UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
xFOR ANNUAL REPORTAND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20012003
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-30110
SBA COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Florida | 65-0716501 | |
(State or other jurisdiction incorporation or organization) | (I.R.S. Employer Identification No.) |
5900 Broken Sound Parkway NW Boca Raton, Florida | 33487 | |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx No¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yesx No¨
The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $173.7$132.2 million as of March 19, 2002.
The number of shares outstanding of the Registrant’s common stock (as of March 19, 2002)10, 2004):
Class A Common Stock—44,166,395common stock—56,017,207 shares
Documents Incorporated By Reference
Portions of the Registrant’s definitive proxy statement for its 20022004 annual meeting of shareholders, which proxy statement will be filed no later than 120 days after the close of the Registrant’s fiscal year ended December 31, 2001,2003, are hereby incorporated by reference in Part III of this Annual Report on Form 10-K.
PART I
ITEM 1. | BUSINESS |
General
We are a leading independent owner and operator of over 3,000 wireless communications towers in the eastern third of the United States and Puerto Rico.States. We generate revenues from our two primary businesses, site leasing and site development. In our site leasing business, we lease antenna space to wireless service providers on towers and other structures that we own or manage for or lease from others. The towers that we own have either been builtconstructed by us at the request of a wireless carrier, or built or acquiredconstructed based on our own initiative.initiative or acquired. We have built approximately 60% of our currently owned towers. As of December 31, 2001,2003, we owned or controlled 3,734 towers. We expect to build or acquire approximately 250 to 3503,093 towers during 2002.of which 3,032 are in continuing operations. In our site development business, we offer wireless service providers assistance in developing and maintaining their own networks, including designing a network with signal coverage, identifying and acquiring locations to place their antennas and transmission equipment, obtaining zoning approvals, building towers when necessary and installing their antennas and transmission equipment.wireless service networks. Since our founding in 1989, we have participated in the development of more than 15,00025,000 antenna sites in 49 of the 51 major wireless markets in the United States.
Site Leasing Services
Year ended December 31, | ||||||||||
1997 | 1998 | 1999 | 2000 | 2001 | ||||||
Towers owned at the beginning of period | — | 51 | 494 | 1,163 | 2,390 | |||||
Towers built | 15 | 310 | 438 | 779 | 667 | |||||
Towers acquired | 36 | 133 | 231 | 448 | 677 | |||||
Towers owned at the end of period | 51 | 494 | 1,163 | 2,390 | 3,734 | |||||
Number of tenants at the end of period(1) | 135 | 601 | 1,794 | 4,904 | 7,693 |
Location of Towers | Total Built | Total Acquired | Grand Total | % of Total | |||||
Alabama | 59 | 78 | 137 | 3.7 | % | ||||
Arizona | 49 | 1 | 50 | 1.3 | % | ||||
Arkansas | 36 | 182 | 218 | 5.8 | % | ||||
California | 28 | 11 | 39 | 1.0 | % | ||||
Colorado | 9 | 12 | 21 | 0.6 | % | ||||
Connecticut | 60 | 10 | 70 | 1.9 | % | ||||
Delaware | 16 | 5 | 21 | 0.6 | % | ||||
Florida | 62 | 81 | 144 | 3.8 | % | ||||
Georgia | 227 | 48 | 275 | 7.4 | % | ||||
Idaho | 8 | 4 | 12 | 0.3 | % | ||||
Illinois | 24 | 29 | 53 | 1.4 | % | ||||
Indiana | 107 | 15 | 122 | 3.3 | % | ||||
Iowa | 35 | 8 | 43 | 1.2 | % | ||||
Kansas | 9 | 27 | 36 | 1.0 | % | ||||
Kentucky | 21 | 34 | 55 | 1.5 | % | ||||
Louisiana | 37 | 159 | 196 | 5.2 | % | ||||
Maine | 10 | 14 | 24 | 0.6 | % | ||||
Maryland | 10 | 20 | 30 | 0.8 | % | ||||
Massachusetts | 31 | 27 | 58 | 1.6 | % | ||||
Michigan | 45 | 6 | 51 | 1.4 | % | ||||
Minnesota | 6 | 20 | 26 | 0.7 | % | ||||
Mississippi | 51 | 71 | 122 | 3.3 | % | ||||
Missouri | 47 | 29 | 76 | 2.0 | % | ||||
North Carolina | 217 | 4 | 221 | 5.9 | % | ||||
North Dakota | — | 6 | 6 | 0.2 | % | ||||
Nebraska | 6 | 1 | 7 | 0.2 | % | ||||
Nevada | 1 | 1 | 2 | 0.1 | % | ||||
New Hampshire | 38 | 13 | 51 | 1.4 | % | ||||
New Jersey | 6 | 1 | 7 | 0.2 | % | ||||
New Mexico | 5 | 9 | 14 | 0.4 | % | ||||
New York | 81 | 49 | 130 | 3.5 | % | ||||
Ohio | 111 | 66 | 177 | 4.7 | % | ||||
Oklahoma | 38 | 29 | 67 | 1.8 | % | ||||
Oregon | 31 | 4 | 35 | 0.9 | % | ||||
Pennsylvania | 111 | 63 | 174 | 4.7 | % | ||||
Puerto Rico | 18 | 32 | 50 | 1.3 | % | ||||
Rhode Island | 3 | 2 | 4 | 0.1 | % | ||||
South Carolina | 133 | 5 | 138 | 3.7 | % | ||||
South Dakota | 2 | 5 | 7 | 0.2 | % | ||||
Tennessee | 150 | 88 | 238 | 6.4 | % | ||||
Texas | 52 | 172 | 224 | 6.0 | % | ||||
US Virgin Islands | 4 | — | 4 | 0.1 | % | ||||
Utah | 2 | 3 | 5 | 0.1 | % | ||||
Vermont | — | 9 | 9 | 0.2 | % | ||||
Virginia | 67 | 24 | 91 | 2.4 | % | ||||
Washington | 12 | 4 | 16 | 0.4 | % | ||||
West Virginia | 12 | 34 | 46 | 1.2 | % | ||||
Wisconsin | 115 | 9 | 124 | 3.3 | % | ||||
Wyoming | 7 | 1 | 8 | 0.2 | % | ||||
Total Towers | 2,209 | 1,525 | 3,734 | 100.0 | % | ||||
on the |
The following chart shows the number of towers we built for our own account, the number of towers we acquired, the number of towers we reclassified or disposed of, the number of towers held for sale and the number of towers owned for the periods indicated, before discontinued operations treatment:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||
Towers owned at the beginning of period | 3,877 | 3,734 | 2,390 | 1,163 | 494 | |||||||
Towers built | 13 | 141 | 667 | 779 | 438 | |||||||
Towers acquired | — | 53 | 677 | 448 | 231 | |||||||
Towers reclassified/disposed of (1) | (797 | ) | (51 | ) | — | — | — | |||||
Towers held for sale | (61 | ) | — | — | — | — | ||||||
Towers owned at the end of period | 3,032 | 3,877 | 3,734 | 2,390 | 1,163 | |||||||
(1) | Reclassifications reflect the combination for reporting purposes of multiple acquired tower structures on a single parcel of real estate, which we market and customers view as a single location, into a single owned tower site. Dispositions reflect the sale, conveyance or other legal transfer of owned tower sites. |
The following chart shows the number of towers owned for the periods indicated, after discontinued operations treatment:
For the years ended December 31, | ||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||
Towers owned at the end of the period | 3,032 | 3,030 | 2,910 | 1,830 | 902 |
As of December 31, 2003, we had 6,847 tenants on our 3,032 towers.
At December 31, 2003, our same tower revenue growth was 9.3% and our same tower site leasing gross profit growth was 16.1% on the 3,020 towers we owned as of December 31, 2002.
The following chart includes details regarding our site leasing revenues and gross profit percentage:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
(dollars in thousands) | ||||||||||||
Site leasing revenue | $ | 127,842 | $ | 115,081 | $ | 85,487 | ||||||
Percentage of total revenue | 60.3 | % | 47.9 | % | 38.0 | % | ||||||
Site leasing gross profit percentage contribution of total gross profit | 93.1 | % | 76.7 | % | 63.7 | % |
To help maximize the revenue and profit we earn from our capital investment in theour towers, we own, we have begun to provide services at our tower locations beyond the leasing of antenna space. TheseThe services which we provide, or may provide in the future, include generator provisioning, antenna installation, equipment installation, maintenance, and backhaul, which is the transport of the wireless signals transmitted or received by an antenna to a carrier’s network. Some of these services are part of our site leasing services (e.g., the generator provisioning) and are recurring in nature, and are contracted for by a wireless carrier or other user in a manner similar to the way they lease antenna space.
Site Development Services
Our site development business consists of two segments, site development consulting and site development construction, through which we provide wireless service providers a full range of end-to-end services. In the consulting segment of our site development business, we offer clients the following services: (1) network pre-design; (2) site audits; (3) identification of potential locations for towers and antennas; (4) support in buying or leasing of the location; and (5) assistance in obtaining zoning approvals and permits. In the construction segment of our site development business we provide a number of services, including, but not limited to the following: (1) tower and related site construction; (2) switch building construction; (3) antenna installation; and (4)(3) radio equipment installation, commissioning and service. We will continue to usemaintenance. Currently our largest site development expertiseproject is the network development contract we were awarded by Sprint Spectrum L.P. We estimate that this contract will generate approximately $70 to complement our site leasing business. We have capitalized on our leadership position$90 million in the site development business and our strong relationships with wireless service providers to build and acquire towers in locations that we believe are attractive to wireless service providers.
Our site development customers currently comprise manyinclude most of the major wireless communications and services companies, including AT&T Wireless, Bechtel Corporation, Cingular Wireless, General Dynamics, Nextel, Sprint PCS, T-Mobile and Verizon and VoiceStream.Wireless. Site development revenue was $139.7$84.2 million and $125.0 million for the years ended December 31, 2003 and 2002, respectively.
Our site development revenues and profit margins decreased significantly during the year ended December 31, 2001 and $115.9 million for2003 compared to the year ended December 31, 2000.
2002. This decrease was primarily attributable to a decline in capital expenditures by wireless carriers, particularly for our site development construction services, and increased competition, which adversely affected our volume of activity and the pricing for our services.
Business Strategy
Our primary strategy is to capture the maximum benefits from our position as a leading owner and operator of wireless communications towers and expand our position as a leading provider of site development services.towers. Key elements of our strategy include:
Focusing on Site Leasing Business with Stable, Recurring Revenues. We intend to continue to focus on and allocate substantially all of our capital resources to our site leasing business due to its attractive characteristics such as long-term contracts, built-in price escalators, high operating margins and low customer churn. The long-term nature of the revenue stream of our site leasing business makes it less volatile than our site development business which is more reactive to changes in industry conditions. By focusing on our site leasing business, we believe that we can maintain a stable, recurring cash flow stream and reduce our exposure to cyclical changes in customer spending.
Maximizing Use of Tower Capacity. We believe that many of our towers have significant capacity available for additional antennae and that increased use of our owned towers can be achieved at a low incremental cost. We generally have constructed our towers to accommodate multiple tenants in addition to the anchor tenant, and a substantial majority of our towers are high capacity lattice or guyed towers. Most of our towers have significant capacity available for additional antennas and we believe that increased use of our towers can be achieved at a low incremental cost. We actively market space on our own towers through our internal sales force.
Geographically Focusing our Tower Ownership.We have decided to focus our tower ownership geographically in the eastern third of the United States. We believe that focusing our site leasing activities in this smaller geographic area, where we have a higher concentration of towers, will improve our operating efficiencies, reduce our overhead expenses and produce higher revenue per tower.
Maintaining Low Cost Structure with Reduced Capital Expenditures. We believe we have a low cost structure and we intend to proactively manage our cost structure to reflect the size and stage of our business and changes in the business environment. In addition, we have significantly reduced our capital expenditures since 2001 and intend to maintain lower levels (compared to 1999 to 2001) of annual capital expenditures for the foreseeable future.
Using our Local Presence to Build Strong Relationships with Major Wireless Service Providers. Given the nature of towers as location specific communications facilities, we believe that substantially all of what we do is best done locally. Consequently, we have a broad field organization that allows us to develop and capitalize on our experience, expertise and relationships in each of our local markets, which in turn enhances our customer relationships. Due to our presence in local markets, we believe we are well positioned to capture additional site leasing business in our markets and identify and participate in site development projects across our markets.
Capturing Other Revenues That Flow From our Tower Ownership. Tenants who leaseTo help maximize the revenue and profit we earn from our capital investment in our towers, we provide services at our tower locations beyond the leasing of antenna space, on our towers need a variety of additional services in connection with their operations at the tower site. These services includeincluding antenna installation maintenance and upgrading of radio transmission equipment antennas, cabling and other connection equipment, electricity, backhaul (which is provided generally by telephone lines or a microwave antenna network), equipment shelters, data collection and network monitoring. Tenants often outsource the performance of some or all of these required services to third parties, including us.installation. Because of our ownership of the tower, our control of the tower site and our experience and capabilities in providing these types ofinstallation services, we believe that we are well positioned and intend, to perform more of these services and capture the related revenue.
Capitalizing on our Management Experience.Our management team has extensive experience in site leasing and site development services. Management believes that its industry expertise and strong relationships with wireless carriers will allow us to expand our position as a leading provider of site leasing and site development services.
BuildingCompany Services
We provide our services on Strong Relationships with Major Wireless Service Providers. Wea local basis, through regional offices, territory offices and project offices, some of which are well-positioned to beopened and closed on a preferred partner inproject-by-project basis. Operationally, we are divided into three regions throughout the United States, run by vice presidents. Each region is divided into sub-regions run by general managers and we have further divided each sub-region into geographic territories run by local managers. Within each manager’s geographic area of responsibility, he or she is responsible for all site development projectsoperations, including hiring employees and opening or closing project offices, and a substantial portion of the sales in such area.
Our executive, corporate development, accounting, finance, human resources, legal and regulatory, information technology and site administration personnel, and our network operations center are located in our headquarters in Boca Raton, Florida. Certain sales, new tower build support and tower space leasing because ofmaintenance personnel are also located in our strong relationships with wireless service and other telecommunications providers and our proven operating experience.
Customers
Since commencing operations, we have performed site leasing and site development services for manymost of the largest wireless service providers. The majority of our contracts have been for PCS, broadband,enhanced specialized mobile radio, or ESMR, and cellular customers.providers of wireless telephony services. We also serve wireless data and Internet, paging, PCS narrowband, SMR,specialized mobile radio, multi-channel multi-point distribution service, or MMDS, and multi-point distribution service, or MDS, wireless providers. In both our site development and site leasing businesses, we work with large national providers and smaller local, regional or private operators. ForWe depend on a relatively small number of customers for our site leasing and site development revenues. Of our total revenues for the year ended December 31, 2001, Nextel provided 11.6%, Sprint PCS provided 11.5% and Bechtel Corporation (contractor for AT&T Wireless) provided 10.9%2003, the following three customers represented at least 10% of our site development revenues. In 2000, Sprint PCS provided 10.8% and Alamosa provided 11.0%total revenues:
Percentage of Revenue | |||
Bechtel Corporation | 14.3 | % | |
AT&T Wireless | 10.8 | % | |
Cingular Wireless | 10.2 | % |
Of our site development revenue. Fortotal revenues for the year ended December 31, 2001, Nextel provided 10.4% of our site leasing revenues. In 2000, Nextel provided 10.6% and Sprint PCS provided 10.3% of our site leasing revenues. No other customer2002, the following three customers represented more thanat least 10% of our site leasing or site development revenues.
Percentage of Revenue | |||
Bechtel Corporation | 15.3 | % | |
Cingular Wireless | 12.6 | % | |
AT&T Wireless | 10.1 | % |
During the past two years, we provided services for a number of customers, including:
Airgate PCS | Nextel | |
Alamosa PCS | Nextel Partners | |
ALLTEL | ||
AT&T Wireless | Siemens | |
Bechtel Corporation | Sprint PCS | |
Triton PCS | ||
Horizon PCS | US Unwired | |
Verizon | ||
Sales and Marketing
Our sales and marketing goals are:are to:
We approach sales on a company-wide basis, involving many of our employees. We have a dedicated sales force that is supplemented by members of our executive management team. Our dedicated salespeople are based regionally as well as in the corporate office. We also rely on our regional vice presidents, general managers territory managers and other operations personnel to sell our services and cultivate customers. Our strategy is to delegate sales efforts to those employees of ours who have the best relationships with the wireless service providers.our customers. Most wireless service providers have national corporate headquarters with regional and local offices. We believe that providers at the regional and local levels make most decisions for site development and site leasing services at the regional and local levels with input from their corporate headquarters. Our sales representatives work with provider representatives at the regional and local levels and at the national level when appropriate. Our sales staff compensation is heavily weighted to incentive-based goals and measurements. A substantial number of our operations personnel have sales-basedrevenue and gross profit-based incentive components in their compensation plans.
In addition to our marketing and sales staff, we rely upon our executive and operations personnel onat the regional and territory office levels to identify sales opportunities within existing customer accounts.
Our primary marketing and sales support is centralized and directed from our headquarters office in Boca Raton, Florida and is supplemented by our regional and territory offices. We have a full-time staff dedicated to our marketing efforts. The marketing and sales support staff areis charged with implementing our marketing strategies, prospecting and producing sales presentation materials and proposals.
Competition
We compete with:
Wireless service providers that own and operate their own tower networks and several of the other tower companies generally are substantially larger and have greater financial resources than we do. We believe that tower location and capacity, quality of service, density within a geographic market and, to a lesser extent, price historically have been and will continue to be the most significant competitive factors affecting the site leasing business.
Our primary competitors for our site leasing activities are the fourfive large publicindependent tower companies, American Tower Corporation, Crown Castle International Corp., Pinnacle Holdings,Global Signal, Inc., SpectraSite, Inc., and SpectraSite Holdings, Inc.AAT Communications Corp., and a large number of smaller independent tower owners. In addition, we compete with AT&T Wireless, ServicesSprint PCS and with Sprint PCSother wireless service providers who currently market excess space on their owned towers to other wireless service providers.
We believe that the majority of our competitors in the site development business operate within local market areas exclusively, while some firms appear to offer their services nationally, including American Tower Corporation, Alcoa Fujikura Ltd., Bechtel Corporation, Black & Veach Corporation, General Dynamics Mastec, Mericom,Corporation, LCC International, Inc. and SpectraSite Holdings,Wireless Facilities, Inc. The market includes participants from a variety of market segments offering individual, or combinations of, competing services. The field of competitors includes site development consultants, zoning consultants, real estate firms, right-of-way consulting firms, construction companies, tower owners/managers, radio frequency engineering consultants, telecommunications equipment vendors, which provide end-to-end site development services through multiple subcontractors, and providers’ internal staff. We believe that providers base their decisions for site development services on a number of criteria, including a company’s experience, track record, local reputation, price and time for completion of a project. We believe that we compete favorably in these areas.
Employees
As of December 31, 2001,2003, we had approximately 1,350600 employees, none of whom is represented by a collective bargaining agreement. We consider our employee relations to be good. In February 2002, we announced that, in connection with our plan to significantly reduce our tower acquisition and new build programs, we would be closing certain offices and reducing personnel. As of March 1, 2002 we had approximately 1,100 employees as a result of this reduction and the number is expected to be further reduced through the remainder of 2002.
Regulatory and Environmental Matters
Federal Regulations.Both the Federal Communications Commission (“FCC”)FCC and the Federal Aviation Administration (“FAA”)FAA regulate antenna towers used forand structures that support wireless communications.communications and radio or television antennas. Many FAA requirements are implemented in FCC regulations. These regulations govern the construction, and markinglighting and painting or other marking of towers and structures and may, depending on the characteristics of particular towers or structures, require prior approval and registration of towers.towers or structures. Wireless communications devicesequipment and radio or television stations operating on towers or structures are separately regulated and independently licensed basedmay require independent licensing depending upon the particular frequency or frequency band used.
Pursuant to the requirements of the Communications Act of 1934, as amended, the FCC, in conjunction with the FAA, has developed standards to consider proposals forinvolving new or modified towers.antenna towers or structures. These standards mandate that the FCC and the FAA consider the height of the proposed tower structures,or structure, the relationship of the tower or structure to existing natural or man-made obstructions and the proximity of the towerstower or structure to runways and airports. Proposals to construct or to modify existing towers or structures above certain heights must be reviewed by the FAA to ensure the structure will not present a hazard to air navigation. The FAA may condition its issuance of a no-hazard determination upon compliance with specified lighting marking and/or painting requirements. TowersAntenna towers that meet certain height and location criteria must also be registered with the FCC. A tower or structure that
requires FAA clearance will not be registered by the FCC until it is cleared by the FAA. Upon registration, the FCC may also require special lighting marking and/or painting requirements.painting. Owners of wireless transmissioncommunications antenna towers and structures may have an obligation to maintain marking, painting and lighting to conform toor other marking in conformance with FAA and FCC standards. TowerAntenna tower and structure owners also bear the responsibility of monitoring any lighting systems and notifying the FAA of any tower lighting outage or malfunction. In addition, any applicant for an FCC antenna tower or structure registration must certify that, consistent with the Anti-Drug Abuse Act of 1988, neither the applicant nor its principals are subject to a denial of Federal benefits because of a conviction for the possession or distribution of a controlled substance. We generally indemnify our customers against any failure to comply with applicable regulatory standards. Failure to comply with the applicable requirements may lead to civil penalties.
The Telecommunications Act of 1996 amended the Communications Act of 1934 by preserving state and local zoning authoritiesauthorities’ jurisdiction over the construction, modification and placement of towers. The new law, however, limits local zoning authority by prohibiting any action that would (1) discriminate betweenamong different providers of personal wireless services or (2) ban altogether the construction, modification or placement of radio communication towers. Finally, the Telecommunications Act of 1996 requires the federal government to help licensees for wireless communications services gain access to preferred sites for their facilities. This may require that federal agencies and departments work directly with licensees to make federal property available for tower facilities.
Owners and operators of antenna towers and structures may be subject to, and therefore must comply with, environmental laws. Any licensed radio facility on aan antenna tower or structure is subject to environmental review pursuant to the National Environmental Policy Act of 1969, among other statutes, which requires federal agencies to evaluate the environmental impactsimpact of their decisions under certain circumstances. The FCC has issued regulations implementing the National Environmental Policy Act. These regulations place responsibility on each applicantapplicants to investigate any potential environmental effects of their operations and to disclose any potential significant effects on the environment in an environmental assessment prior to constructing a tower.or modifying an antenna tower or structure and prior to commencing operation of wireless communications or radio or television stations from the tower or structure. In the event the FCC determines the proposed towerstructure or operation would have a significant environmental impact based on the standards the FCC has developed, the FCC would be required to prepare an environmental assessment,impact statement, which will be subject to public comment. This process could significantly delay the registration of a particular tower.
As an owner and operator of real property, we are subject to certain environmental laws that impose strict, joint and several liability for the cleanup of on-site or off-site contamination and related personal or property damage. We are also subject to certain environmental laws that govern tower or structure placement, including pre-construction environmental studies. Operators of towers or structures must also take into consideration certain RFradio frequency (“RF”) emissions regulations that impose a variety of procedural and operating requirements. Certain proposals to operate wireless communications and radio or television stations from antenna towers and structures are also reviewed by the FCC to ensure compliance with requirements relating to human exposure to RF emissions. Exposure to high levels of RF energy can produce negative health effects. The potential connection between low-level RF emissionsenergy and certain negative health effects, including some forms of cancer, has been the subject of substantial study by the scientific community in recent years. We believe that we are in substantial compliance with and we have no material liability under any applicable environmental laws. These costs of compliance with existing or future environmental laws and liability related thereto may have a material adverse effect on our prospects, financial condition or results of operations.
State and Local Regulations.Most states regulate certain aspects of real estate acquisition, and leasing activities and construction activities. Where required, we conduct the site acquisition portions of our site development services business through licensed real estate brokersbrokers’ agents, who may be our employees or hired as independent contractors, and conduct the construction portions of our site development services
through licensed contractors, who may be our employees or independent contractors. Local regulations include city and other local
Recent DevelopmentsBacklog
Our backlog of pending leases for antenna space on our new tower build construction plantowers varies from time to time and operationreflects the relatively short-cycle of three to produce 100 to 150 new towers per quarter commencing with the third quarter of 2001, insteadsix months of the 200antenna space leasing process. Leasing backlogs vary widely within a fiscal quarter, and are generally lowest on the last day of a quarter as our customers strive to 250 new towers per quarter previously built or capable of being built by us. At that time we expected to build a total of approximately 600 to 700 new towers in 2001 and approximately 400 to 600 in 2002. In connection with this adjustment, we recorded a $24.4 million charge in the third quarter of 2001. Included in this charge was a write-off of costs previously reflected on our balance sheet as construction-in-process for certain new tower build sites for which development activity had been abandoned, costs of employee separation for certain employees and costs associated with the closing and consolidation of selected offices that were previously utilized primarily in our new tower development activities.
Our backlog for site development services was $58.8approximately $80 million as of December 31, 20012003 as compared to $61.0approximately $29 million as of December 31, 2000. Our2002. The increase in 2003 is attributable to a contract received from Sprint for site development work which is expected to result in revenues of $70 million to $90 million over a two year period of which approximately $60 million is reflected in backlog as of December 31, 2003. We had no backlog for pending tower acquisitions was 145 towers as of December 31, 2001 as compared2003.
Risks Related to 677 towers as of December 31, 2000. We were pursuing build-to-suit mandates for approximately 400 towers as of December 31, 2001 as compared to 600 as of December 31, 2000. As a result of actions we have taken in connection with our announced reduction of capital expenditures for new tower assets, our backlog of tower acquisitions and towers under build-to-suit mandates has been materially reduced. During the first quarter of 2002 we expect to acquire 40 to 50 towers. We do not anticipate having any material amount of pending tower acquisitions in our backlog as of March 31, 2002. We expect to build 60 to 70 towers during the first quarter of 2002 and to have build-to-suit mandates for approximately 160 towers in our backlog as of March 31, 2002. We anticipate that we will perform all of these services and complete the pending tower acquisitions during the current fiscal year.
RISK FACTORS
As indicated below, we have and will continue to have a significant amount of indebtedness relative to our equity size.
At December 31, 2001 | At December 31, 2000 | |||||
(in thousands) | ||||||
Total indebtedness | $ | 845,453 | $ | 284,273 | ||
Stockholders’ equity | $ | 450,644 | $ | 538,160 |
As of December 31, | ||||||
2003 | 2002 | |||||
(in thousands) | ||||||
Total indebtedness* | $ | 866,199 | $ | 1,019,046 | ||
Shareholders’ equity | $ | 43,877 | $ | 203,490 |
*Excludes |
Our ability to service our debt obligations will depend on our future operating performance. Based onOur earnings were insufficient to cover our outstanding debt as offixed charges for the year ended December 31, 2001,2003 by $162 million and $184 million for the year ended December 31, 2002. Subsequent to December 31, 2003 we obtained a new senior credit facility. A portion of the proceeds from this facility were used to repay the then existing credit facility, to purchase 12% senior discount notes in the open market, to redeem all 12% senior discount notes outstanding on March 1, 2004, and to repurchase 10¼% senior notes in the open market. As adjusted for these transactions, we would require approximately $56.8$53.5 million of cash flow from operating activities (before net cash interest expenses) to discharge our cash interest and principal obligations for the year ending December 31, 2004. By comparison, for the year ended December 31, 2003, we generated $56.7 million of cash flow from operations (before net cash interest expenses) to discharge our cash interest obligations for the twelve months ending December 31, 2002. By comparison, for the twelve months ended December 31, 2001, we generated $53.7 million of cash flow from operations (before net cash interest expenses). As we borrow under our senior credit facility, the amount of cash flow needed to fund our cash interest obligations will increase. This amount will increase materially in September 2003 once we begin to pay cash interest on our 12% senior discount notes and begin to amortize our $100.0 million term loan under our senior credit facility, $5.0 million of which is required to be repaid in 2003. If we do not materially increase our cash flow by then, we will not be able to meet our obligations. In order to manage our substantial amount of indebtedness, we may from time to time sell assets, issue equity, or
repurchase, restructure or refinance some or all of our debt. We may not be able to effecteffectuate any of these alternative strategies on satisfactory terms, if at all. The implementation of any of these alternative strategies may dilute our current shareholders or subject us to additional costs or restrictions on our ability to manage our business and as a result could have a material adverse effect on our financial condition and growth strategy.
We pay interestmay not have sufficient liquidity or cash flow from operations to repay the remaining amount of our outstanding senior credit facility, our 10¼% senior notes and our 9¾% senior discount notes upon their respective maturities in 2008, 2009 and 2011. Therefore, prior to the maturity of our outstanding debt we may be required to refinance and/or restructure some or all of this debt. There can be no assurance that we will be able to refinance or restructure this debt on amounts outstandingacceptable terms or at all. If we were unable to refinance, restructure or otherwise repay the principal amount of this debt upon its maturity, we may need to sell assets, cease operations and/or file for protection under the bankruptcy laws.
As of December 31, 2003, adjusted for the transactions discussed above, we would have had approximately $21 million of additional borrowing capacity under our senior credit facility, at variable interest rates. subject to maintenance covenants, borrowing base limitations and other conditions. Furthermore, we and our subsidiaries may be able to incur significant additional indebtedness in the future, subject to the restrictions contained in our debt instruments, some of which may be secured debt.
We are dependent on the financial stability of our customers and any deterioration in their financial condition may reduce the demand for our services which would adversely affect our growth strategy, revenues and financial condition.
Our business depends on the financial stability of our customers. The economic slowdown and intense competition in the wireless and telecommunications industries over the past several years have impaired the financial condition of some of our customers, certain of which operate with substantial leverage and certain of which have filed or may file for bankruptcy. The financial uncertainties facing our customers could reduce demand for our communications sites, increase our bad debt expense and reduce prices on new customer contracts. This could affect our ability to satisfy our obligations.
In addition, we have enteredmay be negatively impacted by our customers’ limited access to debt and mayequity capital. Recently when capital market conditions were difficult for the telecommunications industry, wireless service providers conserved capital by not spending as much as originally anticipated to finance expansion activities. This decrease adversely impacted demand for our services and consequently our financial condition. As a result, we adjusted our business during 2002 and early 2003 to significantly reduce and subsequently suspend any material investment for new towers and our site development activities. If our customers are not able to access the capital markets in the future, enter into interest rate swaps to effectively convert a portion of our debt from fixed to variable rates. Therefore, if interest rates were to increase, the amount of interest that we would have to pay would increase.
Our cash flow is negative and we need to access external sources of liquidity to fund tower development activities.
Our substantial indebtedness may negatively impact our ability to implement our business plan. For example, it could:
Our debt instruments contain restrictive covenants that could adversely affect our business.
Our senior credit facility and the indentures governing our 10¼% senior notes and our 12% senior discountoutstanding notes each contain certain restrictive covenants. Among other things, these covenants restrict our ability to to:
If we fail to comply with these covenants, it could result in an event of default under one or all of these debt instruments.
