UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the fiscal year ended December 31, 2004
OR
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period fromto
Commission file number: 000-30110
SBA COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
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Florida | 65-0716501 | ||
(State or other jurisdiction of 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) | ||
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Registrant’s telephone number, including area code: (561) 995-7670
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 daysdays. Yes x No ¨
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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.xo
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).12b-2.) Yes x No ¨
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The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $61.0$164.6 million as of June 28, 2002. 30, 2004.
The number of shares outstanding of the Registrant’s common stock (as of March 14, 2003)8, 2005):
Class A common stock - 45,670,043stock—65,377,083 sharesClass B common stock - 5,455,595 shares
Documents Incorporated By Reference
Portions of the Registrant’s definitive proxy statement for its 20032005 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, 2002,2004, 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 wireless communications towers in the continentalEastern third of the United States, Puerto Rico and the U.S. Virgin Islands.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, manage or manage forlease 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. As of December 31, 2002,2004, we owned or managed 3,877 towers.3,060 towers in continuing operations, approximately 60% of which we have built ourselves. In our site development business, we offer wireless service providers assistance in developing their own networks, including designing a network with friendly site identification, acquiring locations to place their antennas and transmission equipment, obtaining zoning approvals, building towers when necessary and installing and maintaining their antennas and transmission equipment.own wireless service networks. Since our founding in 1989, we have participated in the development of more than 20,00025,000 antenna sites in 49 of the 51 major wireless markets in the United States.
Recent Developments
As a result of certain estimates and our expectations that we will not comply with one or more of the financial covenants of our senior credit facility in 2003, the auditor’s opinion on our 2002 consolidated financial statements calls attention to substantial doubts about our ability to continue as a going concern through 2003.
On March 17, 2003 certain of our subsidiaries entered into a definitive agreement with AAT Communications Corp. (“AAT Communications”) to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers, which represent substantially all of our towers in the western two-thirds of the U.S (the “AAT Transaction”). Gross proceeds from the sale are anticipated to be $160.0 million if 679 towers are sold, or $203.0 million if 801 towers are sold, subject to adjustment in certain circumstances. The AAT Transaction is expected to close in stages commencing on May 9, 2003 and ending on September 30, 2003. We intend to use substantially all of the proceeds, net of anticipated transaction costs of approximately $5.0 million, to reduce indebtedness. Upon consummation of the complete AAT Transaction, we will own 3,076 towers, substantially all of which will be in the eastern third of the United States.
We entered into the AAT Transaction to address our anticipated non-compliance with certain financial covenants under our senior credit facility commencing in 2003 and to reduce our significant level of indebtedness and the risks associated with such indebtedness. The sale is subject to a number of conditions, including an amendment to our senior credit facility. We anticipate that the amendment to our senior credit facility would, among other things, (1) waive any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modify the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permit certain actions that are part of the AAT Transaction. We believe that the AAT Transaction, in conjunction with the amendment to the senior credit facility, will eliminate the issues that gave rise to the “going concern” qualification from our auditors. Based on our current estimates of wireless carrier activity, we believe that subsequent to the successful sale of either 679 or 801 towers, and the amendment to the senior credit facility, we will have sufficient liquidity to achieve positive free cash flow.
Company Services
We provide our services on a local basis, through regional offices, territory offices and project offices, which are opened and closed on a project-by-project basis. Operationally, we are divided into regions throughout the United States, run by regional 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 operations, 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 departments, site administration personnel, and our network operations center are located in our headquarters in Boca Raton, Florida. We also have in our Boca Raton office certain sales, new tower build support, and tower maintenance personnel.
Site Leasing Services
In 1997
Our primary focus is the leasing of antenna space on our multi-tenant towers to a variety of wireless service providers under long-term lease contracts. Our site leasing business generates substantially all of our gross profit. Our activities are focused in the Eastern third of the United States where substantially all of our towers are located. We believe that over the long term our site leasing revenues will continue to grow as wireless service providers lease additional antenna space on our towers due to increasing minutes of network use and network coverage requirements. We lease antenna space on the towers we began aggressively expandinghave constructed, the towers we have acquired, and the towers we lease, sublease and/or manage for third parties. Our site leasing revenue comes from a variety of wireless carrier tenants, including ALLTEL, Cingular, Nextel, Sprint PCS, T-Mobile, and Verizon Wireless, and we believe our current tower portfolio positions us to take advantage of wireless carriers’ antenna and equipment deployment. We believe our site leasing business is characterized by capitalizing on our nationally recognized site development experiencestable and strong relationships with wireless service providers to take advantage of the trends toward
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co-location, which is the placement of multiple antennas on one tower or other structure,long-term recurring revenues, predictable operating costs and independent tower ownership. We believe our towers have significant capacity to accommodate additional tenants with minimal incremental costs. Additionally, duecapital expenditures. Due to the relatively young age and mix of our tower portfolio, we believeexpect future expenditures required to maintain these towers will be minimal. Consequently, we expect to grow our cash flows by adding tenants to our towers at minimal incremental costs by using existing tower capacity or requiring carriers to bear all or a portion of the cost of tower modifications. Because our towers are strategically positioned and our customers typically do not re-locate, we have historically experienced low customer churn as a percentage of revenue. Our lease contracts typically have terms of five years or more with multiple term tenant renewal options and provide for annual rent escalators.
During 2004 we announced our intention to re-commence, on a limited basis, our new build program. The following chart showstowers under our new build program will be constructed either under build-to-suit arrangements or in locations chosen by us. Under our build-to-suit arrangements, we will build towers for a wireless service provider on a location of their direction. We retain ownership of the number of towers we built for our own account, the number of towers we acquiredtower and the number ofexclusive right to co-locate additional tenants at year-endon the tower. In addition, we intend on building towers on locations chosen by us. Based on our knowledge of our customers’ needs, we seek to identify attractive locations for new towers forand complete pre-construction procedures necessary to secure the periods indicated:site concurrently with our leasing efforts. Our intent is that each of our new builds will have at least one tenant on the day that it is completed and we expect that many will have multiple tenants. We expect to build a total of 50 to 75 new towers during 2005.
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1998 |
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| Towers owned at the beginning of period |
| 51 |
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| 494 |
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| 1,163 |
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| 2,390 |
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| 3,734 |
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| Towers built |
| 310 |
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| 438 |
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| 779 |
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| 667 |
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| 141 |
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| Towers acquired |
| 133 |
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| 231 |
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| 448 |
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| 677 |
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| 53 |
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Towers reclassified/disposed of (1) |
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| Towers owned at the end of period |
| 494 |
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| 1,163 |
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| 2,390 |
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| 3,734 |
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| 3,877 | (2) | |
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| Number of tenants at the end of period |
| 601 |
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| 1,794 |
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| 4,904 |
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| 7,693 |
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| 8,437 |
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The table below provides information regarding the development and status of our tower portfolio over the past five years.
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Towers owned at beginning of period | 3,093 | 3,877 | 3,734 | 2,390 | 1,163 | ||||||||
Towers constructed | 10 | 13 | 141 | 667 | 779 | ||||||||
Towers acquired | 5 | — | 53 | 677 | 448 | ||||||||
Towers reclassified/disposed of(1) | (42 | ) | (797 | ) | (51 | ) | — | — | |||||
Towers owned at end of period | 3,066 | 3,093 | 3,877 | 3,734 | 2,390 | ||||||||
Towers held for sale at end of period | 6 | 47 | 837 | 815 | 552 | ||||||||
Towers in continuing operations at end of period | 3,060 | 3,046 | 3,040 | 2,919 | 1,838 | ||||||||
Towers owned at end of period | 3,066 | 3,093 | 3,877 | 3,734 | 2,390 | ||||||||
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| (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. | |||
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As of December 31, 2004, we had 7,257 tenants on our 3,060 towers included in continuing operations.
At December 31, 2002,2004, our same tower revenue growth (defined as year over year growth on towers owned at December 31, 2003 that were still owned by the Company at December 31, 2004) was 14% and our same tower site leasing gross profit growth was 20% on the 3,7343,053 towers we owned as of December 31, 2001 was 16%,2003 and our same tower cash flow growth on these 3,734 towers was 20% based on tenant leases signed and annualized lease amounts in effect as of December 31, 2002 and 2001.2004 in continuing operations.
Our
The following chart includes details regarding our site leasing revenue comes from a variety of wireless carrier tenants, including AT&T Wireless, Cingular, Nextel, Sprint PCS, T-Mobile, and Verizon. Site leasing revenue was $139.6 million for the year ended December 31, 2002 and $103.2 million for the year ended December 31, 2001. We believe that over the long term our site leasing revenues will continue to grow as wireless service providers continue to lease antenna space on our towers.gross profit percentage:
Our primary focus is the leasing of antenna space on our multi-tenant towers to a variety of wireless service providers under long-term lease contracts. We lease antenna space on:
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Site leasing revenue | $ | 144,004 | $ | 127,852 | $ | 115,121 | ||||||
Percentage of total revenue | 62.2 | % | 66.6 | % | 53.7 | % | ||||||
Site leasing gross profit percentage contribution of total | 94.1 | % | 93.5 | % | 79.4 | % | ||||||
A significant number of our towers were built under our build-to-suit program, through which we built towers for a wireless service provider on a location of their direction. We retained ownership of the tower and the exclusive right to co-locate additional tenants on the tower. Many wireless service providers chose the build-to-suit option as an alternative to owning the towers themselves. Our build-to-suit sites came from a variety of wireless carriers, including Alamosa PCS, AT&T Wireless, Cingular, Horizon PCS, Sprint PCS, Triton PCS and T-Mobile.
To help maximize the revenue and profit we earn from our capital investment in theour towers, we own, we provide services at our tower locations beyond the leasing of antenna space. The services 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.
In February 2002, we announced the reduction of our capital expenditures for new tower development and acquisition activities. Under this plan, we suspended any material new investment for additional towers, among other
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actions. If the AAT Transaction successfully closes, we will further reduce our tower portfolio by at least 679 towers and a maximum of 801 towers. We do not anticipate making any material additions to our tower portfolio in 2003.
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. We have capitalizedDuring 2004, we completed our previously announced plan to exit the services business in the Western portion of the United States based on our leadership positiondetermination that this business was no longer beneficial to our site leasing business. Consequently, our services business is focused in the site development businessNortheast and our strong relationshipsSoutheast regions of the U.S. In these regions we are involved in major projects 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 manymost of the major wireless communications and services companies, including AT&T Wireless,companies. Our site development customers include Bechtel Corporation, Cingular, General Dynamics, Nextel, Sprint PCS, T-Mobile and Verizon. Site development revenue was $125.0 million for the year ended December 31, 2002 and $139.7 million for the year ended December 31, 2001.Verizon Wireless.
Our site development revenues and profit margins decreased significantly during the year ended December 31, 2002. This decrease was primarily attributable to the substantial decline in capital expenditures by wireless carriers, particularly for our site development construction services, which adversely affected our volume of activity and our pricing levels. During 2003, we expect these trends to continue. Consequently, we anticipate continued decline in our site development revenues and profit margins.
Business Strategy
Our primary strategy is to capture the maximum benefits from our position as a leading owner and operator of wireless communications 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 expanding our site leasing business due to its attractive characteristics such as long-term contracts, built-in rent 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.
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Geographically Focusing our Tower Ownership.We have decided to focus our tower ownership geographically toin the Eastern U.S. Upon consummation of the AAT Transaction, substantially all of our remaining towers will be located in the eastern third of the U.S.United States. We believe that by focusing our site leasing activities in athis smaller geographic area, where we have such a highhigher concentration of our towers, we will improve our operating efficiencies and reduce our overhead expenses.expenses and procure higher revenue per tower.
ExecutingDisciplined Capital Expenditures While Reducing our Leverage. Over the last two years, we have successfully reduced our leverage and implemented a disciplined level of capital expenditures. While we plan on aselectively investing in new tower builds and/or tower acquisitions that we believe present good business opportunities, we intend that these investments will be consistent with our commitment to proactively manage our level of capital expenditures and reduce our leverage below current levels.
Using our Local Basis.Presence to Build Strong Relationships with Major Wireless Service Providers. WeGiven the nature of towers as location specific communications facilities, we believe that substantially all of what we do is best done locally, givenlocally. 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 and new tower build opportunities in our markets and identify and participate in site development projects across our markets.
