost of handset and accessory
sales increased $100 million or 25%, excluding the impact
of SAB No. 101, for the three months ended
June 30, 2004 as compared to the same period in 2003. This
increase reflects an increase of about 44% in the number of
handsets sold, partially offset by about a 13% decrease in the
average cost we paid for handsets.

Handset and Accessory Net Subsidy.The handset and accessory net
subsidy consists of handset subsidy, as we generally sell our
handsets at prices below cost in response to competition, to
attract new customers and as retention inducements for existing
customers; and gross margin on accessory sales, which are
generally higher margin products.

Handset and accessory net subsidy as a percentage
of handset and accessory revenues improved from 58% for the six
months ended June 30, 2003 to 45% for the six months ended
June 30, 2004 and from 57% for the three months ended
June 30, 2003 to 42% for the three months ended
June 30, 2004 even as the number of handsets sold increased
about 44% in both periods. This improvement for the six and
three months ended

30



---



##### 



June 30, 2004 compared to the same periods
in 2003 was due to a decrease in the average subsidy per handset
of about 23% and 26% and an increase in the gross margin from
accessory sales.


We expect to continue the industry practice of
selling handsets at prices below cost. Our retention efforts may
cause our handset subsidies to increase as our customer base
continues to grow. In addition, we may increase handset
subsidies in response to the competitive environment. See
 Forward-Looking Statements.

Selling, General and Administrative
Expenses.

|                           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |    |  
|-------------------------- | ----------------------------------- | --------------------- | ----- | --------- |  | -------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | --- | --- |  |  | -- | -- | -
|                           |                                     |                       |       |           |  |          |    |           |   |              
|                           |                                     |                       |       |           |  |          |    |           |   | Change from  
|                           |                                     |                       |       | % of      |  |          |    | % of      |   | Previous Year
|                           |                                     | June 30,              |       | Operating |  | June 30, |    | Operating |   |              
|                           |                                     | 2004                  |       | Revenues  |  | 2003     |    | Revenues  |   | Dollars       |     | Percent
|                           |                                     |                       |       |           |  |          |    |           |   |               |     |        
|                           |                                     |                      
|                           |                                     | (dollars in millions)
|Six Months Ended           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 1,029 |           |  |          | 16 | %         |   | $             | 855 |         |  |  | 17 | %  |   | $ | 174 |     |  |  | 20 | % 
|General and administrative |                                     |                       | 1,020 |           |  |          | 16 | %         |   |               | 760 |         |  |  | 15 | %  |   |   | 260 |     |  |  | 34 | % 
|                           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 2,049     |  |          |    | 32        | % |               | $   | 1,615   |  |  |    | 32 | % |   | $   | 434 |  |  |    | 27 | %
|                           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                          
|Three Months Ended         |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|Selling and marketing      |                                     | $                     | 534   |           |  |          | 16 | %         |   | $             | 444 |         |  |  | 17 | %  |   | $ | 90  |     |  |  | 20 | % 
|General and administrative |                                     |                       | 544   |           |  |          | 17 | %         |   |               | 385 |         |  |  | 15 | %  |   |   | 159 |     |  |  | 41 | % 
|                           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   
|                           | Selling, general and administrative |                       | $     | 1,078     |  |          |    | 33        | % |               | $   | 829     |  |  |    | 32 | % |   | $   | 249 |  |  |    | 30 | %
|                           |                                     |                       |       |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |     |     |  |  |    |   

Selling and Marketing.Selling and marketing costs
primarily consist of customer acquisition costs, including
residual payments to our indirect dealers, commissions earned by
our indirect dealers, distributors and our direct sales force
for new handset activations, payroll and facilities costs
associated with our direct sales force, Nextel stores and
marketing employees, telemarketing, advertising, media programs
and sponsorships, including costs related to branding. The
increase in selling and marketing expenses from the six and
three months ended June 30, 2003 compared to the six and
three months ended June 30, 2004 reflects:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an $82 million and $46 million increase
    in advertising expenses as a result of general marketing
    campaigns directed at increasing brand awareness and promoting
    our differentiated services, such as our new branding campaign
    launched in the third quarter 2003, our affiliation with NASCAR
    beginning in the first quarter 2004, the promotion of Nationwide
    Direct Connect services and advertising and promotional costs
    related to our expansion of the areas in which we offer Boost
    Mobile pre-paid services that began in the first quarter 2004;
|
| |  | a $64 million and $29 million increase
    in marketing payroll and related expenses primarily associated
    with our opening an additional 196 Nextel stores between
    June 30, 2003 and June 30, 2004 and increased employee
    commissions; and                                                                                                                                                                                                                                                                                                                                    
|
| |  | a $28 million and $15 million increase
    primarily reflecting an increase in the rate of commissions and
    residuals earned by indirect dealers and distributors in the
    first half of 2004 compared to the same period in 2003,
    partially offset by the decrease in volume of indirect sales and
    the decrease in commissions paid with respect to handset sales
    as more handsets were delivered through our direct handset
    fulfillment system in 2004.                                                                                                            

General and Administrative.General and administrative costs
primarily consist of fees paid for billing, customer care and
information technology operations, bad debt expense and back
office support activities including customer retention,
collections, legal, finance, human resources, strategic planning
and technology and product development, along with the related
payroll and facilities costs. Also included in general and

31



---



##### 



administrative costs are research and development
costs associated with our broadband field trial. The increase in
general and administrative expenses from the six and three
months ended June 30, 2003 compared to the six and three
months ended June 30, 2004 reflects:




| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $165 million and $92 million increase
    in personnel, facilities and general corporate expenses due to
    increases in headcount and related facility costs, information
    technology initiatives, legal and professional fees and
    settlement costs, research and development costs related to the
    field trial of Nextel Wireless Broadband and our enterprise
    resource planning, or ERP, system implementation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | a $108 million and $58 million increase
    in expenses related to billing, collection, customer retention
    and customer care activities primarily due to the costs to
    support a larger customer base, including Boost, and the focus
    on our customer Touch Point strategy in addition to increased
    costs associated with the implementation of wireless number
    portability in the fourth quarter 2003; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | a $13 million decrease and $9 million
    increase in bad debt expense. Bad debt expense decreased from
    $81 million, or 1.6% of operating revenues, for the six
    months ended June 30, 2003 to $68 million, or 1.1% of
    operating revenues, for the six months ended June 30, 2004.
    The decrease in both the aggregate amount of the bad debt
    expense and bad debt expense as a percentage of operating
    revenues reflects actions taken over the past two years that
    were focused on strengthening our credit and collection policies
    and procedures, limiting the account sizes for high-risk
    accounts and strengthening identity verification processes at
    the point of credit applications. Our allowance for doubtful
    accounts as a percentage of accounts receivable has also
    improved from June 30, 2003 to June 30, 2004. Bad debt
    expense in the future could be adversely affected by general
    economic conditions and competitive conditions within the
    wireless industry, including those related to wireless number
    portability or to the extent we adjust our credit standards to
    be more competitive. See  Forward-Looking
    Statements.

Our general and administrative expenses as a
percentage of operating revenues increased from the three months
ended June 30, 2003 to the three months ended June 30,
2004 primarily as a result of the increases in employee and
related facility costs, legal and professional fees and
settlement costs, and research and development activities
related to the field trial of Nextel Wireless Broadband.