SBA Telecommunications,Senior Finance Inc. (“SBA Senior Finance”), our principal subsidiary which owns, directly or indirectly, all of the common stock of our otheroperating subsidiaries, is the borrower under our senior credit facility. The senior credit facility requires SBA TelecommunicationsSenior Finance to maintain specified financial ratios, including ratios regarding SBA Telecommunications’ consolidatedSenior Finance’s debt coverage,to annualized operating cash flow, debt service, cash interest expense and fixed charges for each quarterquarter. In addition, the senior credit facility contains additional negative covenants that, among other things, restrict our ability to commit to capital expenditures and satisfy certain financial condition tests including maintaining a minimum consolidated EBITDA (Earnings before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses).build towers without anchor tenants. Our ability to meet these financial ratios and tests and comply with these covenants can be affected by events beyond our control, and we may not be able to meet these tests.do so. A breach of any of these covenants, if not remedied within the specified period, could result in an event of default under the senior credit facility. If an event
Upon the occurrence of any default, occurs, our senior credit facility lenders can prevent us from borrowing any additional amounts.amounts under the senior credit facility. In addition, upon the occurrence of any event of default, other than certain bankruptcy events, our senior credit facility lenders, by a majority vote, can elect to declare all amounts of principal outstanding under the senior credit facility, together with all accrued interest, to be immediately due and payable. Upon the occurrenceThe acceleration of certain bankruptcy events, the outstanding principal, together with all accrued interest, will automatically become immediatelyamounts due and payable. The occurrence of any event of default under our senior credit facility maywould cause a cross-default inunder our 10¼% senior notes, our 12% senior discount notes and/or any of our other indebtedness and may permitindentures, thereby permitting the acceleration of some or all of oursuch indebtedness. If the indebtedness under the senior credit facility and/or indebtedness under our 10¼% senior notes or 12% senior discountoutstanding notes were to be accelerated, our current assets maywould not be sufficient to repay in full the indebtedness. If we were unable to repay amounts that become due under the senior credit facility, ourthe senior credit lenders could proceed against the collateral granted to them to secure that indebtedness. Substantially all of our assets are pledged as security under the senior credit facility.
If our wireless service provider customers combine their operations to a material adverse effect onsignificant degree, our strategy,growth, our revenue growth and our ability to satisfy our obligations. Our plan for the growth of our site leasing business largely depends on our management’s expectations and assumptions concerning future tenant demand for independently-owned towers. Tenant demand includes both the number of tenants and the lease rates they are willing to pay.
Demand for antennae space on communication sitesour services may be adversely affected bydecline if there is significant consolidation ofamong our wireless service provider customers.customers as they may then reduce capital expenditures in the aggregate because many of their existing networks and expansion plans overlap. In January 2003, the spectrum cap, which previously prohibited wireless carriers from owning more than 45 MHz of spectrum in any given geographical area, expired. Some wireless carriers may be encouraged to consolidate with each other as a result of this regulatory change and as a means to strengthen their financial condition. Economic conditions have resulted in the consolidation of several wireless service providers and this trend is likely to continue. To the
extent that our customers consolidate, they may terminatenot renew any duplicative leases that they have on our towers and/or may not lease as many spaces on our towers in the future. This would adversely affect our growth, our revenue and our ability to generate positive cash flow.
Similar consequences may occur if wireless service providers engage in extensive sharing or roaming or resale arrangements as an alternative to leasing our antenna space. Wireless voice service providers frequently enter into roaming agreements with competitors allowing them to use another’s wireless communications facilities to accommodate customers who are out of range of their home provider’s services. Wireless voice service providers may view these roaming agreements as a superior alternative to leasing antenna space on communications sites owned or controlled by us.us or others. The proliferation of these roaming agreements could have a material adverse effect on our revenue.
Years ended December 31, | |||||||||
2001 | 2000 | 1999 | |||||||
(in thousands) | |||||||||
Net losses | $ | 125,145 | $ | 28,915 | $ | 33,858 |
We depend on a relatively small number of customers for most of our revenue.
We derive a significant portion of our revenue from a small number of customers, that vary at any given time, particularly in theour site development services side of our business. The loss of any significant customer could have a material adverse effect on our revenue.
The following is a list of significant customers and the percentage of our total revenues for the specified time periods derived from suchthese customers:
Years ended December 31, | ||||
2001 | 2000 | |||
(% of revenue) | ||||
Sprint PCS | 10.3 | 10.7 | ||
Nextel | 11.1 | Less than 10.0 |
Percentage of Total Revenues for the years ended December 31, | ||||||
2003 | 2002 | |||||
Bechtel Corporation | 14.3 | % | 15.3 | % | ||
AT&T Wireless | 10.8 | % | 10.1 | % | ||
Cingular Wireless | 10.2 | % | 12.6 | % |
We also have client concentrations with respect to revenues in each of our financial reporting segments:
Percentage of Site Leasing ended December 31, | ||||||
2003 | 2002 | |||||
AT&T Wireless | 16.9 | % | 15.5 | % | ||
Cingular Wireless | 11.1 | % | 10.8 | % |
Percentage of Site Development Consulting Revenue for the years | ||||||
2003 | 2002 | |||||
Bechtel Corporation | 30.5 | % | 34.2 | % | ||
Cingular Wireless | 24.0 | % | 29.6 | % | ||
Verizon Wireless | 14.5 | % | 3.9 | % |
Percentage of Site Revenue for the years ended | ||||||
2003 | 2002 | |||||
Bechtel Corporation | 37.7 | % | 28.1 | % | ||
Sprint PCS | 12.9 | % | 3.0 | % |
Revenues from these clients are derived from numerous different site leasing contracts and site development contracts. Each site leasing contract relates to the lease of space at an individual tower site and is generally for an initial term of 5five years withrenewable for five 5-year renewable options.five-year periods at the option of the tenant. Our site development customers engage us on a project-by-project basis, and a customer can generally terminate an assignment at any time without penalty. In addition, a customer’s need for site development services can decrease, and we may not be successful in establishing relationships with new customers. Moreover,Furthermore, our existing customers may not continue to engage us for additional projects.
We may not secure as many site leasing tenants as planned or our lease rates may decline.
If tenant demand for tower space or our lease rates for new tenants decrease, we may not be able to successfully grow our site leasing business. This may have a material adverse effect on our strategy, revenue growth and our ability to satisfy our financial and other contractual obligations. Our plan for the growth of our site leasing business largely depends on our management’s expectations and assumptions concerning future tenant demand and potential lease rates for independently owned towers.
Due to the long-term expectations of revenue from our tenant leases, the tower industry iswe are very sensitive to the creditworthiness of itsour tenants.
Due to the long-term nature of our tenant leases, we, like others in the tower industry, are dependent on the continued financial strength of our tenants. Wireless service providers often operate with substantial leverage, and financial problems for our customers could result in uncollected accounts receivable, in the loss of customers and the associatedlower than anticipated lease revenues, or in a reduced ability of these customers to finance expansion activities.revenues. During the past twothree years, a number of our site leasing customers have filed for bankruptcy including almost all of our paging customers. Although these bankruptcies have not yet had a material adverse effect on our business or revenues, pending bankruptcies and any future bankruptcies may have a material adverse effect on our business, revenues, and/or revenues.
Our quarterly operating results for our site development services fluctuate and therefore should not be considered indicative of our long-term results.
The number of towers we build or acquire, the number of tenants we add to our towers and the demand for our site development services fluctuatefluctuates from quarter to quarter and should not be considered as indicative of long-term results. Numerous factors cause these fluctuations, including:
Although the demand for our site development services fluctuates, we incur significant fixed costs, such as maintaining a staff and office space in anticipation of future contracts. TheIn addition, the timing of revenues is difficult to forecast because our sales cycle may be relatively longlong. Therefore, we may not be able to adjust our cost structure in a timely basis to adjust to market slowdowns.
We are not profitable and may dependexpect to continue to incur losses.
We are not profitable. The following chart shows the net losses we incurred for the periods indicated:
For the years ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
(in thousands) | |||||||||
Net losses | $ | 172,171 | $ | 248,996 | $ | 125,792 |
Our losses are principally due to significant interest expense and depreciation and amortization in each of the periods presented above. We recorded an asset impairment charge of $17.0 million, a charge associated with the write-off of deferred financing fees and loss on factors such asextinguishment of debt of $24.2 million, and a restructuring charge of $2.5 million during the sizeyear ended December 31, 2003. Additionally, we recognized a loss, net of taxes, of approximately $7.7 million for the year ended December 31, 2003 in connection with discontinued operations. We recorded restructuring and scopeother charges of assignments, budgetary cycles$47.8 million, a $60.7 million charge related to the cumulative effect of a change in accounting principle related to the adoption of SFAS No. 142, and pressuresan asset impairment charge of $25.5 million in the year ended December 31, 2002. We recorded restructuring and general economic conditions. other charges of $24.4 million in the year ended December 31, 2001.
In addition, under lease terms typical2004, we expect to incur material additional charges for the write-off of deferred financing fees and extinguishment of debt associated with the senior credit facility refinancing, 10¼% senior note repurchases and 12% senior discount note repurchases and redemptions which occurred subsequent to December 31, 2003. Interest expense and depreciation charges will continue to be substantial in the future.
Increasing competition in the tower industry revenue generated bymay adversely affect us.
Our industry is highly competitive, particularly with respect to securing quality tower assets and adequate capital to support tower networks. Competitive pressures for tenants on their towers from these competitors could adversely affect our lease rates and services income. In addition, the loss of existing customers or the failure to attract new tenant leases usually commences upon installationcustomers would lead to an accompanying adverse effect on our revenues, margins and financial condition. Increasing competition could also make the acquisition of quality tower assets more costly.
We compete with:
Wireless service providers that own and operate their own tower networks and several of the tenant’s equipment onother tower companies generally are substantially larger and have greater financial resources than we do. We believe that tower location and capacity, quality of service, density within a geographic market and, to a lesser extent, price historically have been and will continue to be the tower rather than upon executionmost significant competitive factors affecting the site leasing business.
The site development market includes participants from a variety of market segments offering individual, or combinations of, competing services. We believe that a company’s experience, track record, local reputation, price and time for completion of a project have been and will continue to be the most significant competitive factors affecting the site development business.
The loss of the lease,services of certain of our key personnel or a significant number of our employees may negatively affect our business.
Our success depends to a significant extent upon performance and active participation of our key personnel. We cannot guarantee that we will be successful in retaining the services of these key personnel. We have employment agreements with Jeffrey A. Stoops, our President and Chief Executive Officer, Kurt L. Bagwell, our Senior Vice President and Chief Operating Officer, and Thomas P. Hunt, our Senior Vice President and General Counsel. We do not have employment agreements with any of our other key personnel. If we were to lose any key personnel, we may not be able to find an appropriate replacement on a timely basis and our results of operations could be negatively affected. We do not currently have a permanent Chief Financial Officer, and if we are unable to timely hire one, our business may be negatively impacted. Further, the loss of a significant number of employees or our inability to hire a sufficient number of qualified employees could have a material adverse effect on our business.
New technologies and their use by carriers may have a material adverse effect on our growth rate and results of operations.
The emergence of new technologies could reduce the demand for space on our towers. For example, the development of and use of products that would permit multiple wireless carriers to use a single antenna, share networks or increase the range and capacity of an antenna could reduce the number of antennas needed by our customers. This could have a material adverse effect on our growth rate and results of operations.
Our costs could increase and our revenues could decrease due to perceived health risks from radio frequency (“RF”) energy.
The government imposes requirements and other guidelines on our towers relating to RF energy. Exposure to high levels of RF energy can cause negative health effects.
The potential connection between exposure to low levels of RF energy and certain negative health effects, including some forms of cancer, has been the subject of substantial study by the scientific community in recent years. According to the Federal Communications Commission (“FCC”), the results of these studies to date have been inconclusive. However, public perception of possible health risks associated with cellular and other wireless communications media could slow the growth of wireless companies, which cancould in turn slow our growth. In particular, negative public perception of, and regulations regarding, health risks could cause a decrease in the demand for wireless communications services. Moreover, if a connection between exposure to low levels of RF energy and possible negative health effects, including cancer, were demonstrated, we could be 90 days or more after the execution of the lease.
Our business is subject to government regulations and changes in current or future regulations could harm our business.
We are subject to federal, state and local regulation of our business. BothIn particular, both the FCCFederal Communications Commission (“FCC”) and the FAAFederal Aviation Administration (“FAA”) regulate the construction and maintenance of antenna towers used forand structures that support wireless communications and radio and television antennae.antennas. In addition, the FCC separately licenses and regulates wireless communication devicescommunications equipment and television and radio stations operating from towers. Suchsuch towers and structures. FAA and FCC regulations controlgovern construction, lighting, painting and marking of towers and structures and may, depending on the characteristics of the tower or structure, require registration of the tower facilities.or structure. Certain proposals to construct new towers or structures or to modify existing towers or structures are reviewed by the FAA to ensure that the tower or structure will not present a hazard to air navigation. Tower
Antenna tower owners
Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers, vary greatly, but typically require antenna tower owners and antenna structure owners to obtain approval from local officials or community standards organizations prior to tower construction.or structure construction or modification. Local regulations can delay, prevent, or preventincrease the cost of new tower construction, co-locations, or site upgrade projects, thereby limiting our ability to respond to customer demand. In addition, suchnew regulations increase costs associated with new tower construction or upgrade projects at our existing tower sites. We cannot assure you that existing regulatory policies will not adversely affect the timing or cost of new tower construction or upgrades or that additional regulations will notmay be adopted that increase such delays or result in additional costs to us. SuchThese factors could have a material adverse effect on our future growth.
Our towers are subject to damage from natural disasters.
Our towers are subject to risks associated with natural disasters such as tornadoes hurricanes and earthquakes.hurricanes. We maintain insurance to cover the estimated cost of replacing damaged towers, but these insurance policies are subject to capsloss limits and deductibles. We also maintain third party liability insurance, subject to deductibles, to protect us in the event of an accident involving a tower. A tower accident for which we are uninsured or underinsured, or damage to a tower or groupsignificant number of our towers, could require us to make significant capital expenditures and may have a material adverse effect on our operations or financial condition.
Steven E. Bernstein controls the outcome of shareholder votes and therefore disinterested shareholders will not control many corporate governance matters.
Our business, particularly site development services, involvesoperations, like those of other companies engaged in similar businesses, are subject to the deliveryrequirements of professional servicesvarious federal, state, local and foreign environmental and occupational safety and health laws and regulations, including those relating to the management, use, storage, disposal, emission and remediation of, and exposure to, hazardous and non-hazardous substances, materials, and wastes. As owner, lessee or operator of numerous tower sites, we may be liable for substantial costs of remediating soil and groundwater contaminated by hazardous materials, without regard to whether we, as the owner, lessee or operator, knew of or were responsible for the contamination. We may be subject to potentially significant fines or penalties if we fail to comply with any of these requirements. The current cost of complying with these laws is labor-intensive. The lossnot material to our financial condition or results of operations. However, the requirements of these laws and regulations are complex, change frequently, and could become more stringent in the future. It is possible that these requirements will change or that liabilities will arise in the future in a significant number of employees, our inability to hire a sufficient number of
Our dependence on our subsidiaries for cash flow may negatively affect our business.
We are a holding company with no business operations of our own. Our dependence on our subsidiaries for cash flow may have a material adverse effect on our operations. Our only significant asset is and is expected to be the outstanding capital stock of our subsidiaries. We conduct, and expect to conduct, all of our business operations through our subsidiaries. Accordingly, our only source of cashability to pay our obligations, including the principal and interest, premium, if any, and additional interest, if any, on our outstanding 10¼% senior notes and our 9¾% senior discount notes, is distributionsdependent upon dividends and other distribution from our subsidiaries of their net earningsto us. Other than amounts required to make interest and cash flow. Weprincipal payments on the notes, we currently expect that the earnings and cash flow of our subsidiaries will be retained and used by
them in their operations, including servicing their debt obligations, except as necessaryobligations. Our operating subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise to be distributedpay the principal, interest and other amounts on the notes or make any funds available to us for payment. The ability of our operating subsidiaries to cover holding company expenses including interest payments on our 10¼% senior notes and 12% senior discount notes. Even if our subsidiaries determined to make a distributionpay dividends or transfer assets to us may be restricted by applicable state law and contractual restrictions, including dividend covenants contained in ourthe terms of the senior credit facility, may restrict or prohibit these dividends or distributions.
As a company whose common stock is publicly traded, we are subject to the rules and regulations of federal, state and financial market exchange entities.
In response to recent laws enacted by Congress (most notably the Sarbanes-Oxley Act of 2002), some of these entities have recently issued new requirements and some are continuing to develop additional requirements (most notably, the requirements associated with Section 404 of the Sarbanes-Oxley Act). Our material internal control systems, processes and procedures will have to be in their best interests.
Availability of Reports and Other Information
Our corporate website iswww.sbasite.com. We make available, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statement on Schedule 14A and amendments to those materials filed or furnished pursuant to Section 13(a) or 15(d) of the Securities and Exchange Act of 1934 on our towers relatingwebsite under “Investor Relations—SEC Filings,” as soon as reasonably practicable after we file electronically such material with, or furnish it to, radio emissions.the United States Securities and Exchange Commission (the “Commission”). In addition, the Commission’s website iswww.sec.gov. The potential connection between radio emissionsCommission makes available on this website, free of charge, reports, proxy and certain negative health effects, including some forms of cancer, has been the subject of substantial study by the scientific community in recent years. To date, the results of these studies have been inconclusive. However, public perception of possible health risks associated with cellularinformation statements, and other wireless communications media could slowinformation regarding issuers, such as us, that file electronically with the growth of wireless companies, which could in turn slowCommission. Additionally, our growth. In particular, negative public perception of,reports, proxy and regulations regarding, these perceived health risks could slow the market acceptance of wireless communications services.
ITEM 2. | PROPERTIES |
We are headquartered in Boca Raton, Florida, where we currently lease approximately 73,000 square feet of space. We have entered into long-term leases for regional and certain site development office locations where we expect our activities to be longer-term. We open and close project offices from time to time in connection with our site development business, and offices for new tower build projects are generally leased for periods not to exceed 18 months.
Our interests in towers are comprised of a variety of fee interests, leasehold interests created by long-term lease agreements, private easements, easements and licenses or rights-of-way granted by government entities. Please referOf the 3,032 towers in our portfolio, approximately 16% are located on parcels of land that we own and approximately 84% are located on parcels of land that have leasehold interests created by long-term lease agreements, private easements and easements, licenses or right-of-way granted by government entities. In rural areas, a wireless communications site typically consists of up to “Site Leasing Services”a 10,000 square foot tract, which supports towers, equipment shelters and guy wires to stabilize the structure. Less than 2,500 square feet is required for a listingmonopole or self-supporting tower structure of the locationskind typically used in metropolitan areas for wireless communication tower sites. Land leases generally have an initial term of towers.
ITEM 3. | LEGAL PROCEEDINGS |
We are involved in various legal proceedings relating to claims arising in the ordinary course of business. We aredo not a party to any legal proceeding,believe that the adverse outcomeultimate resolution of which, individually or taken together with all other legal proceedings, is expected tothese matters will have a material adverse effect on our prospects,business, financial condition, or results of operations.
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matter was submitted to the vote of security holders during the fourth quarter of fiscal 2001.
PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
The Class A common stock commenced trading under the symbol “SBAC” on The Nasdaq National Market System (“Nasdaq”) on June 16, 1999. The following table presents trading information for the Class A common stock for the periods indicated on the Nasdaq:
High | Low | |||||
Quarter ended March 31, 2000 | $ | 54.75 | $ | 16.50 | ||
Quarter ended June 30, 2000 | $ | 57.00 | $ | 31.50 | ||
Quarter ended September 30, 2000 | $ | 55.88 | $ | 37.00 | ||
Quarter ended December 31, 2000 | $ | 55.25 | $ | 30.88 | ||
Quarter ended March 31, 2001 | $ | 47.13 | $ | 15.44 | ||
Quarter ended June 30, 2001 | $ | 34.31 | $ | 12.69 | ||
Quarter ended September 30, 2001 | $ | 24.48 | $ | 10.48 | ||
Quarter ended December 31, 2001 | $ | 16.60 | $ | 5.91 |
High | Low | |||||
Quarter ended March 31, 2003 | $ | 1.45 | $ | 0.40 | ||
Quarter ended June 30, 2003 | $ | 3.49 | $ | 1.11 | ||
Quarter ended September 30, 2003 | $ | 4.13 | $ | 2.47 | ||
Quarter ended December 31, 2003 | $ | 4.35 | $ | 3.10 | ||
Quarter ended March 31, 2002 | $ | 14.05 | $ | 1.59 | ||
Quarter ended June 30, 2002 | $ | 3.40 | $ | 1.14 | ||
Quarter ended September 30, 2002 | $ | 1.92 | $ | 1.04 | ||
Quarter ended December 31, 2002 | $ | 1.03 | $ | 0.19 |
As of March 15, 2002,10, 2004, there were 223194 record holders of our Class A common stock, and 3 record holders of our Class B common stock. There is no established public trading market for our Class B common stock.
We have notnever paid a dividend on any class of common stock and anticipate that we will retain future earnings, if any, to fund the development and growth of our business. Consequently, we do not anticipate paying cash dividends on any of our common stock in the foreseeable future. In addition, we are restricted under ourthe senior credit facility, the 10¼9¾% senior discount notes and the 12%10¼% senior discount notes from paying dividends or making distributions and repurchasing, redeeming or otherwise acquiring any shares of common stock except under certain circumstances.
The following page)
Equity Compensation Plan Information | |||||||
(in thousands except exercise price) | |||||||
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column) | |||||
Equity compensation plans approved by security holders | 3,788 | $ | 7.79 | 8,159 | |||
Equity compensation plans not approved by security holders | — | — | — | ||||
Total | 3,788 | $ | 7.79 | 8,159 |
ITEM 6. | SELECTED HISTORICAL FINANCIAL DATA |
The following table sets forth selected historical financial data as of and otherfor each of the five years ended December 31, 2003. The financial data for the fiscal years ended 2003, 2002 and 2001 have been derived from, and are qualified by reference to, our restated audited consolidated financial statements. The financial data as of and for the fiscal years ended 2000 and 1999, have been derived from our unaudited consolidated financial statements. The unaudited financial data as of and for the years ended December 31, 2001, 2000 and 1999, 1998 and 1997. The historical financial data hashave been derived from our books and is qualified by referencerecords without audit and, in the opinion of management, include all adjustments, (consisting only of normal, recurring adjustments) that management considers necessary for a fair statement of results for these periods. The following consolidated financial statements have been reclassified to our audited financial statements. Thereflect the discontinued operations treatment of the disposition, or intended disposition of 848 towers. You should read the information set forth below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the Consolidated Financial Statements and related notes theretoto those consolidated financial statements included elsewhere in this report.
Years ended December 31, | ||||||||||||||||||||
2001 | 2000 | 1999 | 1998 | 1997 | ||||||||||||||||
(in thousands, except per share and tower data) | ||||||||||||||||||||
OPERATING DATA: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Site development | $ | 139,735 | $ | 115,892 | $ | 60,570 | $ | 46,705 | $ | 48,241 | ||||||||||
Site leasing | 103,159 | 52,014 | 26,423 | 12,396 | 6,759 | |||||||||||||||
Total revenues | 242,894 | 167,906 | 86,993 | 59,101 | 55,000 | |||||||||||||||
Cost of revenues (exclusive of depreciation and amortization shown below): | ||||||||||||||||||||
Cost of site development | 107,932 | 88,892 | 45,804 | 36,500 | 31,470 | |||||||||||||||
Cost of site leasing | 36,722 | 19,502 | 12,134 | 7,281 | 5,356 | |||||||||||||||
Total cost of revenues | 144,654 | 108,394 | 57,938 | 43,781 | 36,826 | |||||||||||||||
Gross profit | 98,240 | 59,512 | 29,055 | 15,320 | 18,174 | |||||||||||||||
Selling, general and administrative(a) | 41,342 | 27,799 | 19,784 | 18,302 | 12,033 | |||||||||||||||
Restructuring and other charge | 24,399 | — | — | — | — | |||||||||||||||
Depreciation and amortization | 80,465 | 34,831 | 16,557 | 5,802 | 514 | |||||||||||||||
Operating income (loss) | (47,966 | ) | (3,118 | ) | (7,286 | ) | (8,784 | ) | 5,627 | |||||||||||
Interest and other (expense) income, net | (70,456 | ) | (24,564 | ) | (26,378 | ) | (12,641 | ) | 236 | |||||||||||
(Provision) benefit for income taxes(b) | (1,654 | ) | (1,233 | ) | 223 | 1,524 | (5,596 | ) | ||||||||||||
Extraordinary item | (5,069 | ) | — | (1,150 | ) | — | — | |||||||||||||
Net income (loss) | (125,145 | ) | (28,915 | ) | (34,591 | ) | (19,901 | ) | 267 | |||||||||||
Dividends on preferred stock | — | — | 733 | (2,575 | ) | (983 | ) | |||||||||||||
Net loss available to common shareholders | $ | (125,145 | ) | $ | (28,915 | ) | $ | (33,858 | ) | $ | (22,476 | ) | $ | (716 | ) | |||||
Basic and diluted loss per common share before extraordinary item | $ | (2.53 | ) | $ | (0.70 | ) | $ | (1.71 | ) | $ | (2.64 | ) | $ | (0.09 | ) | |||||
Extraordinary item | (0.11 | ) | — | (0.06 | ) | — | — | |||||||||||||
Basic and diluted loss per common share | $ | (2.64 | ) | $ | (0.70 | ) | $ | (1.77 | ) | $ | (2.64 | ) | $ | (0.09 | ) | |||||
Basic and diluted weighted average number of shares of common stock | 47,437 | 41,156 | 19,156 | 8,526 | 8,075 | |||||||||||||||
OTHER DATA: | ||||||||||||||||||||
EBITDA(c) | $ | 60,224 | $ | 32,026 | $ | 9,582 | $ | (2,377 | ) | $ | 7,155 | |||||||||
Annualized tower cash flow(d) | 78,756 | 31,056 | 18,692 | 8,088 | 1,946 | |||||||||||||||
Capital expenditures(e) | 561,326 | 494,053 | 226,570 | 138,124 | 17,676 | |||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities | 13,000 | 47,516 | 23,134 | 7,471 | 7,829 | |||||||||||||||
Investing activities | (530,273 | ) | (445,280 | ) | (208,870 | ) | (138,124 | ) | (17,676 | ) | ||||||||||
Financing activities | 516,197 | 409,613 | 162,124 | 151,286 | 15,645 | |||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Cash and cash equivalents | $ | 13,904 | $ | 14,980 | $ | 3,131 | $ | 26,743 | $ | 6,109 | ||||||||||
Property and equipment, net | 1,198,559 | 765,815 | 338,892 | 150,946 | 17,829 | |||||||||||||||
Total assets | 1,429,011 | 948,818 | 429,823 | 214,573 | 44,797 | |||||||||||||||
Total debt | 845,453 | 284,273 | 320,767 | 182,573 | 10,184 | |||||||||||||||
Redeemable preferred stock | — | — | — | 33,558 | 30,983 | |||||||||||||||
Common shareholders’ equity (deficit) | 450,644 | 538,160 | 48,582 | (26,095 | ) | (4,344 | ) |
Years ended December 31, | ||||||||||
2001 | 2000 | 1999 | 1998 | 1997 | ||||||
TOWER DATA: | ||||||||||
Towers owned at the beginning of period | 2,390 | 1,163 | 494 | 51 | — | |||||
Towers constructed | 667 | 779 | 438 | 310 | 15 | |||||
Towers acquired | 677 | 448 | 231 | 133 | 36 | |||||
Towers owned at the end of period | 3,734 | 2,390 | 1,163 | 494 | 51 | |||||
Tenants at the end of period (f) | 7,693 | 4,904 | 1,794 | 601 | 135 | |||||
For the years ended December 31, | ||||||||||||||||||||
2003 | 2002 | 2001 | 2000 | 1999 | ||||||||||||||||
(audited) | (audited) | (audited) | (unaudited) | |||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Site leasing | $ | 127,842 | $ | 115,081 | $ | 85,487 | $ | 44,332 | $ | 23,176 | ||||||||||
Site development | 84,218 | 125,041 | 139,735 | 115,892 | 60,570 | |||||||||||||||
Total revenues | 212,060 | 240,122 | 225,222 | 160,224 | 83,746 | |||||||||||||||
Cost of revenues (exclusive of depreciation, accretion and amortization shown below): | ||||||||||||||||||||
Cost of site leasing | 42,021 | 40,650 | 30,657 | 16,904 | 10,742 | |||||||||||||||
Cost of site development | 77,810 | 102,473 | 108,532 | 88,892 | 45,804 | |||||||||||||||
Total cost of revenues | 119,831 | 143,123 | 139,189 | 105,796 | 56,546 | |||||||||||||||
Gross profit | 92,229 | 96,999 | 86,033 | 54,428 | 27,200 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | 31,244 | 34,352 | 42,103 | 27,404 | 19,659 | |||||||||||||||
Restructuring and other charges | 2,505 | 47,762 | 24,399 | — | — | |||||||||||||||
Asset impairment charges | 16,965 | 25,545 | — | — | — | |||||||||||||||
Depreciation, accretion and amortization | 84,380 | 85,728 | 66,104 | 27,921 | 13,275 | |||||||||||||||
Total operating expenses | 135,094 | 193,387 | 132,606 | 55,325 | 32,934 | |||||||||||||||
Operating loss from continuing operations | (42,865 | ) | (96,388 | ) | (46,573 | ) | (897 | ) | (5,734 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 692 | 601 | 7,059 | 6,253 | 881 | |||||||||||||||
Interest expense, net of amounts capitalized | (81,501 | ) | (54,822 | ) | (47,709 | ) | (4,879 | ) | (5,244 | ) | ||||||||||
Non-cash interest expense | (9,277 | ) | (29,038 | ) | (25,843 | ) | (23,000 | ) | (20,467 | ) | ||||||||||
Amortization of debt issuance costs | (5,115 | ) | (4,480 | ) | (3,887 | ) | (3,006 | ) | (1,596 | ) | ||||||||||
Write-off of deferred financing fees and loss on extinguishment of debt | (24,219 | ) | — | (5,069 | ) | — | (1,150 | ) | ||||||||||||
Other | 169 | (169 | ) | (76 | ) | 68 | 48 | |||||||||||||
Total other expense | (119,251 | ) | (87,908 | ) | (75,525 | ) | (24,564 | ) | (27,528 | ) | ||||||||||
Loss from continuing operations before provision for income taxes and cumulative effect of changes in accounting principles | (162,116 | ) | (184,296 | ) | (122,098 | ) | (25,461 | ) | (33,262 | ) | ||||||||||
Benefit from (provision for) income taxes | (1,820 | ) | (309 | ) | (1,493 | ) | (1,195 | ) | 196 | |||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principles | (163,936 | ) | (184,605 | ) | (123,591 | ) | (26,656 | ) | (33,066 | ) | ||||||||||
Loss from discontinued operations, net of income taxes | (7,690 | ) | (3,717 | ) | (2,201 | ) | (2,259 | ) | (1,525 | ) | ||||||||||
Loss before cumulative effect of changes in accounting principles | (171,626 | ) | (188,322 | ) | (125,792 | ) | (28,915 | ) | (34,591 | ) | ||||||||||
Cumulative effect of changes in accounting principles | (545 | ) | (60,674 | ) | — | — | — | |||||||||||||
Net loss | (172,171 | ) | (248,996 | ) | (125,792 | ) | (28,915 | ) | (34,591 | ) | ||||||||||
Dividends on preferred stock | — | — | — | — | 733 | |||||||||||||||
Net loss applicable to shareholders | $ | (172,171 | ) | $ | (248,996 | ) | $ | (125,792 | ) | $ | (28,915 | ) | $ | (33,858 | ) | |||||
Balance Sheet Data: Cash and cash equivalents(1) Short-term investments Restricted cash(2) Property and equipment (net) Total assets Total debt(3) Total shareholders’ equity Other Data: Cash provided by (used in): Operating activities Investing activities Financing activities Tower Data (Before Discontinued Operations Treatment): Towers owned at the beginning of period Towers constructed Towers acquired Towers reclassified/disposed of(4) Towers held for sale Total towers owned at the end of period Tower Data (After Discontinued Operations Treatment): Total towers owned at the end of period As of December 31, 2003 2002 2001 2000 1999 (audited) (audited) (audited) (unaudited) (in thousands) $ 8,338 $ 61,141 $ 13,904 $ 14,980 $ 3,131 15,200 — — — — 10,344 — — — — 856,213 940,961 987,053 766,221 339,079 982,982 1,303,365 1,407,543 948,818 429,823 870,758 1,024,282 845,453 248,273 320,767 43,877 203,490 448,744 538,160 48,582 For the years ended December 31, 2003 2002 2001 2000 1999 (audited) (audited) (audited) (unaudited) (in thousands) $ (29,808 ) $ 17,807 $ 28,753 $ 47,516 $ 23,134 155,456 (102,716 ) (554,700 ) (445,280 ) (208,870 ) (178,451 ) 132,146 524,871 409,613 162,124 For the years ended December 31, 2003 2002 2001 2000 1999 (unaudited) 3,877 3,734 2,390 1,163 494 13 141 667 779 438 — 53 677 448 231 (797 ) (51 ) — — — (61 ) — — — — 3,032 3,877 3,734 2,390 1,163 3,032 3,030 2,910 1,830 902
(2) | Restricted cash of |
(3) | Includes deferred gain on interest rate swap of $4.6 million and $5.2 million as |
ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
We are a leading independent owner and operator of over 3,7003,000 wireless communications towers in the eastern third of the United States and Puerto Rico.States. We generate revenues from our two primary businesses, site leasing and site development. In our site leasing business, we lease antenna space to wireless service providers on towers and other structures that we own or manage for or lease from others. The towers that we own have either
been constructed by us at the request of a carrier, built or constructed based on our own initiative or acquired. In our site development business, we offer wireless service providers assistance in developing and maintaining their own wireless service networks.