Capturing Other Revenues That Flow From our Tower Ownership. To help maximize the naturerevenue and profit we earn from capital investment in our towers, we provide services at our tower locations beyond the leasing of towers as location specific communications facilities. We believeantenna space, including antenna installation and equipment installation. Because of our customers make decisions locally. Weownership of the tower, our control of the tower site and experience and capabilities in providing installation services, we believe that we are well positioned to be successful in tower leasing, zoningperform more of these services and construction, we must have a strong local presence incapture the markets we serve.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 partnerproject-by-project basis. Operationally, we are divided into two regions in tower space leasing becausethe Eastern portion of our strong relationships with wireless servicethe United States, run by vice presidents. Each region is divided into geographic territories run by local managers. Within each manager’s geographic area of responsibility, he or she is responsible for all site development operations, including hiring employees and other telecommunications providersopening 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 proven operating experience. Additionally, we have a broad national field organization that allows us to identifynetwork operations center are located in our headquarters in Boca Raton, Florida. Certain sales, new tower build support and participatetower maintenance personnel are also located in site development projects across the country and that gives us knowledge of local markets and enhances our customer relationships. Boca Raton office.
Capturing Other Revenues That Flow From our Tower Ownership. Tenants who lease antenna space on our towers need a variety of additional services in connection with their operations at the tower site. These services include 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),
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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. Because of our ownership of the tower, our control of the tower site and our experience and capabilities in providing these types of services, we believe that we are well positioned and intend to perform more of these services and capture the related revenue.
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. We depend on a relatively small number of customers for our site developmentleasing and site leasing revenues. For the year ended December 31, 2002, Cingular provided 14.6% and Bechtel Corporation (contractor for AT&T Wireless and Cingular) provided 29.4% of our site development revenues. For the year ended December 31, 2001, Nextel provided 11.6%, Sprint PCS provided 11.5% and Bechtel Corporation provided 10.9%The following customers represented at least 10% of our site development revenues. In addition, fortotal revenues during at least one of the year ended December 31, 2002, AT&T Wireless provided 15.7% of our site leasing revenues. For the year ended December 31, 2001, Nextel provided 10.4% of our site leasing revenues.last three years:
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Cingular (including AT&T Wireless) | 22.7 | % | 20.3 | % | 14.5 | % | |||
Sprint PCS | 15.7 | % | 8.6 | % | 5.2 | % | |||
Bechtel Corporation | 6.1 | % | 10.4 | % | 13.8 | % | |||
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During the past two years, we provided services for a number of customers, including:
Airgate PCS |
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Alamosa PCS | Nextel Partners | |
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Verizon
Sales and Marketing
Our sales and marketing goals are:are to:
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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 local 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.
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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 is charged with implementing our marketing strategies, prospecting and producing sales presentation materials and proposals.
Competition
We compete with:
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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.
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Our primary competitors for our site leasing activities and generating new tower assets are fourfive large independent tower companies, American Tower Corporation, Crown Castle International Corp., Pinnacle HoldingsGlobal Signal, Inc. and, SpectraSite, Inc., and AAT Communications Corp., and a large number of smaller independent tower owners. In addition, we compete with AT&T Wireless, Sprint PCS and other 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, AFL,Alcoa Fujikura Ltd., Bechtel Corporation, Black & Veach Corporation, General Dynamics Corporation, LCC International, Inc. and Westower.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 February 28, 2003,December 31, 2004, we had approximately 650475 employees, none of whom is represented by a collective bargaining agreement. We consider our employee relations to be good.
Regulatory and Environmental Matters
Federal Regulations.Both the Federal Communications Commission (“FCC”(the “FCC”) and the Federal Aviation Administration (“FAA”(the “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
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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 and licensees that operate on those towers or structures 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 authorities’ jurisdiction over the construction, modification and placement of towers. The 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
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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 certain 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.tower or structure.
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 brokers’ 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 ordinances, zoning restrictions and restrictive covenants imposed by community developers. These regulations vary greatly from jurisdiction to jurisdiction, but typically require tower and structure owners to obtain approval from local officials or community standards organizations, or certain other entities prior to tower or structure construction and establish regulations regarding maintenance and removal of towers.towers or structures. In addition, many local zoning authorities require tower and structure owners to post bonds or cash collateral to secure their removal obligations. Local zoning authorities generally have been unreceptive to construction of new transmissionantenna towers and structures in their communities because of the height and visibility of the towers or structures, and have, in some instances, instituted moratoria.
Backlog
Our backlog of pending leases for antenna space on our towers varies from time to time and reflects the relatively short-cycle of three to six months of the antenna 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 meet their own quarterly antenna site deployment goals. Backlog related to our site leasing business consists of lease agreements and amendments which have been executed with customers but have not begun generating revenue. As of December 31, 2004 we had 113 new leases and 4 amendments which had been executed with customers but which had not begun generating revenue. These leases contractually provided for approximately $2.5 million of annual revenue. As of December 31, 2003 we had 116 new leases and 15 amendments which had been executed with customers but which had not begun generating revenue. These leases contractually provided for approximately $2.6 million of annual revenue.
Backlog related to our site development services business consists of work under contracts executed with customers that have not yet commenced and thus have not begun generating revenue. Our backlog for site development services was $29.2approximately $62 million of contractually committed revenue as of December 31, 2004 as compared to approximately $80 million as of December 31, 2002 as compared2003. The decrease in 2004 is attributable to $58.8a 2003 contract signed with Sprint for site development work which is expected to be completed by mid 2006. This contract represented approximately $46 million in backlog as of December 31, 2001. We had no2004 and approximately $60 million in backlog as of December 31, 2003.
Backlog related to our tower acquisition efforts consists of pending acquisitions under signed purchase agreements which have not yet closed. Our backlog for pending tower acquisitions as of December 31, 2002 as compared to 145 towers2004 was approximately $8.1 million. We did not have any pending acquisitions as of December 31, 2001. Additionally, we had a backlog for 15 new tower builds as of December 31, 2002 as compared2003.
Risks Related to 400 as of December 31, 2001.
Availability of Reports and Other InformationOur Business
Our corporate website is www.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
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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 website under “Investor Relations—SEC Filings,” as soon as reasonably practicable after we file electronically such material with, or furnish it to, the United States Securities and Exchange Commission (the “Commission”). In addition, the Commission’s website is www.sec.gov. The Commission makes available on this website, free of charge, reports, proxy and information statements, and other information regarding issuers, such as us, that file electronically with the Commission. Information on our website or the Commission’s website is not part of this document.
RISK FACTORS
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 discount notes each contain certain restrictive covenants. Among other things, these covenants restrict our ability to incur additional indebtedness, sell assets for less than fair market value, pay dividends, redeem outstanding debt or engage in other restricted payments. If we fail to comply with these covenants, it could result in an event of default under one or all of these debt instruments. The acceleration of amounts due under our senior credit facility will also cause a cross-default under both of our indentures.
SBA Telecommunications, Inc. (“SBA Telecommunications”), our principal subsidiary which owns, directly or indirectly, all of the common stock of our other subsidiaries, is the borrower under our senior credit facility. The senior credit facility requires SBA Telecommunications to maintain specified financial ratios, including ratios regarding SBA Telecommunications’ consolidated debt coverage, debt service, cash interest expense and fixed charges for each quarter 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). The senior credit facility also contains affirmative and negative covenants which, among other things, require us to submit audited financial statements without a “going-concern” qualification in the audit opinion and restricts our 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. Our ability to meet these financial ratios and tests can be affected by events beyond our control, and we may not be able to 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. Based on declines that we have been experiencing in our site development business and that we believe will continue in 2003, we estimated that we would not be in compliance with one or more of the senior credit facility’s existing financial ratios or tests in 2003.
As a result of these estimates and our expectations that we will not comply with one or more of the financial covenants of our senior credit facility in 2003, the auditor’s opinion on our 2002 consolidated financial statements calls attention to substantial doubts about our ability to continue as a going concern through 2003.
The issuance of this audit opinion with a “going-concern” qualification, if not remedied by April 30, 2003, would be an event of default under our senior credit facility. Upon the occurrence of this, or any other event of default, our lenders can prevent us from borrowing any additional 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. The acceleration of amounts due under our senior credit facility would cause a cross-default in our 10¼% senior notes and our 12% senior discount notes, thereby permitting the acceleration of such indebtedness. If the indebtedness under the senior credit facility and/or indebtedness under our 10¼% senior notes or 12% senior discount notes were to be accelerated, our current assets would not be sufficient to repay in full the indebtedness. If we were unable to repay amounts that become due under the senior credit facility, our 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.
As part of our plan to addresss the anticipated non-compliance with these financial covenants, and to reduce our aggregate level of indebtedness, certain of our subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers. The gross proceeds from the sale are anticipated to be $160.0 million if 679 towers are sold, or $203.0 million if 801 towers are sold, subject to adjustment in certain circumstances. However, the AAT Transaction is subject to a number of conditions, including an amendment to our senior credit facility. We anticipate that the amendment to our senior credit facility would, among other things, (1) waive any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modify the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permit
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certain actions that are part of the AAT Transaction. We cannot assure you that we will be able to obtain these waivers and/or amendments, especially in light of the recent financial performance of the wireless telecommunications industry and us, or that if we obtain them, we will be able to comply with the new financial covenants in the future. Nor can we assure you that even if we do receive the necessary amendment to our senior credit facility that the AAT Transaction will be consummated.
A full discussion of the impact of these possible defaults and management’s plans to address the liquidity and other concerns that arise as a result of the possible defaults and our significant level of indebtedness is discussed below under the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Going Concern.”
We may not be able to service our substantial indebtedness.
As indicated below, we have and will continue to have a significant amount of indebtedness relative to our equity.
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| Total indebtedness | $ | 1,024,282 |
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| Stockholders’ equity | $ | 185,473 |
| $ | 450,644 |
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Our substantial indebtedness could have important consequences to you. For example, it could:
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Total indebtedness* | $ | 925,797 | $ | 866,199 | ||||
Shareholders’ deficit | $ | (88,671 | ) | $ | (1,566 | ) | ||
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Our ability to service our debt obligations will depend on our future operating performance. Our earnings were insufficient to cover our fixed charges for the year ended December 31, 2004 by $143.3 million and $173.1 million for the year ended December 31, 2003. Based on our outstanding debt as ofat December 31, 2002,2004 we would require approximately $92.3$46.0 million of cash flow from operationsoperating activities (before net cash interest expenses) to discharge our cash interest and principal obligations for the twelve monthsyear ending December 31, 2003. This amount is expected to increase in 2004 as our 12% senior discount notes first began to pay cash interest on March 1, 2003.2005. By comparison, for the twelve monthsyear ended December 31, 2002,2004, we generated $57.1$93.2 million of cash flow from operationsoperating activities (before net cash interest expenses). If we do not materially increase our cash flow in the future, we may not be able to meet our principal and interest payments on our debt 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.debt (all of which we have done at various times in the last two years). In 2003, we sold 784 towers located in the Western two-thirds of the United States and realized gross proceeds of $196.7 million. We may not be able to effectuate any of these alternative strategies on satisfactory terms in the future, 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.
Based on our current estimates, we
We may not have sufficient liquidity or cash flow from operations to repay the full principalremaining amount of our 12%outstanding senior credit facility, our 9 3/4% senior discount notes and/or our 10¼8 1/2% senior notes upon their respective maturities. Therefore, prior to the maturity of our notesoutstanding debt we may be required to refinance and/or restructure some or all of our outstanding notes. There can be no assurancethis debt. We cannot assure you that we will be able to refinance or restructure these notesthis debt on acceptable terms or at all. If we were unable to refinance, restructure or otherwise repay the principal amount of these notesthis debt upon theirits maturity, we may need to sell assets, cease operations and/or file for protection under the bankruptcy laws.
We pay interest on amounts outstanding
As of December 31, 2004, we had approximately $36.5 million of additional borrowing capacity under our senior credit facility, at variable interest rates. We have in the past,subject to maintenance covenants, borrowing base limitations and other conditions. Furthermore, we and our subsidiaries may againbe able to incur significant additional indebtedness in the future, enter into interest rate swapssubject to effectively convert a portion ofthe restrictions contained in our debt from fixed to
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variable rates. Therefore, if interest rates were to increase, the amountinstruments, some of interest that we would have to pay would increase.