We expect the aggregate amount of selling,
general and administrative expenses to continue increasing in
absolute terms in the future as a result of a number of factors,
including but not limited to:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | increased costs to acquire new customers and to
    support a growing customer base, including costs associated with
    billing, collection, customer retention and customer care
    activities;                               
|
| |  | increased marketing and advertising expenses in
    connection with sponsorships and branding and promotional
    initiatives that are designed to increase brand awareness in our
    markets, including our NASCAR sponsorship;
|
| |  | increased costs relating to the expansion of our
    Boost Mobile service into new markets;                                                                                                                                      
|
| |  | increased costs associated with opening
    additional Nextel stores; and                                                                                                                                                        
|
| |  | increased costs related to the field trial of
    Nextel Wireless Broadband, which we account for as research and
    development expense; partially offset by                                                                   
|
| |  | additional savings expected from obtaining an
    increasing percentage of sales from our lower-cost customer
    convenient channels, such as web sales, telesales and Nextel
    stores.                                       

32



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##### 



Depreciation and
Amortization.

|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |    |  
|------------------ | ----------------------------- | --------------------- | --- | --------- |  | -------- | -- | --------- | - | ------------- | --- | ------- |  |  | -- | -- | - | - | -- | -- |  |  | --- | -- | -
|                   |                               |                       |     |           |  |          |    |           |   |              
|                   |                               |                       |     |           |  |          |    |           |   | Change from  
|                   |                               |                       |     | % of      |  |          |    | % of      |   | Previous Year
|                   |                               | June 30,              |     | Operating |  | June 30, |    | Operating |   |              
|                   |                               | 2004                  |     | Revenues  |  | 2003     |    | Revenues  |   | Dollars       |     | Percent
|                   |                               |                       |     |           |  |          |    |           |   |               |     |        
|                   |                               |                      
|                   |                               | (dollars in millions)
|Six Months Ended   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|Depreciation       |                               | $                     | 874 |           |  |          | 13 | %         |   | $             | 807 |         |  |  | 16 | %  |   | $ | 67 |    |  |  | 8   | % 
|Amortization       |                               |                       | 22  |           |  |          | 1  | %         |   |               | 28  |         |  |  | 1  | %  |   |   | (6 | )  |  |  | (21 | )%
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|                   | Depreciation and amortization |                       | $   | 896       |  |          |    | 14        | % |               | $   | 835     |  |  |    | 17 | % |   | $  | 61 |  |  |     | 7  | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|                  
|Three Months Ended |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|Depreciation       |                               | $                     | 442 |           |  |          | 13 | %         |   | $             | 408 |         |  |  | 16 | %  |   | $ | 34 |    |  |  | 8   | % 
|Amortization       |                               |                       | 11  |           |  |          | 1  | %         |   |               | 14  |         |  |  | 1  | %  |   |   | (3 | )  |  |  | (21 | )%
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   
|                   | Depreciation and amortization |                       | $   | 453       |  |          |    | 14        | % |               | $   | 422     |  |  |    | 17 | % |   | $  | 31 |  |  |     | 7  | %
|                   |                               |                       |     |           |  |          |    |           |   |               |     |         |  |  |    |    |   |   |    |    |  |  |     |   

Depreciation expense increased $67 million
and $34 million from the six and three months ended
June 30, 2003 when compared to the six and three months
ended June 30, 2004. Depreciation increased as a result of
an 11% increase in transmitter and receiver sites in service, as
well as costs to modify existing switches and transmitter and
receiver sites in existing markets primarily to enhance the
capacity of our network. We periodically review the estimated
useful lives of our property, plant and equipment assets as
circumstances warrant. Events that would likely cause us to
review the useful lives of our property, plant and equipment
assets include decisions made by regulatory agencies and our
decisions surrounding strategic or technology matters. It is
possible that depreciation expense may increase in future
periods as a result of one or a combination of these decisions.
Variances in depreciation expense recorded between periods can
also be impacted by several factors, including the effect of
fully depreciated assets, the timing between when capital assets
are purchased and when they are deployed into service, which is
when depreciation commences, company-wide decisions surrounding
levels of capital spending and the level of spending on
non-network assets, which generally have much shorter
depreciable lives as compared to network assets.

Interest and Other.

|                                                   |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|-------------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------- | ---- | ------- |  | - | ----- | - |  |  | --- | --
|                                                   |  |                       |       |               |  |        
|                                                   |  |                       |       | Change from  
|                                                   |  | June 30,              |       | Previous Year
|                                                   |  |                       |       |              
|                                                   |  | 2004                  |       | 2003          |  | Dollars |      | Percent
|                                                   |  |                       |       |               |  |         |      |        
|                                                   |  |                      
|                                                   |  | (dollars in millions)
|Six Months Ended                                   |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|Interest expense                                   |  | $                     | (309  | )             |  | $       | (444 | )       |  | $ | 135   |   |  |  | 30  | % 
|Interest income                                    |  |                       | 15    |               |  |         | 22   |         |  |   | (7    | ) |  |  | (32 | )%
|Loss on retirement of debt                         |  |                       | (51   | )             |  |         | (7   | )       |  |   | (44   | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates, net |  |                       | (2    | )             |  |         | (48  | )       |  |   | 46    |   |  |  | 96  | % 
|Realized gain on sale of investments               |  |                       | 26    |               |  |         |     |         |  |   | 26    |   |  |  | 100 | % 
|Other, net                                         |  |                       | 3     |               |  |         |     |         |  |   | 3     |   |  |  | 100 | % 
|Income tax benefit (provision)                     |  |                       | 646   |               |  |         | (49  | )       |  |   | 695   |   |  |  | NM  |   
|Income available to common stockholders            |  |                       | 1,891 |               |  |         | 489  |         |  |   | 1,402 |   |  |  | NM  |   

33



---



##### 



|                                                   |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|-------------------------------------------------- |  | --------------------- | ----- | ------------- |  | ------- | ---- | ------- |  | - | ----- | - |  |  | --- | --
|                                                   |  |                       |       |               |  |        
|                                                   |  |                       |       | Change from  
|                                                   |  | June 30,              |       | Previous Year
|                                                   |  |                       |       |              
|                                                   |  | 2004                  |       | 2003          |  | Dollars |      | Percent
|                                                   |  |                       |       |               |  |         |      |        
|                                                   |  |                      
|                                                   |  | (dollars in millions)
|Three Months Ended                                 |  |                       |       |               |  |         |      |         |  |   |       |   |  |  |     |   
|Interest expense                                   |  | $                     | (155  | )             |  | $       | (219 | )       |  | $ | 64    |   |  |  | 29  | % 
|Interest income                                    |  |                       | 7     |               |  |         | 10   |         |  |   | (3    | ) |  |  | (30 | )%
|Loss on retirement of debt                         |  |                       | (34   | )             |  |         | (2   | )       |  |   | (32   | ) |  |  | NM  |   
|Equity in losses of unconsolidated affiliates, net |  |                       | (2    | )             |  |         | (35  | )       |  |   | 33    |   |  |  | 94  | % 
|Other, net                                         |  |                       | 2     |               |  |         |     |         |  |   | 2     |   |  |  | 100 | % 
|Income tax benefit (provision)                     |  |                       | 679   |               |  |         | (27  | )       |  |   | 706   |   |  |  | NM  |   
|Income available to common stockholders            |  |                       | 1,300 |               |  |         | 281  |         |  |   | 1,019 |   |  |  | NM  |   



---

NM  Not Meaningful

Interest Expense.The $135 million and
$64 million decrease in interest expense for the six and
three months ended June 30, 2004 compared to the same
period in 2003 primarily relates to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $189 million and $94 million decrease
    in interest expense attributable to the reductions in the
    aggregate outstanding principal amount of our senior notes, as
    discussed below;                                                                                                                                                                                                                      
|
| |  | a $32 million and $15 million decrease
    in interest expense resulting from the combined effect of the
    reduction in the weighted average interest rates related to our
    bank credit facility from 4.1% during the six months ended
    June 30, 2003 to 3.0% during the six months ended
    June 30, 2004 and the lower average principal amount of the
    bank credit facility outstanding in 2004; and
|
| |  | a $21 million and $12 million decrease
    resulting from interest expense recorded in prior years related
    to the derivatives that were settled in the third quarter 2003;
    partially offset by                                                                                                                                                                                                             
|
| |  | a $101 million and $54 million increase
    in interest expense attributable to our new senior notes issued
    since the third quarter 2003.                                                                                                                                                                                                                                                                      

We reduced the aggregate outstanding principal
amount of our senior notes through the purchase and retirement
or redemption of $5,154 million in aggregate principal
amount at maturity of our senior notes and convertible senior
notes from the beginning of 2003 through June 30, 2004.
During that period, we issued an additional $3,350 million
in aggregate principal amount of new senior notes with lower
interest rates and longer maturity periods than the retired
senior notes. In December 2003, we reduced the principal amount
of outstanding term loans under our credit facility by
$574 million by repaying $2,774 million of term loans
under that facility with cash on hand and the proceeds from the
syndication of a new $2,200 million term loan under that
facility that matures in December 2010. We expect our interest
expense to continue to decrease in the second half of 2004 as we
realize the benefit of the debt retirements and exchanges
consummated during 2003 and 2004, as well as the debt
retirements and reduced borrowing costs associated with the July
2004 amended credit facility. See
 Forward-Looking Statements.

Interest Income.The $7 million and
$3 million decrease in interest income for the six and
three months ended June 30, 2004 compared to the six and
three months ended June 30, 2003 is due to the redemption
of our Nextel Partners preferred stock during the fourth
quarter 2003, the redemption of our NII Holdings senior
notes in the first quarter 2004, and to a lesser extent, a
decrease in the average interest rates in the first half of 2004
as compared to the same period in 2003.