The percentage of revenues more to recurring revenues throughderived from the leasing of antenna space at, or on, communications facilities. We intendcommunication towers continued to emphasizeincrease as a result of our emphasis on our site leasing business through the leasing and management of tower sites and we believesites. Subsequent to the sale of 784 towers to AAT Communications Corp. during 2003 (“Western tower sale”) we have well positioned ourselves to perform manyfocused our leasing activities in the eastern third of the other typesUnited States where substantially all of servicesour remaining towers are located.
Operating results in prior periods may not be meaningful predictors of future results. You should be aware of the significant changes in the nature and scope of our business when reviewing the ensuing discussion of comparative historical results. The 784 towers sold in the Western tower sale during 2003 have been accounted for as discontinued operations in accordance with generally accepted accounting principles. Additionally, 64 towers located in the Western two-thirds of the United States that wireless service providers needwe had previously decided to sell have also been accounted for as discontinued operations in connectionaccordance with generally accepted accounting principles. As of December 31, 2003, 61 of these towers remain as held for sale. All discussion related to the operationConsolidated Statements of Operations for the periods discussed in this “Management’s Discussion and maintenanceAnalysis of a wireless telecommunications network. Those services include installation, maintenanceFinancial Condition and
Site Leasing Services
Site leasing revenues are received primarily from wireless communications companies. Revenues from these clients are derived from numerous different site leasing contracts. Each site leasing contract relates to the lease or use of space at an individual tower site and is generally for an initial term of 5five years, withrenewable for five 5-year renewable options.five-year periods at the option of the tenant. Almost all of our leasessite leasing contracts contain specifiedspecific rent escalators, which average 4%3-4% per year, including the renewal option periods. LeasesSite leasing contracts are generally paid on a monthly basis and revenue from site leasing is recorded monthly on a straight-line basis over the term of the related lease agreements. Rental amounts received in advance are recorded in other liabilities (current and long-term).
Cost of site leasing revenue consistprimarily consists of:
For any given tower, such costs are relatively fixed over a monthly or an annual time period.generally unrelated to the number of tenants on such tower. As such, operating costs for owned towers do not generally increase significantly as a result of adding additional customers are added.
Site leasing revenues comprised 60.3% of total revenues for the year ended December 31, 2003, and 47.9% of total revenues for the year ended December 31, 2002. Site leasing contributed 93.1% of total gross profit for the year ended December 31, 2003 and 76.7% of total gross profit for the year ended December 31, 2002.
As a result of the Western tower revenue growth and samesale, we reduced our tower cash flow growthportfolio by 784 towers. During 2003, to further improve efficiencies in our portfolio, we decided to sell an additional 64 towers remaining in the western two-thirds of the United States, which were not part of the Western tower sale. Three of these towers were sold during the fourth quarter of 2003, leaving 61 towers held for sale at December 31, 2001,2003.
Gross profit margins on the 2,390towers sold in the Western tower sale were relatively comparable to the gross profit margins on the towers we owned asretained. Therefore, the sale of these towers is not expected to have a material impact on our site leasing gross profit margin. We do not anticipate making any other material changes to our tower portfolio in 2004.
As of December 31, 2000 was 24% and 29%, respectively, based on tenant leases signed and revenues annualized as2003, we owned 3,032 towers, substantially all of which are in the eastern third of the United States. This number excludes the 61 towers held for sale at December 31, 2001 and 2000.
Site Development Services
Our site development business consists of two segments, site development consulting and site development construction, through which we provide wireless service providers a full range of end-to-end services. In the consulting segment of our site development business, we offer clients the following services: (1) network pre-design; (2) site audits; (3) identification of potential locations for towers and antennas; (4) support in buying or leasing of the location; and (5) assistance in obtaining zoning approvals and permits. In the construction segment of our site development business, we provide a number of services, including, but not limited to the following: (1) tower and related site construction; (2) antenna installation; and (3) radio equipment installation, commissioning and maintenance.
Site development services revenues are also received primarily from wireless communications companies or companies providing development or project management services to wireless communications companies. Our site development customers engage us on a project-by-project basis, and a customer can generally terminate an assignment at any time without penalty. Site development projects, in which we performboth consulting servicesand construction, include contracts on a time and materials basis or a fixed price or milestone,basis. The majority of our site development services are billed on a fixed price basis. Time and materials based site development contracts are billed and revenue is recognized at contractual rates as the services are rendered. Our site development projects generally take from 3 to 12 months to complete. For those site development consulting contracts in which we perform work on a fixed price basis, we bill the client, and recognize revenue, based on the completion of agreed upon phases or milestones of the project on a per site basis. Upon the completion of each phase on a per site basis, we recognize the revenue related to that phase. The majority of our site development services are billed on a fixed basis. Our site development projects generally take from 3 to 12 months to complete.
Our revenue from construction projects is recognized on the percentage-of-completion method of accounting, determined by the percentage of cost incurred to date compared to management’s estimated total anticipated cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contracts nears completion. The average site development contract for consulting was approximately $233,000 per contract in 2001 and for construction was approximately $45,000 per contract in 2001.
Revenue from our site development construction business may fluctuate from period to period depending on construction activities, which are a function of the timing and amount of our clients’ capital expenditures, the number and significance of active customer engagements during a period, weather and other factors.
Cost of site development projectconsulting revenue and construction revenue include all material costs of materials, salaries and labor, costs, including payroll taxes, subcontract labor, vehicle expense and other costs directly and indirectly related to the projects. All costs related to site development consulting projects and construction projects are recognized as incurred.
Our site development revenues and profit margins decreased significantly during 2002 and 2003. This decrease was primarily attributable to a decline in capital expenditures by wireless carriers and vigorous competition, particularly for our site development construction services, which adversely affected our volume of activity and the pricing for our services.
Percentage of Revenues December 31, Gross Profit Contribution December 31, Site development consulting Site development construction
For the years ended
For the years ended 2003 2002 2003 2002 8.5 % 11.3 % 1.5 % 6.8 % 31.2 % 40.8 % 5.5 % 16.5 %
Critical Accounting Policies and Estimates
We have focusedidentified the policies and significant estimation processes below as critical to our capital expenditures on building new towersbusiness operations and acquiring existing towers and related businesses. Our average construction costthe understanding of our results of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a new towerparticular transaction is currently approximately $275,000 while we believespecifically dictated by accounting principles generally accepted in the industry’s average acquisition costUnited States, with no need for management’s judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect reported and expected financial results. For a tower overdetailed discussion on the last two years has been approximately $350,000. As a resultapplication of these favorable economics, we have historically elected to build the majority (59%) of our towers. However, this trend changed somewhat in 2001 as the average acquisition price per tower declined. We acquired more towers than we builtand other accounting policies, see Note 2 in the year 2001.
Construction Revenue
Revenue from construction projects is recognized on the percentage-of-completion method of accounting, determined by the percentage of cost incurred to date compared to management’s estimated total anticipated cost for each contract. This method is used because we acquired 677 towers.consider total cost to be the best available measure of progress on each contract. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on each contract nears completion. The 677 tower acquisitions were completed atasset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents expenses incurred and revenues recognized in excess of amounts billed. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized. See Note 11 to the Consolidated Financial Statements.
Allowance for Doubtful Accounts
We perform periodic credit evaluations of our customers. We continuously monitor collections and payments from our customers and maintain an aggregate purchase price of $222.5 million (exclusive of acquisition costs), an average price of approximately $329,000 per tower.
Asset Impairment
We evaluate the potential impairment of individual long-lived assets, principally the tower build construction plansites. We record an impairment charge when we believe an investment in towers has been impaired, such that future undiscounted cash flows would not recover the then current carrying value of the investment in the tower site. We consider many factors and operationmake certain assumptions when making this assessment, including but not limited to; general market and economic conditions, historical operating results, geographic location, lease-up potential, and expected timing of lease-up. In addition, we make certain assumptions in determining an asset’s fair value less costs to produce fewer towers per quarter. In connection with this adjustment, we recordedsell for purposes of calculating the amount of an impairment
charge. Changes in those assumptions or market conditions may result in a $24.4 millionfair value less costs to sell which is different from management’s estimates. Future adverse changes in market conditions could result in losses or an inability to recover the carrying value, thereby possibly requiring an impairment charge in the third quarter of 2001. Included in thisfuture. In addition, if our assumptions regarding future undiscounted cash flows and related assumptions are incorrect, a future impairment charge was a write-off of costs previously reflected on our balance sheet as construction-in-process for certain new tower build sites for which development activity had been abandoned, costs of employee separation for certain employees and costs associated with the closing and consolidation of selected offices that were previously utilized primarily in our new asset development activities.
Asset Retirement Obligations
Effective January 1, 2003, we adopted the provisions of SFAS 143. Under the new tower buildaccounting principle, we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of a fair value can be made and acquisition construction-in-process,we accrete such liability through the obligation’s estimated settlement date. The associated asset retirement costs are capitalized as part of employee separation, costs associated with the closing of offices and other items. Thecarrying amount of the charge related to asset disposals will be determined primarily bytower fixed assets and depreciated over its estimated useful life.
Significant management estimates and assumptions are required in determining the scope and fair value of costsour obligations to restore leaseholds to their original condition upon termination of construction-in-processground leases. In determining the scope and fair value of our obligations, assumptions were made with respect to those new buildsthe : historical retirement experience as an indicator of future restoration probabilities, intent in renewing existing ground leases through lease termination dates, current and future value and timing of estimated restoration costs, and the credit adjusted risk-free rate used to discount future obligations. While we choosefeel the assumptions were appropriate, there can be no assurances that actual costs and the probability of incurring obligations will not differ from estimates. We will review these assumptions periodically and we may need to dispose of. Most of the charge is expected to be incurred in the first quarter of 2002 with the remainder incurred in the second quarter of 2002.
RESULTS OF OPERATIONS
As we continue to shift our revenuegross profit mix shifts more towards site leasing, operating results in prior periods may not be meaningful predictors of future results. You should be aware of the dramatic changes in the nature and scope of our business when reviewing the ensuing discussion of comparative historical results. We expect that the acquisitions consummated to date and any future acquisitions, as well as our new tower builds, will have a material impact on future revenues, expenses and net loss. Revenues, cost of revenues, selling, general and administrative expenses, depreciation and amortization, interest income and interest expense each increased significantly in the year ended December 31, 2001 as compared to 2000, and some or all of those items may continue to increase significantly in future periods.
Year Ended 20012003 Compared to Year Ended 20002002
Revenues:
For the years ended December 31, | |||||||||||||||
2003 | Percentage of Revenues | 2002 | Percentage of Revenues | Percentage (Decrease) | |||||||||||
(dollars in thousands) | |||||||||||||||
Site leasing | $ | 127,842 | 60.3 | % | $ | 115,081 | 47.9 | % | 11.1 | % | |||||
Site development consulting | 18,092 | 8.5 | % | 27,204 | 11.3 | % | (33.5 | )% | |||||||
Site development construction | 66,126 | 31.2 | % | 97,837 | 40.8 | % | (32.4 | )% | |||||||
Total revenues | $ | 212,060 | 100.0 | % | $ | 240,122 | 100.0 | % | (11.7 | )% | |||||
Site leasing revenue increased 98.3% to $103.2 million for 2001 from $52.0 million for 2000, due to tenants added to our towers and the substantially greater number of towers in our portfolio during 2001 as compared to 2000.
carriers for 2001 from 35.6%additional antenna sites and vigorous competition, which adversely affected our volume of activity and the pricing for 2000. This decrease is attributable to higher costs and our inability to timely reduce those costs as projects ended. Gross profit margin onservices.
Cost of Revenues:
For the years ended December 31, | Percentage Increase (Decrease) | ||||||||
2003 | 2002 | ||||||||
(in thousands) | |||||||||
Site leasing | $ | 42,021 | $ | 40,650 | 3.4 | % | |||
Site development consulting | 16,723 | 20,594 | (18.8 | )% | |||||
Site development construction | 61,087 | 81,879 | (25.4 | )% | |||||
Total cost of revenues | $ | 119,831 | $ | 143,123 | (16.3 | )% | |||
Both site development consulting and construction increased slightlycost of revenues decreased due primarily to 21.3% for 2001 from 20.1% in 2000. With the expected losslower levels of installation revenues discussed above and increased competition, we cannot be certain that we will be able to maintain gross profit margins in this range, and we expect site development gross profit margins to settle in the 16% to 19% range as we move through 2002. activity.
Gross Profit:
For the years ended December 31, | Percentage Increase (Decrease) | ||||||||
2003 | 2002 | ||||||||
(in thousands) | |||||||||
Site leasing | $ | 85,821 | $ | 74,431 | 15.4 | % | |||
Site development consulting | 1,369 | 6,610 | (79.3 | )% | |||||
Site development construction | 5,039 | 15,958 | (68.4 | )% | |||||
Total gross profit | $ | 92,229 | $ | 96,999 | (4.9 | )% | |||
Gross profit for the site leasing business increased 104.3% to $66.4 million in 2001 from $32.5 million in 2000. The increased gross profit was due to the substantially greater numberas a result of towers owned and the greater average revenuehigher revenues per tower and tower operating cost reduction initiatives. Gross profit from both site development consulting and construction decreased as a result of the lower volumes and lower pricing without a commensurate reduction in the 2001 period. The gross profit margins on site leasing increased to 64.4% for 2001 from 62.5% in 2000. The increase in gross margin was due to additional tenants added to our towers and the resulting increase in average revenue per tower, which was greater than the increase in average expenses. As a percentage of total revenues, gross profit increased to 40.4% of total revenues in 2001 from 35.4% in 2000 due primarily to increased levels of higher margin site leasing gross profit.
Gross Profit Margin Percentages:
Percentage of revenue December 31, | ||||||
2003 | 2002 | |||||
Site leasing | 67.1 | % | 64.6 | % | ||
Site development consulting | 7.6 | % | 24.3 | % | ||
Site development construction | 7.6 | % | 16.3 | % | ||
Gross profit margin | 43.5 | % | 40.4 | % |
Operating Expenses:
For the years ended December 31, | Percentage (Decrease) | ||||||||
2003 | 2002 | ||||||||
(in thousands) | |||||||||
Selling, general and administrative | $ | 31,244 | $ | 34,352 | (9.0 | )% | |||
Restructuring and other charges | 2,505 | 47,762 | (94.8 | )% | |||||
Asset impairment charges | 16,965 | 25,545 | (33.6 | )% | |||||
Depreciation, accretion and amortization | 84,380 | 85,728 | (1.6 | )% | |||||
Total operating expenses | $ | 135,094 | $ | 193,387 | (30.1 | )% | |||
Selling, general and administrative expenses increased 48.7% to $41.3 million for 2001 from $27.8 million for 2000. The increasedecreased primarily as a result of reductions in selling, general and administrative expenses represents the additionnumber of offices, elimination of personnel and elimination of other infrastructure necessaryinfrastructure. As of December 31, 2003, we had approximately 600 employees whereas as of December 2002, we had approximately 750 employees.
In 2003, we recognized approximately $17.0 million in asset impairment charges related to support70 towers. By comparison, in 2002 we recognized approximately $16.4 million of asset impairment charges related to 144 towers. The impairment of operational tower assets resulted primarily from our growth,evaluations of the fair
value of our operating tower portfolio through a discounted cash flow analysis. Towers determined to be impaired were primarily towers with no tenants and/or with little or deteriorating prospects for future lease-up. In addition, the 2002 asset impairment charge included $9.2 million of goodwill that was recorded during the first two quarters of 2002, which was determined to be impaired during June 2002 when the transitional impairment test of goodwill was performed under SFAS 142.
In February 2002, as well as increased developmental expenses associated witha result of the deterioration of capital market conditions for wireless carriers, we reduced our higher levelscapital expenditures for new tower development and acquisition activities, suspended any new investment for additional towers, reduced our workforce and closed or consolidated offices. Of the $47.3 million charge recorded during the year ended December 31, 2002, approximately $40.4 million related to the abandonment of new tower buildsbuild and acquisition activitieswork in progress and an increase in non-cash compensation expenses in 2001. Included in selling, general and administrative expense is non-cash compensation expense of $3.3 million for 2001 and $0.3 million for 2000. The increase in 2001 is attributable primarily to the use of stock and options as payment for certain bonuses. As a percentage of total revenue, excluding non-cash compensation expenses, selling, general and administrative expenses decreased to 15.7% for 2001 from 16.4% in 2000.
Operating Loss From Continuing Operations:
For the years ended December 31, | Percentage (Decrease) | ||||||||||
2003 | 2002 | ||||||||||
(in thousands) | |||||||||||
Operating loss from continuing operations | $ | (42,865 | ) | $ | (96,388 | ) | (55.5 | %) |
This decrease in operating loss from continuing operations primarily was a result of lower restructuring and other charges and lower asset impairment charges in 2003 as compared to 2002.
Other Expense:
For the years ended December 31, | Percentage Increase | ||||||||||
2003 | 2002 | ||||||||||
(in thousands) | |||||||||||
Interest income | $ | 692 | $ | 601 | 15.1 | % | |||||
Interest expense, net of amounts capitalized | (90,778 | ) | (83,860 | ) | 8.2 | % | |||||
Amortization of debt issue costs | (5,115 | ) | (4,480 | ) | 14.2 | % | |||||
Write-off of deferred financial fees and loss on extinguishment of debt | (24,219 | ) | — | 100.0 | % | ||||||
Other | 169 | (169 | ) | 200.0 | % | ||||||
$ | (119,251 | ) | $ | (87,908 | ) | 35.7 | % | ||||
Interest expense increased as a result of higher borrowings and higher weighted average interest rates. Additionally, interest expense in 2002 was reduced as a result of our interest rate swap agreement that wereexisted during most of 2002. The write-off of deferred financing fees and loss on extinguishment of debt is attributable to a write-off of $4.4 million of deferred financing fees associated with the termination of the prior senior credit facility and $19.8 million associated with the early retirement of a portion of our 12% senior discount notes and our 10¼% senior notes. We expect to incur additional material charges in 2004 from the write-off of deferred financing fees and extinguishment of debt associated with the senior credit refinancing, the 10¼% senior note repurchases and the 12% senior discount note repurchases and redemptions which occurred subsequent to December 31, 2003.
Discontinued Operations:
For the years ended December 31, | Percentage | ||||||||||||
2003 | 2002 | Increase | |||||||||||
(in thousands) | |||||||||||||
Loss from discontinued operations, net of income taxes | $ | (7,690 | ) | $ | (3,717 | ) | 106.9 | % |
As previously discussed a total of 848 towers (784 towers sold in the Western tower sale and 64 additional towers held for sale) meet the criteria for discontinued operations treatment. The increase in loss from discontinued operations resulted primarily utilizedfrom a loss on sale of $2.1 million related to the Western tower sale.
Cumulative Effect of Changes In Accounting Principle:
For the years ended December 31, | Percentage | ||||||||||
2003 | 2002 | (Decrease) | |||||||||
(in thousands) | |||||||||||
Cumulative effect of changes in accounting principle | $ | (545 | ) | $ | (60,674 | ) | (99.1 | %) |
Effective January 1, 2003, we adopted a method of accounting for asset retirement obligations in accordance with SFAS 143. Under the new accounting principle, we recognize asset retirement obligations in the period in which they are incurred if a reasonable estimate of a fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of our new asset development activities.
During 2002, we approvedcompleted the transitional impairment test of goodwill required under SFAS 142, which was adopted effective January 1, 2002. As a restructuring plan and anticipate incurring chargesresult of between $30.0completing the required transitional test, we recorded a charge retroactive to the adoption date for the cumulative effect of accounting change in the amount of $60.7 million and $65.0representing the excess of the carrying value of certain assets as compared to their estimated fair value. Of the total $60.7 million relating to a further reduction in our new tower development activities. This charge will be comprised of costscumulative effect adjustment, $58.5 million related to the disposalsite development construction reporting segment and $2.2 million related to the site leasing reporting segment.
Net Loss:
For the years ended December 31, | Percentage | ||||||||||||
2003 | 2002 | (Decrease) | |||||||||||
(in thousands) | |||||||||||||
Net loss | $ | (172,171 | ) | $ | (248,996 | ) | (30.9 | %) |
This decrease in net loss is primarily a result of lower restructuring and other charges, lower asset impairment charges, and lower amounts resulting from a cumulative effect in change in accounting principle offset by an increase in interest expense and write offs associated with the extinguishment of debt. We expect to incur additional net losses in 2004.
Year Ended 2002 Compared to Year Ended 2001
Revenues:
For the years ended December 31, | |||||||||||||||
2002 | Percentage of Revenues | 2001 | Percentage of Revenues | Percentage (Decrease) | |||||||||||
(dollars in thousands) | |||||||||||||||
Site leasing | $ | 115,081 | 47.9 | % | $ | 85,487 | 38.0 | % | 34.6 | % | |||||
Site development consulting | 27,204 | 11.3 | % | 24,251 | 10.8 | % | 12.2 | % | |||||||
Site development construction | 97,837 | 40.8 | % | 115,484 | 51.2 | % | (15.3 | %) | |||||||
Total revenues | $ | 240,122 | 100 | % | $ | 225,222 | 100 | % | 6.6 | % | |||||
Site leasing revenue increased due to the increased number of tenants added to our towers, higher average rents received and the increase in the number of towers in our portfolio. As of December 31, 2002 we had 6,389 tenants as compared to 5,558 tenants at December 31, 2001. Site development consulting revenues increased due to several new contracts for site acquisition and zoning services from wireless communications carriers. Site development construction revenue decreased due primarily to reduced carrier activity and price competition resulting from lower capital expenditures by wireless carriers on or around cell sites.
Cost of Revenues:
For the years ended December 31, | Percentage Increase | ||||||||||
2002 | 2001 | (Decrease) | |||||||||
(in thousands) | |||||||||||
Site leasing | $ | 40,650 | $ | 30,657 | 32.6 | % | |||||
Site development consulting | 20,594 | 17,097 | 20.5 | % | |||||||
Site development construction | 81,879 | 91,435 | (10.5 | %) | |||||||
Total cost of revenues | $ | 143,123 | $ | 139,189 | 2.8 | % | |||||
Site leasing cost of revenue increased due to the increased number of towers owned resulting in an increased amount of lease payments to site owners and related site costs as well as increases in operating costs of certain sites, maintenance and property taxes. Site development consulting cost of revenue increased, reflecting higher levels of activity and increased personnel costs. Site development construction cost of revenue decreased, due primarily to lower levels of activity.
Gross Profit:
For the years ended December 31, | Percentage Increase | ||||||||
2002 | 2001 | (Decrease) | |||||||
(in thousands) | |||||||||
Site leasing | $ | 74,431 | $ | 54,830 | 35.7 | % | |||
Site development consulting | 6,610 | 7,154 | (7.6 | %) | |||||
Site development construction | 15,958 | 24,049 | (33.6 | %) | |||||
Total gross profit | $ | 96,999 | $ | 86,033 | 12.7 | % | |||
Gross profit for the site leasing business increased as a result of the increased number of tenants added to our towers, and to a lesser extent, additional towers added to our portfolio. Gross profit decreased for both site development consulting and construction. This decrease primarily resulted from lower pricing for our services due to competition.
Gross Profit Margin Percentages:
Percentage of revenue | ||||||
For the years ended December 31, | ||||||
2002 | 2001 | |||||
Site leasing | 64.7 | % | 64.1 | % | ||
Site development consulting | 24.3 | % | 29.5 | % | ||
Site development construction | 16.3 | % | 20.8 | % | ||
Gross profit margin | 40.4 | % | 38.2 | % |
Operating Expenses:
For the years ended December 31, | Percentage Increase | ||||||||
2002 | 2001 | (Decrease) | |||||||
(in thousands) | |||||||||
Selling, general and administrative | $ | 34,352 | $ | 42,103 | (18.4 | %) | |||
Restructuring and other charges | 47,762 | 24,399 | 95.8 | % | |||||
Asset impairment charges | 25,545 | — | 100.0 | % | |||||
Depreciation and amortization | 85,728 | 66,104 | 29.7 | % | |||||
Total operating expenses | $ | 193,387 | $ | 132,606 | 45.8 | % | |||
The decrease in selling, general and administrative expense primarily resulted from a decrease in tower developmental expenses as well as the reduction of offices, elimination of personnel and elimination of other infrastructure that had previously been necessary to support our prior level of new asset growth but was no longer required as a result of the restructurings previously discussed. Included within selling, general and administrative expenses is a provision for doubtful accounts. The provision for doubtful accounts increased to $3.4 million for the year ended December 31, 2002 from $2.6 million for the year ended December 31, 2001, reflecting our assessment of a more challenging financial environment for our customers.
During the year ended December 31, 2002 we incurred restructuring charges in the amount of $47.3 million. Of the $47.3 million charge, approximately $40.4 million related to the abandonment of new tower build and acquisition construction-in-process,work in process and related construction materials on approximately 764 sites. The remaining $6.9 million of restructuring expense related primarily to the costs related toof employee separation for approximately 470 employees and exit costs associated with the closing and consolidation of approximately 40 offices. Exit costs associated with the closing and consolidation of offices primarily represented our estimate of future lease obligations after considering sublease opportunities.
In the first quarter of 2002, certain tower sites held and other items.used in operations were considered to be impaired resulting in a $16.4 million impairment charge. Towers determined to be impaired were primarily towers with no tenants and little or no prospects for future lease-up. In addition, during the first six months of 2002, we recorded additional goodwill totaling approximately $9.2 million resulting from the achievement of certain earn-out obligations under various construction acquisition agreements entered into prior to July 1, 2001, which was determined to be impaired and written off. The amount$16.4 million and the $9.2 million are included within asset impairment charges in the year ended December 31, 2002 Consolidated Statement of the charge related to asset disposals will be determined primarily by the fair value of new tower backlogOperations.
The increase in depreciation, amortization and construction-in-process with respect to those new builds we choose to dispose of.
Operating Loss From Continuing Operations:
For the years ended December 31, | Percentage Increase | ||||||||||||
2002 | 2001 | (Decrease) | |||||||||||
(in thousands) | |||||||||||||
Operating loss from continuing operations | $ | (96,388 | ) | $ | (46,573 | ) | 107.0 | % |
This increase in operating loss was a result of increased restructuring and other charges and the asset impairment charges recorded in the year ended December 31, 2002.
Other Expenses:
For the years ended December 31, | Percentage Increase | ||||||||||||
2002 | 2001 | (Decrease) | |||||||||||
(in thousands) | |||||||||||||
Interest income | $ | 601 | $ | 7,059 | (91.5 | %) | |||||||
Interest expense | (83,860 | ) | (73,552 | ) | 14.0 | % | |||||||
Amortization of debt issue costs | (4,480 | ) | (3,887 | ) | 15.3 | % | |||||||
Write-off of deferred financing fees and loss on extinguishment of debt | — | (5,069 | ) | (100.0 | %) | ||||||||
Other | (169 | ) | (76 | ) | 122.4 | % | |||||||
Total other expenses | $ | (87,908 | ) | $ | (75,525 | ) | 16.4 | % | |||||
Total other expenses increased primarily as a result of a reduction in interest income, increased interest expense, and increased non-cash amortization of original issue discount and debt issuance costs. The decrease in interest income was due to lower cash balances during 2002. The increase in interest expense was primarily due to higher principal amounts outstanding under the senior credit facility in 2002 as compared to 2001 and to a full quarter of interest expense on our fixed assets begin$500.0 million 10¼% senior notes in the first quarter of 2002 compared to maturea partial quarter of interest expense on these senior notes in the first quarter of 2001. Although the aggregate principal amount of total debt increased from the prior year, the resulting increase in interest expense associated with the higher principal in 2002 was offset in part by the interest rate reduction we will be continuingrecognized in connection with our interest rate swap agreement. The increase in non-cash amortization was primarily due to evaluate the useful lives of the assets and may decide to change these useful lives basedhigher accretion on the circumstances. If the useful lives of assets are reduced, depreciation may be accelerated12% senior discount notes.
Discontinued Operations:
For the years ended December 31, | Percentage | ||||||||||
2002 | 2001 | Increase | |||||||||
(in thousands) | |||||||||||
Loss from discontinued operations, net of income taxes | $ | (3,717 | ) | $ | (2,201 | ) | 68.9 | % |
The increase in future years. Beginningloss is primarily attributable to interest expense allocated to discontinued operations in 2002,2002. No interest expense was allocated to discontinued operations in 2001 as a result of the implementationlower debt balances in 2001 as compared to 2002.
Cumulative Effect of Changes in Accounting Principle:
For the years ended December 31, | Percentage | ||||||||
2002 | 2001 | Increase | |||||||
(in thousands) | |||||||||
Cumulative effect of change in accounting principle | $ | (60,674 | ) | — | 100.0 | % |
During the period ended June 30, 2002, we completed the transitional impairment test of goodwill required under SFAS 142, the amortization of goodwill and certain other intangible assets against earnings will no longer occur. Amortization of goodwill and other intangible assets during 2001which was $6.9 million.