Wewhich may be adversely affected by an economic slowdown.secured debt.
The significant general slowdown in the U.S. economy has negatively affected (1) the financial condition of wireless service providers, (2) the availability of capital, and the willingness of wireless service providers to utilize capital, to expand their networks and (3) may negatively affect the growth rate of consumer demand for wireless services. We believe that the environment for continued expenditures by wireless service providers deteriorated throughout 2002 and has not materially improved. Declining subscriber growth and prospects for positive cash flow by wireless service providers have adversely affected the access to and cost of capital for wireless service provides as evidenced by declines in the market value of both their debt and equity securities. As a result of the economic slowdown, and the negative impact of such slowdown on the debt and equity markets, we have adjusted our business to significantly reduce and subsequently suspend any material new investment for new towers.
We believe that if the capital markets conditions remain difficult for the telecommunications industry, wireless service providers will continue to choose to conserve capital and may not spend as much as originally anticipated. If wireless carrier capital expenditures and their ability to access capital remains weak or deteriorates further, we believe our revenues and gross profit from the site development consulting and construction segments of our business, potentially the collectibility of our accounts receivable, and the valuation of certain of our long-lived assets may be negatively impacted. Short term, variable capital markets conditions may adversely impact carrier demand for our tower space, and consequently our site leasing revenue and the ability of our customers to meet their obligations to us.
We may not secure as many site leasing tenants as planned.planned or our lease rates on new leases may decline.
If tenant demand for tower space decreases,or our lease rates on new leases 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 for independently-owned towers. Tenant demand includes both the number of tenants and thepotential lease rates they are willing to pay.for independently owned towers
Wireless service providers that own and operate their own towers and several of the independent tower companies generally are substantially larger and have greater financial resources than we do. We believe that tower location and capacity, price, quality of service and density within a geographic market historically have been and will continue to be the most significant competitive factors affecting the site leasing business.
If our wireless service provider customers consolidate or merge with each othercombine their operations to a significant degree, our growth, our revenue and our ability to generate positive cash flowservice our indebtedness could be adversely affected.
Significant
Demand for our services may decline if there is significant consolidation among our wireless service provider customers as they may result in reducedthen reduce capital expenditures in the aggregate because themany of their existing networks of many wireless carriers overlap, as do theirand expansion plans. Similar consequences might occur if wireless service providers engage in extensive sharing or roaming or resale arrangements as an alternative to leasing our antennae space.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 have consolidated with each other and others may be encouraged to consolidate with each other as a result of this regulatory change and as a means to strengthen their financial condition. Demand for antennae space on communication sites may be adversely affected by consolidation of our wireless service provider customers. 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.service our indebtedness. In October 2004, Cingular acquired AT&T Wireless. As of December 31, 2004, Cingular and AT&T were both tenants on 355 of our 3,060 towers. The contractual revenue generated by both of these tenants on these 355 towers at December 31, 2004 was approximately $16 million. If, as a result of this transaction, Cingular were not to renew duplicate leases, we could lose up to 50% of such revenue. The average remaining contractual life of such duplicate leases was approximately two years.
In January 2005, Sprint PCS and Nextel agreed to merge, which is expected to be consummated in the second half of 2005. As of December 31, 2004, Sprint PCS and Nextel were both tenants on 349 of our 3,060 towers. The contractual revenue generated by both of these tenants on the 349 towers at December 31, 2004 was approximately $16 million. If this merger is consummated and either Sprint PCS or Nextel were not to renew duplicate leases, we could lose up to 50% of such revenue. The average remaining contractual life of such duplicate leases was approximately 2 years.
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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 or others. The proliferation of these roaming agreements could have a material adverse effect on our revenue.
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If demand for wireless communication services decreases, our revenue will be adversely affected.
Substantially all of our customers to date have been providers of wireless communication services or agents acting on behalf of wireless communication providers. If demand for wireless communication services decreases, our revenue growth will be, and our revenue may be, adversely affected. This could affect our ability to satisfy our obligations. Demand for both our site leasing and site development services is dependent on demand for communication sites from wireless service providers, which, in turn, is dependent on the demand for wireless services. A slowdown in the growth of, or reduction in demand in, a particular wireless communication segment could adversely affect the demand for communication sites. Most types of wireless services currently require ground-based network facilities, including communication sites for transmission and reception. The extent to which wireless service providers lease these communication sites depends on a number of factors beyond our control, including:
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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.
Following
The following is a list of significant customers and the percentage of our total revenues for the specified time periods derived from suchthese customers:
Percentage of Total Revenues For the year ended December 31, | |||||||||
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Cingular (including AT&T Wireless) | 22.7 | % | 20.3 | % | 14.5 | % | |||
Sprint PCS | 15.7 | % | 8.6 | % | 5.2 | % | |||
Bechtel Corporation* | 6.1 | % | 10.4 | % | 13.8 | % | |||
| We also have client concentrations with respect to revenues in each of our financial reporting segments: | |||||||||
Percentage of Site Leasing Revenue for the year ended December 31, | |||||||||
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Cingular (including AT&T Wireless) | 27.5 | % | 28.0 | % | 16.9 | % | |||
Verizon | 9.5 | % | 10.0 | % | 11.7 | % | |||
Nextel | 7.3 | % | 6.5 | % | 11.3 | % | |||
Percentage of Site Development Consulting Revenue for the year ended December 31, | |||||||||
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Bechtel Corporation* | 24.7 | % | 40.3 | % | 46.2 | % | |||
Cingular (including AT&T Wireless) | 26.6 | % | 4.3 | % | 16.0 | % | |||
Verizon Wireless | 26.1 | % | 13.6 | % | 4.5 | % | |||
Horizon | — | 1.5 | % | 13.1 | % | ||||
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Bechtel Corporation* | 14.5 | % | 28.9 | % | 26.2 | % | |||
Sprint PCS | 35.8 | % | 13.1 | % | 3.0 | % | |||
Cingular (including AT&T Wireless) | 11.7 | % | 5.4 | % | 13.2 | % | |||
T-Mobile | 3.9 | % | 7.5 | % | 10.7 | % | |||
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We also have client concentrations with respect to revenues in each of our financial reporting segments. Of our total site development consulting revenue for the year ended December 31, 2002, the following two customers represented 63.8% of total revenue from this segment: Cingular represented 29.6% and Bechtel Corporation represented 34.2%. Of our total site development construction revenue for the year ended December 31, 2002, one customer, Bechtel Corporation, represented 28.1% of such revenue. Of our total site leasing revenue for the year ended December 31, 2002, one customer, AT&T Wireless, represented 15.7% of such revenue.
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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 renewable for five 5-yearfive-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.
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Our substantial indebtedness may negatively impact our ability to implement our business plan.
Our substantial indebtedness may negatively impact our ability to implement our business plan. For example, it could:
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 may be negatively impacted by our customers’ limited access to debt and equity 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, our growth strategy, revenues and financial condition may again be adversely affected.
Our debt instruments contain restrictive covenants that could adversely affect our business.
Our senior credit facility and the indentures governing our outstanding notes each contain certain restrictive covenants. Among other things, these covenants restrict our ability 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. The acceleration of amounts due under one of our debt instruments would also cause a cross-default under our other debt instruments.
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SBA Senior Finance Inc. (“SBA Senior Finance”), which owns, directly or indirectly, all of the common stock of our operating subsidiaries, is the borrower under our senior credit facility. The senior credit facility requires SBA Senior Finance to maintain specified financial ratios, including ratios regarding SBA Senior Finance’s debt to annualized operating cash flow, debt service, cash interest expense and fixed charges for each quarter. In addition, the senior credit facility contains additional negative covenants that, among other things, restrict our ability to commit to capital expenditures and 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 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.
Upon the occurrence of any default, our senior credit facility lenders can prevent us from borrowing any additional amounts under the senior credit facility. In addition, upon the occurrence of any event of default, other than certain bankruptcy events, 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. The acceleration of amounts due under our senior credit facility would cause a cross-default under our indentures, thereby permitting the acceleration of such indebtedness. If the indebtedness under the senior credit facility and/or indebtedness under our outstanding notes were to be accelerated, our current assets would not be sufficient to repay in full the indebtedness. If we were unable to repay amounts that become due under the senior credit facility, the 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. In such an event of default, our assets may not be sufficient to satisfy our obligations under the notes.
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 thelower than anticipated lease revenues, or in a reduced ability of these customers to finance expansion activities.revenues. During the past three 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 the collectibilitycollectability of our accounts receivable.
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 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:
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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 long andlong. Therefore, we may depend on factors such as the size and scope of assignments, budgetary cycles and pressures and general economic conditions. In addition, under lease terms typicalnot be able to adjust our cost structure in the tower industry, revenue generated by new tenant leases usually commences upon installation of the tenant’s equipment on the tower rather than upon execution of the lease, which can be 90 days or more after the execution of the lease.a timely basis to adjust to market slowdowns.
We are not profitable and expect to continue to incur losses.
We are not profitable. The following chart shows the net losses we incurred for the periods indicated:
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Net Loss | $ | (147,280 | ) | $ | (175,148 | ) | $ | (267,087 | ) | |||
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Our losses are principally due to significant interest expense and depreciation and amortization in each of the years 2002, 2001periods presented above. For the year ended December 31, 2004, we recorded an asset impairment charge of $7.1 million and 2000,a charge associated with the write-off of deferred financing fees and loss on the extinguishment of debt of $41.2 million. We recorded an asset impairment charge of $13.0 million, a charge associated with the loss from write-off of deferred financing fees and extinguishment of debt of $24.2 million, and a restructuring charge of $2.1 million during the year ended December 31, 2003. We recorded restructuring and other charges of $77.6$47.8 million, and $24.4 million in 2002 and 2001, respectively, and an $80.6a $60.7 million charge related to the cumulative effect of change in accounting principle in 2002 related to the adoption of SFAS No. 142.
We expect to continue to have significant losses in 2003. Interest expense and depreciation charges will continue to be substantial in 2003. We also expect to incur additional restructuring expenses and to record an expense associated with the cumulative effect of a change in accounting principle related to the adoption of SFAS No. 143. Furthermore,142, and an asset impairment charge of $24.2 million in connection with the anticipated sale of the 679 towers on May 9, 2003, we anticipate recognizing a loss of approximately $6.5 million.
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As a result of these factors, we have incurred, andyear ended December 31, 2002. We expect to continue to incur significant losses.losses which may affect our ability to service our indebtedness.
Increasing competition in the tower industry may 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 customers 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 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.
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.
We may not be able to build and/or acquire as many towers as we anticipate.
We currently intend to build 50 to 75 new towers during 2005 and to consummate a limited number of tower acquisitions. However, our ability to build these new towers is dependent upon (1) the availability of sufficient capital to fund construction, (2) our ability to locate, and acquire at commercially reasonable prices, attractive locations for such towers and (3) our ability to obtain the necessary zoning and permits.
Our ability to consummate tower acquisitions is also subject to risks. Specifically, these risks include (1) our ability to identify those towers that would be attractive to our clients and accretive to our revenues, (2) our ability to negotiate and consummate agreements to acquire such towers and (3) sufficient capital to fund such acquisitions. Due to these risks, it may take longer to complete our new tower builds than anticipated, the costs of constructing or acquiring these towers may be higher than we expect or we may not be able to add as many towers as we had planned in 2005. If we are not able to increase our tower portfolio as anticipated, it could negatively impact our ability to make our goals for site leasing revenue.
11
The loss of the 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. 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. In addition, the deployment of WiFi and WiMax technologies could impact the network needs of our existing customers providing wireless telephony services. 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 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 could 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 subject to numerous claims. If we were subject to claims relating to RF energy, even if such claims were not ultimately found to have merit, our financial condition could be materially and adversely affected.
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 FCC and the 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 and antenna structure owners may have an obligation to mark or paint towers or structures or install lighting to conform to FAA standards and to maintain such marking, painting and lighting. TowerAntenna tower owners and antenna structure owners may also bear the responsibility of notifying the FAA of any tower lighting failures.outages. 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 environmental impact requirements. Failure to comply with existing or future applicable requirements may lead to civil penalties or other liabilities and may subject us to significant indemnification liability to our customers against any such failure to comply. In addition, new regulations may impose additional costly burdens on us, which may affect our revenues and cause delays in our growth.