Loss on Retirement of Debt.For the six months and three
months ended June 30, 2004, we recognized a loss of
$51 million and $34 million on the retirement of some
of our senior notes and convertible senior notes, representing
the excess of the purchase price over the carrying value of the
purchased and retired notes and the write-off of the related
unamortized debt financing costs, net of the recognition of a
portion of the deferred

34



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##### 



premium associated with the termination of some
of our interest rate swaps. For the six months and three months
ended June 30, 2003, we recognized a loss of
$7 million and $2 million on the retirement of some of
our senior notes and convertible senior notes, representing the
excess of the purchase price over the carrying value of the
purchased and retired notes and the write-off of unamortized
debt financing costs.


Equity in Losses of Unconsolidated
Affiliates.The $2 million in
equity in losses of unconsolidated affiliates for the six and
three months ended June 30, 2004 was primarily due to
losses attributable to our equity method investment in Nextel
Partners. The $48 million and $35 million in equity in
losses of unconsolidated affiliates for the six and three months
ended June 30, 2003 was due to losses attributable to our
equity method investment in Nextel Partners of $64 million
and $48 million partially offset by our equity in earnings
of NII Holdings of $16 million and $13 million. In
2003, our investments in Nextel Partners common stock and
12% nonvoting mandatorily redeemable preferred stock were
written down to zero through the application of the equity
method of accounting; however, as Nextel Partners issues
additional equity, we may adjust our investment balance
accordingly and record additional equity in losses. During the
fourth quarter 2003, we sold shares of NII Holdings common
stock, thereby decreasing our ownership percentage, and now
account for our interest in NII Holdings as an
available-for-sale cost method investment.

Realized Gain on Investments.In the first quarter 2004, we
tendered our NII Holdings senior notes in exchange
for $77 million, resulting in a $28 million gain.

Income Tax Benefit (Provision).Income tax benefit for the six and
three months ended June 30, 2004 was $646 million and
$679 million. Income tax provision for the six and three
months ended June 30, 2003 was $49 million and
$27 million. During the second quarter 2004, we decreased
the valuation allowance attributable to our net operating loss
carryforwards by $866 million as a credit to tax expenses.

Beginning in the third quarter 2004, we expect
that our income tax provision will be recorded based on an
estimated statutory tax rate of 39%. See
 Forward-Looking Statements. Additional
information regarding when we expect to become a full cash
taxpayer can be found under  D. Future
Capital Needs and Resources  Capital Needs.

C. Liquidity and Capital
Resources

As of June 30, 2004, we had total liquidity
of $3,154 million available to fund our operations
including $2,094 million of cash, cash equivalents and
short-term investments and $1,060 million available under
the revolving loan commitment of our bank credit facility,
subject to the terms and conditions of that facility. In July
2004, we amended our bank credit facility to provide for a new
$4,000 million revolving credit facility that replaced our
then-existing revolving credit facility and one of our existing
term loans. We immediately drew down $1,000 million of this
new facility and used $476 million of cash on hand to repay
the entire outstanding balance of one of our existing terms
loans in the amount of $1,360 million and our outstanding
revolving loan in the amount of $116 million. As of
June 30, 2004, on a pro forma basis taking into account the
amendment to our credit facility, we had total liquidity of
$4,594 million, consisting of $1,618 million of cash,
cash equivalents, and short-term investments and
$2,976 million available under the amended credit facility,
subject to the terms and conditions of that facility.

During the six months ended June 30, 2004,
we raised $494 million from the issuance of our 5.95%
senior notes due 2014. We used $1,131 million of cash to
reduce our long-term debt and capital and finance obligations by
a total of $1,083 million, retiring $779 million of
our senior notes, exercising the early buyout option on a
$165 million capital lease obligation and paying $139
million of scheduled maturities on our bank credit facility. For
the six months ended June 30, 2004, total cash provided by
operating activities exceeded cash flows used in investing
activities by $810 million compared to $417 million
for the same period in 2003. Prior to 2003, we had used external
sources of funds, primarily from issuances of debt and equity
securities, to fund capital expenditures, acquisitions and other
non-operating needs.

35



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##### 



As of June 30, 2004, we had working capital
of $1,225 million compared to $871 million as of
December 31, 2003. In addition to cash, cash equivalents
and short-term investments, a significant portion of our working
capital consists of accounts receivable, handset inventory,
prepaid expenses, accounts payable and accrued expenses. The
increase in working capital is primarily due to increases in
accounts receivable, inventory and prepaid expenses, partially
offset by increases in accounts payable and accrued expenses.
Accounts receivable increased $93 million or 7% primarily
due to the increase in trade receivables resulting from the 8%
increase in the subscriber base since December 31, 2003.
Inventory increased $238 million due to greater handset
purchases as we prepared for the launch of a number of new
handset models. The $183 million increase in prepaid
expenses is primarily the result of prepayments made to Motorola
for future handset and network infrastructure purchases.
Accounts payable and accrued expenses, including amounts due to
related parties, increased $446 million due to the timing
of payments and increased levels of handset purchases as
described above.

Cash Flows.

|                                      |  |                       |        |               |  |         |        |         |  |   |     |   |  |  |    |   
|------------------------------------- |  | --------------------- | ------ | ------------- |  | ------- | ------ | ------- |  | - | --- | - |  |  | -- | --
|                                      |  |                       |        |              
|                                      |  | Six Months Ended      |        | Change from  
|                                      |  | June 30,              |        | Previous Year
|                                      |  |                       |        |              
|                                      |  | 2004                  |        | 2003          |  | Dollars |        | Percent
|                                      |  |                       |        |               |  |         |        |        
|                                      |  |                      
|                                      |  | (dollars in millions)
|Cash provided by operating activities |  | $                     | 2,005  |               |  | $       | 1,516  |         |  | $ | 489 |   |  |  | 32 | % 
|Cash used in investing activities     |  |                       | (1,195 | )             |  |         | (1,099 | )       |  |   | (96 | ) |  |  | (9 | )%
|Cash used in financing activities     |  |                       | (534   | )             |  |         | (823   | )       |  |   | 289 |   |  |  | 35 | % 

Net cash provided by operating activities for the
six months ended June 30, 2004 improved by $489 million
over the same period in 2003 primarily due to a
$1,432 million increase in cash received from our customers
as a result of growth in our customer base, partially offset by
a $973 million increase in cash paid to our suppliers and
employees in order to support the larger customer base.

Net cash used in investing activities for the six
months ended June 30, 2004 increased by $96 million
over the same period in 2003 primarily due to:



| |   |                                                                                       
| | - | --------------------------------------------------------------------------------------
| |  | a $461 million increase in cash paid for
    capital expenditures; partially offset by
|
| |  | a $293 million increase in net proceeds from
    short term investments, and          
|
| |  | a $77 million increase in proceeds from the
    sale of investments and other.        

Capital expenditures to fund the ongoing
investment in our network continued to represent the largest use
of our funds for investing activities. Cash payments for capital
expenditures totaled $1,188 million for the six months
ended June 30, 2004 and $727 million for the six
months ended June 30, 2003. Capital expenditures increased
for the six months ended June 30, 2004 compared to the same
period in 2003 primarily due to:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase in amounts expended to construct new
    cell sites and network improvements in 2004 compared to 2003
    reflecting our 2004 plans to improve the coverage and capacity
    of our network;
|
| |  | the outsourcing of our site development work and
    the resulting delay in our construction activities during the
    first half of 2003; and                                                          
|
| |  | costs incurred in connection with WiDEN.                                                                                                                                                                

We expect that our capital expenditures for the
second half of 2004 will be comparable to the first half of
2004, excluding any capital expenditures in connection with the
FCCs recently announced decision relating to the
realignment of spectrum, as we continue to expand the geographic
coverage of our iDEN network through the addition of new
transmitter and receiver sites, the implementation of new
applications and features and the development of dispatch
technologies and services. See D. Future Capital Needs and
Resources  Capital Needs  Capital
Expenditures and  Forward-Looking
Statements.

We made cash payments during the six months ended
June 30, 2004 totaling $243 million for licenses,
investments and other, including $210 million, primarily
related to the acquisition of multichannel multipoint

36



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distribution service, or MMDS, FCC licenses from
WorldCom and Nucentrix. We made cash payments during the six
months ended June 30, 2003 totaling $238 million for
licenses, investments and other, including $201 million related
to the acquisition of FCC licenses of NeoWorld Communications,
Inc.