Years ended December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
EBITDA | $ | 60,224 | $ | 32,026 | ||||
Interest expense, net of amount capitalized | (77,439 | ) | (30,885 | ) | ||||
Interest income | 7,059 | 6,253 | ||||||
Provision for income taxes | (1,654 | ) | (1,233 | ) | ||||
Depreciation and amortization | (80,465 | ) | (34,831 | ) | ||||
Other income | (76 | ) | 68 | |||||
Non-cash compensation expense | (3,326 | ) | (313 | ) | ||||
Restructuring and other charge | (24,399 | ) | — | |||||
Extraordinary item | (5,069 | ) | — | |||||
Net loss available to common shareholders | $ | (125,145 | ) | $ | (28,915 | ) | ||
Net Loss:
For the years ended December 31, | Percentage | ||||||||||
2002 | 2003 | Increase | |||||||||
(in thousands) | |||||||||||
Net loss | $(248,996) | $ | (125,792 | ) | 97.9 | % |
As a percentage of total revenues, gross profit increased to 35.4% of total revenues in 2000 from 33.4% in 1999 due primarily to increased levels of higher margin site leasing gross profit.
Years ended December 31, | ||||||||
2000 | 1999 | |||||||
(in thousands) | ||||||||
EBITDA | $ | 32,026 | $ | 9,582 | ||||
Interest expense, net of amount capitalized | (30,885 | ) | (27,307 | ) | ||||
Interest income | 6,253 | 881 |
Years ended December 31, | ||||||||
2000 | 1999 | |||||||
(in thousands) | ||||||||
(Provision) benefit for income taxes | $ | (1,233 | ) | $ | 223 | |||
Depreciation and amortization | (34,831 | ) | (16,557 | ) | ||||
Other income | 68 | �� | 48 | |||||
Non-cash compensation expense | (313 | ) | (311 | ) | ||||
Extraordinary item | — | (1,150 | ) | |||||
Preferred stock dividend reversal | — | 733 | ||||||
Net loss available to common shareholders | $ | (28,915 | ) | $ | (33,858 | ) | ||
LIQUIDITY AND CAPITAL RESOURCES
SBA Communications Corporation (“SBA Communications”) is a holding company with no business operations of its own. Our only significant asset is the outstanding capital stock of SBA Telecommunications, Inc. (“Telecommunications”) which is also a holding company that owns the outstanding capital stock of SBA Senior Finance. SBA Senior Finance owns directly or indirectly, the capital stock of our subsidiaries. We conduct all of our business operations through our subsidiaries.
Accordingly, our only source of cash to pay our obligations, other than financings, is distributions with respect to our ownership interest in our subsidiaries from the net earnings and cash flow generated by these subsidiaries. Even if we decided to pay a dividend on or make a distribution of the capital stock of our subsidiaries, we cannot assure you that our subsidiaries will generate sufficient cash flow to pay a dividend. OurThe ability of our subsidiaries to pay cash or stock dividends is restricted under the terms of our current senior credit facility.
A summary of our cash flows is as follows:
For the year ended December 31, 2003 | ||||
(in thousands) | ||||
Summary Cash Flow Information: | ||||
Cash used in operations | $ | (29,808 | ) | |
Cash provided by investing activities | 155,456 | |||
Cash used in financing activities | (178,451 | ) | ||
Decrease in cash and cash equivalents | (52,803 | ) | ||
Cash and cash equivalents, December 31, 2002 | 61,141 | |||
Cash and cash equivalents, December 31, 2003 | $ | 8,338 | ||
Sources of Liquidity:
During 2003, we sold 784 sites, representing substantially all of our towers in the western two-thirds of the United States, in exchange for gross cash proceeds of approximately $196.7 million. As a result of this transaction, we produced cash from investing activities. The purchase and sale agreement contained a number of provisions providing for adjustments to the purchase price. We anticipate that the final gross cash proceeds to be realized from the Western tower sale, after all potential purchase price adjustments, will be approximately $194.1 million.
In December 2003, SBA Communications and Telecommunications co-issued $402.0 million of its 9¾% senior discount notes, which produced net proceeds of approximately $267.1 million after deducting offering expenses. Proceeds from the senior discount notes were used to tender for approximately $153.3 million of our 12% senior discount notes and for general working capital purposes.
During January 2004, SBA Senior Finance closed on a new senior credit facility in the amount of $400.0 million. This facility consists of a $275.0 million term loan which was funded at closing, a $50.0 million delayed draw term loan and a $75.0 million revolving line of credit. SBA Senior Finance used the proceeds from the funding of the $275.0 million term loan under the new senior credit facility to, in part, repay the old credit facility in full, consisting of $144.2 million outstanding. In addition to the amounts outstanding, we were required to pay $8.0 million to the lenders under the old facility to facilitate the assignment of the old facility to the new lenders. SBA Senior Finance has recorded additional deferred financing fees of approximately $5.4 million associated with this new facility. See Note 14 of Notes to Consolidated Financial Statements for further details relating to the financial impact of this refinancing.
In addition to our capital restructuring activities completed in 2003 and the indentures relatedfirst quarter of 2004, in order to manage our significant levels of indebtedness and to ensure continued compliance with our financial covenants, we may explore a number of alternatives, including selling certain assets or lines of business, issuing equity, repurchasing, restructuring or refinancing or exchanging for equity some or all of our debt or pursuing other financial alternatives, and we may from time to time implement one or more of these alternatives. One or more of the alternatives may include the possibility of issuing additional shares of common stock or securities convertible into shares of common stock or converting our existing indebtedness into shares of common stock or securities convertible into shares of common stock, any of which would dilute our existing shareholders. We cannot assure you that any of these strategies can be consummated, or if consummated, would effectively address the risks associated with our significant level of indebtedness.
Uses of Liquidity:
We used the proceeds from the May 2003 credit facility discussed in this report, cash on hand and a portion of the proceeds from the Western tower sale to repay in full the prior credit facility, which had $255.0 million outstanding immediately prior to repayment. As discussed above, subsequent to December 31, 2003 we used a portion of the proceeds from the January 2004 credit facility to repay the May 2003 credit facility, to repurchase 12% senior discount notes and 10¼% senior notes in the open market and to redeem all outstanding 12% senior discount notes.
Our cash capital expenditures for the year ended December 31, 2001 was $13.02003 were $15.1 million as compared to $47.5 million in 2000. This decrease was primarily attributable to increased interest expense. Net cash used in investing activities for year ended December 31, 2001 was $530.3 million compared to $445.3$86.4 million for the year ended December 31, 2000.2002. This increase was primarily attributable todecrease is a higher levelresult of lower investment in new tower acquisitions in 2001 versus 2000. Net cash provided by financing activities for the year ended December 31, 2001 was $516.2 millionassets. During 2003, we built 13 new towers as compared to $409.62002 when we built 141 new towers and bought 53 existing towers. We currently plan to make total cash capital expenditures during 2004 of $5.0 million to $8.0 million. Due to the relatively young age of our towers and remaining capacity available to accommodate new tenants, it is not necessary for us to spend a significant amount of dollars for capital improvements or modifications to our towers to accommodate new tenants. We estimate we will incur approximately $1,000 per tower per year on these type of capital expenditures. All of these planned capital expenditures are expected to be funded by cash on hand and cash flow from operations. The exact amount of our future capital expenditures will depend on a number of factors including amounts necessary to support our tower portfolio and to complete pending build-to-suit obligations.
Cash used in operations was $29.8 million for the year ended December 31, 2000. The2003. Of this amount $15.2 million was related to an increase in netshort-term investments and approximately $6.0 million was related to the reduction in accounts payable. During 2003, we focused our efforts on improving our outstanding receivables balances. As a result of these efforts, our accounts receivable balance, after allowances and write-offs, was improved by approximately $17.0 million. Additionally, during 2003 approximately $84.8 million of cash provided by financingwas paid for interest on our various debt instruments. As a result of our refinancing activities discussed above, our cash interest requirements for 2004 are expected to be significantly lower than the requirements in 2001 was attributable to our offering2003.
Debt Service Requirements:
At December 31, 2003 we had $406.4 million outstanding of our 10¼% senior notes closed in February 2001 and borrowings undernotes. As of the date of this filing we had $355.4 million outstanding of our 10¼% senior credit facility.
At December 31, 2003 we had $275.8 million outstanding of our 9¾% senior discount notes. The 9¾% notes accrete in value until December 15, 2007 at which time the notes will have a balance of $402.0 million. These notes mature December 15, 2011. Interest on these notes is payable June 15 and December 15 beginning AugustJune 15, 2008.
At December 31, 2003 we had $65.7 million outstanding of our 12% senior discount notes. The 12% senior discount notes were originally scheduled to mature on March 1, 2001. 2008. These notes were redeemed on March 1, 2004 at the call price of 107.5% of the aggregate principal amount.
As of December 31, 2003 we had $118.2 million outstanding under the senior credit facility in existence at that time. As of March 10, 2003, we had $275.0 million outstanding under the new senior credit facility. Based on the outstanding amount of $275.0 million and rates in effect at such time, we estimate our annual debt service including amortization to be approximately $13.9 million related to our senior credit facility.
The issuance of our 9¾% senior discount notes and the new senior credit facility coupled with the retirement of the 12% senior discount notes, open market purchases and exchanges of our 10¼% senior notes and the repayment of our prior senior credit facility will result in a cash savings of approximately $50.0 million in debt service and amortization payments in 2004.
Capital Instruments:
Senior Notes and Senior Discount Notes:
The10¼% senior notes were issued by SBA Communications, are unsecured and arepari passu in right of payment with our other existing and future senior indebtedness. The 9¾% senior discount notes were co-issued by SBA Communications and Telecommunications in December 2003, are unsecured, rankpari passu with the senior indebtedness and are structurally senior to all indebtedness of SBA Communications. Both, the 10¼% senior notes and the 9¾% senior discount notes place certain restrictions on, among other things, the incurrence of debt and liens, issuance of preferred stock, payment of dividends or other distributions, sale of assets, transactions with affiliates, sale and leaseback transactions, certain investments and our ability to merge or consolidate with other entities.
May 2003 Senior Credit Facility:
On May 9, 2003, Telecommunications closed on a senior credit facility with the senior credit lenders in the amount of $195.0 million. In November, 2003, in connection with the offering of our 10¼9¾% senior notes. The 10¼% seniordiscount notes mature February 1, 2009. Additionally, at December 31, 2001, we had $234.9 millionand our tender offer for 70% of our outstanding on our 12% senior discount notes, netSBA Senior Finance, a newly formed wholly-owned subsidiary of unamortized original issue discountTelecommunications, assumed all rights and obligations of $34.1 million. The 12% senior discount notes mature on March 1, 2008.
This prior senior credit facility, as amended, provided for $95.0 million in term loans and $100.0 million in revolving lines of credit, which could be borrowed, repaid and redrawn and which would have converted to a term loan January 28, 2004. Amortization of amounts borrowed under this facility was to commence in 2004, at an annual rate of 10% in 2004 and 15% in each of 2005, 2006 and 2007. All remaining amounts were to be due and payable at maturity on December 31, 2007. Amounts borrowed under this facility accrued interest at the euro dollar rate plus a margin or a base rate, plus a margin, as defined in the agreement. The senior credit facility is secured by substantially allagreement plus 300 basis points or the Euro dollar rate plus 400 basis points. Additional interest of the assets of SBA Telecommunications and its subsidiaries. The facility3.5% per annum also places certain restrictions on, among other things, the incurrence of debt and liens, the sale of assets, capital expenditures, transactions with affiliates, sale and lease-back transactions and the number of towers that canaccrued, but was not due to be built without anchor tenants.paid until maturity. As of December 31, 20012003, $3.2 million of this additional interest was converted to a term loan. As a result, at December 31, 2003, we were in full compliance with the covenants contained in the senior credit facility and the remaining $190.0had $98.2 million outstanding under the senior credit facility was available to us. At December 31, 2001, we had the $100.0 million term loan outstanding underof the senior credit facility at variable cash rates of 4.76%5.16% to 4.87%5.17% (excluding the 3.5% of additional interest) and $10.0we had $20.0 million outstanding under the revolving credit facility at a 6.5% variable rate.
This prior senior credit facility, as amended, required SBA Senior Finance to maintain specified financial ratios, including ratios regarding its leverage, debt service, cash interest expense and fixed charges
for each quarter. The senior credit facility contained affirmative and negative covenants that, among other things, restricted SBA Senior Finance’s and its subsidiaries’ ability to incur debt and liens, sell assets, make or commit to make capital expenditures, enter into affiliate transactions or sale-leaseback transactions, and/or build towers without anchor tenants. Additionally, as of December 31, 20012003, we issued 587,260 shareswere in full compliance with all of the financial covenants of this facility.
January 2004 Senior Credit Facility:
On January 29, 2004, SBA Senior Finance closed on a new senior credit facility in the amount of $400.0 million. This facility consists of a $275.0 million term loan which was funded at closing, a $50.0 million delayed draw term loan which we have until November 15, 2004 to draw, and a $75.0 million revolving line of credit. The revolving lines of credit may be borrowed, repaid and redrawn. Amortization of the term loans commence September 2004 at an annual rate of 1% in each of 2004, 2005, 2006 and 2007. All remaining amounts under these shelf registration statementsthe term loan are due October 31, 2008. There is no amortization of the revolving loans and all amounts outstanding under the revolving facility are due on August 31, 2008. Amounts borrowed under this facility accrue interest at either the base rate, as defined in connectionthe agreement, plus 250 basis points or a Euro dollar rate plus 350 basis points. This facility may be prepaid at any time with certain earn-outs.
This new senior credit facility requires SBA Senior Finance to maintain specified financial ratios, including ratios regarding its debt to annualized operating cash flow, debt service, cash interest expense and fixed charges for each quarter. This new senior credit facility contains affirmative and negative covenants that, among other things, restricts its ability to incur debt and liens, sell assets, commit to capital expenditures, enter into affiliate transactions or sale-leaseback transactions, and/or build towers without anchor tenants. Additionally, this facility permits distributions by SBA Senior Finance to Telecommunications and SBA Communications to service their debt, pay consolidated taxes, pay holding company expenses and for the repurchase of senior notes or senior discount notes subject to compliance with the SEC a universal shelf registration statement registeringcovenants discussed above. SBA Senior Finance’s ability in the sale of upfuture to $252.7comply with the covenants and access the available funds under the senior credit facility in the future will depend on its future financial performance. Had this facility been in place on December 31, 2003, we would have had the ability to draw an additional approximately $21 million of any combination ofover the following securities: Class A common stock, preferred stock, debt securities, depositary shares or warrants.
INFLATIONInflation
The impact of inflation on our operations has not been significant to date. However, we cannot assure you that a high rate of inflation in the future will not adversely affect our operating results.
CRITICAL ACCOUNTING POLICIESAccounting Pronouncements Adopted in 2003
In October 2001, the policies below as criticalFASB issued SFAS No. 143,Accounting for Asset Retirement Obligations (“SFAS 143”). This standard requires companies to our business operations andrecord the understanding of our results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatmentfair value of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no needliability for management’s judgement in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations is discussed throughout “Management’s Discussion and Analysis of Financial Condition and Results of Operations” where such policies affect our reported and expected financial results. For a detailed discussion on
underlying a majority of our towers and our estimate as to the probability of incurring these obligations, we recorded a cumulative effect adjustment of approximately $0.5 million during the first quarter of 2003. The adoption of SFAS 143 resulted in an increase in tower fixed assets of approximately $0.9 million and the recording of an asset retirement obligation liability of approximately $1.4 million.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements Nos. 4, 44 and 62, Amendment of SFAS No. 13 and Technical Corrections (“SFAS 145”). SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS 4. Extraordinary treatment is required for certain extinguishments as provided in APB Opinion No. 30. The statement also amended SFAS 13 for certain sale-leaseback and sublease accounting. We adopted the provisions of SFAS 145 effective January 1, 2003. Pursuant to SFAS 145, our previously reported extraordinary item of $5.1 million, related to the early extinguishment of debt, was reclassified to operating expense in the accompanying December 31, 2001 Consolidated Statement of Operations.
In July 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities (“SFAS 146”) and nullified EITF Issue No. 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had recognized the liability at the commitment date to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. We adopted the provisions of SFAS 146 effective January 1, 2003. The adoption of SFAS 146 did not have a material effect on our consolidated financial statements.
In December 2002, the FASB issued SFAS 148. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the estimated useful livesmethod used on reported results. The standard is effective for fiscal years beginning after December 15, 2002. We adopted the disclosure-only provisions of SFAS 148 as of December 31, 2002. We will continue to account for stock-based compensation in accordance with APB 25. As such, we do not expect this standard will have a material impact on our propertyconsolidated financial position or results of operations.
In April 2003, the FASB issued Statement of Financial Accounting Standards No. 149 (“SFAS 149”),Amendment of Statement 133 on Derivative Instruments and equipmentHedging Activities. This Statement amends and clarifies financial accounting and reporting for depreciation purposes. derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under Statement of Financial Accounting Standards No. 133 (“SFAS 133”),Accounting for Derivative Instruments and Hedging Activities.The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset, industry practice and asset maintenance policies. Maintenance and repair items are expensed as incurred.
In May 2003, the competitive environment and other industry and economic factors. We measure impairment of unamortized goodwill utilizing the undiscounted cash flow method over the remaining estimated life. Any impairment loss would be calculated as the amount which the carrying amount of the unamortized balance exceeds its fair value. As of December 31, 2001, we determined that there has been no impairment of goodwill.
In November 2002, the impact basedFASB issued FASB Interpretation No. 45 (“FIN 45”),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.
Fin 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies requirements for the recognition of guarantees at the onset of an arrangement. The initial recognition and measurement provisions of FIN 45 are applicable on a two-step approachprospective basis to assess goodwill based on applicable reporting units and will reassess any intangible assets, including goodwill, recorded in connection with our previous acquisitions.guarantees used or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for interim or annual financial statements after December 15, 2002. We had recorded approximately $6.9 millionimplemented the disclosure requirements of amortization on these amounts during 2001 and would have recorded approximately $10.0 millionFIN 45 as of amortization during 2002. In lieu of amortization, we are required to perform an initial impairment review of our goodwill inDecember 31, 2002 and an annual impairment review thereafter. We are currently assessing, but have not yet determined thethere was no material impact adoption of SFAS 142 will have on our consolidated financial statements however, we believe it mayas a result of this implementation.
In January 2003, the FASB issued Interpretation No. 46,Consolidation for Variable Interest Entities, an Interpretation of ARB No. 51 which requires all variable interest entities (“VIES”) to be material. As of December 31, 2001, we had unamortized goodwill and covenants not to compete of $86.2 million.
Commitments and Contractual Obligations
The following table summarizes our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.
Contractual Obligations | Total | Less than 1 year | 1 – 3 Years | 4 – 5 Years | More than 5 Years | ||||||||||
Short-term and long-term debt | $ | 992,365 | $ | 11,500 | $ | 34,500 | $ | 137,900 | $ | 808,465 | |||||
Capital leases | 38 | 38 | — | — | — | ||||||||||
Operating leases | 124,980 | 26,195 | 33,758 | 18,407 | 46,620 | ||||||||||
Employment agreements | 1,378 | 948 | 430 | — | — | ||||||||||
Purchase obligations | 13,067 | 13,067 | — | — | — | ||||||||||
Asset retirement obligations | 1,195 | — | — | — | 1,195 | ||||||||||
Total | $ | 1,133,023 | $ | 51,748 | $ | 68,688 | $ | 156,307 | $ | 856,280 | |||||
Off-Balance Sheet Arrangements
We are not involved in future periods we may need to establish an additional valuation allowance which could impact our financial position and results of operations. The net deferred tax liability as of December 31, 2001 was $18.4 million.
any off-balance sheet arrangements.
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to certain market risks that are inherent in our financial instruments. These instruments arise from transactions entered into in the normal course of business. During the year ended December 31, 2001 we wereWe are subject to interest rate risk on our senior credit facility. At December 31, 2001facility and any future financing requirements. We attempt to limit our exposure to interest rate risk by managing the mix of our long-term fixed rate debt consisted primarily of the balance on the 10¼% senior notes and the accreted balance of the 12% senior discount notes. In the future, we may be subject to increased rate risk onour borrowings under our senior credit facility,facility. As of December 31, 2003, long-term fixed rate borrowings represented approximately 86% of our total borrowings. Assuming a 100 basis-point change in LIBOR, our annual interest rate swap or any other further financing we may enter into.
The following table presents the future principal payment obligations and weighted average interest rates associated with our existing long-term debt instruments assuming our actual level of long-term indebtedness:
2002 | 2003 | 2004 | 2005 | 2006 | Thereafter | |||||||||||||
(in thousands) | ||||||||||||||||||
Long-term debt: | ||||||||||||||||||
Fixed rate (10¼%) | — | — | — | — | — | $ | 500,000 | |||||||||||
Fixed rate (12.0%) | — | — | — | — | — | $ | 269,000 | |||||||||||
Term loan, $100.0 million, variable rates (4.76% to 4.87% at December 31, 2001) | — | $ | 5,000 | $ | 15,000 | $ | 25,000 | $ | 25,000 | $ | 30,000 | |||||||
Revolving loan, variable rate (6.5% at December 31, 2001) | — | — | — | — | — | $ | 10,000 | |||||||||||
Notes payable, variable rates (2.9% to 11.4% at December 31, 2001) | $ | 365 | $ | 134 | $ | 69 | — | — | — |
2004 | 2005 | 2006 | 2007 | 2008 | Thereafter | Fair Value | |||||||||||||||
(in thousands) | |||||||||||||||||||||
Long-term debt: | |||||||||||||||||||||
Fixed rate (12.0%) | — | — | — | — | $ | 65,673 | — | $ | 71,584 | ||||||||||||
Fixed rate (10¼%) | — | — | — | — | — | $ | 406,441 | $ | 398,312 | ||||||||||||
Fixed rate (9¾%) | — | — | — | — | — | $ | 402,024 | $ | 279,929 | ||||||||||||
Term loan, $98.2 million, variable cash rates (8.66% to 8.67% at December 31, 2003) | $ | 9,500 | $ | 14,250 | $ | 14,250 | $ | 60,227 | — | — | $ | 98,227 | |||||||||
Revolving loans, variable cash rate (8.65% at December 31, 2003) | $ | 2,000 | $ | 3,000 | $ | 3,000 | $ | 12,000 | — | — | $ | 20,000 | |||||||||
Notes payable, variable rates (2.9% to 11.4% at December 31, 2003) | $ | 38 | — | — | — | $ | — | — | $ | 38 |
Our primary market risk exposure relates to (1) the interest rate risk on variable-rate long-term and short-term borrowings, and on our interest rate swap agreement, (2) our ability to refinance our 10¼9¾% senior discount notes and our 12%10¼% senior discount notes, at maturity at market rates, and (3) the impact of interest rate movements on our ability to meet interest expense requirements and exceed financial covenants. We manage the interest rate risk on our outstanding long-term and short-term debt through our use of fixed and variable rate debt. While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis.
Senior Note and Senior Discount Note Disclosure Requirements
The indentures governing our 10¼% senior notes and our 12%9¾% senior discount notes require certain financial disclosures for restricted subsidiaries separate from unrestricted subsidiaries and the disclosuresubsidiaries. As of December 31, 2003 we had no unrestricted subsidiaries. Additionally, we are required to be made ofdisclose(i) Tower Cash Flow, as defined in the indentures, for the most recent fiscal quarter and (ii) Adjusted Consolidated Cash Flow, as defined in the indentures, for the most recently completed four-quarter period. AsThis information is presented solely as a requirement of December 31, 2001 we had no unrestricted subsidiaries. the indentures. Such information is not intended as an alternative measure of financial position, operating results or cash flows from operations (as determined in accordance with generally accepted accounting principles). Furthermore, our measure of the following information may not be comparable to similarly titled measures of other companies.
Tower Cash Flow and Adjusted Consolidated Cash Flow as defined in theour senior note and senior discount note indentures for the quarter ended December 31, 2001 was $15.7 million. Adjusted Consolidated Cash Flow for the year ended December 31, 2001 was $73.3 million.
10¼% Senior Notes | 9¾% Senior Discount Notes | |||||
(in thousands) | ||||||
HoldCo Tower Cash Flow for the three months ended December 31, 2003(1) | $ | 18,249 | $ | 22,676 | ||
OpCo Tower Cash Flow for the three months ended December 31, 2003(2) | n/a | $ | 22,676 | |||
HoldCo Adjusted Consolidated Cash Flow for the twelve months ended December 31, 2003 | $ | 67,324 | $ | 68,679 | ||
OpCo Adjusted Consolidated Cash Flow for the twelve months ended December 31, 2003 | n/a | $ | 73,340 |
(1) | In the indenture for the 9¾% senior discount notes HoldCo is referred to as the “Co-Issuer” or SBA Communications Corporation. |
(2) | In the indenture for the 9¾% senior discount notes OpCo is referred to as the “Company” or SBA Telecommunications, Inc. |
Special Note Regarding Forward Looking Statements
This annual report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Discussions containing forward-looking statements may be found in the material set forth in this section and under “Management’s Discussion and AnalysisAct of Financial Condition and Results of Operations” and “Business,” as well as in the annual report generally.
These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following:
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
ITEM 9A. | CONTROLS AND PROCEDURES |
In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis, we have formalized our disclosure controls and procedures. Our principal executive officer and principal financial officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of December 31, 2003. Based on such evaluation, such officers have concluded that, as of December 31, 2003, our disclosure controls and procedures were effective in timely
alerting them to material information relating to us (and our consolidated subsidiaries) required to be included in our periodic SEC filings.
As previously discussed, in performing the audits of our consolidated financial statements for the years ended December 31, 2001 and 2002 and the interim reviews of our consolidated financial statements for the three and six month periods ended June 30, 2003, our independent auditors, Ernst & Young, LLP (“E&Y”), noted a matter involving internal control and its operation that E&Y considered to be a material weakness. Specifically, E&Y, noted that we did not have an adequate process in place to ensure that the appropriate personnel, with adequate understanding of the relevant generally accepted accounting principles and financial reporting implications, thoroughly assessed and applied the proper accounting and reporting principles to certain significant asset or business acquisition and disposition transactions.
To address the matter identified, we have established a process to ensure that our Chief Financial Officer and Chief Accounting Officer are involved throughout each significant asset or business acquisition or disposition and that such officers have the appropriate knowledge of generally accepted accounting principles and consult the applicable accounting literature and outside professionals as appropriate. In performing the audit of our consolidated financial statements for the year ended December 31, 2003, E&Y, noted no matters involving internal control and its operation that it considered to be a material weakness. As of the date of the filing of this report, we do not have a Chief Financial Officer. We have continued to actively pursue our search for a qualified individual to fill the vacancy in our Chief Financial Officer position by engaging an executive search firm who has identified several possible candidates.
PART III
ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT |
The items required by Part III, Item 10 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20022004 Annual Meeting of Shareholders to be filed on or before April 30, 2002.
ITEM 11. | EXECUTIVE COMPENSATION |
The items required by Part III, Item 11 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20022004 Annual Meeting of Shareholders to be filed on or before April 30, 2002.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The items required by Part III, Item 12 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20022004 Annual Meeting of Shareholders to be filed on or before April 30, 2002.
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS |
The items required by Part III, Item 13 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20022004 Annual Meeting of Shareholders to be filed on or before April 30, 2002.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The items required by Part III, Item 14 are incorporated herein by reference from the Registrant’s Proxy Statement for its 2004 Annual Meeting of Shareholders to be filed on or before April 29, 2004.
PART IV
ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K |
(a) | Documents filed as part of this report: |
(1) | Financial Statements |
See “Item 8. Financial Statements and Supplementary Data” for Financial Statements included with this Annual Report on Form 10-K.
(2) | Financial Statement Schedules |
See “Item 8. Financial Statements and Supplementary Data” for Financial Statements Schedules included with this Annual Report on Form 10-K.
All other schedules have been omitted because they are not required, not applicable, or the information is otherwise set forth in the financial statements or notes thereto.
(3) | Exhibits |
Exhibit No. | Description of Exhibits | |
3.4 | —Fourth Amended and Restated Articles of Incorporation of SBA Communications Corporation.(1) | |
3.5 | —Amended and Revised By-Laws of SBA Communications Corporation.(1) | |
4.1 | —Indenture, dated as of March 2, 1998, between SBA Communications Corporation and State Street Bank and Trust Company, as trustee, relating to $269,000,000 in aggregate principal amount at maturity of 12% Senior Discount Notes due 2008.(2) | |
4.3 | —Specimen Certificate of 12% Senior Discount Note due 2008 (included in Exhibit 4.1) | |
4.4 | —Indenture, dated as of February 2, 2001, between SBA Communications Corporation and State Street Bank and Trust Company, as trustee, relating to $500,000,000 in aggregate principal amount and maturity of 10¼% senior notes due 2009.(3) | |
4.5 | —Form of 10¼% senior note due February 1, 2009.(3) | |
4.6 | —Rights Agreement, dated as of January 11, 2002, between the Company and the Rights Agent.(4) | |
—Indenture, dated as of December 19, 2003, among SBA Communications Corporation, SBA Telecommunications, Inc. and U.S. Bank National Association, as trustee, relating to the $402,024,000 in aggregate principal amount at maturity of 9¾% senior discount notes due 2011.* | ||
4.8 | — | |
10.1 | —SBA Communications Corporation Registration Rights Agreement dated as of March 5, 1997, among the Company, Steven E. Bernstein, Ronald G. Bizick, II and Robert Grobstein.(2) | |
— | ||
10.23 | —1996 Stock Option Plan.(1) | |
10.24 | —1999 Equity Participation Plan.(1) |
10.25 | —1999 Stock Purchase Plan.(1) | |
10.27 | —Incentive Stock Option Agreement, dated as of September 5, 2000, between SBA Communications Corporation and Thomas P. Hunt.(5) | |
10.28 | —Restricted Stock Agreement, dated as of September 5, 2000, between SBA Communications Corporation and Thomas P. Hunt.(5) | |
—2001 Equity Participation Plan.(6) | ||
10.35 | —Employment Agreement, dated as of | |
10.36 | —Employment Agreement, dated as of February 28, 2003, between SBA Properties Inc. and Kurt L. Bagwell.(7) | |
10.37 | —Employment Agreement, dated as of February 28, 2003, between SBA Properties Inc. and Thomas P. Hunt. | |
— |
10.41 | —$400,000,000 Amended and Restated Credit Agreement, dated as of January 30, 2004, among SBA Senior Finance, Inc., as borrower, the lenders from time to time parties thereto, Lehman Brothers Inc. and Deutsche Bank Securities Inc., as Joint Lead Arrangers and Bookrunners, Lehman Commercial Paper Inc., as Administrative Agent, General Electric Capital Corporation as Co-Lead Arranger and Co-Syndication Agent, and TD Securities (USA) Inc., as Documentation Agent.* | |
10.42 | —Guarantee and Collateral Agreement dated January 30, 2004 among SBA Communications Corporation, SBA Telecommunications, Inc., | |
21 | —Subsidiaries.* | |
23.1 | —Consent of | |
31.1 | —Certification by Jeffrey A. Stoops, Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
31.2 | —Certification by John F. Fiedor, Chief Accounting Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
32.1 | —Certification by Jeffrey A. Stoops, Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
32.2 | —Certification by John F. Fiedor, Chief Accounting Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
Filed herewith |
(1) | Incorporated by reference to the Registration Statement on Form S-1 previously filed by the Registrant (Registration No. 333-76547). |
(2) | Incorporated by reference to the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-50219). |
(3) | Incorporated by reference to the Registration Statement on Form S-4 previously filed by the Registrant (Registration No. 333-58128). |
(4) | Incorporated by reference to the Form 8-K, dated January 11, 2002, previously filed by the Registrant. |
(5) | Incorporated by reference to the Form 10-K for the year ended December 31, 2000, previously filed by the Registrant. |
(6) |
Incorporated by reference to the Registration Statement on Form S-8, previously filed by the Registrant (Registration No. 333-69236). |
Incorporated by reference to the Form 10-K for the year ended December 31, 2002, previously filed by the Registrant. |
(8) | Incorporated by reference to Form 8-K, dated May 9, 2003, previously filed by Registrant. |
(9) | Incorporated by reference to the Form 8-K, dated November 21, 2003, previously filed by the Registrant. |
(b) | Reports on Form 8-K: |
The Company filed a report on Form 8-K dated October 1, 2003. In the report, the Company reported under Items 5 and 7 that its re-audit had been substantially completed and announced its plans to restate its fiscal year 2001, fiscal year 2002, first and second quarter 2003 financial statements and discussed the anticipated impact of the restatement.