Local regulations, including municipal or local ordinances, zoning restrictions and restrictive covenants imposed by community developers, vary greatly, but typically require antenna tower and structure owners to obtain approval from local officials or community standards organizations prior to tower or structure construction or modification. Local regulations can delay, prevent, or increase the cost of new tower construction, co-locations, or site upgrade projects, thereby limiting our ability to respond to customer demand. In addition, new regulations may be adopted that increase delays or result in additional costs to us. These factors could have a material adverse effect on our future growth and operations.
12
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 loss 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.
Steven E. Bernstein, our Chairman of the Board, controls 100% of the outstanding shares of Class B common stock. Our Class B common stock has the right to 10 votes for each share provided that the outstanding shares of Class B common stock represent more than 10% of the aggregate amount of Class A and Class B common stock outstanding. As of March 14, 2003, the Class B common stock represented 10.7% of the aggregate amount of common stock outstanding. As of March 14, 2003, Mr. Bernstein controlled approximately 55% of the total voting power of both classes of our common stock. As a result, Mr. Bernstein has the ability to control the outcome of all matters determined by a majority vote of our common shareholders when voting together as a single class. Consequently, disinterested shareholders will not be able to determine who is elected as a director or the outcome of other corporate governance matters subject to approval by the majority of the outstanding shares.
The loss of the services of certain of our key senior executives may negatively affect our business.
Our success depends to a significant extent upon performance and active participation of our key senior executives. We cannot guaranteecould have liability under environmental laws that we will be successful in retaining the services of these key senior executives. 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 senior executive officers. If we were to lose any key senior executive we may not be able to find an appropriate replacement on a timely basis and our results of operations could be negatively affected. Our Chief Financial Officer resigned as of March 31, 2003 and we are currently seeking his replacement.
13
If we are unable to attract, retain or manage skilled employees it could have a material adverse effect on our business.business, financial condition and results of operations.
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 qualified employees or adequately develop and motivate the skilled employees we have hiredmanner that could have a material adverse effect on our business. We compete with other wireless communications firmsbusiness, financial condition and other enterprises for employees with the skills required to perform our services. We cannot assure you that we will be able to attract and retain a sufficient numberresults of highly-skilled employees in the future or that we will continue to be successful in training, retaining and motivating employees.operations.
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 9¾% senior discount notes and our 8½% senior 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.
We may experience volatility in our stock price that could affectfacility. Although the value of your investment.
The stock market has from time to time experienced significant price and volume fluctuations that have affectedindenture governing the market price for the common stock of companies. In the past, certain broad market fluctuations have been unrelated or disproportionate to the operating performance of these companies. Any significant fluctuations in the future might result in a decline in the market price of our Class A common stock.
We have adopted anti-takeover provisions that could make it more difficult for a third party to acquire us.
Provisions of our articles of incorporation, our bylaws and Florida law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our shareholders. During 2002, we adopted a shareholder rights agreement, which could make it considerably more difficult or costly for a person or group to acquire control of us in a transaction that our board of directors opposes. These provisions, alone or in combination with each other, may discourage transactions involving actual or potential changes of control, including transactions that otherwise could involve payment of a premium over prevailing market prices to holders of our Class A common stock, or couldnotes will limit the ability of our shareholdersoperating subsidiaries to approve transactions that they may deementer into consensual restrictions on their ability to be in their best interests.pay dividends to us, these limitations are subject to a number of significant qualifications and exceptions.
Our costs could increaseAvailability of Reports and our revenues could decrease due to perceived health risks from radio frequency emissions, especially if such emissions are demonstrated to cause negative health effects.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 website under “Investor Relations—SEC Filings,” as soon as reasonably practicable after we file electronically such material with, or furnish it to, the United States Securities and Exchange Commission (the “Commission”). In addition, the Commission’s website iswww.sec.gov.The government imposes requirementsCommission makes available on this website, free of charge, reports, proxy and information statements, and other guidelinesinformation regarding issuers, such as us, that file electronically with the Commission. Additionally, our reports, proxy and information statements may be read and copied at the Commission’s public reference room at 450 Fifth Street, NW, Washington, DC 20549. Information on our towers relating to radio frequency emissions. The potential connection between radio frequency emissions and certain negative health effects, including some formswebsite or the Commission’s website is not part 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 cellular and other wireless communications media could slow the growth of wireless companies, which could in turn slow our growth. In particular, negative public perception of, and regulations regarding, these perceived health risks could slow the market acceptance of wireless communications services.
If a connection between radio frequency emissions and possible negative health effects, including cancer, were demonstrated, we could be subject to numerous claims. If we were subject to numerous claims relating to radio frequency emissions, even if such claims were not ultimately found to have merit, our operations, costs and revenues would be materially and adversely affected.
New technologies may have a material adverse effect on our growth rate and results of operations.this document.
The emergence of new technologies could reduce the demand for space on our towers. This could have a material adverse effect on our growth rate and results of operations. For example, the FCC has granted license applications for several low-earth orbiting satellite systems that are intended to provide mobile voice and data services. These systems
14
are highly capital intensive and mobile satellite systems could compete with land-based wireless communications systems. In addition, products are currently being developed which may permit multiple wireless carriers to use a single antenna, to share networks, or to increase the range and capacity of an antenna, which, if successful, could reduce the number of antenna needed by our customers.
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. Of the 3,060 towers in our portfolio, approximately 10% are located on parcels of land that we own and approximately 90% are located on parcels of land that have leasehold interests created by long-term lease agreements, private easements and easements, licenses or
13
right-of-way granted by government entities. In rural areas, a wireless communications site typically consists of up to 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 monopole or self-supporting tower structure of the kind typically used in metropolitan areas for wireless communication tower sites. Land leases generally have an initial term of five years with five or more additional automatic renewal periods of five years, for a total of thirty years or more. In some instances, we have entered into 99 year ground leases.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we
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.operations or liquidity.
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 2002.2004.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND RELATED SHAREHOLDER MATTERSISSUER 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 informationthe high and low bid price for the Class A common stock for the periods indicated on the Nasdaq:indicated:
|
| High |
| Low |
| ||
|
| ||||||
| 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 |
| |
| 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 |
| |
| High | Low | |||
Quarter ended March 31, 2004 | 5.43 | 3.28 | ||
Quarter ended June 30, 2004 | 4.74 | 3.10 | ||
Quarter ended September 30, 2004 | 7.11 | 4.15 | ||
Quarter ended December 31, 2004 | 10.62 | 6.81 | ||
Quarter ended March 31, 2003 | 1.44 | 0.40 | ||
Quarter ended June 30, 2003 | 3.47 | 1.11 | ||
Quarter ended September 30, 2003 | 4.11 | 2.47 | ||
Quarter ended December 31, 2003 | 4.33 | 3.09 | ||
As of March 14, 2003,8, 2005, there were 236174 record holders of our Class A common stock, and 1 record holder 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%8½% 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 information required by Item 201(d) of Regulation S-K is incorporated herein by reference from the Registrant’s Proxy Statement for its 2003 Annual Meeting of Shareholders to be filed on or before April 30, 2003.
1514
The following table gives information about our common stock that may be issued upon the exercise of options, warrants, and rights under all existing equity compensation plans as of December 31, 2004:
| Equity Compensation Plan Information | |||||||
| (in thousands except exercise price) | |||||||
Number of Securities to be Issued Upon Exercise of Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, | Number of Securities Remaining Plans (excluding securities reflected in first column) | |||||
Equity compensation plans approved by security holders | 4,415 | $ | 7.04 | 5,205 | |||
Equity compensation plans not approved by security holders | — | — | — | ||||
Total | 4,415 | $ | 7.04 | 5,205 | |||
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial data as of and otherfor each of the five years ended December 31, 2004. The financial data for fiscal year ended 2004 have been derived from our audited consolidated financial statements. The financial data for the fiscal years ended 2003 and 2002 have been derived from, and are qualified by reference to, our restated audited consolidated financial statements. These restated financial statements include adjustments for a change in the method of accounting for certain types of ground leases underlying our tower sites. The financial data as of and for the fiscal years ended 2001 and 2000 have been derived from our restated unaudited consolidated financial statements. The unaudited financial data as of and for the year ended December 31, 2002, 2001 and 2000, 1999, and 1998. 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 reflect the discontinued operations treatment of our audited financial statements. Thewestern site development services and reclassification of 14 towers previously classified as discontinued operations into continuing operations. 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.Form 10-K.
|
| Years ended December 31, |
| |||||||||||||
|
|
| ||||||||||||||
2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
| |||||||
|
|
|
|
| ||||||||||||
(in thousands, except per share and tower data) |
| |||||||||||||||
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Site development | $ | 125,041 |
| $ | 139,735 |
| $ | 115,892 |
| $ | 60,570 |
| $ | 46,705 |
| |
| Site leasing |
| 139,633 |
|
| 103,159 |
|
| 52,014 |
|
| 26,423 |
|
| 12,396 |
| |
|
|
|
|
| ||||||||||||
| Total revenues |
| 264,674 |
|
| 242,894 |
|
| 167,906 |
|
| 86,993 |
|
| 59,101 |
| |
| Cost of revenues (exclusive of depreciation and amortization shown below): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Cost of site development |
| 102,473 |
|
| 107,932 |
|
| 88,892 |
|
| 45,804 |
|
| 36,500 |
| |
| Cost of site leasing |
| 49,641 |
|
| 36,722 |
|
| 19,502 |
|
| 12,134 |
|
| 7,281 |
| |
|
|
|
|
| ||||||||||||
| Total cost of revenues |
| 152,114 |
|
| 144,654 |
|
| 108,394 |
|
| 57,938 |
|
| 43,781 |
| |
|
|
|
|
| ||||||||||||
| Gross profit |
| 112,560 |
|
| 98,240 |
|
| 59,512 |
|
| 29,055 |
|
| 15,320 |
| |
Selling, general and administrative(1) |
| 35,605 |
|
| 41,342 |
|
| 27,799 |
|
| 19,784 |
|
| 18,302 |
| |
| Restructuring and other charges |
| 77,560 |
|
| 24,399 |
|
| — |
|
| — |
|
| — |
| |
| Depreciation and amortization |
| 102,328 |
|
| 80,465 |
|