Net cash used for financing activities of
$534 million during the six months ended June 30, 2004
consisted primarily of:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | $827 million paid for the purchase and
    retirement of our senior notes and convertible senior notes;                                                                                                    
|
| |  | $165 million in repayments related to our
    remaining capital lease obligation, including a payment of
    $156 million associated with the early buy-out option of
    this capital lease agreement and;
|
| |  | $139 million in repayments under our bank
    credit facility; partially offset by                                                                                                                         
|
| |  | $494 million of net proceeds from the sale
    of our 5.95% senior notes; and                                                                                                                              
|
| |  | $104 million of net proceeds from the
    issuance of shares of our class A common stock primarily under
    our incentive equity plan.                                                                    

During the six months ended June 30, 2003,
we used cash of $823 million for financing activities,
primarily due to $707 million paid for the purchase and
retirement of some of our senior notes, convertible senior notes
and preferred stock and $79 million for net repayments
under our capital lease and finance obligations,
$42 million for preferred stock dividends and
$30 million for net payments under our long-term credit
facility, partially offset by $36 million of proceeds received
in connection with the exercise of stock options granted under
our incentive equity plan.

We may, from time to time, as we deem
appropriate, enter into additional refinancing and similar
transactions, including exchanges of our common stock or other
securities for our debt and other long-term obligations and
redemption, repurchase or retirement transactions involving our
outstanding debt securities and preferred stock that in the
aggregate may be material.

D. Future Capital Needs and
Resources

Capital Resources.

As of June 30, 2004, our capital resources
included $2,094 million of cash, cash equivalents and
short-term investments and $1,060 million of the revolving
loan commitment under our credit facility, as discussed below,
resulting in a total amount of liquidity to fund our operating,
investing and financing activities of $3,154 million as of
June 30, 2004. In July 2004, we entered into a new
$4,000 million revolving credit facility. As discussed
further below, we immediately drew down $1,000 million of
this new facility and used $476 million of cash on hand to
repay the entire outstanding balance of one of our existing term
loans and our outstanding revolving loan. As of June 30,
2004, on a pro forma basis taking into account the amendment to
our credit facility, we had total liquidity of
$4,594 million, consisting of $1,618 million of cash,
cash equivalents, and short-term investments and
$2,976 million available under the amended credit facility,
subject to the terms and conditions of that facility.

Our ongoing capital needs depend on a variety of
factors, including the extent to which we are able to fund the
cash needs of our business from operating activities. Prior to
2003, we were unable to fund our capital expenditures, spectrum
acquisition costs and business acquisitions with the cash
generated by our operating activities. Therefore, we met the
cash needs of our business principally by raising capital from
issuances of debt and equity securities. To the extent we
continue to generate sufficient cash flow from our operating
activities to fund these investing activities, we will use less
of our available liquidity and will have less of a need to raise
additional capital from the capital markets to fund these types
of expenditures. If, however, our cash flow from operating
activities declines or if significant additional funding is
required for our investing activities, including for example,
funding in connection with the FCCs recently announced
decision relating to the realignment of spectrum in the
800 MHz band or for deployment of next generation
technologies, we may be required to fund our investing
activities by using our existing liquidity, to the extent

37



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##### 



available, or by raising additional capital from
the capital markets, which may not be available on acceptable
terms, if at all. If we become unable to generate cash flow from
our operating activities, our available liquidity would be
sufficient to fund investing activities for only a limited
period of time. Our ability to generate cash flow from operating
activities is dependent upon, among other things:




| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the amount of revenue we are able to generate
    from our customers, which in turn is dependent on our ability to
    attract new and retain existing customers;
|
| |  | the cost of acquiring and retaining customers,
    including the subsidies we incur to provide handsets to both our
    new and existing customers;              
|
| |  | the amount of operating expenses required to
    provide our services; and                                                                                       
|
| |  | the amount of non-operating expenses required to
    operate our company, consisting primarily of interest expense.                                              

As of June 30, 2004, our bank credit
facility provided for total secured financing capacity of up to
$4,749 million, subject to the satisfaction or waiver of
applicable borrowing conditions, which consisted of a
$1,200 million revolving loan commitment, of which
$116 million had been borrowed and $24 million had
been committed under letters of credit, and $3,549 million
in two classes of term loans, all of which had been borrowed.

In July 2004, we amended our bank credit
facility to provide for a new $4,000 million revolving
credit facility that replaced our then-existing revolving credit
facility and one of our existing term loans. We immediately drew
down $1,000 million of this new facility and used
$476 million of cash on hand to repay the entire
outstanding balance of one of our existing term loans in the
amount of $1,360 million and our outstanding revolving loan
in the amount of $116 million. Under this new facility, we
have increased our borrowing capacity by $1,440 million,
reduced our borrowing costs on both the drawn and undrawn
portions, and provided for further reductions in borrowing costs
to the extent that our debt ratings improve. The amended
facility provides for total secured financing capacity of up to
$6,189 million, consisting of the new $4,000 million
revolving credit facility, which matures July 31, 2009, and
the existing $2,189 million term loan, which matures
December 15, 2010.

The new revolving credit facility can be used to
secure letters of credit for the full amount available under the
facility. The FCC stated in its news release regarding its
Report and Order related to the proceeding to eliminate
interference with public safety operators in the 800 MHz
band that, to ensure that the band reconfiguration process will
be completed, it will require us to establish certain escrow
accounts and a letter of credit in the amount of
$2,500 million in order to provide assurance that funds
will be available to pay specified costs relating to the
relocation of the incumbent users of the 800 MHz spectrum.

The amended credit facility requires compliance
with two financial ratio tests: total indebtedness to operating
cash flow and operating cash flow to interest expense, each as
defined under the credit agreement. The maturity dates of the
loans may accelerate if we do not comply with the financial
ratio tests, which could have a material adverse effect on our
financial condition. As of June 30, 2004, we were in
compliance with all financial ratio tests under our credit
facility and we expect to remain in full compliance with these
ratio tests for the foreseeable future. See
 Forward-Looking Statements. We are also
obligated to repay the loans if certain change of control events
occur. Borrowings under the facility are currently secured by
liens on substantially all of our assets, and are guaranteed by
us and by substantially all of our subsidiaries. The amended
credit facility provides for the termination of these liens and
subsidiary guarantees upon satisfaction of certain conditions,
including improvements in debt ratings and the repayment of our
remaining outstanding term loan. There is no provision under any
of our indebtedness that requires repayment in the event of a
downgrade by any ratings service.

Our ability to borrow additional amounts under
the credit facility may be restricted by provisions included in
some of our public notes and mandatorily redeemable preferred
stock that limit the incurrence of additional indebtedness in
certain circumstances. The availability of borrowings under this
facility also is subject to the satisfaction or waiver of
specified borrowing conditions. The applicable provisions of our
senior

38



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##### 



notes and mandatorily redeemable preferred stock
currently do not restrict our ability, and we have satisfied the
conditions under this facility, to borrow the remaining
$3,000 million revolving credit commitment that is
currently available.


The credit facility also contains covenants which
limit our ability and the ability of some of our subsidiaries to
incur additional indebtedness; create liens; pay dividends or
make distributions in respect of our or their capital stock or
make specified other restricted payments; consolidate, merge or
sell all or substantially all of our or their 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. Although these covenants are similar to those
contained in our previous credit facility, they have been
revised under the amended credit facility to provide us with
greater operating flexibility.

Capital Needs.

We currently anticipate that our future capital
needs will principally consist of funds required for:



| |   |                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operating expenses relating to our network;                                                                                                                                                                                            
|
| |  | capital expenditures, as discussed immediately
    below under  Capital Expenditures;                                                                                                                                               
|
| |  | future investments, potential spectrum purchases
    and investments in new business opportunities;                                                                                                                                    
|
| |  | potential payments to the FCC and other third
    parties and potential costs to reconfigure our spectrum in
    connection with the FCCs recently announced decision
    relating to the realignment of spectrum in the 800 MHz band;
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates, particularly the
    requirement to deploy location-based Phase II E911
    capabilities;                                                         
|
| |  | scheduled principal and interest payments related
    to our long-term debt and any additional amounts that we choose
    to redeem; and                                                                                               
|
| |  | other general corporate expenditures including
    the anticipated impact of becoming a full cash taxpayer sometime
    during 2006.                                                                                                   

Capital Expenditures.Our capital expenditures during
the six months ended June 30, 2004 totaled
$1,188 million, including capitalized interest. In the
future, we expect our capital spending to be driven by several
factors including:



| |   |                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the purchase and construction of additional
    transmitter and receiver sites and related equipment to enhance
    our networks geographic coverage and to maintain our
    network quality;
|
| |  | the enhancements to our existing iDEN technology
    to increase data speed and voice capacity;                                                                                               
|
| |  | any potential future enhancement of our network
    through the deployment of next generation technologies; and                                                                               
|
| |  | capital expenditures required to support our back
    office operations and additional Nextel stores.                                                                                         