The Company filed a report on Form 8-K dated November 6, 2001.10, 2003. In the report, the Company reported,furnished under Item 5, certain operational information12, the Company’s financial results for the third quarter of 2001. Under Item 7, the Company included the related press release.
The Company filed a report on Form 8-K dated November 13, 2001.10, 2003. In the report, under Items 5 and 12, the Company reported under Item 5, additional operational information.
The Company filed a report on Form 8-K dated November 13, 2001.14, 2003. In the report, the Company reporteddisclosed under ItemItems 5 certainand 12, the effect of the financial resultsstatement restatements for fiscal year 2002, fiscal year fiscal year 2001 and the third quartersix months ended June 30, 2003 and 2002, and the restated audited financial statements for fiscal years 2002 and 2001 and the amended Management’s Discussion and Analysis of Financial Condition and Results of Operations for Fiscal Years 2002 and 2001. Under Item 7, the Company included the related press release.
The Company filed a report on Form 8-K dated November 16, 2001.21, 2003. In the report, the Company reported under Item 5, that SBA Senior Finance, Inc., a newly formed wholly-owned subsidiary of SBA Telecommunications, Inc., assumed all rights and obligations of SBA Telecommunications, Inc., under the appointment of Steven E. Nielsen, Chairman, Presidentexisting $195.0 million senior credit facility pursuant to an amended and Chief Executive Officer of Dycom Industries, Inc. to SBA’s Board of Directors.restated credit agreement. Under Item 7, the Company included the Amended and Restated Credit Agreement dated as of November 21, 2003.
The Company filed a report on Form 8-K dated December 1, 2003. In the report under Item 7, the Company included a press release announcing its intent to issue approximately $200 million in gross proceeds of senior discount notes due 2011. Under Items 9 and 12, the Company released selected historical financial data for the years ended December 31, 2000, 1999, and 1998, and other financial and operations data.
The Company filed a report for Form 8-K dated December 10, 2003. In the report under Items 5 and 7, the Company reported that on December 8, 2003, it priced an offering by the Company and SBA Telecommunications, Inc., of $402.0 million aggregate principal amount at maturity ($275 million in gross proceeds) of 9¾% senior discount notes due 2011.
The Company filed a report on Form 8-K on December 23, 2003. In the report under Items 5 and 7, the Company announced the expiration of a tender offer and its related press release.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SBA COMMUNICATIONS CORPORATION | ||
By: | /s/ STEVEN E. BERNSTEIN | |
Steven E. Bernstein | ||
Chairman of the Board of Directors |
March 11, 2004 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Steven E. Bernstein | Chairman of the Board of Directors | March | ||
/s/ Jeffrey A. Stoops | Chief Executive Officer and President (Principal Executive Officer) | March | ||
/s/ John | Chief | March | ||
/s/ Donald B. Hebb, Jr. | Director | March | ||
/s/ Richard W. Miller | Director | March | ||
/s/ Steven E. Nielsen | Director | March | ||
CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors
SBA Communications Corporation:
We have audited the accompanying consolidated balance sheets of SBA Communications Corporation (a Florida corporation) and subsidiariesSubsidiaries as of December 31, 20012003 and 2000,2002, and the related consolidated statements of operations, shareholders’ equity, (deficit) and cash flows for each of the three years in the period ended December 31, 2001.2003. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of SBA Communications Corporation and subsidiariesSubsidiaries as of December 31, 20012003 and 2000,2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20012003, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 5 to the consolidated financial statements, effective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations.” As also discussed in Note 5, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
December 31, 2001 | December 31, 2000 | |||||||
(in thousands, except par values) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,904 | $ | 14,980 | ||||
Accounts receivable, net of allowances of $4,641 and $2,117 in 2001 and 2000, respectively | 56,796 | 47,704 | ||||||
Prepaid and other current assets | 10,254 | 5,968 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 11,333 | 13,584 | ||||||
Total current assets | 92,287 | 82,236 | ||||||
Property and equipment, net | 1,198,559 | 765,815 | ||||||
Intangible assets, net | 117,087 | 83,387 | ||||||
Other assets | 21,078 | 17,380 | ||||||
Total assets | $ | 1,429,011 | $ | 948,818 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 56,293 | $ | 76,944 | ||||
Accrued expenses | 13,046 | 13,504 | ||||||
Current portion—notes payable | 365 | 2,606 | ||||||
Interest payable | 21,815 | 49 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 6,302 | 5,942 | ||||||
Other current liabilities | 15,880 | 10,665 | ||||||
Total current liabilities | 113,701 | 109,710 | ||||||
Long-term liabilities: | ||||||||
Senior notes payable | 500,000 | — | ||||||
Senior discount notes payable | 234,885 | 209,042 | ||||||
Notes payable | 110,203 | 72,625 | ||||||
Deferred tax liabilities, net | 18,429 | 18,445 | ||||||
Other long-term liabilities | 1,149 | 836 | ||||||
Total long-term liabilities | 864,666 | 300,948 | ||||||
Commitments and contingencies (see Note 12) | ||||||||
Shareholders’ equity: | ||||||||
Common stock-Class A par value $.01 (100,000 shares authorized), 43,233 and 40,989 shares issued and outstanding in 2001 and 2000, respectively | 432 | 410 | ||||||
Common stock-Class B par value $.01 (8,100 shares authorized), 5,456 shares issued and outstanding in 2001 and 2000 | 55 | 55 | ||||||
Additional paid-in capital | 664,977 | 627,370 | ||||||
Accumulated deficit | (214,820 | ) | (89,675 | ) | ||||
Total shareholders’ equity | 450,644 | 538,160 | ||||||
Total liabilities and shareholders’ equity | $ | 1,429,011 | $ | 948,818 | ||||
(in thousands, except par values)
December 31, 2003 | December 31, 2002 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 8,338 | $ | 61,141 | ||||
Short-term investments | 15,200 | — | ||||||
Restricted cash | 10,344 | — | ||||||
Accounts receivable, net of allowances of $1,400 and $5,572 in 2003 and 2002, respectively | 19,414 | 36,292 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 10,227 | 10,425 | ||||||
Prepaid and other current assets | 5,009 | 5,129 | ||||||
Assets held for sale | 395 | 202,409 | ||||||
Total current assets | 68,927 | 315,396 | ||||||
Property and equipment, net | 856,213 | 940,961 | ||||||
Deferred financing fees, net | 24,253 | 24,517 | ||||||
Other assets | 31,181 | 18,787 | ||||||
Intangible assets, net | 2,408 | 3,704 | ||||||
Total assets | $ | 982,982 | $ | 1,303,365 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 11,352 | $ | 16,810 | ||||
Accrued expenses | 17,709 | 13,943 | ||||||
Deferred revenue | 11,137 | 11,142 | ||||||
Interest payable | 20,319 | 22,919 | ||||||
Long-term debt, current portion | 11,538 | 60,083 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 1,577 | 2,362 | ||||||
Other current liabilities | 1,807 | 3,595 | ||||||
Liabilities held for sale | 608 | 2,685 | ||||||
Total current liabilities | 76,047 | 133,539 | ||||||
Long-term liabilities: | ||||||||
Long-term debt | 859,220 | 964,199 | ||||||
Deferred revenue | 511 | 703 | ||||||
Other long-term liabilities | 3,327 | 1,434 | ||||||
Total long-term liabilities | 863,058 | 966,336 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock-$.01 par value, 30,000 shares authorized, none issued or outstanding | — | — | ||||||
Common stock-Class A par value $.01 (200,000 and 100,000 shares authorized, 55,016 and 45,674 shares issued and outstanding in 2003 and 2002, respectively) | 550 | 457 | ||||||
Common stock-Class B par value $.01 (8,100 shares authorized, 0 and 5,456 shares issued and outstanding in 2003 and 2002, respectively) | — | 55 | ||||||
Additional paid-in capital | 679,961 | 667,441 | ||||||
Accumulated deficit | (636,634 | ) | (464,463 | ) | ||||
Total shareholders’ equity | 43,877 | 203,490 | ||||||
Total liabilities and shareholders’ equity | $ | 982,982 | $ | 1,303,365 | ||||
The accompanying notes to consolidated financial statements are an integral part of these
financial statements.
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
(in thousands, except per share amounts)
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
Revenues: | ||||||||||||
Site development | $ | 139,735 | $ | 115,892 | $ | 60,570 | ||||||
Site leasing | 103,159 | 52,014 | 26,423 | |||||||||
Total revenues | 242,894 | 167,906 | 86,993 | |||||||||
Cost of revenues (exclusive of depreciation and amortization shown below): | ||||||||||||
Cost of site development | 107,932 | 88,892 | 45,804 | |||||||||
Cost of site leasing | 36,722 | 19,502 | 12,134 | |||||||||
Total cost of revenues | 144,654 | 108,394 | 57,938 | |||||||||
Gross profit | 98,240 | 59,512 | 29,055 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 41,342 | 27,799 | 19,784 | |||||||||
Restructuring and other charge | 24,399 | — | — | |||||||||
Depreciation and amortization | 80,465 | 34,831 | 16,557 | |||||||||
Total operating expenses | 146,206 | 62,630 | 36,341 | |||||||||
Operating loss | (47,966 | ) | (3,118 | ) | (7,286 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 7,059 | 6,253 | 881 | |||||||||
Interest expense, net of capitalized interest | (47,709 | ) | (4,879 | ) | (5,244 | ) | ||||||
Non-cash amortization of original issue discount and debt issuance costs | (29,730 | ) | (26,006 | ) | (22,063 | ) | ||||||
Other | (76 | ) | 68 | 48 | ||||||||
Total other expense | (70,456 | ) | (24,564 | ) | (26,378 | ) | ||||||
Loss before (provision) benefit for income taxes and extraordinary item | (118,422 | ) | (27,682 | ) | (33,664 | ) | ||||||
(Provision) benefit for income taxes | (1,654 | ) | (1,233 | ) | 223 | |||||||
Net loss before extraordinary item | (120,076 | ) | (28,915 | ) | (33,441 | ) | ||||||
Extraordinary item, write-off of deferred financing fees | (5,069 | ) | — | (1,150 | ) | |||||||
Net loss | (125,145 | ) | (28,915 | ) | (34,591 | ) | ||||||
Dividends on preferred stock | — | — | 733 | |||||||||
Net loss available to common shareholders | $ | (125,145 | ) | $ | (28,915 | ) | $ | (33,858 | ) | |||
Basic and diluted loss per common share before extraordinary item | $ | (2.53 | ) | $ | (0.70 | ) | $ | (1.71 | ) | |||
Extraordinary item | (0.11 | ) | — | (0.06 | ) | |||||||
Basic and diluted loss per common share | $ | (2.64 | ) | $ | (0.70 | ) | $ | (1.77 | ) | |||
Basic and diluted weighted average number of shares of common stock | 47,437 | 41,156 | 19,156 | |||||||||
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||||
Class A | Class B | |||||||||||||||||||||||
Number | Amount | Number | Amount | |||||||||||||||||||||
BALANCE, December 31, 1998 | 881 | $ | 9 | 8,075 | $ | 81 | $ | 715 | $ | (26,902 | ) | $ | (26,097 | ) | ||||||||||
Initial public offering of common stock, net of issuance costs | 11,300 | 113 | — | — | 93,520 | — | 93,633 | |||||||||||||||||
Non-cash compensation adjustment | — | — | — | — | 311 | — | 311 | |||||||||||||||||
Preferred stock dividends | — | — | — | — | — | (1,346 | ) | (1,346 | ) | |||||||||||||||
Preferred stock conversion/redemption | 8,050 | 80 | — | — | (80 | ) | 2,079 | 2,079 | ||||||||||||||||
Shares received for repayment of shareholder loan | — | — | (430 | ) | (4 | ) | (3,872 | ) | — | (3,876 | ) | |||||||||||||
Common stock issued in connection with acquisitions | 1,100 | 11 | — | — | 17,689 | — | 17,700 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/option plans | 216 | 2 | — | — | 766 | — | 768 | |||||||||||||||||
Net loss | — | — | — | — | — | (34,591 | ) | (34,591 | ) | |||||||||||||||
BALANCE, December 31, 1999 | 21,547 | 215 | 7,645 | 77 | 109,049 | (60,760 | ) | 48,581 | ||||||||||||||||
Offering of common stock, net of issuance costs | 14,750 | 148 | — | — | 464,896 | — | 465,044 | |||||||||||||||||
Common stock issued in connection with acquisitions | 1,123 | 11 | — | — | 48,762 | — | 48,773 | |||||||||||||||||
Non-cash compensation adjustment | — | — | — | — | 313 | — | 313 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/option plans | 1,003 | 10 | — | — | 4,354 | — | 4,364 | |||||||||||||||||
Issuance of restricted stock | 20 | — | — | — | — | — | — | |||||||||||||||||
Conversion of Class B to Class A | 2,189 | 22 | (2,189 | ) | (22 | ) | — | — | — | |||||||||||||||
Exercise of warrants | 357 | 4 | — | — | (4 | ) | — | — | ||||||||||||||||
Net loss | — | — | — | — | — | (28,915 | ) | (28,915 | ) | |||||||||||||||
BALANCE, December 31, 2000 | 40,989 | 410 | 5,456 | 55 | 627,370 | (89,675 | ) | 538,160 | ||||||||||||||||
Common stock issued in connection with acquisitions | 1,575 | 16 | — | — | 31,037 | — | 31,053 | |||||||||||||||||
Non-cash compensation adjustment | — | — | — | — | 3,326 | — | 3,326 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/option plans | 669 | 6 | — | — | 3,244 | — | 3,250 | |||||||||||||||||
Net loss | — | — | — | — | — | (125,145 | ) | (125,145 | ) | |||||||||||||||
BALANCE, December 31, 2001 | 43,233 | $ | 432 | 5,456 | $ | 55 | $ | 664,977 | $ | (214,820 | ) | $ | 450,644 | |||||||||||
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
Revenues: | ||||||||||||
Site leasing | $ | 127,842 | $ | 115,081 | $ | 85,487 | ||||||
Site development | 84,218 | 125,041 | 139,735 | |||||||||
Total revenues | 212,060 | 240,122 | 225,222 | |||||||||
Cost of revenues (exclusive of depreciation, accretion and amortization shown below): | ||||||||||||
Cost of site leasing | 42,021 | 40,650 | 30,657 | |||||||||
Cost of site development | 77,810 | 102,473 | 108,532 | |||||||||
Total cost of revenues | 119,831 | 143,123 | 139,189 | |||||||||
Gross profit | 92,229 | 96,999 | 86,033 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 31,244 | 34,352 | 42,103 | |||||||||
Restructuring and other charges | 2,505 | 47,762 | 24,399 | |||||||||
Asset impairment charges | 16,965 | 25,545 | — | |||||||||
Depreciation, accretion and amortization | 84,380 | 85,728 | 66,104 | |||||||||
Total operating expenses | 135,094 | 193,387 | 132,606 | |||||||||
Operating loss from continuing operations | (42,865 | ) | (96,388 | ) | (46,573 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 692 | 601 | 7,059 | |||||||||
Interest expense, net of amounts capitalized | (81,501 | ) | (54,822 | ) | (47,709 | ) | ||||||
Non-cash interest expense | (9,277 | ) | (29,038 | ) | (25,843 | ) | ||||||
Amortization of debt issuance costs | (5,115 | ) | (4,480 | ) | (3,887 | ) | ||||||
Write-off of deferred financing fees and loss on extinguishment of debt | (24,219 | ) | — | (5,069 | ) | |||||||
Other | 169 | (169 | ) | (76 | ) | |||||||
Total other expense | (119,251 | ) | (87,908 | ) | (75,525 | ) | ||||||
Loss from continuing operations before provision for income taxes and cumulative effect of changes in accounting principle | (162,116 | ) | (184,296 | ) | (122,098 | ) | ||||||
Provision for income taxes | (1,820 | ) | (309 | ) | (1,493 | ) | ||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | (163,936 | ) | (184,605 | ) | (123,591 | ) | ||||||
Loss from discontinued operations, net of income taxes | (7,690 | ) | (3,717 | ) | (2,201 | ) | ||||||
Loss before cumulative effect of changes in accounting principle | (171,626 | ) | (188,322 | ) | (125,792 | ) | ||||||
Cumulative effect of changes in accounting principle | (545 | ) | (60,674 | ) | — | |||||||
Net loss | $ | (172,171 | ) | $ | (248,996 | ) | $ | (125,792 | ) | |||
Basic and diluted loss per common share amounts: | ||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (3.14 | ) | $ | (3.66 | ) | $ | (2.61 | ) | |||
Loss from discontinued operations | (0.15 | ) | (0.07 | ) | (0.05 | ) | ||||||
Cumulative effect of changes in accounting principle | (0.01 | ) | (1.20 | ) | — | |||||||
Net loss per common share | $ | (3.30 | ) | $ | (4.93 | ) | $ | (2.66 | ) | |||
Weighted average number of common shares | 52,204 | 50,491 | 47,321 | |||||||||
The accompanying notes to consolidated financial statements are an integral part of
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(in thousands) | ||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (125,145 | ) | $ | (28,915 | ) | $ | (34,591 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 80,465 | 34,831 | 16,557 | |||||||||
Restructuring and other charge | 24,399 | — | — | |||||||||
Provision for doubtful accounts | 1,361 | 1,663 | 492 | |||||||||
Non-cash amortization of original issue discount and debt issuance costs | 29,730 | 26,006 | 22,063 | |||||||||
Non-cash compensation expense | 3,326 | 313 | 311 | |||||||||
Interest on shareholder notes | — | — | (92 | ) | ||||||||
Write-off of deferred financing fees | 5,069 | — | 1,150 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
(Increase) decrease in: | ||||||||||||
Accounts receivable | (2,692 | ) | (25,193 | ) | (3,624 | ) | ||||||
Prepaid and other current assets | (4,271 | ) | (929 | ) | 1,531 | |||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 3,201 | (10,029 | ) | (1,422 | ) | |||||||
Other assets | (5,212 | ) | (14,480 | ) | (4,168 | ) | ||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | (22,290 | ) | 35,342 | 22,314 | ||||||||
Accrued expenses | (1,334 | ) | 7,055 | 1,237 | ||||||||
Interest payable | 21,766 | — | — | |||||||||
Deferred tax liabilities | (16 | ) | 10,494 | (37 | ) | |||||||
Other liabilities | 4,487 | 7,378 | 604 | |||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 156 | 3,980 | 809 | |||||||||
Total adjustments | 138,145 | 76,431 | 57,725 | |||||||||
Net cash provided by operating activities | 13,000 | 47,516 | 23,134 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Tower acquisitions and other capital expenditures | (530,273 | ) | (445,280 | ) | (208,870 | ) | ||||||
Net cash used in investing activities | (530,273 | ) | (445,280 | ) | (208,870 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds of common stock offerings, net of issuance costs | — | 465,044 | 93,633 | |||||||||
Borrowings under senior credit facility, net of financing fees | 134,320 | 11,000 | 173,574 | |||||||||
Proceeds from senior notes payable, net of financing fees | 484,261 | — | — | |||||||||
Repayment of senior credit facility and notes payable | (105,634 | ) | (70,795 | ) | (73,026 | ) | ||||||
Proceeds from exercise of stock options and employee stock purchase plan | 3,250 | 4,364 | 768 | |||||||||
Redemption of Series A redeemable preferred stock | — | — | (32,825 | ) | ||||||||
Net cash provided by financing activities | 516,197 | 409,613 | 162,124 | |||||||||
Net increase (decrease) in cash and cash equivalents | (1,076 | ) | 11,849 | (23,612 | ) | |||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||
Beginning of year | 14,980 | 3,131 | 26,743 | |||||||||
End of year | $ | 13,904 | $ | 14,980 | $ | 3,131 | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(in thousands)
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(in thousands) | ||||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest, including amounts capitalized | $ | 29,418 | $ | 8,411 | $ | 5,940 | ||||||
Taxes | $ | 2,215 | $ | 1,996 | $ | 666 | ||||||
NON-CASH ACTIVITIES: | ||||||||||||
Reversal of dividends on Series A redeemable preferred stock | $ | — | $ | — | $ | (733 | ) | |||||
Note receivable—shareholder | $ | — | $ | — | $ | 3,877 | ||||||
Exchange of Series B preferred stock for common stock | $ | — | $ | — | $ | 80 | ||||||
ACQUISITION SUMMARY: | ||||||||||||
Assets acquired | $ | 58,088 | $ | 63,049 | $ | 32,281 | ||||||
Liabilities assumed | $ | (4,655 | ) | $ | (2,197 | ) | $ | (6,667 | ) | |||
Common stock issued | $ | (31,053 | ) | $ | (48,773 | ) | $ | (17,700 | ) | |||
Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||||
Class A | Class B | |||||||||||||||||||||||
Number | Amount | Number | Amount | |||||||||||||||||||||
BALANCE, December 31, 2000 | 40,989 | $ | 410 | 5,456 | $ | 55 | $ | 627,370 | $ | (89,675 | ) | $ | 538,160 | |||||||||||
Common stock issued in connection with acquisitions | 1,575 | 16 | — | — | 29,784 | — | 29,800 | |||||||||||||||||
Non-cash compensation | — | — | — | — | 3,326 | — | 3,326 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/ option plans | 669 | 6 | — | — | 3,244 | — | 3,250 | |||||||||||||||||
Net loss | — | — | — | — | — | (125,792 | ) | (125,792 | ) | |||||||||||||||
BALANCE, December 31, 2001 | 43,233 | 432 | 5,456 | 55 | 663,724 | (215,467 | ) | 448,744 | ||||||||||||||||
Common stock issued in connection with acquisitions | 1,316 | 13 | — | — | 1,383 | — | 1,396 | |||||||||||||||||
Non-cash compensation | — | — | — | — | 2,017 | — | 2,017 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/ option/severance plans | 1,125 | 12 | — | — | 317 | — | 329 | |||||||||||||||||
Net loss | — | — | — | — | — | (248,996 | ) | (248,996 | ) | |||||||||||||||
BALANCE, December 31, 2002 | 45,674 | 457 | 5,456 | 55 | 667,441 | (464,463 | ) | 203,490 | ||||||||||||||||
Conversion of Class B common stock into Class A common stock | 5,456 | 55 | (5,456 | ) | (55 | ) | — | — | — | |||||||||||||||
Non-cash compensation | — | — | — | — | 832 | — | 832 | |||||||||||||||||
Payment of restricted stock guarantee | — | — | — | — | (936 | ) | — | (936 | ) | |||||||||||||||
Common stock issued in exchange for 10¼% senior notes | 3,853 | 38 | — | — | 12,593 | — | 12,631 | |||||||||||||||||
Common stock issued in connection with employee stock option plans | 33 | — | — | — | 31 | — | 31 | |||||||||||||||||
Net loss | — | — | — | — | — | (172,171 | ) | (172,171 | ) | |||||||||||||||
BALANCE, December 31, 2003 | 55,016 | $ | 550 | — | $ | — | $ | 679,961 | $ | (636,634 | ) | $ | 43,877 | |||||||||||
The accompanying notes to consolidated financial statements are an integral part of
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (172,171 | ) | $ | (248,996 | ) | $ | (125,792 | ) | |||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation, accretion and amortization | 84,380 | 85,728 | 66,104 | |||||||||
Non-cash restructuring and other charges | 1,327 | 43,438 | 24,119 | |||||||||
Asset impairment charges | 16,965 | 25,545 | — | |||||||||
Non-cash items reported in discontinued operations (primarily depreciation, asset impairment charges and loss on sale of towers) | 9,837 | 16,600 | 12,604 | |||||||||
Non-cash compensation expense | 832 | 2,017 | 3,326 | |||||||||
Provision for doubtful accounts | 3,554 | 3,371 | 2,641 | |||||||||
Amortization of original issue discount and debt issuance costs | 11,011 | 33,518 | 29,730 | |||||||||
Write-off of deferred financing fees and loss on extinguishment of debt | 24,219 | — | 5,069 | |||||||||
Amortization of deferred gain from derivative | (676 | ) | (133 | ) | — | |||||||
Interest converted to term loan | 3,227 | — | — | |||||||||
Cumulative effect of changes in accounting principles | 545 | 60,674 | — | |||||||||
Changes in operating assets and liabilities, net of effect of acquisitions: | ||||||||||||
Short-term investments | (15,200 | ) | — | — | ||||||||
Accounts receivable | 13,129 | 17,133 | (3,972 | ) | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 198 | 908 | 3,201 | |||||||||
Prepaid and other current assets | (343 | ) | 1,356 | (3,849 | ) | |||||||
Other assets | (4,176 | ) | (5,674 | ) | 2,721 | |||||||
Accounts payable | (5,758 | ) | (15,229 | ) | (12,183 | ) | ||||||
Accrued expenses | (54 | ) | (144 | ) | (2,417 | ) | ||||||
Deferred revenue | 1,466 | 761 | 6,113 | |||||||||
Interest payable | (2,387 | ) | 1,104 | 21,766 | ||||||||
Other liabilities | 1,052 | (230 | ) | (584 | ) | |||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (785 | ) | (3,940 | ) | 156 | |||||||
Total adjustments | 142,363 | 266,803 | 154,545 | |||||||||
Net cash provided by (used in) operating activities | (29,808 | ) | 17,807 | 28,753 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Proceeds from termination of interest rate swap agreement | — | 5,369 | — | |||||||||
Capital expenditures | (15,136 | ) | (86,361 | ) | (307,557 | ) | ||||||
Acquisitions and related earn-outs | (3,126 | ) | (29,724 | ) | (239,143 | ) | ||||||
Proceeds from sale of towers | 192,450 | — | — | |||||||||
Receipt (payment) of restricted cash | (18,732 | ) | 8,000 | (8,000 | ) | |||||||
Net cash provided by (used in) investing activities | 155,456 | (102,716 | ) | (554,700 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from employee stock purchase/option plans | 31 | 329 | 3,250 | |||||||||
Proceeds from 9¾% senior discount notes payable, net of financing fees | 267,109 | — | — | |||||||||
Proceeds from 10¼% senior notes, net of financing fees | — | — | 484,223 | |||||||||
Borrowings under senior credit facility, net of financing fees | 356,955 | 143,809 | 134,430 | |||||||||
Repayment of senior credit facility and notes payable | (505,085 | ) | (445 | ) | (105,634 | ) | ||||||
Repurchase of senior discount notes and senior notes | (296,925 | ) | — | — | ||||||||
Payment of restricted stock guarantee | (936 | ) | — | — |
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
Bank overdraft borrowings (repayments) | 400 | (11,547 | ) | 8,602 | ||||||||
Net cash provided by (used in) financing activities | (178,451 | ) | 132,146 | 524,871 | ||||||||
Net increase (decrease) in cash and cash equivalents | (52,803 | ) | 47,237 | (1,076 | ) | |||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||
Beginning of year | 61,141 | 13,904 | 14,980 | |||||||||
End of year | $ | 8,338 | $ | 61,141 | $ | 13,904 | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest, net of amounts capitalized | $ | 84,847 | $ | 58,261 | $ | 25,943 | ||||||
Taxes | $ | 1,852 | $ | 1,502 | $ | 2,215 | ||||||
NON-CASH ACTIVITIES: | ||||||||||||
Assets acquired in connection with acquisitions | $ | — | $ | 3,396 | $ | 4,835 | ||||||
Liabilities assumed in connection with acquisitions | $ | — | $ | (2,000 | ) | $ | (3,685 | ) | ||||
Common stock issued in connection with acquisitions | $ | — | $ | (1,396 | ) | $ | (29,800 | ) | ||||
Class A common stock issued in exchange for 10¼% senior notes and accrued interest | $ | 12,631 | $ | — | $ | — | ||||||
10¼% senior notes and accrued interest redeemed for Class A common stock | $ | (13,713 | ) | $ | — | $ | — | |||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
1. GENERAL
SBA Communications Corporation (the “Company” or “SBA”) was incorporated in the State of Florida in March 1997. The Company holds all of the outstanding capital stock of SBA Telecommunications, Inc. (“Telecommunications”). Telecommunications holds all of the capital stock of SBA Network Services,Senior Finance, Inc. (“Network Services”Senior Finance”), SBA Leasing, Inc., (“Leasing”),. Senior Finance holds all of the capital stock of SBA Towers, Inc., SBA Properties, Inc., SBA Sites, Inc., and certain other tower companies (collectively “Tower Companies”)., SBA Leasing, Inc. (“Leasing”) and SBA Network Services, Inc. SBA Network Services, Inc. holds all of the capital stock of other companies engaged in similar businesses.
The Tower Companies own and operate transmission towers in the eastern third of the United States, Puerto Rico and the U.S. Virgin Islands. Space on these towers is leased primarily to wireless communications carriers.
Leasing leases antenna tower sites from owners and then subleases such sites to wireless telecommunications providers.
Network Services provides comprehensive turn-keyturnkey services for the telecommunications industry in the areas of site development services for wireless carriers and the construction and repair of transmission towers. Site development services provided by Network Services include network pre-design, site audits, site identification and acquisition, contract and title administration, zoning and land use permitting, construction management, microwave relocation and the construction and repair of transmission towers, including the hanging of antennae,antennas, cabling and associated tower components. In addition to providing turn-keyturnkey services to the telecommunications industry, Network Services constructs manyhistorically has constructed, or has overseen the construction of, approximately 60% of the newly-built towers that the Company owns.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements is as follows:
a. Basis of Consolidation
The consolidated financial statements include the accounts of the Company and all of its wholly-owned subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation.
b. Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the datedates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The more significant estimates made by management includerelate to the allowance for doubtful accounts, receivable, the costs and revenue relating to the Company’s site development and construction contracts, valuation allowance on deferred tax assets, andcarrying value of long-lived assets, the economic useful lives of towers.towers and asset retirement obligations. Actual results couldwill differ from those estimates.
c. Cash and Cash Equivalents
The Company classifies as cash and cash equivalents all interest-bearing deposits or investments with original maturities of three months or less, and highly liquid short-term commercial paper.
d. Short Term Investments
The Company’s short-term investments consist of debt securities which are acquired and held for a short period of time. Trading securities are recorded at fair value. Investment income and unrealized holding gains and losses are included in earnings.
e. Property and Equipment
Property and equipment are recorded at cost.cost, adjusted for asset impairment and estimated asset retirement obligations. Costs associated with the acquisition, development and construction of towers are capitalized as a cost of the towers. Costs for self-constructed towers include direct materials and labor, indirect costs and capitalized interest. Depreciation is provided using the straight-line method over the estimated useful lives. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. We performThe Company performs ongoing evaluations of the estimated useful lives of ourits property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset, industry practice and asset maintenance policies.asset. If the useful lives of assets are reduced, depreciation may be accelerated in future years. Maintenance and repair items are expensed as incurred.