| 34,831 |
|
| 16,557 |
|
| 5,802 |
| |
|
|
|
|
| ||||||||||||
| Operating loss |
| (102,933 | ) |
| (47,966 | ) |
| (3,118 | ) |
| (7,286 | ) |
| (8,784 | ) | |
| Other expense, net |
| (89,257 | ) |
| (70,456 | ) |
| (24,564 | ) |
| (26,378 | ) |
| (12,641 | ) | |
| (Provision) benefit for income taxes |
| (383 | ) |
| (1,654 | ) |
| (1,233 | ) |
| 223 |
|
| 1,524 |
| |
| Extraordinary item |
| — |
|
| (5,069 | ) |
| — |
|
| (1,150 | ) |
| — |
| |
| Cumulative effect of change in accounting principle |
| (80,592 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |
|
|
|
|
| ||||||||||||
| Net loss |
| (273,165 | ) |
| (125,145 | ) |
| (28,915 | ) |
| (34,591 | ) |
| (19,901 | ) | |
| Dividends on preferred stock |
| — |
|
| — |
|
| — |
|
| 733 |
|
| (2,575 | ) | |
|
|
|
|
| ||||||||||||
| Net loss applicable to common shareholders | $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | $ | (33,858 | ) | $ | (22,476 | ) | |
|
|
|
|
| ||||||||||||
| Basic and diluted loss per common share before extraordinary item and cumulative effect of change in accounting principle | $ | (3.83 | ) | $ | (2.53 | ) | $ | (0.70 |
| $ | (1.71 | ) | $ | (2.64 | ) | |
| Extraordinary item |
| — |
|
| (0.11 | ) |
| — |
|
| (0.06 | ) |
| — |
| |
| Cumulative effect of change in accounting principle |
| (1.60 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |
|
|
|
|
| ||||||||||||
| Basic and diluted loss per common share | $ | (5.43 | ) | $ | (2.64 | ) | $ | (0.70 | ) | $ | (1.77 | ) | $ | (2.64 | ) | |
|
|
|
|
| ||||||||||||
| Basic and diluted weighted average number of shares of common stock |
| 50,308 |
|
| 47,437 |
|
| 41,156 |
|
| 19,156 |
|
| 8,526 |
| |
OTHER DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
EBITDA(2) | $ | 78,972 |
| $ | 60,224 |
| $ | 32,026 |
| $ | 9,582 |
| $ | (2,377 | ) | |
Annualized tower cash flow(3) |
| 94,152 |
|
| 78,756 |
|
| 41,140 |
|
| 18,692 |
|
| 8,088 |
| |
Capital expenditures(4) |
| 109,027 |
|
| 561,326 |
|
| 494,053 |
|
| 226,570 |
|
| 138,124 |
| |
| Cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Operating activities |
| 1,554 |
|
| 13,000 |
|
| 47,516 |
|
| 23,134 |
|
| 7,471 |
| |
| Investing activities |
| (98,010 | ) |
| (530,273 | ) |
| (445,280 | ) |
| (208,870 | ) |
| (138,124 | ) | |
| Financing activities |
| 143,693 |
|
| 516,197 |
|
| 409,613 |
|
| 162,124 |
|
| 151,286 |
| |
BALANCE SHEET DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Cash and cash equivalents | $ | 61,141 |
| $ | 13,904 |
| $ | 14,980 |
| $ | 3,131 |
| $ | 26,743 |
| |
| Property and equipment, net |
| 1,140,625 |
|
| 1,198,559 |
|
| 765,815 |
|
| 338,892 |
|
| 150,946 |
| |
| Total assets |
| 1,304,915 |
|
| 1,429,011 |
|
| 948,818 |
|
| 429,823 |
|
| 214,573 |
| |
| Total debt |
| 1,024,282 |
|
| 845,453 |
|
| 284,273 |
|
| 320,767 |
|
| 182,573 |
| |
| Redeemable preferred stock |
| — |
|
| — |
|
| — |
|
| — |
|
| 33,558 |
| |
| Common shareholders’ equity (deficit) |
| 185,473 |
|
| 450,644 |
|
| 538,160 |
|
| 48,582 |
|
| (26,095 | ) | |
15
| For the year ended December 31, | ||||||||||||||||||||
| 2004 | 2003 as restated | 2002 as restated | 2001 as restated | 2000 as restated | ||||||||||||||||
| (audited) | (audited) | (audited) | (unaudited) | (unaudited) | ||||||||||||||||
| (in thousands except per share data) | ||||||||||||||||||||
Operating Data: | ||||||||||||||||||||
Revenues: | ||||||||||||||||||||
Site leasing | $ | 144,004 | $ | 127,852 | $ | 115,121 | $ | 85,519 | $ | 44,332 | ||||||||||
Site development | 87,478 | 64,257 | 99,352 | 115,773 | 103,677 | |||||||||||||||
Total revenues | 231,482 | 192,109 | 214,473 | 201,292 | 148,009 | |||||||||||||||
Cost of revenues (exclusive of depreciation, accretion and amortization shown below): | ||||||||||||||||||||
Cost of site leasing | 47,283 | 47,793 | 46,709 | 35,537 | 19,676 | |||||||||||||||
Cost of site development | 81,398 | 58,683 | 81,565 | 92,755 | 81,630 | |||||||||||||||
Total cost of revenues | 128,681 | 106,476 | 128,274 | 128,292 | 101,306 | |||||||||||||||
Gross profit | 102,801 | 85,633 | 86,199 | 73,000 | 46,703 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling, general and administrative | 28,887 | 30,714 | 32,740 | 39,697 | 26,482 | |||||||||||||||
Restructuring and other charges | 250 | 2,094 | 47,762 | 24,399 | — | |||||||||||||||
Asset impairment charges | 7,092 | 12,993 | 24,194 | — | — | |||||||||||||||
Depreciation, accretion and amortization | 90,453 | 93,657 | 95,627 | 73,390 | 29,901 | |||||||||||||||
Total operating expenses | 126,682 | 139,458 | 200,323 | 137,486 | 56,383 | |||||||||||||||
Operating loss from continuing operations | (23,881 | ) | (53,825 | ) | (114,124 | ) | (64,486 | ) | (9,680 | ) | ||||||||||
Other income (expense): | ||||||||||||||||||||
Interest income | 516 | 692 | 601 | 7,058 | 6,252 | |||||||||||||||
Interest expense, net of amounts capitalized | (47,460 | ) | (81,501 | ) | (54,822 | ) | (47,713 | ) | (4,879 | ) | ||||||||||
Non-cash interest expense | (28,082 | ) | (9,277 | ) | (29,038 | ) | (25,843 | ) | (23,000 | ) | ||||||||||
Amortization of debt issuance costs | (3,445 | ) | (5,115 | ) | (4,480 | ) | (3,887 | ) | (3,006 | ) | ||||||||||
Write-off of deferred financing fees and loss on extinguishment of other debt | (41,197 | ) | (24,219 | ) | — | (5,069 | ) | — | ||||||||||||
Other | 236 | 169 | (169 | ) | (56 | ) | 66 | |||||||||||||
Total other expense | (119,432 | ) | (119,251 | ) | (87,908 | ) | (75,510 | ) | (24,567 | ) | ||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principles | (143,313 | ) | (173,076 | ) | (202,032 | ) | (139,996 | ) | (34,247 | ) | ||||||||||
Provision for income taxes | (710 | ) | (1,729 | ) | (300 | ) | (1,489 | ) | (954 | ) | ||||||||||
Loss from continuing operations before cumulative effect of change in accounting principle | (144,023 | ) | (174,805 | ) | (202,332 | ) | (141,485 | ) | (35,201 | ) | ||||||||||
(Loss) gain from discontinued operations, net of income taxes | (3,257 | ) | 202 | (4,081 | ) | 74 | 323 | |||||||||||||
Loss before cumulative effect of change in accounting principle | (147,280 | ) | (174,603 | ) | (206,413 | ) | (141,411 | ) | (34,878 | ) | ||||||||||
Cumulative effect of change in accounting principle(4) | — | (545 | ) | (60,674 | ) | — | — | |||||||||||||
Net loss | $ | (147,280 | ) | $ | (175,148 | ) | $ | (267,087 | ) | $ | (141,411 | ) | $ | (34,878 | ) | |||||
Basic and diluted loss per common share amounts: | ||||||||||||||||||||
Loss from continuing operations before cumulative effect of change in accounting principle | $ | (2.47 | ) | $ | (3.35 | ) | $ | (4.01 | ) | $ | (2.99 | ) | $ | (0.86 | ) | |||||
(Loss) gain from discontinued operations | (0.05 | ) | — | (0.08 | ) | — | 0.01 | |||||||||||||
Cumulative effect of change in accounting principle | — | (0.01 | ) | (1.20 | ) | — | — | |||||||||||||
| $ | (2.52 | ) | $ | (3.36 | ) | $ | (5.29 | ) | $ | (2.99 | ) | $ | (0.85 | ) | ||||||
Basic and diluted weighted average shares oustanding | 58,420 | 52,204 | 50,491 | 47,321 | 41,156 | |||||||||||||||
16
Years ended December 31, |
| |||||||||||||||
| ||||||||||||||||
2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
| |||||||
|
|
|
|
| ||||||||||||
TOWER DATA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Towers owned at the beginning of period |
| 3,734 |
|
| 2,390 |
|
| 1,163 |
|
| 494 |
|
| 51 |
| |
| Towers constructed |
| 141 |
|
| 667 |
|
| 779 |
|
| 438 |
|
| 310 |
| |
| Towers acquired |
| 53 |
|
| 677 |
|
| 448 |
|
| 231 |
|
| 133 |
| |
Towers reclassified/disposed of(5) |
| (51 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |
|
|
|
|
| ||||||||||||
| Towers owned at the end of period |
| 3,877 |
|
| 3,734 |
|
| 2,390 |
|
| 1,163 |
|
| 494 |
| |
|
|
|
|
| ||||||||||||
| Tenants at the end of period |
| 8,437 |
|
| 7,693 |
|
| 4,904 |
|
| 1,794 |
|
| 601 |
| |
|
|
|
|
| ||||||||||||
| As of December 31, | ||||||||||||||||||||
| 2004 | 2003 as restated | 2002 as restated | 2001 as restated | 2000 as restated | ||||||||||||||||
| (audited) | (audited) | (audited) | (unaudited) | (unaudited) | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 69,627 | $ | 8,338 | $ | 61,141 | $ | 13,904 | 14,980 | |||||||||||
Short-term investments | — | 15,200 | — | — | — | |||||||||||||||
Restricted cash(1) | 2,017 | 10,344 | — | — | — | |||||||||||||||
Property and equipment (net) | 745,831 | 830,145 | 922,392 | 975,662 | 762,644 | |||||||||||||||
Total assets | 917,244 | 958,252 | 1,279,267 | 1,394,280 | 945,285 | |||||||||||||||
Total debt(2) | 927,706 | 870,758 | 1,024,282 | 845,453 | 248,273 | |||||||||||||||
Total Shareholders’ equity (deficit) | (88,671 | ) | (1,566 | ) | 161,024 | 424,369 | 529,406 | |||||||||||||
| For the year ended December 31, | ||||||||||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | ||||||||||||||||
| (audited) | (audited) | (audited) | (unaudited) | (unaudited) | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Other Data: | ||||||||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
Operating activities | $ | 14,216 | $ | (29,808 | ) | $ | 17,807 | $ | 28,753 | $ | 47,516 | |||||||||
Investing activities | 1,326 | 155,456 | (102,716 | ) | (554,700 | ) | (445,280 | ) | ||||||||||||
Financing activities | 45,747 | (178,451 | ) | 132,146 | 524,871 | 409,613 | ||||||||||||||
| For the year ended December 31, | |||||||||||||
| 2004 | 2003 | 2002 | 2001 | 2000 | |||||||||
Tower owned at the beginning of period | 3,093 | 3,877 | 3,734 | 2,390 | 1,163 | ||||||||
Towers constructed | 10 | 13 | 141 | 667 | 779 | ||||||||
Towers acquired | 5 | — | 53 | 677 | 448 | ||||||||
Towers reclassified/disposed of(3) | (42 | ) | (797 | ) | (51 | ) | — | — | |||||
Total towers owned at the end of period | 3,066 | 3,093 | 3,877 | 3,734 | 2,390 | ||||||||
Total held for sale at end of period | 6 | 47 | 837 | 815 | 552 | ||||||||
Towers in continuing operations at end of period | 3,060 | 3,046 | 3,040 | 2,919 | 1,838 | ||||||||
| 3,066 | 3,093 | 3,877 | 3,734 | 2,390 | |||||||||
(1) |
|
| (2) | Includes deferred gain on interest rate swap of $1.9 million as of December 31, 2004, $4.6 million as of December 31, 2003 and $5.2 million as of December 31, 2002, |
|
|
|
| Years ended December 31, |
| |||||||||||||
|
|
| ||||||||||||||
| 2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
| ||||||
|
|
|
|
| ||||||||||||
| EBITDA | $ | 78,972 |
| $ | 60,224 |
| $ | 32,026 |
| $ | 9,582 |
| $ | (2,377 | ) | |
| Interest expense, net of amount capitalized |
| (56,171 | ) |
| (47,709 | ) |
| (4,879 | ) |
| (5,244 | ) |
| (1,197 | ) | |
| Amortization of original issue discount and debt issuance costs |
| (33,518 | ) |
| (29,730 | ) |
| (26,006 | ) |
| (22,063 | ) |
| (15,710 | ) | |
| Interest income |
| 601 |
|
| 7,059 |
|
| 6,253 |
|
| 881 |
|
| 4,303 |
| |
| (Provision) benefit for income taxes |
| (383 | ) |
| (1,654 | ) |
| (1,233 | ) |
| 223 |
|
| 1,524 |
| |
| Depreciation and amortization |
| (102,328 | ) |
| (80,465 | ) |
| (34,831 | ) |
| (16,557 | ) |
| (5,802 | ) | |
| Other |
| (169 | ) |
| (76 | ) |
| 68 |
|
| 48 |
|
| (37 | ) | |
| Non-cash compensation expense |
| (2,017 | ) |
| (3,326 | ) |
| (313 | ) |
| (311 | ) |
| (605 | ) | |
| Restructuring and other charges |
| (77,560 | ) |
| (24,399 | ) |
| — |
|
| — |
|
| — |
| |
| Extraordinary item |
| — |
|
| (5,069 | ) |
| — |
|
| (1,150 | ) |
| — |
| |
| Cumulative effect of change in accounting principle |
| (80,592 | ) |
| — |
|
| — |
|
| — |
|
| — |
| |
| Dividends on preferred stock |
| — |
|
| — |
|
| — |
|
| 733 |
|
| (2,575 | ) | |
|
|
|
|
| ||||||||||||
| Net loss applicable to common shareholders | $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | $ | (33,858 | ) | $ | (22,476 | ) | |
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|
|
|
| ||||||||||||
(3) |
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17
|
| Fourth quarter ended December 31, |
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| 2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
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| ||||||||||||
| Site Leasing Revenue | $ | 36,897 |
| $ | 30,288 |
| $ | 16,462 |
| $ | 8,414 |
| $ | 4,264 |
| ||
| Cost of Site Leasing Revenue |
| 13,359 |
|
| 10,599 |
|
| 6,177 |
|
| 3,741 |
|
| 2,242 |
| ||
|
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|
| |||||||||||||
| Tower Cash Flow |
| $ | 23,538 |
| $ | 19,689 |
| $ | 10,285 |
| $ | 4,673 |
| $ | 2,022 |
| |
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| |||
Annualized as of December 31, |
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2002 |
| 2001 |
| 2000 |
| 1999 |
| 1998 |
| ||||||||
|
|
|
|
| |||||||||||||
| Tower Cash Flow (Tower Cash Flow multiplied by 4) | $ | 94,152 |
| $ | 78,756 |
| $ | 41,140 |
| $ | 18,692 |
| $ | 8,088 |
| ||
|
| |
| 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 |
| (4) | The Company adopted FAS 143, “Asset Retirement Obligations” effective January 1, 2003 and FAS 142, “Goodwill and other Intangible Assets,” effective January 1, 2002. See Note 6 to Consolidated Financial Statements. |
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion includes forward-looking statements that involve certain risks and uncertainties, including, but not limited to, those described in the “Risks Related to Our Business” section of this annual report. Our actual results may differ materially from those discussed below. See “Forward-looking statements” and “Risks Related to Our Business.”