Our future capital expenditures are affected by
future technology improvements and technology choices. As
described in more detail above and in our 2003 annual report on
Form 10-K, we are implementing modifications to our
handsets and network infrastructure software necessary to
support deployment of the 6:1 voice coder that is designed to
more efficiently utilize radio spectrum and, thereby,
significantly increase the capacity of our network. We will
realize the benefits of this upgrade as handsets that operate
using the 6:1 voice coder for wireless interconnection are
introduced into our customer base and the related network
infrastructure software is activated. We have begun to sell
certain handset models that operate in both the 6:1 and current
3:1 modes and, in the third quarter 2004, we plan to expand
the number of handset models that operate in both modes so that
substantially all of the handset models being sold will operate
in both modes. We also plan to activate an updated version of
the 6:1 voice coder software in our network infrastructure
in

39



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##### 



selected markets during the third quarter 2004
and we expect to activate the network software in substantially
all of our other markets by the first quarter 2005. The updated
version of the network infrastructure software that we plan to
deploy includes modifications that allow handsets to shift
between 3:1 and 6:1 modes, which are designed to improve the
overall audio experience as compared with the current experience
while allowing us to realize significant increases in network
capacity. If there are substantial delays in the availability or
sale of handsets that are capable of operating in the 6:1 mode
or in the deployment or activation of the network software, or
if we are unable to deploy the network software due to the
performance of the technology or otherwise, the related network
capacity benefits would be delayed or reduced, and over time we
would be required to invest additional capital in our
infrastructure to satisfy our network capacity needs.
Development of technology enhancements like the 6:1 voice coder
would allow us to reduce the amount of capital expenditures we
would need to make to enhance our network voice capacity in
future years. However, any anticipated reductions in capital
expenditures could be offset to the extent we incur additional
capital expenditures to deploy next generation technologies. We
will deploy a next generation technology only when deployment is
warranted by expected customer demand and when the anticipated
benefits of services requiring this technology outweigh the
costs of providing those services. See
 Forward-Looking Statements.


Future Contractual Obligations.The following table sets forth our
best estimates as to the amounts and timing of contractual
payments for our most significant contractual obligations as of
June 30, 2004. The information in the table reflects future
unconditional payments and is based upon, among other things,
the terms of the relevant agreements, appropriate classification
of items under generally accepted accounting principles
currently in effect and certain assumptions, such as future
interest rates. Future events, including additional purchases of
our securities and refinancing of those securities, could cause
actual payments to differ significantly from these amounts. See
 Forward-Looking Statements.

|                                  |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|--------------------------------- |  | ------------- | ------ | --------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | ---------- | ----- |  |  | - | ----- |  |  | - | ----- |  |  | - | ------ | 
|                                  |  |               |        | Remainder |  |      |       |      |  |      |       |      |  | 2009 and  
|Future Contractual Obligations    |  | Total         |        | of 2004   |  | 2005 |       | 2006 |  | 2007 |       | 2008 |  | Thereafter
|                                  |  |               |        |           |  |      |       |      |  |      |       |      |  |           
|                                  |  |              
|                                  |  | (in millions)
|Public senior notes               |  | $             | 9,798  |           |  | $    | 226   |      |  | $    | 453   |      |  | $          | 453   |  |  | $ | 453   |  |  | $ | 453   |  |  | $ | 7,760  | 
|Bank credit facility(1)(2)        |  |               | 4,758  |           |  |      | 255   |      |  |      | 602   |      |  |            | 627   |  |  |   | 667   |  |  |   | 183   |  |  |   | 2,424  | 
|Preferred stock cash payments     |  |               | 245    |           |  |      |      |      |  |      |      |      |  |            |      |  |  |   |      |  |  |   |      |  |  |   | 245    | 
|Operating leases                  |  |               | 1,620  |           |  |      | 216   |      |  |      | 443   |      |  |            | 330   |  |  |   | 249   |  |  |   | 168   |  |  |   | 214    | 
|Purchase obligations and other(3) |  |               | 2,553  |           |  |      | 326   |      |  |      | 516   |      |  |            | 452   |  |  |   | 283   |  |  |   | 241   |  |  |   | 735    | 
|                                  |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 
|Total                             |  | $             | 18,974 |           |  | $    | 1,023 |      |  | $    | 2,014 |      |  | $          | 1,862 |  |  | $ | 1,652 |  |  | $ | 1,045 |  |  | $ | 11,378 | 
|                                  |  |               |        |           |  |      |       |      |  |      |       |      |  |            |       |  |  |   |       |  |  |   |       |  |  |   |        | 



---



|    |                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | These amounts include principal amortization and
    estimated interest payments based on managements
    expectation as to future interest rates, assume the current
    payment schedule and exclude any additional drawdown under the
    revolving loan commitment.   
|   
|(2) | These amounts do not include the effect of the
    July 2004 amendment to our bank credit facility as discussed
    above.                                                                                                                                                 
|   
|(3) | These amounts do not take into account any
    potential payments to the FCC or other third parties in
    connection with the Report and Order adopted by the FCC to
    resolve the problem of interference with public safety systems
    operating in the 800 MHz band.

In addition, we have about $2 billion of
open purchase orders for goods or services as of June 30,
2004 that are enforceable and legally binding and that specify
all significant terms, but are not recorded as liabilities as of
June 30, 2004. We expect these commitments to become due in
2004. The above table excludes amounts that may be paid or will
be paid in connection with spectrum acquisitions. We have
committed, subject to certain conditions which may not be met,
to pay up to about $135 million for spectrum leasing
agreements and acquisitions. Included in the Purchase
obligations and other caption are minimum amounts due
under some of our most significant service contracts, including
agreements for telecommunications and customer billing services,
advertising services and contracts related to our information
and technology and customer care outsourcing arrangements.
Amounts actually paid under some of these other
agreements will likely be higher due to variable components of
these agreements. The more significant variable components that
determine the ultimate obligation owed include items such as
hours contracted,

40



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##### 



subscribers, and other factors. In addition, we
are party to various arrangements that are conditional in nature
and obligate us to make payments only upon the occurrence of
certain events, such as the delivery of functioning software or
products. Because it is not possible to predict the timing or
amounts that may be due under these conditional arrangements, no
such amounts have been included in the table above. Significant
amounts expected to be paid to Motorola for infrastructure,
handsets and related services are not shown above due to the
uncertainty surrounding the timing and extent of these payments.
The minimum contractual amounts under our agreements with
Motorola have been included in the table above. Motorola and we
have extended through 2004 the terms of our handset and
infrastructure supply agreements and are in the process of
negotiating a long-term master supply agreement.


In addition, the table above excludes amounts
that we may be required to or elect to pay with respect to the
purchase of equity interests in Nextel Partners. In January
1999, we entered into agreements with Nextel Partners and other
parties, including Motorola, relating to the formation,
capitalization, governance, financing and operation of Nextel
Partners. Nextel Partners is constructing and operating a
network utilizing the iDEN technology used in our network. In
addition, the certificate of incorporation of Nextel Partners
establishes circumstances in which we will have the right or
obligation to purchase the outstanding shares of class A common
stock of Nextel Partners at specified prices. We may pay the
consideration for such a purchase in cash, shares of our stock,
or a combination of both. Subject to certain limitations and
conditions, including possible deferrals by Nextel Partners, we
will have the right to purchase the outstanding shares of Nextel
Partners class A common stock on January 29, 2008. We
may not transfer our interest in Nextel Partners to a third
party before January 29, 2011, and Nextel Partners
class A common stockholders have the right, and in specified
instances the obligation, to participate in any sale of our
interest. Additional information regarding the circumstances in
which we may be required to purchase the outstanding shares of
Nextel Partners class A common stock can be found in our
2003 annual report on Form 10-K.

Future Outlook.Since the third quarter 2002, our
total cash flows provided by operating activities have exceeded
our total cash flows used in investing and scheduled debt
repayment obligations. We expect to meet our funding needs for
at least the next twelve months by using our cash balances on
hand, funds available under our credit facility and anticipated
cash flows from operating activities. See 
Forward-Looking Statements.