Towers and related components | 2 | |
Furniture, equipment and vehicles | 2 | |
Buildings and improvements | 5 |
Capitalized costs incurred subsequent to when an asset is originally placed in service are depreciated over the remaining estimated useful life of the respective asset. Changes in an asset’s estimated useful life are accounted for prospectively, with the book value of the asset at the time of the change being depreciated over the revised remaining useful life. There has been no material impact for changes in estimated useful lives for any years presented.
Interest is capitalized in connection with the self constructionself-construction of Company ownedCompany-owned towers. The capitalizedCapitalized interest is recorded as part of the asset to which it relates and is amortized over the asset’s estimated useful life. Approximately $3.5$0.1 million, $1.7 million and $3.9 million of interest cost was capitalized in both2003, 2002 and 2001, and 2000.
f. Deferred Financing Fees
Financing fees related to the issuance of the senior credit facility, the 10¼% senior notes, the 12% senior discount notes, and the related original issue discount on the 12% senior discount notes,debt have been deferred and are being amortized using a method that approximates the effective interest rate method over the length of indebtedness to which they relate. As of December 31, 2001 and 2000, unamortized deferred financing fees were $27.8 million and $15.4 million, respectively, and are included in intangible assets.
g. Deferred Lease Costs
The Company defers certain initial direct costs associated with lease originations and lease amendments and amortizes these costs over the initial lease term, generally five years. TotalSuch costs deferred were approximately $1.9$2.0 million, $1.7 million and $1.1$1.6 million in 2003, 2002, and 2001, respectively. Amortization expense was $1.3 million, $0.8 million and 2000, respectively.$0.5 million for the years ended December 31, 2003, 2002 and 2001, respectively, and is included in cost of site leasing in the accompanying Consolidated Statements of Operations. As of December 31, 20012003 and 2000,2002, unamortized deferred lease costs were $3.1$4.1 million and $1.8$3.4 million, respectively, and are included in intangibleother assets. Accumulated amortization totaled $0.9$3.2 million and $0.4$1.6 million at December 31, 20012003 and 2000,2002, respectively.
h. Intangible Assets Intangible assets are comprised of costs paid related to covenants not to compete. These finite-lived intangibles are being amortized over the terms of the contracts, which range from 3 to 5 years. i. Goodwill There was no goodwill at December 31, 2003 or 2002 or amortization of goodwill during 2003 and 2002, as a result of adopting the provisions of |
Accounting for thej. Impairment of Long-Lived Assets and
In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,Accounting for the Impairment of Disposal of Long-Lived Assets to be Disposed of,requires that (“SFAS 144”), long-lived assets including certain identifiable intangibles, and the goodwill related to those assets, beare reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of thean asset in question may not be recoverable. Management has reviewedIf an asset is determined to be impaired, the Company’s long-lived assets and has determined that there are no events requiring impairment loss recognition asis measured by the excess of December 31, 2001.
k. Fair Value of Financial Instruments
The carrying valuevalues of the Company’s financial instruments, which primarily includes cash and cash equivalents, short-term investments, restricted cash, accounts receivable, prepaid expenses, notes receivable, accounts payable, accrued expenses and notes payable, approximates fair value due to the short maturity of those instruments. The senior credit facility has a floating rate of interest and is carried at an amount which approximates fair value.
The Company’s 12% senior discount notes are publicly traded and were trading based on a 14.4% yield at December 31, 2001, indicating a fair value of the notes of approximately $209.8 million. The carrying value of the discount notes is approximately $234.9 million at December 31, 2001. The Company’s 10¼% senior notes are publicly tradedtraded. The 9¾% senior discount notes were sold in December 2003 pursuant to Rule 144A of the Securities and were trading basedExchange Commission. Since the 9¾% senior discount notes are not registered, they are subject to certain restrictions on a 13.1% yield atresale. The following table reflects yields, fair values as determined by quoted market prices and carrying values of these notes as of December 31, 2001, indicating a fair value of the notes of approximately $435.0 million. The carrying value of the notes is $500.0 million at December 31, 2001.
As of December 31, 2003 | As of December 31, 2002 | |||||||||||||||||
Yield | Fair Value | Carrying Value | Yield | Fair Value | Carrying Value | |||||||||||||
(dollars in millions) | (dollars in millions) | |||||||||||||||||
12% Senior Discount Notes | 2.8 | % | $ | 71.6 | $ | 65.7 | 28.5 | % | $ | 145.1 | $ | 263.9 | ||||||
10¼% Senior Notes | 10.8 | % | $ | 398.3 | $ | 406.4 | 25.0 | % | $ | 275.0 | $ | 500.0 | ||||||
9¾% Senior Discount Notes | 8.8 | % | $ | 279.9 | $ | 275.8 | — | — | — |
l. Revenue Recognition and Accounts Receivable
Revenue from site leasing is recorded monthly and recognized on a straight-line basis over the term of the related lease agreements. Receivables recorded related to the straight-lining of site leases is reflected in prepaid and other current assets and other assets in the consolidated balance sheets. Rental amounts received in advance are recorded as deferred and recordedrevenue in other liabilities (current and long-term). Deferred revenues of $13.2 million and $7.3 million are included in other current liabilities as of December 31, 2001 and 2000, respectively. Deferred revenues of $0.4 million and $0.2 million are included in other long-term liabilities as of December 31, 2001 and 2000, respectively.
Site development projects in which the Company performs consulting services include contracts on a time and materials basis or a fixed price or milestone basis. Time and materials based contracts are billed at contractual rates as the services are rendered. For those site development contracts in which the Company performs work on a fixed price basis, site development billing (and revenue recognition) is based on the completion of agreed upon phases or milestones of the project on a per site basis. Upon the completion of each phase on a per site basis, the Company recognizes the revenue related to that phase. Revenue related to services performed on
uncompleted phases of site development projects was not recorded by the Company at the end of the reporting periods presented as it was not material to the Company’s results of operations. Any estimated losses on a particular phase of completion are recognized in the period in which the loss becomes evident. Site development projects generally take from 3 to 12 months to complete.
Revenue from construction projects is recognized on the percentage-of-completion method of accounting, determined by the percentage of cost incurred to date compared to management’s estimated total anticipated cost for each contract. This method is used because management considers total cost to be the best available measure of progress on the contracts. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contracts nears completion. The asset “Costs and estimated earnings in excess of billings on uncompleted contracts” represents expenses incurred and revenues recognized in excess of amounts billed. The liability “Billings in excess of costs and estimated earnings on uncompleted contracts” represents billings in excess of revenues recognized.
Cost of site leasing revenue includes rent, property taxes, maintenance (exclusive of employee related costs) and other tower expenses. Cost of site development revenue includes all materials costs, salaries and labor costs, including payroll taxes, subcontract labor, vehicle expense and other costs directly and indirectly related to the projects. All costs related to site development projects are recognized as incurred.
The Company performs periodic credit evaluations of its customers. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon historical experience, specific customer collection issues identified and past due balances as determined based on contractual terms. Amounts determined to be uncollectible are written off against the allowance for doubtful accounts in the period in which uncollectability is determined to be probable. If the capital markets and the ability of wireless carriers to access capital were to deteriorate, the ultimate collectability of accounts receivable may be negatively impacted.
m. Selling, General and Administrative Expenses
Selling, general and administrative expenses represent those costs incurred which are related to the administration or management of the Company. Also included in this category are corporate development expenses incurred in the normal course of business that represent costs incurred in connection with proposed acquisitions which have not bebeen consummated, and new build activities where a capital asset is not produced, and expansion of the customer base. The above costs are expensed as incurred. There were no corporate development expenses in 2003 or 2002. Development expenses ofincluded in selling, general and administrative were $4.2 million $2.6 million, and $1.0 million were incurred for the yearsyear ended December 31, 2001, 2000 and 1999, respectively.
n.Income Taxes
The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting StandardsSFAS No. 109,Accounting for Income Taxes(“ (“SFAS 109”). SFAS 109 requires the Company to recognize deferred tax liabilities and assets for the expected future income tax consequences of events that have been recognized in the Company’s consolidated financial statements. Deferred tax liabilities and assets are determined based on the temporary differences between the consolidated financial statements carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in the years in which the temporary differences are expected to reverse. In assessing the likelihood of utilization of existing deferred tax assets, management has considered historical results of operations and the current operating environment.
o. Stock-Based Compensation
In December 2002, the FASB issued SFAS 148,Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of SFAS 123 (“SFAS 148”) which provides alternative methods for a voluntary change to the 2000fair value method of accounting for stock-based employee compensation and 1999 consolidated financial statementsamends the disclosure requirements of SFAS 123,Accounting for Stock-Based Compensation. The Company has
elected to conformcontinue to account for its stock-based employee compensation plans under APB 25,Accounting for Stock Issued to Employees (“APB 25”), and related interpretations and adopt the 2001 presentation.
p. Loss Per Share
Basic and diluted loss per share are calculated in accordance with Statement of Financial Accounting StandardsSFAS No. 128,Earnings per Share. Weighted average shares outstanding include the effect of shares issuable under acquisition earn-out obligations. The Company has potential common stock equivalents related to its outstanding stock options. These potential common stock equivalents were not included in diluted loss per share because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share and the weighted average number of shares used in the computations are the same for all periods presented. There were
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(in thousands except per share information) | ||||||||||||
Net loss before extraordinary item | $ | (120,076 | ) | $ | (28,915 | ) | $ | (33,441 | ) | |||
Extraordinary item | (5,069 | ) | — | (1,150 | ) | |||||||
Preferred stock dividend | — | — | 733 | |||||||||
Loss to common stockholders | $ | (125,145 | ) | $ | (28,915 | ) | $ | (33,858 | ) | |||
Weighted average number of shares outstanding | 47,437 | 41,156 | 19,156 | |||||||||
Loss per share before extraordinary item | $ | (2.53 | ) | $ | (0.70 | ) | $ | (1.71 | ) | |||
Extraordinary item | (0.11 | ) | — | (0.06 | ) | |||||||
Loss per share | $ | (2.64 | ) | $ | (0.70 | ) | $ | (1.77 | ) | |||
q. Comprehensive Loss
During the years ended December 31, 2001, 20002003, 2002, and 1999,2001, the Company did not have any changes in its equity resulting from non-owner sources and, accordingly, comprehensive income (loss)loss was equal to the net loss amounts presented for the respective periods in the accompanying Consolidated Statements of Operations.
r. Reclassifications
Certain reclassifications have been made to the 2002 and 2001 consolidated financial statements to conform to the 2003 presentation.
3. CURRENTDISCONTINUED OPERATIONS
In March 2003 certain of the Company’s subsidiaries entered into a definitive agreement (the “Western tower sale”) to sell up to an aggregate of 801 towers, which represented substantially all of the Company’s towers in the Western two-thirds of the United States. The Company ultimately sold 784 of the 801 towers. Gross proceeds realized during 2003 from the sale of the 784 towers was $196.7 million, subject to certain remaining potential adjustments. At December 31, 2003, approximately $7.3 million of the proceeds were held by an escrow agent in accordance with adjustment provisions of the agreement. At December 31, 2003, the Company had recorded a liability of approximately $2.6 million for the estimated remaining potential adjustments associated with the Western tower sale which is reflected in accrued expenses in the December 31, 2003 Consolidated Balance Sheet. Accordingly, we estimate that the final gross cash proceeds to be realized from the Western tower sale, after all potential remaining purchase price adjustments, will be approximately $194.1 million.
In consideration of the Company’s recent Western tower sale, the Company evaluated the scope and operating plan with respect to its 64 remaining towers in the same U.S. geographic market as the 784 towers sold. This evaluation resulted in the Company’s decision to sell all tower operations in this geographic market. The Company has begun to market these towers for sale on its own and believes that the activities necessary to sell the towers will be completed within one year. As a result of this decision, the Company has accounted for the remaining 64 towers as discontinued operations, which includes the 17 towers subsequently excluded from the original 801 Western tower sale. During 2003, the Company sold 3 of the 64 towers held for sale leaving 61 towers held for sale as of December 31, 2003.
The Company evaluated these 61 towers for impairment. The December 31, 2003 loss from discontinued operations includes a $4.5 million asset impairment charge associated with the write-down of the carrying value of these towers to their fair value less estimated costs to sell.
In accordance with SFAS No. 144, the Company has classified the operating results of the 784 towers sold in the Western tower sale and 64 remaining western
towers as discontinued operations in the accompanying Consolidated Financial Statements. All prior periods have been reclassified to conform to the current year presentation.
The discontinued operations affect only the Company’s site leasing segment. The following is a summary of the operating results of the discontinued operations:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
(in thousands) | ||||||||||||
Revenues | $ | 11,198 | $ | 24,542 | $ | 17,672 | ||||||
Site leasing gross profit | $ | 7,049 | $ | 15,564 | $ | 11,607 | ||||||
Loss from discontinued operations, net of income taxes | $ | (5,605 | ) | $ | (3,717 | ) | $ | (2,201 | ) | |||
Loss on disposal of discontinued operations, net of income taxes | (2,085 | ) | — | — | ||||||||
Loss from discontinued operations, net of income taxes | $ | (7,690 | ) | $ | (3,717 | ) | $ | (2,201 | ) | |||
A portion of the Company’s interest expense has been allocated to discontinued operations based upon the debt balance attributable to those operations. Interest expense allocated to discontinued operations was $0.8 million and $1.4 million for the years ended December 31, 2003 and 2002, respectively. No interest expense was allocated to discontinued operations in 2001 as there was no associated debt outstanding during 2001.
The following is a summarized balance sheet presenting the carrying amounts of the major classes of assets and liabilities related to the towers held for sale and classified as discontinued operations as of December 31, 2003 and 2002, respectively:
As of December 31, | ||||||
2003 | 2002 | |||||
(in thousands) | ||||||
Property and equipment, net | $ | 148 | $ | 198,259 | ||
Other assets | 247 | 4,150 | ||||
Assets held for sale | $ | 395 | $ | 202,409 | ||
Liabilities held for sale | $ | 608 | $ | 2,685 | ||
The notes to the consolidated financial statements for all years presented have been adjusted for the discontinued operations described above.
4. ACCOUNTING PRONOUNCEMENTS
In June 2000,October 2001, the Financial FASB issued SFAS No. 143,Accounting Standards Boardfor Asset Retirement Obligations (“FASB”SFAS 143”). This standard requires companies to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, we capitalize a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, we either settle the obligation for its recorded amount or incur a gain or loss upon settlement. We adopted this standard effective January 1, 2003. As a result of our obligation to restore leaseholds to their original condition upon termination of ground leases underlying a majority of our towers and our estimate as to the probability of incurring these obligations, we recorded a cumulative effect adjustment of approximately $0.5 million during the first quarter of 2003. The adoption of SFAS 143 resulted in an increase in tower fixed assets of approximately $0.9 million and the recording of an asset retirement obligation liability of approximately $1.4 million.
In April 2002, the FASB issued SFAS No. 145,Rescission of FASB Statements Nos. 4, 44 and 62, Amendment of SFAS No. 13 and Technical Corrections (“SFAS 145”). SFAS 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under SFAS 4. Extraordinary treatment is required for certain extinguishments as provided in APB Opinion No. 30. The statement also amended SFAS 13 for certain sale-
leaseback and sublease accounting. We adopted the provisions of SFAS 145 effective January 1, 2003. Pursuant to SFAS 145, our previously reported extraordinary item of $5.1 million, related to the early extinguishment of debt, was reclassified to operating expense in the accompanying December 31, 2001 Consolidated Statement of Financial Accounting Standards (“SFAS”)Operations.
In July 2002, the FASB issued SFAS No. 138,146,Accounting for CertainCosts Associated with Exit or Disposal Activities (“SFAS 146”) and nullified EITF Issue No. 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had recognized the liability at the commitment date to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. We adopted the provisions of SFAS 146 effective January 1, 2003. The adoption of SFAS 146 did not have a material effect on our consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. This statement also amends the disclosure requirements of SFAS 123 to require disclosures in both annual and interim financial statements regarding the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The standard is effective for fiscal years beginning after December 15, 2002. We adopted the disclosure-only provisions of SFAS 148 as of December 31, 2002. We will continue to account for stock-based compensation in accordance with APB 25. As such, we do not expect this standard will have a material impact on our consolidated financial position or results of operations.
In April 2003, the FASB issued SFAS No. 149 (“SFAS 149”),Amendment of Statement 133 on Derivative Instruments and Certain Hedging Activities an Amendment of SFAS 133.SFAS 133 established. This Statement amends and clarifies financial accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. activities under Statement of Financial Accounting Standards No. 133 (“SFAS 138 addresses133”),Accounting for Derivative Instruments and Hedging Activities.The statement was effective for contracts entered into or modified after June 30, 2003. The adoption of this standard did not have a limited numbermaterial impact on our financial position or results of issues causing implementation difficulties for numerous entities that apply SFAS 133 and amends the accounting and reporting standards of SFAS 133 for certain derivative instruments and certain hedging activities. The Company adopted SFAS 138 on January 1, 2001 and there was not a significant impact from the adoption.operations.
In June 2001,May 2003, the FASB issued SFAS No. 141,Business Combinations(“150 (“SFAS 141”150”). SFAS 141 addresses financial accounting and reporting for business combinations and supercedes Accounting Principles Board Opinion (“APB”) No. 16,Business Combinations and SFAS 38,Accounting for Preacquisition ContingenciesCertain Financial Instruments with Characteristics of Purchased EnterprisesBoth Liabilities and Equity. All business combinationsThis Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This standard was effective at the scopebeginning of SFAS 141the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities that are subject to be accountedthe provisions of this Statement for under the purchase method. SFAS 141 became effective June 30, 2001.first fiscal period beginning after December 15, 2003. The adoption of SFAS 141this standard did not have a material impact on our financial position or results of operations.
In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”),Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN 45 also clarifies requirements for the recognition of guarantees at the onset of an arrangement. The initial recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees used or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for interim or annual financial statements after December 15, 2002. We implemented the disclosure requirements of FIN 45 as of December 31, 2002 and there was no material impact on our consolidated financial statements as a result of this implementation.
In January 2003, the FASB issued Interpretation No. 46,Consolidation for Variable Interest Entities, an Interpretation of ARB No. 51 which requires all variable interest entities (“VIES”) to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interest in the VIE. In addition, the interpretation expands the disclosure requirements for both variable interest entities that are consolidated as well as VIEs from which the entity is the holder of a significant amount of beneficial
interests, but not the majority. FIN 46 is effective immediately for all VIEs and for all special purpose entities created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first quarter ended March 31, 2004. The adoption of FIN 46 did not have, nor is it expected to have, a material impact on the Company’s consolidated financial statements.
5. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In June 2001,a. SFAS 143
Effective January 1, 2003, the FASB issuedCompany adopted the provisions of SFAS No. 142,Goodwill and Other Intangible Assets (“SFAS 142”). This standard eliminates143. Under the amortization of goodwill and certain intangible assets against earnings. Instead, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Goodwill and certain intangible assets will be written-down against earnings onlynew accounting principle, the Company recognizes asset retirement obligations in the periodsperiod in which they are incurred, if a reasonable estimate of a fair value can be made, and accretes such liability through the recordedobligation’s estimated settlement date. The associated asset retirement costs are capitalized as part of the carrying amount of the related tower fixed assets and depreciated over the estimated useful life.
The Company has entered into ground leases for the land underlying the majority of the Company’s towers. A majority of these leases require the Company to restore leaseholds to their original condition upon termination of the ground lease. SFAS 143 requires that the net present value of future restoration obligations be recorded as a liability as of the assetdate the legal obligation arises and this amount be capitalized to the related operating asset. At January 1, 2003, the effective date of adoption, the cumulative effect of the change on prior years resulted in a charge of approximately $0.5 million ($0.01 per share), which is more than its fair value. Goodwill that existed at June 30, 2001 continued to be amortized through December 31, 2001. Goodwill acquired subsequent to June 30, 2001 was not amortized duringincluded in net loss for the year ended December 31, 2001.2003. In addition, at the date of adoption, the Company recorded an increase in tower assets of approximately $0.9 million and recorded an asset retirement obligation liability of approximately $1.4 million. The asset retirement obligation at December 31, 2003 of $1.2 million is included in other long-term liabilities in the December 31, 2003 Consolidated Balance Sheet. In determining the impact of SFAS 143, the Company considered the nature and scope of legal restoration obligation provisions contained in its third party ground leases, the historical retirement experience as an indicator of future restoration probabilities, intent in renewing existing ground leases through lease termination dates, current and future value and timing of estimated restoration costs, and the credit adjusted risk-free rate used to discount future obligations.
The following pro-forma summary presents the Company’s loss from continuing operations, net loss and related loss per share information as if the Company had been accounting for asset retirement obligations under SFAS 143 for the periods presented:
For the years ended December 31, | ||||||||
2002 | 2001 | |||||||
(in thousands, except per share data) | ||||||||
Loss from continuing operations before cumulative effect of changes in accounting principles | $ | (184,794 | ) | $ | (123,748 | ) | ||
Per share loss from continuing operations before cumulative effect of changes in accounting principles | $ | (3.66 | ) | $ | (2.62 | ) | ||
Net loss | $ | (249,206 | ) | $ | (125,970 | ) | ||
Per share net loss | $ | (4.94 | ) | $ | (2.66 | ) |
The following summarizes the activity of the asset retirement obligation liability:
For the years ended December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Asset retirement obligation at January 1 | $ | — | $ | 957 | ||||
Liability recorded in transition | 1,140 | — | ||||||
Accretion expense | 119 | 130 | ||||||
Revision in estimates | (64 | ) | (38 | ) | ||||
Asset retirement obligation at December 31 | $ | 1,195 | $ | 1,049 | ||||
b. SFAS 142
During 2002, the Company completed the transitional impairment test of goodwill required under SFAS 142,Goodwill and other Intangible Assets(“SFAS 142”), which was adopted effective January 1, 2002. As a result of completing the required transitional test, the Company recorded a charge retroactive to the adoption date for the cumulative effect of the accounting change in the amount of $60.7 million, representing the excess of the carrying value of certain assets as compared to their estimated fair value. Of the total $60.7 million cumulative effect adjustment, $58.5 million related to the site development construction reporting segment and $2.2 million related to the site leasing reporting segment. In addition, during 2002, the Company recorded additional goodwill totaling approximately $9.2 million resulting from the achievement of certain earn-out obligations under various construction acquisition agreements entered into prior to July 1, 2001, which was determined to be impaired during 2002 and written off (See Note 18). The Company will adoptcurrently does not have any remaining goodwill or other intangible assets subject to SFAS 142.
The following unaudited pro forma summary presents the Company’s net loss and per share information as if the Company had been accounting for its goodwill under SFAS 142 for all periods presented:
For the years ended December 31, | ||||||||
2002 | 2001 | |||||||
(in thousands, except per share data) | ||||||||
Reported net loss | $ | (248,996 | ) | $ | (125,792 | ) | ||
Cumulative effect of change in accounting principle | 60,674 | — | ||||||
Loss excluding cumulative effect of change in accounting principle | (188,322 | ) | (125,792 | ) | ||||
Add back goodwill amortization | — | 3,802 | ||||||
Adjusted net loss | $ | (188,322 | ) | $ | (121,990 | ) | ||
Reported basic and diluted loss per share | $ | (4.93 | ) | $ | (2.66 | ) | ||
Cumulative effect of change in accounting principle | 1.20 | — | ||||||
Loss per share excluding cumulative effect of change in accounting principle | (3.73 | ) | (2.66 | ) | ||||
Add back goodwill amortization | — | .08 | ||||||
Adjusted net loss per share | $ | (3.73 | ) | $ | (2.58 | ) | ||
6. SHORT-TERM INVESTMENTS
The carrying value of short-term investments of $15.2 million equaled the fair value of these investments at December 31, 2003. In January 2004 these investments were sold for their face value plus accrued interest.
7. RESTRICTED CASH
Restricted cash at December 31, 2003 was $18.7 million. This balance includes $11.4 million of cash pledged as collateral to secure certain obligations of the Company and certain of its affiliates related to surety bonds issued for the benefit of the Company or its affiliates in the first quarterordinary course of 2002. With the adoption of SFAS 142, management will assess the impact based on a two-step approach to assess goodwill based on applicable reporting units and will reassess any intangible assets, including goodwill, recorded in connection with its previous acquisitions. The Company had recorded approximately $6.9business. Approximately $8.4 million of amortization on goodwillthe collateral relates to tower removal obligations, is long-term in nature, and is included in other assets in the December 31, 2003 Consolidated Balance Sheet. Approximately $3.0 million of the collateral relates to payment and performance bonds, which are shorter term in nature and are included in restricted cash and reflected as a current asset. The remaining $7.3 million of restricted cash relates to funds being held by an escrow agent in accordance with certain potential purchase price adjustments to the Western tower purchase and sale agreement. These funds are classified as current as they are expected to be released, net of any required obligations, to the Company during the next twelve months.
8. INTANGIBLE ASSETS, NET
Amortization expense was $1.3 million, $1.1 million and $1.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. As of December 31, 2003 and 2002, total costs of covenants not to compete during 2001. Management is currently assessing, but has not yet determined the impact
Year ending December 31, | |||
(in thousands) | |||
2004 | $ | 1,051 | |
2005 | 976 | ||
2006 | 375 | ||
2007 | 6 | ||
Total | $ | 2,408 | |
9. ACQUISITIONS
During 2003, the Company did not acquire any towers or businesses. However, during 2003, the Company paid approximately $3.1 in settlement of $86.2 million.
During 2002, the Company acquired 53 towers and related assets from various sellers. The aggregate consideration paid was $15.5 million in cash and 330,736 shares of Class A common stock. In Juneaddition, the Company issued 397,773 shares of Class A common stock in settlement of contingent purchase price amounts payable as a result of towers or businesses it acquired having met or exceeded certain earnings or new tower targets.
During 2001, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position (“SOP”) entitledAccounting for Certain Costs and Activities Related to Property, Plant and Equipment. The proposed SOP may limit the ability of companies to capitalize certain costs as part of property, plant and equipment (“PP&E”). The proposed SOP would also require that each significant separately identifiable part of PP&E with a useful life different from the useful life of the PP&E to which it relates be accounted for separately and depreciated over the individual component’s expected useful life. The proposed SOP would be effective for fiscal years beginning after June 15, 2002. Management has not determined the effect this SOP, if issued as proposed, would have on the consolidated financial statements, but believes it may be material.
Additionally, during 2001, the Company acquired 677 towers and related assets from various sellers. The aggregate purchase priceconsideration paid to the sellers for these acquisitions for the year ended December 31, 2001 was $214.4$218.7 million in cash and 370,502 shares of its Class A common stock. In addition, the Company issued 790,495 shares of its Class A Common Stockcommon stock as a result of towers or businesses it acquired having met or exceeded certain earnings or new tower targets identified in the various acquisition agreements.
The Company accounted for all the above acquisitions using the purchase method of accounting. The results of operations of the acquired assets and companies are included with those of the Company from the dates of the respective acquisitions. None of the individual acquisitions consummated during the year was deemedwere significant
5.10. CONCENTRATION OF CREDIT RISK
The Company’s credit risks consist primarily of accounts receivable with national and local wireless communications providers and federal and state governmentgovernmental agencies. The Company performs periodic credit evaluations of its customers’ financial condition and provides allowances for doubtful accounts as
required based upon factors surrounding the credit risk of specific customers, historical trends and other information. FollowingThe Company generally does not require collateral. The following is a list of significant customers and the percentage of total revenue derived from such customers:
For the years ended December 31, | ||||||
2001 | 2000 | 1999 | ||||
(% of revenue) | ||||||
Sprint PCS | 10.3 | 10.7 | 17.3 | |||
Nextel | 11.1 | less than 10.0 | less than 10.0 | |||
Cingular | less than 10.0 | less than 10.0 | 12.3 |
For the year ended December 31, 2003 | ||
(% of revenue) | ||
Bechtel Corporation | 14.3% | |
AT&T Wireless | 10.8% | |
Cingular Wireless | 10.2% | |
For the year ended December 31, 2002 | ||
(% of revenue) | ||
Bechtel Corporation | 15.3% | |
Cingular Wireless | 12.6% | |
AT&T Wireless | 10.1% | |
For the year ended December 31, 2001 | ||
(% of revenue) | ||
Bright/Horizon | 11.3% | |
Nextel | 10.9% | |
AT&T Wireless | 10.5% |
The Company’s site development consulting, site development construction and site leasing segments derive revenue from these customers.
6.11. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following:
As of December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Costs incurred on uncompleted contracts | $ | 43,738 | $ | 74,506 | ||||
Estimated earnings | 3,809 | 17,148 | ||||||
Billings to date | (38,897 | ) | (83,591 | ) | ||||
$ | 8,650 | $ | 8,063 | |||||
These amounts are included in the accompanying consolidated balance sheets under the following captions:
As of December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 10,227 | $ | 10,425 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (1,577 | ) | (2,362 | ) | ||||
$ | 8,650 | $ | 8,063 | |||||
12. PROPERTY AND EQUIPMENT
Property and equipment, excluding assets held for sale, consists of the following:
As of December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
Towers and related components | $ | 1,224,891 | $ | 721,361 | ||||
Construction-in-process | 48,998 | 69,012 | ||||||
Furniture, equipment and vehicles | 38,148 | 19,497 | ||||||
Buildings and improvements | 2,406 | 625 | ||||||
Land | 12,275 | 10,014 | ||||||
1,326,718 | 820,509 | |||||||
Less: accumulated depreciation and amortization | (128,159 | ) | (54,694 | ) | ||||
Property and equipment, net | $ | 1,198,559 | $ | 765,815 | ||||
As of December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Towers and related components | $ | 1,055,912 | $ | 1,058,805 | ||||
Construction-in-process | 498 | 4,595 | ||||||
Furniture, equipment and vehicles | 38,403 | 40,883 | ||||||
Land, buildings and improvements | 16,160 | 16,500 | ||||||
1,110,973 | 1,120,783 | |||||||
Less: accumulated depreciation and amortization | (254,760 | ) | (179,822 | ) | ||||
Property and equipment, net | $ | 856,213 | $ | 940,961 | ||||
Depreciation expense was $83.0 million, $84.5 million and estimated earnings on uncompleted contracts consist$61.0 million for the years ended December 31, 2003, 2002 and 2001, respectively.