17
We are a leading independent owner and operator of wireless communications towers in the continentalEastern third of the United States, Puerto Rico and the U.S. Virgin Islands.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 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.
We are continuing to shift our revenue stream
Revenues derived from project driven revenues to recurring revenues through the leasing of antenna space at, or on, communication towers. We intendtowers continued to emphasizeincrease as a result of our emphasis on our site leasing business through the leasing and management of tower sites. Subsequent to the consummation of the AAT Transaction, we intend on focusingWe focus our leasing and site development activities in the easternEastern third of the United States where substantially all of our remaining towers are located. During 2004, we completed our previously announced plan of disposing of our services business in the Western third of the United States.
Operating results in prior periods may not be meaningful predictors of future results. You should be aware of the changes in the nature and scope of our business when reviewing the ensuing discussion of comparative historical results.
Restatement of Financial Results
On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). In light of this letter, we initiated a review of our accounting practices and determined that we would adjust our method of accounting for certain types of ground leases underlying our tower sites and amortization of tower assets. As a result, we have restated our consolidated financial statements for each of the fiscal years ended December 31, 2003 and 2002 included in this Report.
We had historically defined the minimum lease term of our ground leases underlying our tower sites as the initial term of the leases and had been straight lining all rental payments due to the lessor evenly over this term, which typically is five years in length. As a result of the February 7, 2005 letter from the SEC, we changed our rental expense recognition policy to redefine the minimum lease term as the period from lease inception through the end of the term in which all tenant lease obligations in existence at ground lease inception, including renewal periods, will be located. met. If no tenant lease obligations existed at the date of ground lease inception, the initial term of the ground lease is considered the minimum lease term. All rental obligations due to be paid out over the minimum lease term, including fixed escalations, have therefore been straight-lined evenly over the minimum lease term. Additionally, if the minimum lease term ends prior to the originally established depreciable life of the tower (typically 15 years), we have shortened the depreciable life of the tower to coincide with the minimum lease term of the ground lease.
As a result of the adjustments described above, the accompanying results of operations for the years ended December 31, 2003 and 2002 have been adjusted to record additional rent expense (included in cost of sales on the statements of operations) of $5.7 million and $5.9 million, respectively; additional depreciation expense of $9.5 million and $10.1 million, respectively; a reduction of asset impairment charges of $4.0 million and $1.4 million, respectively; a decrease in provision for income taxes of $0.09 million and $0.01 million, respectively; and a (decrease) increase in loss from discontinued operations of ($8.1) million and $3.4 million, respectively.
The consolidated balance sheets have been adjusted to record additional straight line rent liabilities (included in other long term liabilities) of $2.4 million and $7.3 million, a reduction in fixed assets of $5.5 million and $8.8 million, as well as a decrease in assets held for sale of $0.02 million and $4.9 million, at December 31, 2003 and 2002, respectively. Additionally, retained earnings (deficit) have been reduced by $45.5 million and $42.5 million at December 31, 2003 and 2002, respectively. These adjustments did not have any impact on the cash flows of the Company
See Note 3 to the consolidated financial statements of this Report for a summary of the effects of these changes on our consolidated balance sheets as of December 31, 2003, as well as on our consolidated statements of operations and cash flows for the years ended December 31, 2003 and 2002. The accompanying Management’s Discussion and Analysis gives effect to these corrections.
18
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, and is renewable for five 5-year periods at the option of the tenant. Almost all of our site leasing contracts contain specific rent escalators, which average 3-4% per year, including the renewal option periods. Site leasing contracts are generally paid on a monthly basis and revenue from site leasing is recorded monthly on a straight-line basis over the current term of the related lease agreements. Rental amounts received in advance are recorded in deferred revenue.
Cost of site leasing revenue primarily consists of:
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For any given tower, such costs are relatively fixed over a monthly or an annual time period. As such, operating costs for owned towers do not generally increase significantly as a result of adding additional customers to the tower.
Our same tower revenue growth on
The table below details the 3,734 towers we owned aspercentage of December 31, 2001 was 16%total company revenues and our same tower cash flow growth on these 3,734 towers was 20%, based ongross profit contributed by site leasing contracts signedservices. Information regarding the total and annual lease contractspercentage of assets used in effect as of December 31, 2002 and 2001.
In February 2002, we announced the reductionour site leasing services business is included in Note 24 of our capital expenditures for new tower development and acquisition activities. UnderConsolidated Financial Statements included in this plan, we suspended any material new investment for additional towers, among otherReport.
18
Percentage of Revenues | Gross Profit Contribution | |||||
For the year ended December 31, 2004 | 62.2 | % | 94.1 | % | ||
For the year ended December 31, 2003 | 66.6 | % | 93.5 | % | ||
For the year ended December 31, 2002 | 53.7 | % | 79.4 | % |
actions. If the AAT Transaction successfully closes, we will further reduce our tower portfolio by at least 679 towers and a maximum of 801 towers. We do not anticipate making any material additions to our tower portfolio in 2003.
Site Development Services
Our site development services 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 three 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 thethis project on a per site basis. Upon the completion of each phase, we recognize the revenue related to that phase. The majority of our site development services are billed on a fixed price 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
19
the contracts nears completion. 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
The table below provides the percentage of total company revenues and gross profit contributed by site development revenuesservices. Information regarding the total and profit margins decreased significantlypercentage of assets used in our site development services businesses is included in Note 24 of our Consolidated Financial Statements included in this Report.
| Percentage of Revenues | Gross Profit Contribution | |||||||||||||||||
| 2004 | 2003 | 2002 | 2004 | 2003 | 2002 | |||||||||||||
Site development consulting | 6.2 | % | 6.4 | % | 8.1 | % | 1.6 | % | 1.2 | % | 4.6 | % | ||||||
Site development construction | 31.6 | % | 27.0 | % | 38.2 | % | 4.3 | % | 5.4 | % | 16.1 | % | ||||||
In May 2004, our Board of Directors approved a plan of disposition related to the Western site development services. In June 2004, two business units were sold, and two business units were closed within Western site development services. In the third quarter of 2004, the remaining two site development construction business units were sold. Gross proceeds realized from sales during the fiscal year ended December 31, 2002. This decrease2004 were $0.4 million, and a loss on disposal of discontinued operations of $0.8 million was primarily attributable to the substantial declinerecorded, which is included in capital expenditures by wireless carriers, particularly for our site development construction services, which adversely affected our volumeloss from discontinued operations, net of activity and our pricing levels. During 2003, we expect these trends to continue. Consequently, we anticipate continued decline in our site development revenues and profit margins.
2002 Developments
In February 2002, as a result of the continuing deterioration of the capital market conditions for wireless carriers, we announced that under a plan approved by our Board of Directors we were reducing our capital expenditures for new tower development and acquisition activities, suspending any material new investment for additional towers, reducing our workforce and closing or consolidating offices. Under those capital market conditions, we did not anticipate building or buying a material number of new towers beyond those we were contractually obligated to build or buy, thereby resulting in the abandonment of a majority of our then existing new tower build and acquisition work in process during 2002. In connection with this restructuring, a portion of our workforce had been reduced and certain offices have been closed, substantially all of which were primarily dedicated to new tower development activities. In addition, during the first quarter of 2002, certain tower assets held and used in operations were determined to be impaired and written down to their fair value. As a result of the implementation of our plans, we recorded a restructuring charge of $63.7 million in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets andEmerging Issues Task Force 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity, including Certain Costs Incurred in a Restructuring. Of the $63.7 million charge recorded during the year ended December 31, 2002, approximately $40.4 million related to the abandonment of new tower build and acquisition work in process and related construction materials on approximately 764 sites and $16.4 million related to the impairment of approximately 144 tower sites held and used in operations. The abandonment of new tower build and acquisition work in process resulted in the write-off of all costs incurred to date. The impairment of operating tower assets results primarily from our evaluation 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 current tenants and little or no prospects for future lease-up. The remaining $6.9 million related primarily to the costs of 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.
On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, goodwill is no longer amortized but reviewed for impairment on an annual basis, or more frequently if indicators of
19
impairment in value are present. Under the transitional provisions of SFAS 142, we recorded a non-cash impairment charge of $80.6 million as of the effective date of adoption, January 1, 2002. The impairment charge has been recorded as a cumulative effect of change in accounting principleincome taxes in our Consolidated StatementStatements of Operations for the year ended December 31, 2002. Two of our three operating segments were identified as reporting units in which we recognized an impairment loss. Of the total $80.6 million cumulative effect adjustment, $61.6 million related to the site development construction segmentOperations.
Critical Accounting Policies and $19.0 million related to our site leasing segment.
During 2002, we recorded additional goodwill totaling approximately $13.4 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, in addition to the transitional test described above, goodwill is subject to an impairment assessment at least annually, or at any time that indicators of impairment are present. We 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 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 analysis, using a discounted cash flow valuation method for estimating fair value, $13.4 million of goodwill within the site development construction reporting unit was determined to be impaired as of June 30, 2002 and was written off in the second quarter of 2002. The $13.4 million goodwill impairment charge is included within restructuring and other charges in the Consolidated Statement of Operations for the year ended December 31, 2002. As of December 31, 2002 we did not have any remaining goodwill or other intangible assets subject to SFAS 142.
Since the beginning of 2002, the environment for continued expenditures by wireless service providers has deteriorated. Declining subscriber growth and prospects for positive cash flow by wireless service providers have adversely affected the access to and cost of capital for wireless service provides as evidenced by declines in the market value of both their debt and equity securities. We believe that if the capital market conditions remain difficult for the telecommunications industry, wireless service providers will choose to conserve capital and may not spend as much as originally anticipated. If wireless carrier capital expenditures and their ability to access capital remains weak or deteriorates further, we believe our revenues and gross profit from the site development consulting and construction segments of our business, potentially the collectibility of our accounts receivable, and the valuation of certain of our long-lived assets may be negatively impacted. Short term, variable capital markets conditions may adversely impact carrier demand for our tower space, and consequently our site leasing revenue and the ability of our customers to meet their obligations to us. We believe that, over the longer term however, site leasing revenues will continue to increase as carriers continue to deploy new antenna sites to address issues of network capacity and quality.