In making this assessment, we have considered:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the anticipated level of capital expenditures;                                                                                                                                                                                                                                                                                                                                                              
|
| |  | our scheduled debt service requirements;                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | our current expectations regarding the
    anticipated timing and amount of our funding obligations, and
    the related requirement that we deliver letters of credit in the
    amount of $2,500 million securing those obligations,
    pursuant to the FCCs recently announced decision relating
    to the realignment of spectrum in the 800 MHz band as described
    in the FCCs news release; and
|
| |  | other future contractual obligations.                                                                                                                                                                                                                                                                                                                                                                       

We have existing cash, cash equivalents and
short-term investments on hand and available of
$2,094 million as of June 30, 2004. As discussed
above, in July 2004, we amended our bank credit facility to
provide for a new $4,000 million revolving credit facility. As a
result of this transaction and the related repayment of our
existing term loan and outstanding revolving loan, as of
June 30, 2004, on a pro forma basis taking into account the
amendment to our credit facility, we have increased our total
liquidity to $4,594 million consisting of
$1,618 million of cash, cash equivalents and short-term
investments and $2,976 million available under the amended
credit facility, subject to the terms and conditions of that
facility. Pursuant to the FCCs recently announced decision
relating to the spectrum realignment, $2,500 million of the
availability under our amended credit facility would be used to
obtain a letter of credit to secure certain of our obligations
relating to that decision.

If our business plans change, including as a
result of changes in technology, or if economic conditions in
any of our markets generally or competitive practices in the
mobile wireless telecommunications industry

41



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##### 



change materially from those currently prevailing
or from those now anticipated, or if other presently unexpected
circumstances arise that have a material effect on the cash flow
or profitability of our mobile wireless business, the
anticipated cash needs of our business could change
significantly.


That conclusion also does not take into account:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the impact of our participation in any future
    auctions for the purchase of licenses for significant amounts of
    spectrum;                             
|
| |  | any significant acquisition transactions or the
    pursuit of any significant new business opportunities other than
    those currently being pursued by us;
|
| |  | the funding required in connection with a
    deployment of next generation technologies;                                                                    
|
| |  | potential material additional purchases or
    redemptions of our outstanding debt securities and preferred
    stock for cash; and                          
|
| |  | potential material increases in the cost of
    compliance with regulatory mandates, including regulations
    related to Phase II E911 service.             

Any of these events or circumstances could
involve significant additional funding needs in excess of the
identified currently available sources, and could require us to
raise additional capital to meet those needs. Our ability to
raise additional capital, if necessary, is subject to a variety
of additional factors that we cannot presently predict with
certainty, including:



| |   |                                                          
| | - | ---------------------------------------------------------
| |  | the commercial success of our operations;                
|
| |  | the volatility and demand of the capital markets;
    and
|
| |  | the market prices of our securities.                     

We have had in the past, and may in the future
have, discussions with third parties regarding potential sources
of new capital to satisfy actual or anticipated funding needs.
At present, other than the existing arrangements that have been
consummated or are described in this report, we have no legally
binding commitments or understandings with any third parties to
obtain any material amount of additional capital. The entirety
of the above discussion also is subject to the risks and other
cautionary and qualifying factors set forth under 
Forward-Looking Statements.

Forward-Looking Statements

Safe Harbor Statement under the
Private Securities Litigation Reform Act of 1995.A number of the statements made
in, or incorporated by reference into, this quarterly report, or
that are made in other reports that are referred to in this
quarterly report, are not historical or current facts, but deal
with potential future circumstances and developments. They can
be identified by the use of forward-looking words such as
believes, expects, plans,
may, will, would,
could, should or anticipates
or other comparable words, or by discussions of strategy that
may involve risks and uncertainties. We caution you that these
forward-looking statements are only predictions, which are
subject to risks and uncertainties including technological
uncertainty, financial variations, changes in the regulatory
environment, industry growth and trend predictions. The
operation and results of our wireless communications business
may be subject to the effect of other risks and uncertainties in
addition to the relevant qualifying factors identified in the
foregoing Managements Discussion and Analysis of
Financial Condition and Results of Operations, including,
but not limited to:



| |   |                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the success of efforts to improve, and
    satisfactorily address any issues relating to, our network
    performance;                                          
|
| |  | the timely development and availability of new
    handsets with expanded applications and features, including
    those that operate using the 6:1 voice coder;

42



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##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the timely development and deployment of higher
    speed data infrastructure and software designed to significantly
    increase the data speeds of our network;                                                                                                                                                                                                                                                                              
|
| |  | market acceptance of our data service offerings,
    including our Nextel Online services;                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the timely delivery and successful implementation
    of new technologies deployed in connection with any future
    enhanced iDEN or next generation or other advanced services we
    may offer;                                                                                                                                                                                                                                             
|
| |  | no significant adverse change in Motorolas
    ability or willingness to provide handsets and related equipment
    and software applications, to develop new technologies or
    features for us, or to reimburse us for our costs related to the
    A-GPS software design defect, or in our relationship with it, as
    a result of the spin-off of its semiconductor unit, recent
    changes in its senior management team or otherwise;
|
| |  | the ability to achieve and maintain market
    penetration and subscriber revenue levels sufficient to provide
    financial viability to our network business;                                                                                                                                                                                                                                                                                
|
| |  | our ability to successfully scale, in some
    circumstances in conjunction with third parties under our
    outsourcing arrangements, our billing, collection, customer care
    and similar back-office operations to keep pace with customer
    growth, increased system usage rates and growth in levels of
    accounts receivable being generated by our customers;                                                                     
|
| |  | access to sufficient debt or equity capital to
    meet any operating and financing needs;                                                                                                                                                                                                                                                                                                                                                     
|
| |  | the quality and price of similar or comparable
    wireless communications services offered or to be offered by our
    competitors, including providers of cellular and personal
    communication services including, for example, two-way
    walkie-talkie services first introduced by several of our
    competitors in 2003;                                                                                                            
|
| |  | future legislation or regulatory actions relating
    to specialized mobile radio services, other wireless
    communications services or telecommunications generally;                                                                                                                                                                                                                                                                        
|
| |  | the costs of compliance with regulatory mandates,
    particularly requirements related to the FCCs recently
    announced decision relating to the realignment of spectrum in
    the 800 MHz band as described in the FCCs news release and
    the requirement to deploy Phase II location-based E911
    capabilities; and                                                                                                               
|
| |  | other risks and uncertainties described from time
    to time in our reports filed with the Securities and Exchange
    Commission, including our annual report on Form 10-K for
    the year ended December 31, 2003 and our subsequent
    quarterly report on Form 10-Q.                                                                                                                                                                    



|        |                                                                
|------- | ---------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures About
    Market Risk.

We primarily use senior notes, credit facilities,
mandatorily redeemable preferred stock and issuances of common
stock to finance our obligations. We are exposed to market risk
from changes in interest rates and equity prices. Our primary
interest rate risk results from changes in the London Interbank
Offered Rate, or LIBOR, and U.S. prime and Eurodollar rates,
which are used to determine the interest rates applicable to our
borrowings under our bank credit facility. Interest rate changes
expose our fixed rate long-term borrowings to changes in fair
value and expose our variable rate long-term borrowings to
changes in future cash flows. From time to time, we use
derivative instruments primarily consisting of interest rate
swap agreements to manage this interest rate exposure by
achieving a desired proportion of fixed rate versus variable
rate borrowings. All of our derivative transactions are entered
into for non-trading purposes. As of June 30, 2004, we were
not a party to any material derivative instruments.

As of June 30, 2004, we held
$1,012 million of short-term investments and
$1,082 million of cash and cash equivalents primarily
consisting of investment grade commercial paper, government
securities and money market deposits. Our primary interest rate
risk on these short-term investments and cash and cash
equivalents results from changes in short-term (less than six
months) interest rates. However, this risk is largely offset by
the fact that interest on our bank credit facility borrowings is
variable and is reset over periods of less than six months.

43



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##### 



The table below summarizes our remaining interest
rate risks as of June 30, 2004 in U.S. dollars. Since our
financial instruments expose us to interest rate risks, these
instruments are presented within each market risk category. The
table presents principal cash flows and related interest rates
by year of maturity for our senior notes, bank credit
facilities, finance obligations and mandatorily redeemable
preferred stock in effect at June 30, 2004. In the case of
the mandatorily redeemable preferred stock and senior notes, the
table excludes the potential exercise of the relevant redemption
or conversion features. Fair values included in this section
have been determined based on:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | quoted market prices for senior notes, loans
    under our bank credit facility and mandatorily redeemable
    preferred stock; and
|
| |  | present value of future cash flows for our
    finance obligation using a discount rate available for similar
    obligations.     