13. ACCRUED EXPENSES
The Company’s accrued expenses are comprised of the following:
As of December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
Costs incurred on uncompleted contracts | $ | 64,400 | $ | 48,060 | ||||
Estimated earnings | 14,200 | 9,941 | ||||||
Billings to date | (73,569 | ) | (50,359 | ) | ||||
$ | 5,031 | $ | 7,642 | |||||
As of December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 11,333 | $ | 13,584 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (6,302 | ) | (5,942 | ) | ||||
$ | 5,031 | $ | 7,642 | |||||
As of December 31, | ||||||
2003 | 2002 | |||||
(in thousands) | ||||||
Salaries and benefits | $ | 2,421 | $ | 1,791 | ||
Real estate and property taxes | 6,084 | 5,289 | ||||
Restructuring and other charges | 1,040 | 1,706 | ||||
Insurance | 1,234 | 3,738 | ||||
Tower sale purchase price adjustment | 2,573 | — | ||||
Other | 4,357 | 1,419 | ||||
$ | 17,709 | $ | 13,943 | |||
8.14. CURRENT AND LONG-TERM DEBT
As of December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
10¼% senior notes, unsecured, interest payable semi-annually, balloon principal payment of $500,000 due at maturity on February 1, 2009. | $ | 500,000 | $ | — | ||||
12% senior discount notes, net of unamortized original issue discount of $34,115 at December 31, 2001, and $59,958 at December 31, 2000, unsecured, cash interest payable semi-annually in arrears beginning September 1, 2003, balloon principal payment of $269,000 due at maturity on March 1, 2008. | 234,885 | 209,042 | ||||||
Senior secured credit facility loans, interest at varying rates (4.76% to 6.50% at December 31, 2001) quarterly installments based on reduced availability beginning September 30, 2003, maturing June 15, 2007. | 110,000 | — | ||||||
Notes payable, interest at varying rates (2.9% to 11.4% at December 31, 2001). | 568 | 231 | ||||||
Senior credit facility term loan, repaid in February 2001. | — | 50,000 | ||||||
Senior credit facility revolving loan, repaid in March 2001. | — | 25,000 | ||||||
845,453 | 284,273 | |||||||
Less: current maturities | (365 | ) | (2,606 | ) | ||||
Long-term debt | $ | 845,088 | $ | 281,667 | ||||
As of December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
10¼% senior notes, unsecured, interest payable semi-annually, balloon principal payment of $406,441 due at maturity on February 1, 2009, including deferred gain related to termination of derivative of $4,559 and $5,236 at December 31, 2003, and 2002, respectively. See Note 20. | $ | 411,000 | $ | 505,236 | ||||
9¾% senior discount notes, net of unamortized original issue discount of $126,204 at December 31, 2003, unsecured, cash interest payable semi-annually in arrears beginning June 15, 2008, balloon principal payment of $402,024 due at maturity on December 15, 2011. | 275,820 | — | ||||||
12% senior discount notes, net of unamortized original issue discount of $5,077 at December 31, 2002, unsecured, cash interest payable semi-annually in arrears beginning September 1, 2003, balloon principal payment of $65,673 due at maturity on March 1, 2008. See Note 24. | 65,673 | 263,923 | ||||||
Senior secured credit facility loans, interest at varying cash rates (5.15% to 5.17% at December 31, 2003). Additional interest accrues at 3.5% and is payable at maturity. See Note 24. | 118,227 | — | ||||||
Senior secured credit facility loans. This facility was paid in full in May 2003. | — | 255,000 | ||||||
Notes payable, interest at varying rates (2.9% to 11.4% at December 31, 2003 maturing at various dates through 2004). | 38 | 123 | ||||||
870,758 | 1,024,282 | |||||||
Less: current maturities | (11,538 | ) | (60,083 | ) | ||||
Long-term debt | $ | 859,220 | $ | 964,199 | ||||
In February 2001, the Company issued $500.0 million of its 10¼% senior notes due 2009, which produced net proceeds of approximately $484.2$484.3 million after deducting offering expenses. Interest accrues on the notes and will beis payable in cash semi-annually in arrears on February 1 and August 1, commencing August 1, 2001. Proceeds from the senior notes were used to acquire and construct telecommunications towers, repay borrowings under the senior credit facility, and for general working capital purposes.
Approximately $105.0$105.6 million of the proceeds waswere used to repay all borrowingborrowings under the Company’s former senior credit facility, and the senior credit agreement in existence at that time was terminated.facility. The Company wrote off the deferred financing fees relating to the former senior credit facility and recorded a $5.1 million extraordinary losscharge in the first quarter of 2001 in connection with the termination of this facility.
The 10¼% senior notes contain numerous restrictive covenants, including but not limited to covenants that restrictare unsecured and are pari passu in right of payment with the Company’s other existing and future senior indebtedness. The 10¼% senior notes place certain restrictions on, among other things, the incurrence of debt and liens, issuance of preferred stock, payment of dividends or other distributions, sales of assets, transactions with affiliates, sale and leaseback transactions, certain investments and the Company’s ability to incur indebtedness, pay dividends, create liens, sell assets and engage in certain mergers and acquisitions.merge or consolidate with other entities. The ability of the Company to comply with the covenants and other terms of the 10¼% senior notes and to satisfy its respective debt obligations will depend on the future operating performance of the Company. In the event the Company fails to comply with the various covenants contained in the 10¼% senior notes, it would be in default thereunder, and in any such case, the maturity of a portion or all of its long-term indebtedness could be accelerated.
9¾% Senior Discount Notes
In December 2003, the Company and Telecommunications co-issued $402.0 million of its 9¾% senior discount notes due 2011, which produced net proceeds of approximately $267.1 million after deducting offering expenses. The senior discount notes accrete in value until December 15, 2007 at which time they will have an aggregate principal amount of $402.0 million. Thereafter, interest accrues on the senior discount notes and will be payable in cash semi-annually in arrears on June 15 and December 15, commencing June 15, 2008. Proceeds from the senior discount notes were used to tender for approximately $153.3 million of the Company’s 12% senior discount notes and for general working capital purposes.
The 9¾% senior discount notes are unsecured and are pari passu in right of payment with the Company’s other existing and future senior indebtedness. The 9¾% senior discount notes place certain restrictions on, among other things, the incurrence of debt and liens, issuance of preferred stock, payment of dividends or other distributions, sales of assets, transaction with affiliates, sale and leaseback transactions, certain investments and the Company’s ability to merge or consolidate with other entities. The ability of the Company to comply with the covenants and other terms of the 9¾% senior discount notes and to satisfy its respective debt obligations will depend on the future operating performance of the Company. In the event the Company fails to comply with the various covenants contained in the 9¾% senior discount notes, it would be in default thereunder, and in any such case, the maturity of a portion or all of its long-term indebtedness could be accelerated. In addition, the acceleration of amounts due under the senior credit facility would also cause a cross-default under the indenture for the 9¾% senior discount notes.
12% Senior Discount Notes
In March 1998, the Company issued $269.0 million of its 12% senior discount notes due March 1, 2008. The issuance2008, which produced net proceeds of the senior discount notes netted approximately $150.2 million in proceeds to the Company.million. The senior discount notes accreteaccreted in value until March 1, 2003 at which time they will havehad an aggregate principal amount of $269.0 million. Thereafter, interest will accrueaccrues on the senior discount notes and will beis payable in cash semi-annually in arrears on March 1 and September 1, commencing September 1, 2003. Proceeds from the senior discount notes were used to acquire and construct telecommunications towers as well as for general working capital purposes.
completed a tender for 70% of its outstanding 12% senior discount notes and retired $153.3 million face value of its 12% senior discount notes for $167.1 million. During 2003, the Company recognized a loss on extinguishment of $14.6 million and wrote-off deferred financing fees of $4.8 million in connection with the 12% senior discount note retirement transactions. See Note 24 for a discussion of repurchase activity subsequent to December 31, 2003.
The 12% senior discount notes contain numerous restrictive covenants, including but not limited to covenants that restrictwere unsecured and were pari passu in right of payment with the Company’s other existing and future senior indebtedness. The 12% senior discount notes placed certain restrictions on, among other things, the incurrence of debt and liens, issuance of preferred stock, payment of dividends or other distributions, sales of assets, transactions with affiliates, sale and leaseback transactions, certain investments and the Company’s ability to merge or consolidate with other entities.
Senior Secured Credit Facility (put in place January 2004)
During January 2004, SBA Senior Finance closed on a new senior credit facility in the amount of $400.0 million. This facility consists of a $275.0 million term loan which was funded at closing, a $50.0 million delayed draw term loan which the Company has until November 15, 2004 to draw and a $75.0 million revolving line of credit. The revolving lines of credit may be borrowed, repaid and redrawn. Amortization of the term loans commence September 2004 at an annual rate of 1% in each of 2004, 2005, 2006 and 2007. All remaining amounts under the term loan are due in 2008. There is no amortization of the revolving loans and all amounts outstanding are due on August 31, 2008. Amounts borrowed under this facility accrue interest at either the base rate, as defined in the agreement, plus 250 basis points or the Euro dollar rate plus 350 basis points. Had this facility been in place on December 31, 2003, the borrowing rate under this facility would have been 4.6%. This facility may be prepaid at any time with no prepayment penalty. Amounts borrowed under this facility are secured by a first lien on substantially all of SBA Senior Finance’s assets. In addition, each of SBA Senior Finance’s domestic subsidiaries has guaranteed the obligations of SBA Senior Finance under the senior credit facility and has pledged substantially all of their respective assets to secure such guarantee, and the Company and Telecommunications have pledged substantially all of their assets to secure SBA Senior Finance’s obligations under this senior credit facility.
This new credit facility requires SBA Senior Finance to maintain specified financial ratios, including ratios regarding its debt to annualized operating cash flow, debt service, cash interest expense and fixed charges for each quarter. This new senior credit facility contains affirmative and negative covenants that, among other things, restricts SBA Senior Finance’s ability to incur indebtedness, pay dividends, createdebt and liens, sell assets, commit to capital expenditures, enter into affiliate transactions or sale-leaseback transactions, and/or build towers without anchor tenants. Additionally, this facility permits distributions by SBA Senior Finance to Telecommunications and engageSBA Communications to service their debt, pay consolidated taxes, pay holding company expenses and for the repurchase of senior notes and senior discount notes subject to compliance with the covenants discussed above. SBA Senior Finance’s ability in certain mergers and acquisitions. The ability of the Companyfuture to comply with the covenants and other termsaccess the available funds under the senior credit facility will depend on its future financial performance.
On January 30, 2004, SBA Senior Finance used the proceeds from funding of the $275.0 million term loan under the new senior credit facility to repay the old credit facility in full, consisting of $144.2 million outstanding. In addition to the amounts outstanding, the Company was required to pay $8.0 million to the lenders under the old facility to facilitate the assignment of the old facility to the new lenders. As a result of this prepayment, SBA Senior Finance has written off deferred financing fees associated with the old facility of $5.4 million in addition to the $8.0 million fee paid to facilitate the assignment during the first quarter of 2004. Additionally, SBA Senior Finance has recorded deferred financing fees of approximately $5.4 million associated with this new facility in the first quarter of 2004.
Senior Secured Credit Facility (paid in full January 2004)
On May 9, 2003, Telecommunications closed on a senior credit facility in the amount of $195.0 million from General Electric Capital Corporation (“GECC”) and affiliates of Oak Hill Advisors, Inc. (“Affiliates of Oak Hill”). The facility consisted of $95.0 million of term loans and a $100.0 million revolving line of credit. In November, 2003, in connection with the offering of the Company’s 9¾% senior discount notes and the Company’s tender offer for 70% of its outstanding 12% senior discount notes, SBA Senior Finance, a newly formed wholly-owned subsidiary of Telecommunications, assumed all rights and obligations of Telecommunications under the senior credit facility pursuant to satisfy its respective debt obligations will depend on the future operating performance of the Company. In the event the Company fails to complyan amended and restated credit agreement with the various covenants contained insenior credit lenders. Telecommunications was released from any obligation to repay the 12%indebtedness under the senior discount notes it would be in default thereunder, and in any such case, the maturity of a portion orcredit facility. Simultaneously with this assumption, Telecommunications contributed substantially all of its long-term indebtedness could be accelerated.
to SBA Senior Finance. As of December 31, 2003, the Company had $98.2 million outstanding under the term loan and $20.0 million outstanding under the revolving line of credit. The Company refinanced this credit facility in January 2004 and used the proceeds from the new facility to repay this facility in full. See senior credit facility discussion above.
Senior Secured Credit Facility (paid in full May 2003)
In June 2001, Telecommunications entered into a $300.0 million senior secured credit facility. The facility providesprovided for a $100.0 million term loan and a $200.0 million revolving loan, the availabilityline of which is based on compliance with certain convenants.credit. As of December 31, 20012002, the Company had $100.0 million outstanding under the term loan and $10.0$155.0 million outstanding under the revolving loan.line of credit. In addition, the Company had $14.5 million of letters of credit issued on its behalf to serve as collateral to secure certain obligations in the ordinary course of business. The term loanCompany refinanced this credit facility in May 2003 and used the revolving loan mature June 15, 2007proceeds from the new credit facility, cash on hand and amortizationa portion of the term loan beginsproceeds from the Western tower sale to repay this credit facility in Septemberfull. As a result of this prepayment, the Company has written off deferred financing fees associated with this facility of approximately $4.4 million during 2003. Borrowings under
At December 31, 2002 the current portion of long-term debt in the amount of $60.0 million had been reclassified to reflect the amount by which the senior secured credit facility accrue interestborrowings were reduced through the May 2003 refinancing. The portion of this debt reflected as long-term at December 31, 2002, $195.0 million, represents the euro dollar rate plus a margin or a base rate plus a margin, as defined in the agreement. The senior secured credit facility is secured by substantially allamount of the assets of Telecommunications and its subsidiaries. The facility also places certain restrictions on, among other things,which was replaced by the incurrance of debt and liens, the sale of assets, capital expenditures, transactions with affiliates, sale and lease-back transactions and the number of towers that can be built without anchor tenants.
The Company’s long-term debt, excluding the deferred interest rate swap discussed below, at December 31, 2001 matures2003, would have matured as follows:
(in thousands) | |||
2002 | $ | 365 | |
2003 | 5,134 | ||
2004 | 15,069 | ||
2005 | 25,000 | ||
2006 | 25,000 | ||
Thereafter | 774,885 | ||
Total | $ | 845,453 | |
(in thousands) | |||
2004 | $ | 11,538 | |
2005 | 17,250 | ||
2006 | 17,250 | ||
2007 | 72,227 | ||
2008 | 65,673 | ||
Thereafter | 682,261 | ||
Total | $ | 866,199 | |
The Company previously entered into an interest rate swap agreement to manage its exposure to interest rate movements by effectively converting a portion of its $500.0 million senior notes from fixed interest rate to variable rate notes. During October 2002, the constructioncounter-party to this agreement terminated the agreement. This termination resulted in a $5.4 million deferred gain which is recorded in long-term debt and acquisition of towers and for general working capital purposes. On July 19, 1999,is being recognized as a reduction to interest expense over the managing underwritersremaining term of the Company’s initial public offering exercisednotes to which the swap related. Amortization during 2003 and closed on their over-allotment option to purchase 1.32002 was approximately $0.7 million shares of Class A common stock.and $0.2 million, respectively. The Company received net proceeds of approximately $10.9 million from the sales of shares, which were sold at the initial public offering price of $9.00 per share. These net proceeds were also used for the construction and acquisition of towers and for general working capital purposes.
(in thousands) | |||
2004 | $ | 740 | |
2005 | 810 | ||
2006 | 886 | ||
2007 | 969 | ||
2008 | 1,061 | ||
2009 | 93 | ||
Total | $ | 4,559 | |
See Note 20 for further discussion regarding the senior credit facility. Remaining proceeds were used for the construction and acquisitioninterest rate swap agreement.
15. SHAREHOLDERS’ EQUITY
a. Offerings of towers and for general working capital purposes. In February 2000, the managing underwriters of the equity offering exercised and closed on their over-allotment option to purchase an additional 1.4 million shares of the Company’s Class A common stock. Certain shareholders along with the Company had granted this option to the underwriters in connection with the equity offering. These certain shareholders satisfied from their shareholdings the exercise of the over-allotment option in full, resulting in no proceeds to the Company as a result of this exercise.
In July 2000, the Company filed a universal shelf registration statement on Form S-3 with the Securities and Exchange Commission registering the sale of up to $500.0 million of any combination of the following securities: Class A common stock, preferred stock, debt securities, depositary shares, or warrants. In August 2000, the Company drew down $247.3 million under this universal shelf in connection with an offering
b. Registration of 5.8 million shares of its Class A common stock, including 750,000 shares issued upon the exercise of the managing
c. Other Common Stock Transactions
During the year ended December 31, 2000,2003, the Company issued 1.0exchanged $13.5 million of its 10¼% senior notes for 3.85 million shares pursuant to these registration statements in connection with ten acquisitions. Subsequent to December 31, 2001, the Company issued 587,260 shares under these registration statements for certain earn-outs.
The issuance of these shares triggered an event whereby the 5.5 million of Class B common stock pursuantoutstanding automatically converted to the Company’s 1999 Equity Participation Plan. These restricted shares have a three year vesting period. Deferred compensation representing the fair value of the shares on the date of grant was recorded as an adjustment to additional paid-in capital and compensation expense is being recognized over the vesting period.
d. Employee Stock Purchase Plan
In 1999, the Board of Directors of the Company adopted the 1999 Stock Purchase Plan (the “Purchase Plan”). A total of 500,000 shares of Class A common stock arewere reserved for purchase under the Purchase Plan. During 2003, an amendment to the Purchase Plan was adopted which increased the number of shares reserved for purchase from 500,000 to 1,500,000 shares. The Purchase Plan permits eligible employee participants to purchase Class A common stock at a price per share which is equal to the lesser of 85% of the fair market value of the Class A common stock on the first or the last day of an offering period. As of December 31, 2001,2003, employees had purchased 110,491271,038 shares under the Purchase Plan.
e. Non-cash Compensation
From time to a syndicate of institutional investors. The Series A preferred stock had a conversion price of $3.73 and net proceeds received by the Company from the sale of the shares was approximately $27.0 million (net of approximately $2.4 million of issuance costs charged to retained earnings). Each holder of Series A preferred stock had the right to convert these shares at any time, into one share of Class A common stock, subject to certain anti-dilution protection provisions, and one share of Series B preferred stock. The Series A preferred stock automatically converted into Class A common stock and Series B preferred stock upon initial public offering.
2001 | 2000 | 1999 | |||||||
Risk free interest rate | 10 | % | 10 | % | 12 | % | |||
Dividend yield | 0 | % | 0 | % | 0 | % | |||
Expected volatility | 99.3 | % | 86 | % | .001 | % | |||
Expected lives | 4 years | 3 years | 3 years |
2001 | 2000 | 1999 | ||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||
Outstanding at beginning of year | 3,089,656 | $ | 16.97 | 3,177,194 | $ | 7.11 | 1,660,016 | $ | 2.12 | |||||||||
Granted | 1,748,195 | 23.34 | 1,001,493 | 36.87 | 1,740,935 | 11.12 | ||||||||||||
Exercised/redeemed | (587,560 | ) | 4.26 | (973,569 | ) | 3.95 | (183,520 | ) | 2.63 | |||||||||
Forfeited/cancelled | (426,380 | ) | 27.65 | (115,462 | ) | 24.99 | (40,237 | ) | 3.90 | |||||||||
Outstanding at end of year | 3,823,911 | $ | 20.57 | 3,089,656 | $ | 16.97 | 3,177,194 | $ | 7.11 | |||||||||
Options exercisable at end of year | 1,616,968 | $ | 14.12 | 1,172,564 | $ | 6.29 | 1,211,829 | $ | 3.24 | |||||||||
Weighted average fair value of options granted during the year | $ | 27.37 | $ | 36.91 | $ | 11.12 | ||||||||||||
OPTIONS OUTSTANDING | OPTIONS EXERCISABLE | |||||||||||
Range | Outstanding | Average Contractual Life | Average Exercise Price | Exercisable | Weighted Average Exercise Price | |||||||
$ 0.00—$ 0.05 | 276,340 | 7.5 | $ | 0.05 | 113,086 | $ | 0.05 | |||||
$ 2.63—$ 4.00 | 259,383 | 10.9 | $ | 2.64 | 259,383 | $ | 2.64 | |||||
$ 8.00—$ 9.75 | 564,054 | 3.4 | $ | 8.18 | 497,498 | $ | 8.13 | |||||
$10.17—$14.45 | 158,135 | 5.8 | $ | 11.97 | 4,712 | $ | 11.22 | |||||
$15.25—$19.71 | 649,101 | 8.0 | $ | 15.36 | 417,016 | $ | 15.26 | |||||
$20.04—$24.75 | 593,582 | 4.6 | $ | 21.83 | — | — | ||||||
$25.42—$29.10 | 200,701 | 7.8 | $ | 26.97 | 73,110 | $ | 27.00 | |||||
$30.25—$34.88 | 413,479 | 4.5 | $ | 34.51 | 96,928 | $ | 34.57 | |||||
$35.88—$39.75 | 193,403 | 8.8 | $ | 37.70 | 38,656 | $ | 37.48 | |||||
$40.00—$44.63 | 479,622 | 8.7 | $ | 41.35 | 105,509 | $ | 41.49 | |||||
$45.00—$51.94 | 36,111 | 8.7 | $ | 47.22 | 11,070 | $ | 47.87 | |||||
3,823,911 | 7.2 | $ | 20.57 | 1,616,968 | $ | 14.12 | ||||||
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(in thousands) | ||||||||||||
Current provision (benefit) for taxes: | ||||||||||||
Federal income tax | $ | — | $ | — | $ | (1,255 | ) | |||||
Foreign income tax | — | — | 231 | |||||||||
State income tax | 1,654 | 1,233 | 801 | |||||||||
Total | 1,654 | 1,233 | (223 | ) | ||||||||
Deferred provision (benefit) for taxes: | ||||||||||||
Federal income tax | (39,799 | ) | (8,156 | ) | (9,461 | ) | ||||||
State income tax | (1,528 | ) | (1,173 | ) | (1,598 | ) | ||||||
Increase in valuation allowance | 41,327 | 9,329 | 11,059 | |||||||||
Total | $ | 1,654 | $ | 1,233 | $ | (223 | ) | |||||
For the years ended December 31, | ||||||||||||
2001 | 2000 | 1999 | ||||||||||
(in thousands) | ||||||||||||
Statutory Federal benefit | $ | (41,987 | ) | $ | (9,401 | ) | $ | (11,837 | ) | |||
State income tax | 83 | 40 | (526 | ) | ||||||||
Foreign tax | — | — | 541 | |||||||||
Other | 367 | 235 | 540 | |||||||||
Goodwill amortization | 1,864 | 1,029 | — | |||||||||
Valuation allowance | 41,327 | 9,330 | 11,059 | |||||||||
$ | 1,654 | $ | 1,233 | $ | (223 | ) | ||||||
As of December 31, | ||||||||
2001 | 2000 | |||||||
(in thousands) | ||||||||
Allowance for doubtful accounts | $ | 1,876 | $ | 868 | ||||
Deferred revenue | 5,818 | 2,958 | ||||||
Accrued liabilities | 2,220 | — | ||||||
Other | 87 | 208 | ||||||
Valuation allowance | (10,001 | ) | (4,034 | ) | ||||
Current deferred tax liabilities | $ | — | — | |||||
Original issue discount | $ | 33,176 | $ | 22,596 | ||||
Net operating loss | 51,096 | 15,938 | ||||||
Book vs. tax depreciation | (39,090 | ) | (26,869 | ) | ||||
Straight-line rents | (3,392 | ) | — | |||||
Other | 1,813 | 1,058 | ||||||
Valuation allowance | (62,032 | ) | (31,168 | ) | ||||
Non-current deferred tax liabilities | $ | (18,429 | ) | $ | (18,445 | ) | ||
(in thousands) | |||
2002 | $ | 30,555 | |
2003 | 28,324 | ||
2004 | 23,808 | ||
2005 | 18,224 | ||
2006 | 11,441 | ||
Thereafter | 62,199 | ||
Total | $ | 174,551 | |
(in thousands) | |||
2002 | $ | 116,270 | |
2003 | 113,494 | ||
2004 | 103,343 | ||
2005 | 78,904 | ||
2006 | 41,629 | ||
Thereafter | 72,431 | ||
Total | $ | 526,071 | |
In connection with an employment agreement with one of the officers of the Company, the Company was obligated to pay an amount equal to the segmentsdifference between $1.0 million and the value of all vested options and restricted stock belonging to this officer on September 19, 2003. The Company had the option of settling the obligation in whichcash or shares of Class A common stock. This obligation was settled in September 2003 in cash for $0.9 million. This amount had been expensed over the Company operates are presented below:
For the years ended December 31, | |||||||||
2001 | 2000 | 1999 | |||||||
(in thousands) | |||||||||
Revenues: | |||||||||
Site development—consulting | $ | 24,251 | $ | 24,251 | $ | 17,964 | |||
Site development—construction | 115,484 | 91,641 | 42,606 | ||||||
Site leasing | 103,159 | 52,014 | 26,423 | ||||||
$ | 242,894 | $ | 167,906 | $ | 86,993 | ||||
Gross profit: | |||||||||
Site development—consulting | $ | 7,154 | $ | 8,625 | $ | 5,547 | |||
Site development—construction | 24,649 | 18,375 | 9,219 | ||||||
Site leasing | 66,437 | 32,512 | 14,289 | ||||||
$ | 98,240 | $ | 59,512 | $ | 29,055 | ||||
Capital expenditures: | |||||||||
Site development—consulting | $ | 2,458 | $ | 1,489 | $ | 6,971 | |||
Site development—construction | 36,959 | 25,570 | 28,185 | ||||||
Site leasing | 516,859 | 465,400 | 189,779 | ||||||
Assets not identified by segment | 5,050 | 1,594 | 1,635 | ||||||
$ | 561,326 | $ | 494,053 | $ | 226,570 | ||||
As of December 31, | ||||||
2001 | 2000 | |||||
(in thousands) | ||||||
Assets: | ||||||
Site development—consulting | $ | 24,850 | $ | 14,248 | ||
Site development—construction | 177,322 | 99,962 | ||||
Site leasing | 1,198,051 | 815,660 | ||||
Assets not identified by segment | 28,788 | 18,948 | ||||
$ | 1,429,011 | $ | 948,818 | |||
Quarters Ended | ||||||||||||||||
December 31, 2001 | September 30, 2001 | June 30, 2001 | March 31, 2001 | |||||||||||||
(in thousands except per share) | ||||||||||||||||
Revenues | $ | 69,150 | $ | 63,033 | $ | 57,755 | $ | 52,956 | ||||||||
Gross profit | 28,075 | 25,924 | 23,431 | 20,810 | ||||||||||||
Net loss | (29,710 | ) | (49,118 | ) | (23,321 | ) | (22,996 | ) | ||||||||
Basic and diluted loss per common share | $ | (0.62 | ) | $ | (1.03 | ) | $ | (0.50 | ) | $ | (0.49 | ) |
Quarters Ended | ||||||||||||||||
December 31, 2000 | September 30, 2000 | June 30, 2000 | March 31, 2000 | |||||||||||||
(in thousands except per share) | ||||||||||||||||
Revenues | $ | 53,579 | $ | 45,395 | $ | 38,503 | $ | 30,429 | ||||||||
Gross profit | 18,563 | 16,560 | 13,395 | 10,994 | ||||||||||||
Net loss | (5,379 | ) | (5,905 | ) | (7,908 | ) | (9,723 | ) | ||||||||
Basic and diluted loss per common share | $ | (0.12 | ) | $ | (0.14 | ) | $ | (0.20 | ) | $ | (0.27 | ) |
f. Shareholder Rights Plan and are reset on a semi-annual basis. The differential between fixed and variable rates to be paid or received is accrued as interest rates change in accordance with the agreements and recognized over the life of the agreements as an adjustment to interest expense.
During January 2002, the Company’s Board of Directors adopted a Shareholder Rights Planshareholder rights plan and declared a dividend of one preferred stock purchase right for each outstanding share of the Company’s common stock. Each of these rights which are currently not exercisable, will entitle the holder to purchase one one-thousandth (1/1000) of a share of the Company’s newly designated Series E Junior Participating Preferred Stock. In the event that any person or group acquires beneficial ownership of 15% or more of the outstanding shares of the Company’s common stock or commences or announces an intention to commence a tender offer that would result in such person or group owning 15% or more of the Company’s common stock, each holder of a right (other than the acquirer) will be entitled to receive, upon payment of the exercise price, a number of shares of common stock having a market value equal to two times the exercise price of the right. In order to retain flexibility and the ability to maximize stockholdershareholder value in the event of transactions that may arise in the future, the Board retains the power to redeem the Rightsrights for a set amount. The Rightsrights were distributed on January 25, 2002 and expire on January 10, 2012, unless earlier redeemed or exchanged or terminated in accordance with the Rights Agreement.
The Company has three stock option plans (the 1996 Stock Option Plan, the 1999 Equity Participation Plan and the 2001 Equity Participation Plan) whereby options (both non-qualified and incentive stock options), stock appreciation rights and restricted stock may be granted to directors, employees and consultants. Upon adoption of the 2001 Equity Participation Plan, all unissued options under the 1996 Stock Option Plan and the 1999 Equity Participation Plan were cancelled. The 2001 Equity Participation Plan provides for a maximum issuance of shares, together with all outstanding options and unvested shares of restricted stock under all three of the plans, equal to 15% of the Company’s common stock outstanding, adjusted for certain shares issued pursuant to the exercise of certain options. A summary of shares reserved for future issuance under these plans as of December 31, 2003 is as follows:
Reserved for 1996 Stock Option Plan | 186 | |
Reserved for 1999 Equity Participation Plan | 758 | |
Reserved for 2001 Equity Participation Plan | 7,215 | |
8,159 | ||
These options generally vest between three and six years from the date of grant on a straight-line basis and generally have a ten year life. The Company accounts for these plans under APB 25, under which compensation cost is not recognized on those issuances where the exercise price equals or exceeds the market price of the underlying stock on the grant date. From time to time, options to purchase shares of Class A common stock have been granted under the 1999 Equity Participation Plan and the 2001 Equity Participation Plan at prices which were below market value at the time of grant. As a result, the Company recorded non-cash compensation expense of $0.8 million, $2.0 million and $3.3 million for the years ended December 31, 2003, 2002 and 2001, respectively.
As required by SFAS 123, the Company has determined the pro-forma effect of the options granted had the Company accounted for stock options granted under the fair value method of SFAS 123.
A summary of the status of the Company’s stock option plans including their weighted average exercise price is as follows:
2003 | 2002 | 2001 | ||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||
(shares in thousands) | ||||||||||||||||||
Outstanding at beginning of year | 2,848 | $ | 11.37 | 3,824 | $ | 20.57 | 3,090 | $ | 16.97 | |||||||||
Granted | 1,630 | $ | 2.20 | 2,445 | $ | 10.17 | 1,748 | $ | 23.34 | |||||||||
Exercised/redeemed | (34 | ) | $ | 1.26 | (145 | ) | $ | 0.93 | (588 | ) | $ | 4.26 | ||||||
Forfeited/canceled | (656 | ) | $ | 9.78 | (3,276 | ) | $ | 21.59 | (426 | ) | $ | 27.65 | ||||||
Outstanding at end of year | 3,788 | $ | 7.79 | 2,848 | $ | 11.37 | 3,824 | $ | 20.57 | |||||||||
Options exercisable at end of year | 1,235 | $ | 12.66 | 993 | $ | 12.63 | 1,617 | $ | 14.12 | |||||||||
Weighted average fair value of options granted during the year | $ | 2.20 | $ | 6.63 | $ | 27.37 |
Option groups outstanding at December 31, 2003 and related weighted average exercise price and remaining life, in years, information are as follows:
Options Outstanding | Options Exercisable | |||||||||
Range | Outstanding (in thousands) | Weighted Average Contractual Life | Weighted Average | Exercisable ( in thousands) | Weighted Average | |||||
$ 0.05 – $ 4.00 | 1,890 | 8.7 | $ 2.13 | 249 | $ 2.19 | |||||
$ 5.37 – $ 9.75 | 1,060 | 5.3 | $ 8.03 | 464 | $ 8.06 | |||||
$10.17 – $13.35 | 311 | 7.0 | $12.40 | 92 | $12.14 | |||||
$15.25 – $24.75 | 303 | 4.9 | $17.31 | 262 | $16.62 | |||||
$26.63 – $51.94 | 224 | 2.5 | $35.12 | 168 | $35.03 | |||||
3,788 | $ 7.79 | 1,235 | $12.66 | |||||||
The Company has various stock-based employee compensation plans. From time to time, options to purchase Class A common stock have been granted under the Company’s 1999 Equity Participation Plan and the 2001 Equity Participation Plan which were below market value at the time of the grant. The Company recorded non-cash compensation expense of $0.8 million, $2.0 million and $3.3 million for the years ended December 31, 2003, 2002 and 2001, respectively. Except for the amount of non-cash compensation recognized, no other stock-based employee compensation cost is reflected in net loss, as all other options granted under the Company’s stock-based employee compensation plans had an exercise price equal to, or in excess of, the market value of the underlying common stock on the date of grant.