2003 DevelopmentsEstimates
In February 2003, in response to the continued deterioration in expenditures by wireless service providers, particularly with respect to site development activities, we committed to a new plan of restructuring associated with further downsizing activities, including reduction in workforce and closing or consolidation of offices. We anticipate closing an additional 9 to 15 offices and eliminating the positions of 70 to 100 employees during the first quarter of 2003, substantially all related to our site development operations. We anticipate incurring a restructuring charge related to these costs of up to $2.0 million.
On March 17, 2003 certain of our subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers, which represent substantially all of our towers in the western two-thirds of the U.S. Gross proceeds from the sale are anticipated to be $160.0 million if 679 towers are sold, or $203.0 million if 801 towers are sold, subject to adjustment in certain circumstances. The AAT Transaction is expected to close in stages commencing on May 9, 2003 and ending on September 30, 2003. We intend to use substantially all of the proceeds, net of anticipated transaction costs of approximately $5.0 million, to reduce indebtedness. Upon consummation of the complete AAT Transaction, we will own 3,076 towers, substantially all of which will be in the eastern third of the United States.
We entered into the AAT Transaction to address our anticipated non-compliance with certain financial covenants under our senior credit facility commencing in 2003 and to reduce our significant level of indebtedness and the risks associated with such indebtedness. The sale is subject to a number of conditions, including an amendment to our senior credit facility. We anticipate that the amendment to our senior credit facility would, among other things, (1) waive any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modify the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permit certain actions that are part of the AAT Transaction. We believe that the AAT Transaction, in
20
conjunction with the anticipated amendment to the senior credit facility, will upon consummation, eliminate the issues that gave rise to the “going concern” qualification from our auditors. Based on our current estimates of wireless carrier activity, we believe that subsequent to the successful sale of either 679 or 801 towers, and the anticipated amendment to the senior credit facility, we will have sufficient liquidity to achieve positive free cash flow.
Going Concern
We have significant borrowings under our senior credit facility, our 10¼% senior notes and our 12% senior discount notes, each containing certain covenants. Among other things, these covenants restrict our ability to incur additional indebtedness, sell assets for less than fair market value, pay dividends, redeem outstanding debt or engage in other restricted payments. If we fail to comply with these covenants, it could result in an event of default under one or all of these debt instruments. The senior credit facility requires SBA Telecommunications to maintain specified financial ratios, including ratios regarding it’s consolidated debt coverage, debt service, cash interest expense and fixed charges for each quarter and satisfy certain financial condition tests including maintaining a minimum consolidated EBITDA (earnings (loss) before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses). We were in full compliance with all of the financial ratios and tests as of December 31, 2002. Based on declines that we have been experiencing in our site development business and that we believe will continue in 2003, we estimated that we would not be in compliance with one or more of the senior credit facility’s existing financial ratios or tests in 2003.
As a result of these estimates and our expectations that we will not comply with one or more of the financial covenants of our senior credit facility during 2003, the auditor’s opinion on our 2002 consolidated financial statements calls attention to substantial doubts about our ability to continue as a going concern through 2003.
The issuance of this audit opinion with a “going-concern” qualification, if not remedied by April 30, 2003, would be an event of default under our senior credit facility. Upon the occurrence of this, or any other event of default, our lenders can prevent us from borrowing any additional 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. The acceleration of amounts due under our senior credit facility would cause a cross-default in our 10¼% senior notes and our 12% senior discount notes, thereby permitting the acceleration of such indebtedness. If the indebtedness under the senior credit facility and/or indebtedness under our 10¼% senior notes or 12% senior discount notes were to be accelerated, our current assets would not be sufficient to repay in full the indebtedness. If we were unable to repay amounts that became due under the senior credit facility, our 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.
As part of our plan to address our anticipated non-compliance with certain financial covenants under our senior credit facility commencing in 2003 and to reduce our significant level of indebtedness and the risks associated with such indebtedness, certain of our subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers. We are also currently exploring, and may from time to time take advantage of various strategic opportunities including, but not limited to, the sale of certain assets or lines of business, the issuance of equity or the repurchasing, restructuring, or refinancing of some or all of our debt. We believe that the AAT Transaction, in conjunction with the amendment to the senior credit facility, will upon consummation, eliminate the issues that gave rise to the “going concern” qualification from our auditors with respect to our 2002 consolidated financial statements. Furthermore, based on our current estimates, subsequent to the successful sale of either 679 or 801 towers, and the amendment to the senior credit facility, we expect to have sufficient liquidity to achieve positive free cash flow. However, we cannot assure you that either the AAT Transaction and/or any other plan or action can be consummated, or if consummated, would effectively address our liquidity concerns, the possible defaults under our debt instruments or any of the other risks associated with our significant level of indebtedness.
Based on our previous experience with our lender syndicate for our senior credit facility, we believe that we will be able to successfully negotiate with our present senior credit bank syndicate, an amendment to our senior credit facility that (1) waives any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modifies the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permits certain actions that are part of the AAT Transaction. This would thereby permit us to prevent the occurrence of any event of default or the acceleration of our indebtedness. However, our prior ability to obtain necessary waivers and/or amendments does not insure our ability to obtain these waivers and/or amendments, especially in light of the recent financial performance of the wireless telecommunications industry and us.
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The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from this uncertainty.
RESULTS OF OPERATIONS
As we continue to shift our revenue mix 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.
Year Ended 2002 Compared to Year Ended 2001
Total revenues increased 9.0% to $264.7 million for 2002 from $242.9 million for 2001. Total site development revenue decreased 10.5% to $125.0 million in 2002 from $139.7 million in 2001 due to a decrease in site development construction revenue. Site development construction revenue decreased 15.3% to $97.8 million for 2002 from $115.5 million for 2001, due primarily to reduced carrier activity and price competition resulting from lower capital expenditures by wireless carriers on or around cell sites. We believe that wireless carriers will continue to conserve capital in 2003, which may continue to adversely affect site development revenues. Site development consulting revenues increased 12.2% to $27.2 million for 2002 from $24.3 million for 2001. This increase is due to several new contracts for site acquisition and zoning services from wireless communications carriers. Site leasing revenue increased 35.4% to $139.6 million for 2002 from $103.2 million for 2001, 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. If the AAT Transaction is consummated, with the sale of either 679 or 801 towers, we expect to have lower leasing revenue and tower cash flow, on an absolute basis, as a result of our reduced number of towers. We expect that leasing revenue and tower cash flow growth will continue to increase during 2003 on the towers remaining in our portfolio; however, the rate of such growth may be adversely affected by lower wireless carrier capital expenditures.
Total cost of revenues increased 5.2% to $152.1 million for 2002 from $144.7 million for 2001. Site development cost of revenue decreased 5.1% to $102.5 million in 2002 from $107.9 million in 2001. Site development consulting cost of revenue increased 20.5% to $20.6 million for 2002 from $17.1 million for 2001, reflecting higher levels of activity and increased personnel costs. Site development construction cost of revenue decreased 9.9% to $81.9 million for 2002 from $90.8 million for 2001, due primarily to lower levels of activity. Site leasing cost of revenue increased 35.2% to $49.6 million for 2002 from $36.7 million for 2001, 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 sites in Puerto Rico, maintenance and property taxes.
Gross profit increased to $112.6 million for 2002 from $98.2 million for 2001, due to increased site leasing gross profit offset by a decrease in site development gross profit. Gross profit from site development decreased 29.0% to $22.6 million in 2002 from $31.8 million in 2001 due to lower revenue and lower pricing without a commensurate reduction in cost. Gross profit margins for site development decreased in 2002 to 18.0% from 22.8% in 2001. Gross profit margin on site development consulting decreased to 24.3% for 2002 from 29.5% for 2001. This decrease reflects different stages of project completions and lower pricing for our services due to competition. Gross profit margin on site development construction decreased to 16.3% for 2002 from 21.3% in 2001, resulting from lower pricing due to increased competition. We expect this pricing competition to continue and gross profit margin from site development to continue to be negatively impacted as we move through 2003. Gross profit for the site leasing business increased 35.5% to $90.0 million in 2002 from $66.4 million in 2001 and the gross profit margins on site leasing remained consistent at 64.4% during 2002 and 2001. As a percentage of total revenues, gross profit increased to 42.5% of total revenues in 2002 from 40.4% in 2001 due primarily to increased levels of higher margin site leasing gross profit.
Selling, general and administrative expenses decreased 13.9% to $35.6 million for 2002 from $41.3 million for 2001. Selling, general and administrative expenses, net of non-cash compensation expense, as a percentage of total revenue has also decreased to 12.7% for the year ended December 31, 2002 as compared to 15.7% for the year ended December 31, 2001. 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 is no longer required as a result of the restructuring previously discussed. Included within selling, general and administrative expenses is a provision for doubtful accounts. The provision for doubtful accounts increased to $2.6 million for the year ended December 31, 2002 from $1.4 million for the year ended December 31, 2001, reflecting our assessment of a more challenging financial environment for our customers in 2002 and beyond.
Depreciation and amortization increased to $102.3 million for the year ended December 31, 2002 as compared to $80.5 million for the year ended December 31, 2001. This increase is directly related to the increased amount of fixed assets (primarily towers) we owned in 2002 as compared to 2001, offset by a decrease in amortization resulting from the write-off of goodwill which was recorded in connection with the implementation of SFAS No. 142 previously
22
discussed. Amortization of covenants not to compete in 2002 was $1.4 million (goodwill amortization was $0) compared to amortization of covenants not to compete and goodwill in 2001 of $6.9 million.
During the year ended December 31, 2002 we incurred restructuring and other charges in the amount of $77.6 million, consisting primarily of $63.7 million of restructuring charges and a $13.4 million goodwill impairment charge. As a result of the continued deterioration of capital market conditions for wireless carriers, a $63.7 million restructuring charge was recorded due to a reduction in the scale of our new tower construction activities and the impairment of certain tower assets held and used in operations. Of the $63.7 million charge, approximately $40.4 million related to the abandonment of new tower build and acquisition work in process and related construction materials on approximately 764 sites and $16.4 million related to the impairment of approximately 144 tower sites held and used in operations. The abandonment of new tower build and acquisition work in process resulted in the full write off of all costs incurred to date. The impairment of operational tower assets resulted primarily from our evaluation of the current projected cash flow and subsequent write-down to fair value based on a discounted cash flow analysis. Towers determined to be impaired were primarily towers with no current tenants and little or no prospects for future lease-up. The remaining $6.9 million of charge related primarily to the costs of 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.
Operating loss was $(102.9) million for the year ended December 31, 2002, as compared to an operating loss of $(48.0) million for the year ended December 31, 2001. This increase in operating loss is a result of $77.6 million of restructuring and other charge recorded in the year ended December 31, 2002 versus $24.4 recorded in the year ended December 31, 2001. Total other expenses increased to $(89.3) million for the year ended December 31, 2002, as compared to $(70.5) million for the year ended December 31, 2001, primarily as a result of increased cash interest expense, increased non-cash amortization of original issue discount and debt issuance costs, and a reduction in interest income. The increase in interest expense is 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 $500.0 million 10¼ % senior notes in the first quarter of 2002 compared to a 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 by the interest rate reduction we recognized in connection with our interest rate swap agreement. As the interest rate swap agreement was terminated during October 2002, our aggregate amount of interest expense would be expected to increase in future periods; excluding however, the impact of the AAT Transaction and the use of the proceeds to reduce our aggregate amount of outstanding indebtedness. The increase in non-cash amortization is primarily due to higher accretion on the 12% senior discount notes. The decrease in interest income is due to lower cash balances during 2002.
During the period ended June 30, 2002, we completed the transitional impairment test of goodwill required under SFAS 142, which was adopted effective January 1, 2002. As a result of completing the required transitional test, we recorded a charge retroactive to the adoption date for the cumulative effect of the accounting change in the amount of $80.6 million, representing the excess of the carrying value of reporting units as compared to estimated fair value at January 1, 2002. Of the total $80.6 million cumulative effect adjustment, $61.6 million related to the site development construction reporting segment and $19.0 million related to the site leasing reporting segment. The change modified the first quarter’s previously reported net loss of ($83.2) million, or ($1.70) per share, to ($163.8) million, or ($3.34) per share.