Notes 6, 7, and 8 to the consolidated financial
statements included in our 2003 annual report on Form 10-K
contain descriptions and significant changes in outstanding
amounts of our senior notes, bank credit facility, capital lease
and finance obligations, interest rate swap agreements and
mandatorily redeemable preferred stock and should be read
together with the following table.

|                                                                                  |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |       | 
|--------------------------------------------------------------------------------- | --------------------- | --------------------- | - | ---- | - | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | -- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | 
|                                                                                  |                       |                       |   |      |   |      |   |     
|                                                                                  |                       | Year of Maturity      |   |      |   |      |   |     
|                                                                                  |                       |                       |   |      |   |      |   | Fair
|                                                                                  |                       | 2004                  |   | 2005 |   | 2006 |   | 2007 |   | 2008 |   | Thereafter |   | Total |   | Value
|                                                                                  |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |      
|                                                                                  |                       |                      
|                                                                                  |                       | (dollars in millions)
|I. Interest Rate Sensitivity                                                      |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|Mandatorily Redeemable Preferred Stock,
    Long-term Debt and Finance Obligation |                       |                       |   |      |   |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |       |   |  |   |       |   |  |   |      
|                                                                                  | Fixed rate            |                       | $ |     |   |      | $ | 1    |   |      | $ | 1          |   |       | $ | 5     |   |  | $ |   |   |  | $ | 6,163 |   |  | $ | 6,170 |   |  | $ | 6,200 | 
|                                                                                  | Average interest rate |                       |   | 8    | % |      |   | 8    | % |      |   | 8          | % |       |   | 8     | % |  |   |   |   |  |   | 8     | % |  |   | 8     | % |  |   |       | 
|                                                                                  | Variable rate         |                       | $ | 182  |   |      | $ | 427  |   |      | $ | 460        |   |       | $ | 499   |   |  | $ | 22 |   |  | $ | 2,090 |   |  | $ | 3,680 |   |  | $ | 3,694 | 
|                                                                                  | Average interest rate |                       |   | 2    | % |      |   | 2    | % |      |   | 2          | % |       |   | 2     | % |  |   | 4  | % |  |   | 4     | % |  |   | 3     | % |  |   |       | 

Item 4.     Controls
and Procedures.

We maintain a set of disclosure controls and
procedures that are designed to ensure that information relating
to Nextel Communications, Inc. (including its consolidated
subsidiaries) required to be disclosed in our periodic filings
under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported in a timely manner under the
Securities Exchange Act. We carried out an evaluation, under the
supervision and with the participation of management, including
our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure
controls and procedures. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures were effective as of
June 30, 2004.

We completed the implementation of an ERP system
in the first quarter 2004. The implementation was part of a
company-wide initiative to improve business processes and
efficiency. As a matter of course in such implementations, we
continue to update our internal controls over financial
reporting as necessary to accommodate any modifications to our
business processes or accounting procedures. There have been no
other changes in our internal controls over financial reporting
that occurred during the six months ended June 30, 2004
that have materially affected, or are reasonably likely to
materially affect, Nextels internal controls over
financial reporting.

44



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##### 



PART II  OTHER INFORMATION.

Item 1.     Legal
Proceedings.

We are involved in certain legal proceedings that
are described in our annual report on Form 10-K for the
year ended December 31, 2003, and our subsequent quarterly
report on Form 10-Q for the quarterly period ended
March 31, 2004. During the three months ended June 30,
2004, there were no material developments in the status of those
legal proceedings that have not been previously disclosed in
those reports, except as set forth below.

Although the court has approved our
previously-reported settlement with plaintiffs who purport to
represent a nationwide class of affected customers in a lawsuit
that has been filed against us challenging the manner by which
we recover the costs (including costs to implement changes to
our network) to comply with federal regulatory requirements to
provide location-based E911 capabilities, telephone number
pooling and telephone number portability, the courts
approval is being appealed by certain of the plaintiffs in the
proceedings. In general, the claims that are the subject of the
settlement allege that our rate structure that breaks out and
assesses federal program cost recovery fees on monthly customer
bills is misleading and unlawful. If the courts approved
settlement, for which we accrued an expense in 2003, is upheld,
it would render moot a majority of these lawsuits, and would not
have a material effect on our business or results of operations.

We are subject to other claims and legal actions
that arise in the ordinary course of business. We do not believe
that any of these other pending claims or legal actions will
have a material effect on our business or results of operation.

Item 4.     Submission
of Matters to a Vote of Security Holders.

On May 27, 2004, we held our 2004 annual
meeting of stockholders in Reston, Virginia. Only holders of
record of our class A common stock on the record date of
April 2, 2004 were entitled to vote at the annual meeting.
As of the record date, there were 1,073,169,015 shares of class
A common stock outstanding.

The following matters were submitted for a vote
at our annual meeting:

Proposal 1To elect directors to hold
office for a three-year term ending on the date of our annual
meeting of stockholders in 2007.

Set forth below is information regarding the
946,976,559 shares of class A common stock voted in the election
of the following two directors.

|              |  |     |             |          |  |  |            | 
|------------- |  | --- | ----------- | -------- |  |  | ---------- | 
|Name          |  | For |             | Withheld
|              |  |     |             |         
|Keith J. Bane |  |     | 923,332,295 |          |  |  | 23,644,264 | 
|V. Janet Hill |  |     | 883,589,796 |          |  |  | 63,386,763 | 

The following are the names of each of our other
directors whose term of office continued after the annual
meeting:

Directors Holding Office Until 2005:Timothy M. Donahue, Frank M.
Drendel and William E. Kennard.

Directors Holding Office Until 2006: William E. Conway, Jr., Morgan E.
OBrien, Stephanie M. Shern.


Proposal 2To ratify the appointment of
Deloitte & Touche LLP as our independent auditors to audit
our consolidated financial statements for the fiscal year ending
December 31, 2004.

Set forth below is information regarding the
946,976,559 shares of class A common stock voted on this matter.

|      |  |     |             |         |  |                |            |            |  |  |   |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | - |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 851,702,025 |         |  |                | 88,622,390 |            |  |  | 0 |  |  |  | 6,652,144 | 

45



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##### 



Proposal 3To approve the Nextel
Communications, Inc. Amended and Restated Associate Stock
Purchase Plan.

Set forth below is information regarding the
946,976,559 shares of class A common stock voted on this matter.

|      |  |     |             |         |  |                |            |            |  |  |             |  |  |  |           | 
|----- |  | --- | ----------- | ------- |  | -------------- | ---------- | ---------- |  |  | ----------- |  |  |  | --------- | 
|      |  | For |             | Against |  | Broker Nonvote |            | Abstention
|      |  |     |             |         |  |                |            |           
|Total |  |     | 772,357,407 |         |  |                | 19,837,027 |            |  |  | 148,831,689 |  |  |  | 5,950,436 | 

Item 5.     Other
Information.

Proposed Public Safety Spectrum
Realignment.As part of the
ongoing FCC proceeding to eliminate interference with public
safety operators in the 800 MHz band discussed in more
detail in our 2003 annual report on Form 10-K, on
July 8, 2004, the FCC adopted a Report and Order under
which modifications would be made to some of our FCC licenses
and related rules would be implemented in order to realign
spectrum in the 800 MHz band in order to resolve the
problem of interference with public safety systems operating in
that band. The FCC has indicated in a news release issued
July 8, 2004, that it intends to adopt and implement a band
realignment plan similar to the joint proposals submitted by us
and the leading public safety associations, including our
receipt of a license for 10 MHz of spectrum in the
1.9 GHz band.

The FCC stated in its news release that it has
determined the value of the license for the 1.9 GHz
spectrum to be $4.8 billion, less the cost of relocating
incumbent users and that it would credit to us both the value of
licenses for spectrum in the 700 MHz and 800 MHz bands
that we relinquish under the decision and the actual costs we
incur to relocate all incumbents in the 800 MHz band, but
that we will be required to make an anti-windfall
payment to the United States Department of the Treasury at the
conclusion of the relocation process to the extent that these
combined credits total less than the determined value of the
license for the 1.9 GHz spectrum. The FCC also stated in
its news release that, to ensure that the band reconfiguration
process will be completed, it will require us to establish
certain escrow accounts and a letter of credit in the amount of
$2.5 billion in order to provide assurance that funds will
be available to pay specified costs relating to the relocation
of the incumbent users of the 800 MHz spectrum.

After 6:30 p.m. on the evening of
August 6, 2004, the date of this report, the FCC released
the 256-page Report and Order, which we have not had an
opportunity to review to fully understand the implications to
us, including any potential impairment of our 700 MHz
licenses.