The Black-Scholes option-pricing model was used with the following assumptions:
For the years ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
Risk free interest rate | 2.0 | % | 3.25 | % | 4.5 | % | |||
Dividend yield | 0 | % | 0 | % | 0 | % | |||
Expected volatility | 90 | % | 171 | % | 99 | % | |||
Expected lives | 4 years | 4 years | 4 years |
The following table illustrates the effect on net loss and loss per share as if the Company had applied the fair value recognition provisions of SFAS 123, to stock-based employee compensation:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
(in millions) | ||||||||||||
Net loss, as reported | $ | (172.2 | ) | $ | (249.0 | ) | $ | (125.8 | ) | |||
Non-cash compensation charges included in net loss | 0.8 | 2.0 | 3.3 | |||||||||
Incremental stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (4.2 | ) | (6.2 | ) | (19.9 | ) | ||||||
Pro forma net loss | $ | (175.6 | ) | $ | (253.2 | ) | $ | (142.4 | ) | |||
Loss per shares | ||||||||||||
Basic and diluted – as reported | $ | (3.30 | ) | $ | (4.93 | ) | $ | (2.66 | ) | |||
Basic and diluted – pro forma | $ | (3.36 | ) | $ | (5.01 | ) | $ | (3.01 | ) |
The effect of applying SFAS 123 in the pro-forma disclosure is not necessarily indicative of future results.
17. RESTRUCTURING AND OTHER CHARGES
In response to capital market conditions in the telecommunications industry during the past three years, the Company has implemented various restructuring plans discussed below.
Restructuring expense consisted of the following during these three years:
For the years ended December 31, | |||||||||
2003 | 2002 | 2001 | |||||||
(in thousands) | |||||||||
Abandonment of new tower build and acquisition work-in-process and related construction materials | $ | 635 | $ | 40,380 | $ | 24,088 | |||
Employee separation and exit costs | 1,870 | 6,907 | 311 | ||||||
$ | 2,505 | $ | 47,287 | $ | 24,399 | ||||
In August 2001, in response to deteriorating capital market conditions within the telecommunications industry, the Company implemented a plan of restructuring primarily associated with the downsizing of its new tower build construction activities. The plan included the abandonment of certain acquisition and new tower build sites resulting in a non-cash charge of approximately $24.1 million. The plan also included the elimination of 102 employee positions and closing and/or consolidation of selected offices. Payments made related to employee separation and office closings were approximately $0.3 million.
In February 2002, as a result of the continuing deterioration of capital market conditions for wireless carriers, the Company announced that it was further reducingreduced its capital expenditures for new tower development and acquisition activities, in 2002 and suspendingsuspended any material new investment for additional towers. The Company anticipates reducing the number of towers, expected to be builtreduced its workforce and closed or acquired in 2002 from 400 to 600 to approximately 250 to 300.consolidated offices. Under currentthen existing capital marketsmarket conditions, the Company doesdid not anticipate building or buying a material number of new towers beyond those it iswas currently contractually obligated to build or buy. The Company expects approximately 90 to 110 new towers to be built or acquiredbuy, thereby resulting in the first quarterabandonment of 2002, and the remaindera majority of its obligations toexisting new tower build or buy towers to be satisfied laterand acquisition work in process during 2002. AIn connection with this restructuring, a portion of itsthe Company’s workforce will bewas reduced and certain offices will bewere closed, substantially all of which were primarily dedicated to new tower development activities. TheAs a result of the implementation of its plans, the Company anticipates incurring charges relatedrecorded a restructuring charge of $47.3 million in accordance with SFAS 144, and Emerging Issues Task Force 94-3,Liability Recognition for Certain Employee Termination Benefits and Other Costs to thisExit an Activity, including Certain Costs Incurred in a Restructuring. Of the $47.3 million restructuring plan of $30.0charge recorded during the year ended December 31, 2002, approximately $40.4 million and $65.0 million for costs related to the disposalabandonment of new tower build and acquisition construction-in-process,work in process and related construction materials on approximately 764 sites. The remaining $6.9 million of restructuring expense related primarily to the costs of employee separation costfor approximately 470 employees and exit costs associated with the closing and consolidation of approximately 40 offices. The accrual of approximately $1.0 million remaining at December 31, 2003, with respect to the 2002 plan, relates primarily to remaining obligations through the year 2012 associated with offices exited or downsized as part of this plan.
The following summarizes the activity during the year ended December 31, 2003, related to the 2002 and other items.2001 restructuring plans:
Accrued as of January 1, 2003 | Restructuring Charges | Payments/ Adjustments | Payments Related to January 1, 2003 Accrual | Accrual as of December 31, 2003 | |||||||||||||||||
Cash | Non-Cash | ||||||||||||||||||||
(in thousands) | |||||||||||||||||||||
Abandonment of new tower build work in process | $ | — | $ | 59 | $ | $ | (59 | ) | $ | — | $ | — | |||||||||
Employee separation and exit costs | 1,706 | 122 | (167 | ) | 45 | (666 | ) | 1,040 | |||||||||||||
$ | 1,706 | $ | 181 | $ | (167 | ) | $ | (14 | ) | $ | (666 | ) | $ | 1,040 | |||||||
In 2003, in response to the continued deterioration in expenditures by wireless service providers, particularly with respect to site development activities, the Company committed to new plans of restructuring associated with further downsizing activities, including reduction in workforce and closing or consolidation of offices. As a result of the implementation of its plans, the Company recorded a restructuring charge of $2.5 million during the year ended December 31, 2003, in accordance with SFAS 146. Of the $2.5 million charge recorded during the year ended December 31, 2003, approximately $0.6 million related to the abandonment of new tower build work in process. The remaining $1.9 million related primarily to the costs of employee separation for approximately 165 employees and exit costs associated with the closing or consolidation of approximately 17 offices. In connection with employee separation costs, the Company paid approximately $0.7 million in one-time termination benefits. Of the $2.5 million in expense recorded during the year ended December 30, 2003, $2.4 million pertains to the Company’s site development segment and $0.1 million pertains to the Company’s site leasing segment.
The following summarizes the activity related to the 2003 restructuring plan for the year ended December 31, 2003:
Restructuring Charges | Payments/ Adjustments | Accrual as of December 31, 2003 | ||||||||||||
Cash | Non-Cash | |||||||||||||
(in thousands) | ||||||||||||||
Abandonment of new tower build work in process | $ | 576 | $ | — | $ | (576 | ) | $ | — | |||||
Employee separation and exit costs | 1,748 | (1,012 | ) | (736 | ) | — | ||||||||
$ | 2,324 | $ | (1,012 | ) | $ | (1,312 | ) | $ | — | |||||
18. ASSET IMPAIRMENT CHARGES
In accordance with SFAS 144, long-lived assets consisting primarily of tower assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is determined to be impaired, the loss is measured by the excess of the carrying amount of the charge relatedasset over its fair value as determined by an estimate of discounted future cash flows. Estimates and assumptions inherent in the impairment evaluation include, but are not limited to, asset disposals will be determined primarily bygeneral market conditions, historical operating results, lease-up potential and expected timing of lease-up. During the second and fourth quarters of 2003, the Company modified its future tower lease-up assumptions for certain tower assets that had not achieved expected lease-up results. The changes to the future cash flow expectations and the resulting change in the fair value of newthese towers, as determined using a discounted cash flow analysis, resulted in an impairment charge of $10.3 million during the second quarter of 2003 related to approximately 40 operating towers and an impairment charge of $6.2 million during the fourth quarter of 2003 related to approximately 30 additional operating towers. These amounts are included in asset impairment charges in the Consolidated Statement of Operations for the year ended December 31, 2003.
During the first quarter of 2003, tower backlogassets previously impaired in 2002 were evaluated under the provisions of recently adopted SFAS 143 as to the existence of asset retirement obligations. In connection with the adoption of SFAS 143, effective January 1, 2003, approximately $0.5 million of additional tower costs were capitalized to the previously impaired assets effective January 1, 2003. The recoverability of the capitalized tower costs were evaluated in accordance with the provisions of SFAS 144 and construction-in-processdetermined to be impaired. As discussed above, during the second and fourth quarters of 2003, the Company identified approximately 70 operating towers that were determined to be impaired.
During the first and second quarters of 2002, the Company recorded goodwill totaling approximately $9.2 million resulting from the achievement of certain earn-out obligations under various construction acquisition agreements entered into prior to July 1, 2001. In accordance with SFAS 142, goodwill is subject to an impairment assessment at least annually, or at any time that indicators of impairment are present. The Company determined that as of June 30, 2002, indicators of impairment were present, thereby requiring an impairment analysis be completed. The indicators of impairment during the quarter ended June 30, 2002 giving rise to this analysis included significant deterioration of overall Company value, continued negative trends with respect to those locations the Company chooses to dispose of. Mostwireless carrier capital expenditure plans and related demand for wireless construction services, and perceived reduction in value of similar site development construction services businesses. As a result of this charge is expectedanalysis, using a discounted cash flow valuation method for estimating fair value, $9.2 million of goodwill within the site development construction reporting segment was determined to be incurred inimpaired as of June 30, 2002 and was written off.
In the first quarter of 2002, certain tower sites held and used in operations were considered to be impaired. Towers determined to be impaired were primarily towers with no tenants and little or no prospects for future lease-up. An asset impairment charge of approximately $16.4 million was recorded during the remainder incurred in the secondfirst quarter of 2002.
19. INCOME TAXES
The provision (benefit) for income taxes from continuing operations consists of the following components:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
(in thousands) | ||||||||||||
Current provision (benefit) for taxes: | ||||||||||||
Federal income tax | $ | 125 | $ | (1,382 | ) | $ | — | |||||
State and local taxes | 1,695 | 1,691 | 1,493 | |||||||||
Total current | 1,820 | 309 | 1,493 | |||||||||
Deferred provision (benefit) for taxes: | ||||||||||||
Federal income tax | (58,122 | ) | (57,000 | ) | (39,868 | ) | ||||||
State and local taxes | 7,728 | (3,767 | ) | (1,528 | ) | |||||||
Increase in valuation allowance | 50,394 | 60,767 | 41,396 | |||||||||
Total deferred | — | — | — | |||||||||
Total | $ | 1,820 | $ | 309 | $ | 1,493 | ||||||
A reconciliation of the provision (benefit) for income taxes from continuing operations at the statutory U.S. Federal tax rate (34%) and the effective income tax rate is as follows:
For the years ended December 31, | ||||||||||||
2003 | 2002 | 2001 | ||||||||||
(in thousands) | ||||||||||||
Statutory Federal benefit | $ | (55,119 | ) | $ | (62,653 | ) | $ | (41,513 | ) | |||
State and local taxes | 6,219 | (1,371 | ) | (23 | ) | |||||||
Cumulative effect of changes in accounting principle | — | 3,018 | — | |||||||||
Other | 326 | 395 | 367 | |||||||||
Goodwill amortization | — | 153 | 1,266 | |||||||||
Valuation allowance | 50,394 | 60,767 | 41,396 | |||||||||
$ | 1,820 | $ | 309 | $ | 1,493 | |||||||
The components of the net deferred income tax asset (liability) accounts are as follows:
As of December 31, | ||||||||
2003 | 2002 | |||||||
(in thousands) | ||||||||
Allowance for doubtful accounts | $ | 759 | $ | 1,922 | ||||
Deferred revenue | 4,465 | 8,555 | ||||||
Accrued liabilities | 5,654 | 4,612 | ||||||
Other | 48 | 106 | ||||||
Valuation allowance | (10,926 | ) | (15,195 | ) | ||||
Current net deferred taxes | $ | — | $ | — | ||||
Original issue discount | $ | 13,028 | $ | 44,559 | ||||
Net operating loss | 198,385 | 96,731 | ||||||
Book vs. tax depreciation | (34,566 | ) | (38,726 | ) | ||||
Straight-line rents | (6,152 | ) | (4,930 | ) | ||||
Other | 2,323 | 5,720 | ||||||
Valuation allowance | (173,018 | ) | (103,354 | ) | ||||
Non-current net deferred taxes | $ | — | $ | — | ||||
The Company has recorded a valuation allowance for deferred tax assets as management believes that it is not “more likely than not” that the Company will be able to generate sufficient taxable income in future periods to recognize the assets.
The Company has available at December 31, 2003, a net operating tax loss carry-forward of approximately $583.5 million. Approximately $8.6 million, $35.8 million, $105.7 million, $140.0 million and $293.4 million of the net operating tax loss carry-forwards will expire in 2019, 2020, 2021 2022, and 2023, respectively. The Internal Revenue Code places limitations upon the future availability of net operating losses based upon changes in the equity of the Company. If these occur, the ability for the Company to offset future income with existing net operating losses may be limited.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE20. DERIVATIVE FINANCIAL INSTRUMENT
The Company previously had an interest rate swap agreement to manage its exposure to interest rate movements by effectively converting a portion of its fixed rate senior notes to variable rates. The swap qualified as a fair value hedge.
The notional principal amount of the swap was $100.0 million and the maturity date and payment provisions matched that of the underlying senior notes. The swap was to mature in seven years and provided for the exchange of fixed rate payments for variable rate payments without the exchange of the underlying notional amount. The variable rates were based on six-month EURO plus 4.47% and were reset on a semi-annual basis. The differential between fixed and variable rates to be paid or received was accrued as interest rates changed in accordance with auditing standards generally acceptedthe agreement and were recognized as an adjustment to interest expense. The Company recorded a reduction of approximately $3.1 million to interest expense during the year ended December 31, 2002 as a result of the differential between fixed and variable rates.
The counter-party to the interest rate swap agreement terminated the swap agreement in October 2002. In connection with this termination, the counter-party paid the Company $6.2 million, which included approximately $0.8 million in accrued interest. The remaining approximately $5.4 million received was deferred and is being recognized as a reduction to interest expense over the remaining term of the senior notes using the effective interest method. Amortization of the deferred gain during 2003 and 2002 was approximately $0.7 million and $0.2 million, respectively. The remaining deferred gain balance at December 31, 2003 and 2002 of $4.5 million and $5.2 million, respectively is included in long-term debt in the United States,Consolidated Balance Sheets.
21. COMMITMENTS AND CONTINGENCIES
a. Operating Leases
The Company is obligated under various non-cancelable operating leases for land, office space, vehicles and equipment, and site leases that expire at various times through May 2100. The annual minimum lease payments under non-cancelable operating leases in effect as of December 31, 2003 are as follows:
(in thousands) | |||
2004 | $ | 26,195 | |
2005 | 20,162 | ||
2006 | 13,596 | ||
2007 | 10,477 | ||
2008 | 7,930 | ||
Thereafter | 46,620 | ||
Total | $ | 124,980 | |
Principally, all of the consolidated financial statements of SBA Communications Corporation,leases provide for renewal at varying escalations. Fixed rate escalations have been included in the table disclosed above.
Rent expense for operating leases was $29.5 million, $29.3 million and have issued our reports thereon dated February 22, 2002. Our audits were made$23.3 million for the purposeyears ended December 31, 2003, 2002, and 2001, respectively. The rent expense of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed$29.5 million and $29.3 million for the years ended December 31, 2003 and 2002, respectively, excludes $0.8 million and $2.4 million, respectively, which is included in the index of consolidated financial statements is the responsibilityrestructuring and other charges. In addition, certain of the Company’s leases include contingent rent provisions which provide for the lessor to receive additional rent upon the attainment of certain tower operating results and/or lease-up. Contingent rent expense for the years ended December 31, 2003, 2002 and 2001 was $1.4 million, $1.6 million and $0.8 million, respectively.
b.Tenant Leases
The annual minimum tower lease income to be received for tower space and antenna rental under non-cancelable operating leases in effect as of December 31, 2003 are as follows:
(in thousands) | |||
2004 | $ | 129,114 | |
2005 | 108,744 | ||
2006 | 79,291 | ||
2007 | 50,669 | ||
2008 | 30,840 | ||
Thereafter | 44,850 | ||
Total | $ | 443,508 | |
Principally, all of the leases provide for renewal, generally at the tenant’s option, at varying escalations. Fixed rate escalations have been included in the table disclosed above.
c.Employment Agreements
The Company has employment agreements with certain officers of the Company that grant these employees the right to receive their base salary and continuation of certain benefits, for a defined period of time, in the event of a termination, as defined by the agreement of such employees. In connection with one of these agreements, the Company was obligated to pay an amount equal to the difference between $1.0 million and the value of all vested options and restricted stock belonging to a particular officer on September 19, 2003. The Company had the option of settling the obligation in cash or shares of Class A common stock. This obligation was settled in September 2003 in cash for $0.9 million. This amount had been expensed over the three year period of the original agreement which ended in September 2003 as non cash compensation expense.
d.Litigation
The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity.
e.Contingent Purchase Obligations
The Company sometimes agrees to pay additional acquisition purchase price consideration if the towers or businesses that are acquired meet or exceed certain earnings or new tower targets in the 1-3 years after they have been acquired. As of December 31, 2003, the Company had an obligation to pay up to an additional $1.4 million in consideration if the earnings targets contained in various acquisition agreements are met. This obligation was associated with acquisitions within the Company’s site leasing segment. At the Company’s option, a majority of the additional consideration may be paid in cash or shares of Class A common stock. The Company records such obligations as additional consideration when it becomes probable that the earnings targets will be met. As of December 31, 2002, certain earnings targets associated with an acquisition within the site development construction segment were achieved, and therefore, the Company accrued approximately $2.0 million, within other current liabilities on the December 31, 2002 Consolidated Balance Sheet. This amount was paid in cash in February 2003. In addition, approximately $1.1 million in cash was paid during the year ended December 31, 2003 associated with acquired towers meeting or exceeding new tower targets during 2003.
22. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution profit sharing plan under Section 401 (k) of the Internal Revenue Code that provides for voluntary employee contributions of 1% to 14% of compensation. Employees have the opportunity to participate following completion of three months of employment and must be 21 years of age. Employer matching begins after completion of one year of service. For the years ended December 31, 2003 and 2002, the Company made a discretionary matching contribution of 50% of an employee’s contributions up to a maximum of $3,000. For the year ended December 31, 2001, the Company made a discretionary matching contribution of 50% of an employee’s contributions up to a maximum of $1,000. Company matching contributions were approximately $0.4 million, $0.8 million and $0.6 million for the years ended December 31, 2003, 2002 and 2001, respectively.
23. SEGMENT DATA
The Company operates principally in three business segments: site development consulting, site development construction, and site leasing. The Company’s reportable segments are strategic business units that offer different services. They are managed separately based on the fundamental differences in their operations. Revenues, gross profit, capital expenditures (including assets acquired through the issuance of shares of the Company’s Class A common stock) and identifiable assets pertaining to the segments in which the Company continues to operate are presented below:
Site Leasing | Site Development Consulting | Site Development Construction | Assets Not Identified by Segment | Total | |||||||||||
For the year ended December 31, 2003 | |||||||||||||||
Revenues | $ | 127,842 | $ | 18,092 | $ | 66,126 | $ | — | $ | 212,060 | |||||
Cost of revenues | 42,021 | 16,723 | 61,087 | — | 119,831 | ||||||||||
Gross profit | 85,821 | 1,369 | 5,039 | — | 92,229 | ||||||||||
Capital expenditures | 15,105 | 124 | 2,458 | 575 | 18,262 | ||||||||||
For the year ended December 31, 2002 | |||||||||||||||
Revenues | $ | 115,081 | $ | 27,204 | $ | 97,837 | $ | — | $ | 240,122 | |||||
Cost of revenues | 40,650 | 20,594 | 81,879 | — | 143,123 | ||||||||||
Gross profit | 74,431 | 6,610 | 15,958 | — | 96,999 | ||||||||||
Capital expenditures | 93,999 | 430 | 21,487 | 1,565 | 117,481 | ||||||||||
For the year ended December 31, 2001 | |||||||||||||||
Revenues | $ | 85,487 | $ | 24,251 | $ | 115,484 | $ | — | $ | 225,222 | |||||
Cost of revenues | 30,657 | 17,097 | 91,435 | — | 139,189 | ||||||||||
Gross profit | 54,830 | 7,154 | 24,049 | — | 86,033 | ||||||||||
Capital expenditures | 536,151 | 1,794 | 34,125 | 4,430 | 576,500 | ||||||||||
Assets | |||||||||||||||
As of December 31, 2003 | $ | 897,880 | $ | 9,511 | $ | 46,807 | $ | 28,784 | $ | 982,982 | |||||
As of December 31, 2002 | 958,684 | 13,294 | 54,755 | 276,632 | 1,303,365 |
Assets not identified by segment consist primarily of assets held for sale and general corporate assets.
The Company has client concentrations with respect to revenues in each of its financial reporting segments as follows:
Percentage of Site Leasing Revenue for the years ended December 31, | ||||||
2003 | 2002 | |||||
AT&T Wireless | 16.9 | % | 15.5 | % | ||
Cingular Wireless | 11.1 | % | 10.8 | % |
Percentage of Site Development Consulting Revenue for the years ended December 31, | ||||||
2003 | 2002 | |||||
Bechtel Corporation | 30.5 | % | 34.2 | % | ||
Cingular Wireless | 24.0 | % | 29.6 | % | ||
Verizon Wireless | 14.5 | % | 3.9 | % |
Percentage of Site Development Construction Revenue for the years ended December 31, | ||||||
2003 | 2002 | |||||
Bechtel Corporation | 37.7 | % | 28.1 | % | ||
Sprint PCS | 12.9 | % | 3.0 | % |
24. SUBSEQUENT EVENTS
During January 2004, SBA Senior Finance closed on a new senior credit facility in the amount of $400.0 million. This facility consists of a $275.0 million term loan which was funded at closing, a $50.0 million delayed draw term loan which the Company has until November 15, 2004 to draw and a $75.0 million revolving line of credit. The revolving line of credit may be borrowed, repaid and redrawn. Amortization of the term loans commence September 2004 at an annual rate of 1% in each of 2004, 2005, 2006 and 2007. All remaining amounts under the term loan are due in 2008. There is presentedno amortization of the revolving loans and all amounts outstanding are due on August 31, 2008. This facility will require amortization payments of approximately $1.6 million in 2004, as compared to $11.5 million which would have been required under the facility which was in existence at December 31, 2003. Amounts borrowed under this facility accrue interest at either the base rate, as defined in the agreement, plus 250 basis points or the Euro dollar rate plus 350 basis points. This facility may be prepaid at any time with no prepayment penalty. Amounts borrowed under this facility are secured by a first lien on substantially all of SBA Senior Finance’s assets. In addition, each of SBA Senior Finance’s domestic subsidiaries has guaranteed the obligations of SBA Senior Finance under the senior credit facility and has pledged substantially all of their respective assets to secure such guarantee, and the Company and Telecommunications have pledged substantially all of their assets to secure SBA Senior Finance’s obligations under this senior credit facility.
This new credit facility requires SBA Senior Finance to maintain specified financial ratios, including ratios regarding its debt to annualized operating cash flow, debt service, cash interest expense and fixed charges for purposes of complyingeach quarter. This new senior credit facility contains affirmative and negative covenants that, among other things, restricts its ability to incur debt and liens, sell assets, commit to capital expenditures, enter into affiliate transactions or sale-leaseback transactions, and/or build towers without anchor tenants. SBA Senior Finance’s ability in the future to comply with the Securitiescovenants and Exchange Commission rules and is not partaccess the available funds under the senior credit facility will depend on its future financial performance.
On January 30, 2004, SBA Senior Finance used the proceeds from the funding of the basic consolidated financial statements. This schedule has been subjected$275.0 million term loan under the new senior credit facility to repay the old credit facility in full, consisting of $144.2 million outstanding. In addition to the auditing procedures applied inamounts outstanding, the auditsCompany was required to pay $8.0 million associated with the assignment to the new lenders of the basic consolidated financial statements and,old facility. As a result of this prepayment, SBA Senior Finance has written off deferred financing fees associated with the old facility of $5.4 million in our opinion, fairly states in all material respects the financial data required to be set forth therein in relationaddition to the basic consolidated financial statements taken as$8.0 million fee paid to facilitate the assignment during the first quarter of 2004. Additionally, SBA Senior Finance has recorded additional deferred financing fees of approximately $5.4 million associated with this new facility.
Subsequent to December 31, 2003, the Company repurchased $19.3 million of its 12% senior discount notes in open market transactions. The Company paid $20.9 million plus accrued interest in cash and recognized a whole.
Subsequent to December 31, 2003, the Company repurchased $51.1 million of it’s 10¼% senior notes in open market transactions. The Company paid $51.9 million plus accrued interest in cash and issued 1.0 million shares of its Class A Common Stock. The Company recognized a loss of $0.8 million related to these repurchases and wrote off $1.0 million of deferred financing fees associated with this debt retirement.
25. QUARTERLY FINANCIAL DATA (unaudited)
Quarters Ended | ||||||||||||||||
December 31, 2003 | September 30, 2003 | June 30, 2003 | March 31, 2003 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Revenues | $ | 57,588 | $ | 52,386 | $ | 50,390 | $ | 51,696 | ||||||||
Gross profit | 24,507 | 22,566 | 22,879 | 22,277 | ||||||||||||
Restructuring and other charges | (68 | ) | (1,065 | ) | (396 | ) | (976 | ) | ||||||||
Asset impairment charges | (6,199 | ) | (50 | ) | (10,265 | ) | (451 | ) | ||||||||
Write-off of deferred financing fees and loss on extinguishment of debt | (18,968 | ) | (409 | ) | (4,842 | ) | — | |||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | (53,149 | ) | (32,584 | ) | (45,448 | ) | (32,755 | ) | ||||||||
Loss from discontinued operations | 1,981 | 12,918 | (22,134 | ) | (455 | ) | ||||||||||
Cumulative effect of changes in accounting principle | — | — | — | (545 | ) | |||||||||||
Net loss | $ | (51,168 | ) | $ | (19,666 | ) | $ | (67,582 | ) | $ | (33,755 | ) | ||||
Per common share – basic and diluted: | ||||||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (0.98 | ) | $ | (0.62 | ) | $ | (0.89 | ) | $ | (0.64 | ) | ||||
Loss from discontinued operations | 0.03 | 0.24 | (0.43 | ) | (0.01 | ) | ||||||||||
Cumulative effect of changes in accounting principle | — | — | — | (0.01 | ) | |||||||||||
Net loss | $ | (0.95 | ) | $ | (0.38 | ) | $ | (1.32 | ) | $ | (0.66 | ) | ||||
Quarters Ended | ||||||||||||||||
December 31, 2002 | September 30, 2002 | June 30, 2002 | March 31, 2002 | |||||||||||||
(in thousands, except per share amounts) | ||||||||||||||||
Revenues | $ | 57,425 | $ | 60,811 | $ | 63,627 | $ | 58,259 | ||||||||
Gross profit | 23,216 | 23,892 | 25,556 | 24,335 | ||||||||||||
Restructuring and other charges | (1,132 | ) | (1,225 | ) | (7,667 | ) | (37,738 | ) | ||||||||
Asset impairment charges | — | — | (9,165 | ) | (16,380 | ) | ||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | (29,354 | ) | (30,526 | ) | (42,257 | ) | (82,468 | ) | ||||||||
Loss from discontinued operations | (983 | ) | (1,147 | ) | (826 | ) | (761 | ) | ||||||||
Cumulative effect of changes in accounting principle | — | — | — | (60,674 | ) | |||||||||||
Net loss | $ | (30,337 | ) | $ | (31,673 | ) | $ | (43,083 | ) | $ | (143,903 | ) | ||||
Per common share – basic and diluted: | ||||||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (0.57 | ) | $ | (0.60 | ) | $ | (0.84 | ) | $ | (1.66 | ) | ||||
Loss from discontinued operations | (0.02 | ) | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Cumulative effect of changes in accounting principle | — | — | — | (1.22 | ) | |||||||||||
Net loss | $ | (0.59 | ) | $ | (0.62 | ) | $ | (0.85 | ) | $ | (2.89 | ) | ||||
The reported amounts for 2002 and the quarter ended March 31, 2003 above have been restated to reflect the Company’s discontinued operations discussed in Note 3.
Because loss per share amounts are calculated using the weighted average number of common and dilutive common shares outstanding during each quarter, the sum of the per share amounts for the four quarters may not equal the total loss per share amounts for the year.
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II
Balance at Beginning of Period | Additions Charged to Costs and Expenses(1) | Deduction From Reserves(3) | Balance at End of Period | ||||||||||
(in thousands) | |||||||||||||
Allowance for Doubtful Accounts For the Years Ended: | |||||||||||||
December 31, 2001 | $ | 2,117 | $ | 2,661 | (2) | $ | 137 | $ | 4,641 | ||||
December 31, 2000 | $ | 785 | $ | 1,663 | $ | 331 | $ | 2,117 | |||||
December 31, 1999 | $ | 437 | $ | 492 | $ | 144 | $ | 785 | |||||
Tax Valuation Account For the Years Ended: | |||||||||||||
December 31, 2001 | $ | 35,202 | $ | 36,831 | $ | — | $ | 72,033 | |||||
December 31, 2000 | $ | 17,450 | $ | 17,752 | $ | — | $ | 35,202 | |||||
December 31, 1999 | $ | 6,323 | $ | 11,127 | $ | — | $ | 17,450 |
Balance at Beginning of Period | Additions Charged to Costs and Expenses (1) | Deduction From Reserves(3) | Balance at End of Period | ||||||||||
(in thousands) | |||||||||||||
Allowance for Doubtful Accounts For the Years Ended: | |||||||||||||
December 31, 2003 | $ | 5,572 | $ | 3,554 | $ | 7,726 | $ | 1,400 | |||||
December 31, 2002 | $ | 5,921 | $ | 3,371 | $ | 3,720 | $ | 5,572 | |||||
December 31, 2001 | $ | 2,117 | $ | 3,941 | (2) | $ | 137 | $ | 5,921 | ||||
Tax Valuation Account For the Years Ended: | |||||||||||||
December 31, 2003 | $ | 118,549 | $ | 65,395 | $ | — | $ | 183,944 | |||||
December 31, 2002 | $ | 54,422 | $ | 64,127 | $ | — | $ | 118,549 | |||||
December 31, 2001 | $ | 35,202 | $ | 19,219 | $ | — | $ | 54,422 |
(1) | For tax valuation account, amounts include adjustments for stock option compensation. |
(2) | Includes additions of $1,300 to allowance for doubtful accounts from acquired companies. |
(3) | Represents accounts written off. |
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