Global Positioning System and Enhanced 911
Services.Our suite of advanced
wireless services includes a wide array of location-based
services, such as fleet and workforce management services, that
give our customers the ability to locate handsets in real time
using A-GPS technology. In addition, as described in more detail
in our 2003 annual report on Form 10-K, FCC regulations
require that commercial mobile radio service, or CMRS,
providers, including us, provide E911 services to their
customers in two phases. The Phase I E911 regulations
require CMRS providers to transmit the location of the
transmitter and receiver site from which the call is being made
to the designated public safety answering point, or PSAP,
dispatch center. The Phase II E911 regulations require that
the CMRS providers transmit more accurate location information
to the PSAP and mandate that, by December 31, 2005, 95% of
our total subscriber base use handsets that enable us to
transmit the more accurate location information. To meet these
Phase II requirements, we have deployed technology that
enables us to transmit latitude and longitude information from a
handset equipped with A-GPS technology to PSAPs that are
equipped to receive such information. Although most handsets
that we currently offer are equipped with A-GPS technology, a
majority of handsets currently in use by our existing
subscribers are not A-GPS capable.

In July 2004, we discovered a latent software
design defect that impaired both the A-GPS location service and
Phase II E911 capabilities of a number of recently
introduced handsets manufactured by Motorola that incorporate
the A-GPS technology. Emergency 911 calls from these handsets
generally continued to meet the Phase I E911 requirements,
and the handsets were and continue to be fully operational with
regard to all other services, including cellular phone, Direct
Connect walkie-talkie, and wireless data services.

46



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In order to restore A-GPS capabilities, it will
be necessary to install a handset software upgrade developed by
Motorola. Motorola is making necessary handset production
modifications and is upgrading the software in our existing
handset inventory so that newly delivered handsets will have all
A-GPS functionality. Motorola and we are exploring ways in which
we can upgrade the software in A-GPS handsets of existing
subscribers in a customer-convenient and cost-effective manner
in order to restore all A-GPS functionality to those handsets.
Motorola, as the manufacturer of the handsets, is taking all
appropriate actions in response to this issue. Motorola has
indicated in discussions with our senior management that it is
responsible for, and will reimburse our costs to remedy, the
A-GPS software issue. Consequently, we do not believe that this
matter will materially impact our results of operations or
financial condition.

We described the impact of the software design
defect in our August 2, 2004 report to the FCC that
summarized our progress to date with regard to meeting the
Phase I and Phase II E911 requirements. Based on our
assessment of the impact of the design defect and our estimates
regarding the rate at which our customer base is expected to
transition to handsets equipped with A-GPS technology, we
notified the FCC in our August 2nd report that we may be
unable to satisfy by December 31, 2005 the Phase II
requirement that 95% of our total subscriber base use handsets
that enable us to transmit location information that meets the
Phase II requirements, and that the A-GPS software design
defect has exacerbated the situation.

Our ability to meet the Phase II
requirements and the costs we may incur in an effort to
accelerate our customers transition to A-GPS capable
handsets to meet these requirements could be significant, and
will be dependent on a number of factors, including the number
of new subscribers added to our network who purchase A-GPS
capable handsets, the number of existing subscribers who upgrade
from non-A-GPS capable handsets to A-GPS capable handsets, the
rate of our customer churn and the cost of A-GPS capable
handsets.

Local Number Portability.In November 2003, wireless
providers launched telephone number portability in the
nations top 100 markets. Portability enables customers to
keep their telephone numbers when they change carriers within
established geographic markets. On May 24, 2004, number
portability became effective in all remaining markets among all
carriers. A petition for reconsideration remains pending, and a
grant of the petition would inhibit the nationwide roll-out of
local number portability and the ability of consumers in the
relevant service areas to port their telephone numbers,
including potentially to wireless carriers, like us.

Consumer Protection Rules.On May 27, 2004, the
California Public Utilities Commission adopted consumer
protection rules that govern virtually every aspect of the
relationship between telecommunications carriers, including us,
and their customers, relating to, among other things,
advertising and marketing of carrier services, the initiation
and provisioning of services, including a mandatory 30-day
return policy, billing and collection for services and customer
care. With a few exceptions, carriers must comply with the new
rules by December 6, 2004. In July 2004, we filed an
application for rehearing and a motion to stay the rules until
there has been a ruling on the application for rehearing, which
remains pending.

MMDS Rebanding.On July 29, 2004, the FCC
released a Report and Order and Further Notice of Proposed
Rulemaking to transform the rules and policies governing the
licensing of the instructional television fixed service, or
ITFS, and the MMDS in the 2500-2690 MHz band. The order
restructures the band to provide both existing ITFS and MMDS
licensees and potential new entrants with greater flexibility to
utilize the spectrum. The order eliminates the use of
interleaved channels by licensees and creates distinct band
segments for high power operations and low power operations. The
order also implements geographic area licensing for all
licensees in the band and allows licensees to employ the
technology of their choice.

Outage Reporting.On August 4, 2004 the FCC
adopted new regulations that will require all telecommunications
carriers, including us, to report network outages to the FCC.
This requirement may impact the manner in which we track and
gather data regarding system outages and repair outages.

47



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##### 



Item 6.     Exhibits
and Reports on Form 8-K.

(a) List of Exhibits.

|        |    |                     |  |                                                                                                                                                                                                                                                                                                                                                              
|------- | -- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  | .1                  |  | Second Amended and Restated Credit Agreement,
    dated July 15, 2004, among Nextel Communications, Inc.,
    Nextel Finance Company and the other Restricted Companies party
    thereto, the Revolving Credit Lenders party thereto and JPMorgan
    Chase Bank, as Administrative Agent and Collateral Agent.                                             
|        | 10 | .1                  |  | Nextel Communications, Inc. Amended and Restated
    Associate Stock Purchase Plan (filed on April 6, 2004 as
    Annex A to the proxy statement in connection with the 2004
    annual meeting of stockholders of Nextel
    Communications, Inc. and incorporated herein by reference).                                                                    
|        | 10 | .2                  |  | Amendment No. 9 to Amended and Restated
    Shareholders Agreement by and among Nextel Partners, Inc.
    and the stockholders named therein. (filed by Nextel Partners on
    May 10, 2004 as Exhibit 10.2(i) to Nextel Partners
    quarterly report on Form 10-Q for the quarterly period
    ended March 31, 2004 and incorporated herein by reference).
|        | 10 | .3                  |  | Form of Indemnification Agreement between Nextel
    Communications, Inc. and each of its directors and officers.                                                                                                                                                                                                                                            
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report.                                                                                                                                                                                                                                                                                                                 
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications.                                                                                                                                                                                                                                                                                                                     
|        | 32 |                     |  | Section 1350 Certifications.                                                                                                                                                                                                                                                                                                                                 

(b) Reports on Form 8-K filed with the
Securities and Exchange Commission.



| |    |                                                                                                                                                                                                                                                                         
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Current report on Form 8-K dated and filed
    April 22, 2004, reporting certain financial and operating
    results under Item 5 and furnishing a press release
    announcing certain financial and operating results for the first
    quarter of 2004 under Item 12.
|
| | 2. | Current report on Form 8-K dated and filed
    May 24, 2004, furnishing a press release announcing that
    financial guidance would be reaffirmed at a conference under
    Item 9.                                                                                    

48



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##### 



SIGNATURE

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



| |                            
| | ---------------------------
| | NEXTEL COMMUNICATIONS, INC.



| |     |                      
| | --- | ---------------------
| | By: | /s/ WILLIAM G. ARENDT

| |                                     
| | ------------------------------------
| |                                     
| | William G. Arendt                   
| | Senior Vice President and Controller
| | (Principal Accounting Officer)      

Date: August 6, 2004


49



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##### 



EXHIBIT INDEX

|        |    |                     |  |                                                                                                                                                                                                                                                                                                                 
|------- | -- | ------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |                    
|Number  |    | Exhibit Description
|        |    |                    
|        | 4  | .1                  |  | Second Amended and Restated Credit Agreement,
    dated July 15, 2004, among Nextel Communications, Inc.,
    Nextel Finance Company and the other Restricted Companies party
    thereto, the Revolving Credit Lenders party thereto and JPMorgan
    Chase Bank, as Administrative Agent and Collateral Agent.
|        | 10 | .3                  |  | Form of Indemnification Agreement between Nextel
    Communications, Inc. and each of its directors and officers.                                                                                                                                                                                               
|        | 15 |                     |  | Letter in Lieu of Consent for Review Report.                                                                                                                                                                                                                                                                    
|        | 31 |                     |  | Rule 13a-14(a)/15d-14(a) Certifications.                                                                                                                                                                                                                                                                        
|        | 32 |                     |  | Section 1350 Certifications.