During 2002, we recorded additional goodwill totaling approximately $13.4 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, in addition to the transitional test described above, goodwill is subject to an impairment assessment at least annually, or at any time that indicators of impairment are present. We 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 market value, continued negative trends with respect to carrier capital expenditure plans, related demand for wireless construction and perceived reduction in value of similar site development construction services business. As a result of this analysis, using a discounted cash flow valuation method for estimating fair value, $13.4 million of goodwill within the site development construction reporting unit was determined to be impaired as of June 30, 2002. The $13.4 million goodwill impairment charge is included within restructuring and other charges in the Consolidated Statement of Operations for the year ended December 31, 2002.
Net loss was $(273.2) million for the year ended December 31, 2002 as compared to net loss of $(125.1) million for the year ended December 31, 2001. This increase in net loss is primarily a result of higher depreciation expense,
23
higher net interest expense, the $77.6 million restructuring and other charges previously discussed and the $80.6 million cumulative effect of change in accounting principle previously discussed offset by higher gross profit and lower selling, general and administrative expenses. We expect to incur additional net losses in 2003.
Earnings (loss) before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses (“EBITDA”) increased 31.1% to $79.0 million for the year ended 2002 from $60.2 million for the year ended 2001. If the AAT Transaction is consummated, our EBITDA in 2003 would be reduced as a result of the sale of either 679 or 801 towers. The following table provides a reconciliation of EBITDA to net loss available to common shareholders:
|
| Year ended December 31, |
| ||||
|
|
| |||||
| 2002 |
| 2001 |
| |||
|
|
| |||||
(in thousands) |
| ||||||
| EBITDA | $ | 78,972 |
| $ | 60,224 |
| |
| Interest expense, net of amount capitalized |
| (56,171 | ) |
| (47,709 | ) | |
| Amortization of original issue discount and debt issuance costs |
| (33,518 | ) |
| (29,730 | ) | |
| Interest income |
| 601 |
|
| 7,059 |
| |
| Provision for income taxes |
| (383 | ) |
| (1,654 | ) | |
| Depreciation and amortization |
| (102,328 | ) |
| (80,465 | ) | |
| Other |
| (169 | ) |
| (76 | ) | |
| Non-cash compensation expense |
| (2,017 | ) |
| (3,326 | ) | |
| Restructuring and other charges |
| (77,560 | ) |
| (24,399 | ) | |
| Extraordinary item |
| — |
|
| (5,069 | ) | |
| Cumulative effect of change in accounting principle |
| (80,592 | ) |
| — |
| |
|
| ||||||
| Net loss | $ | (273,165 | ) | $ | (125,145 | ) | |
|
| ||||||
Year Ended 2001 Compared to Year Ended 2000
Total revenues increased 44.7% to $242.9 million for 2001 from $167.9 million for 2000. Total site development revenue increased 20.6% to $139.7 million in 2001 from $115.9 million in 2000 due to an increase in site development construction revenue. Site development construction revenue increased 26.0% to $115.5 million for 2001 from $91.6 million for 2000, due primarily to revenues from companies acquired during 2000 and 2001. Revenues of $34.3 million were contributed by these acquired entities in 2001. Our decision to reduce our level of new tower development activity may have a material adverse effect on our site development revenue in 2002 since, as a result, we do not expect to perform equipment installation work for as many first tenants as we did in 2001. Site development consulting revenues were $24.3 million for 2001 and 2000. 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.
Total cost of revenues increased 33.5% to $144.7 million for 2001 from $108.4 million for 2000. Site development cost of revenue increased 21.4% to $107.9 million in 2001 from $88.9 million in 2000 due to higher site development revenues. Site development consulting cost of revenue increased 9.4% to $17.1 million for 2001 from $15.6 million for 2000, reflecting increased human resources costs. Site development construction cost of revenue increased 24.0% to $90.8 million for 2001 from $73.3 million for 2000, due to higher site development construction revenues. Site leasing cost of revenue increased 88.3% to $36.7 million for 2001 from $19.5 million for 2000, due primarily to the increased number of towers owned.
Gross profit increased to $98.2 million for 2001 from $59.5 million for 2000, due to increased site development and site leasing revenues. Gross profit from site development increased 17.8% to $31.8 million in 2001 from $27.0 million in 2000 due to higher site development revenues. Gross profit margins for site development decreased in 2001 to 22.8% from 23.3% in 2000 due to a greater relative amount of lower margin site development construction business. Gross profit margin on site development consulting decreased to 29.5% for 2001 from 35.6% for 2000. This decrease is attributable to higher costs and our inability to timely reduce those costs as projects ended. Gross profit margin on site development construction increased slightly to 21.3% for 2001 from 20.1% in 2000. 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 number of towers owned and the greater average revenue per tower 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
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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.
Selling, general and administrative expenses increased 48.7% to $41.3 million for 2001 from $27.8 million for 2000. The increase in selling, general and administrative expenses represents the addition of offices, personnel and other infrastructure necessary to support our growth, as well as increased developmental expenses associated with our higher levels of new tower builds and acquisition activities 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.
During the twelve months ended December 31, 2001, we recorded a $24.4 million charge relating to a reduction in the scale of our new tower construction operations. Approximately $24.1 million of this charge related to costs that were previously reflected in our balance sheet as construction-in-process. The remaining $0.3 million related primarily to the costs of employee separation for 102 employees and the costs associated with the closing and consolidation of selected offices that were primarily utilized in our new asset development activities.
Depreciation and amortization increased to $80.5 million for 2001 as compared to $34.8 million for 2000. This increase was directly related to the increased amount of fixed assets, primarily towers, we owned in 2001 as compared to 2000. As our fixed assets begin to mature we will be continuing to evaluate the useful lives of the assets and may decide to change these useful lives based on the circumstances. If the useful lives of assets are reduced, depreciation may be accelerated in future years. Amortization of goodwill and other intangible assets during 2001 and 2000 was $6.9 million and $3.6 million, respectively.
Operating loss increased to $(48.0) million for the year ended 2001 from $(3.1) million in 2000 as a result of increased depreciation and the restructuring and other charge in 2001. Other expense, net, increased to $(70.5) million for the year ended 2001 from $(24.6) million for the year ended 2000. This increase is a result of an increase in interest expense due to interest associated with the 10¼% senior notes as well as increases in other debt balances.
Earnings (loss) before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses (“EBITDA”) increased 88.0% to $60.2 million for the year ended 2001 from $32.0 million for the year ended 2000. The following table provides a reconciliation of EBITDA to net loss available to common shareholders:
|
| Year ended December 31, |
| ||||
|
|
| |||||
2001 |
| 2000 |
| ||||
|
| ||||||
(in thousands) |
| ||||||
| EBITDA | $ | 60,224 |
| $ | 32,026 |
| |
| Interest expense, net of amount capitalized |
| (47,709 | ) |
| (4,879 | ) | |
| Amortization of original issue discount and debt issuance costs |
| (29,730 | ) |
| (26,006 | ) | |
| 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 charges |
| (24,399 | ) |
| — |
| |
| Extraordinary item |
| (5,069 | ) |
| — |
| |
|
| ||||||
| Net loss | $ | (125,145 | ) | $ | (28,915 | ) | |
|
| ||||||
LIQUIDITY AND CAPITAL RESOURCES
SBA Communications Corporation is a holding company with no business operations of its own. Our only significant asset is the outstanding capital stock of SBA Telecommunications, which 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. Our ability to pay cash or stock dividends is restricted under the terms of our senior credit facility and the indentures related to our 10¼% senior notes and 12% senior discount notes.
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As a result of these estimates and our expectations that we will not comply with one or more of the financial covenants of our senior credit facility during 2003, the auditor’s opinion on our 2002 consolidated financial statements calls attention to substantial doubts about our ability to continue as a going concern through 2003.
The issuance of this audit opinion with a “going-concern” qualification, if not remedied by April 30, 2003, would itself be an event of default under our senior credit facility. As part of our plan to address our anticipated non-compliance with certain financial covenants under our senior credit facility commencing in 2003 and to reduce our significant level of indebtedness and the risks associated with such indebtedness, certain of our subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers. The AAT Transaction is subject to various conditions, including an amendment to our credit facility. We anticipate that the amendment to our senior credit facility would, among other things, (1) waive any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modify the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permit certain activities that are part of the AAT Transaction. We believe that the AAT Transaction, in conjunction with the amendment to the senior credit facility, will upon consummation, eliminate the issues that gave rise to the “going concern” qualification from our auditors. Based on our current estimates of wireless carrier activity, we believe that subsequent to the successful sale of either 679 or 801 towers, and the amendment to the senior credit facility, we will have sufficient liquidity to achieve positive free cash flow.
For a further discussion of our management’s plans to address the issuance of our audit opinion with a “going concern” qualification and the possible defaults of certain financial covenants under our senior credit facility please refer to the section entitled “Going Concern” above.
In addition to the proposed AAT Transaction, in order to manage our significant levels of indebtedness and to insure continued compliance with our financial covenants, we are exploring 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 either the AAT Transaction and/or any other of these strategies can be consummated, or if consummated, would effectively address our liquidity concerns, the possible defaults under our debt instruments or any of the other risks associated with our significant level of indebtedness.
Net cash provided by operations during the year ended December 31, 2002 was $1.6 million as compared to $13.0 million in 2001. This decrease was primarily attributable to cash interest payments made in February and August 2002 on the 10¼% senior notes. Net cash used in investing activities for year the ended December 31, 2002 was $98.0 million compared to $530.3 million for the year ended December 31, 2001. This decrease was primarily attributable to a significantly lower level of tower acquisitions and new build activity in 2002 versus 2001. Net cash provided by financing activities for the year ended December 31, 2002 was $143.7 million compared to $516.2 million for the year ended December 31, 2001. The decrease in net cash provided by financing activities in 2002 was primarily due to the issuance of our $500.0 million 10¼% senior notes completed in February 2001.
Our cash capital expenditures for the year ended December 31, 2002 were $103.4 million as compared to $530.3 million for the year ended December 31, 2001. This decrease is a result of lower investment in new tower assets. We currently plan to make total cash capital expenditures during the year ending December 31, 2003 of $10.0 million to $15.0 million. 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.
Our balance sheet reflected negative working capital of $(149.0) million and $(19.4) million as of December 31, 2002 and 2001, respectively. This change is attributable to the classification of $189.4 million of previously long-term debt as current, based upon management’s requirement to repay in 2003 substantially all of the net proceeds from the AAT Transaction in the amount of $188.0 million, offset by higher cash balances, receipts of accounts receivable and lower accounts payable levels.
At December 31, 2002 we had $500.0 million outstanding on our 10¼% senior notes. The 10¼% senior notes mature February 1, 2009. Interest on these notes is payable February 1 and August 1 of each year. Additionally, at December 31, 2002, we had $263.9 million outstanding on our 12% senior discount notes, net of unamortized original issue discount of $5.1 million. The 12% senior discount notes mature on March 1, 2008. The 12% senior
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discount notes accreted in value until March 1, 2003. Thereafter interest will begin to accrue and will be payable on March 1 and September 1 of each year, commencing on September 1, 2003. Each of the 10¼% senior notes and the 12% senior discount notes are unsecured and are pari passu in right of payment with our other existing and future senior indebtedness. The 10¼% senior notes and the 12% 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.
In June 2001, SBA Telecommunications, our principal subsidiary, entered into a $300.0 million senior secured credit facility. This facility was amended in January 2002 and further amended in August 2002. The senior credit facility as amended, provides for a $100.0 million term loan and a $200.0 million revolving loan, the availability of which is based on compliance with certain covenants. As of December 31, 2002, SBA Telecommunications had $255.0 million in loans outstanding under this facility, $100.0 million of the term loan and $155.0 million of the revolver. In addition, as of December 31, 2002, $14.5 million of letters of credit were issued and outstanding, under the senior credit facility. The term loan and the revolving loan mature June 15, 2007 and repayment of the term loan begins in September 2003 ($2.5 million is due for repayment on each of September 30, 2003 and December 31, 2003). Under the current terms of the senior credit facility, we are required to use substantially all of the net proceeds of asset sales to repay outstanding debt under the senior credit facility. As a result, we have calculated our current debt outstanding at December 31, 2002 to include substantially all of the net proceeds from the proposed sale of 801 towers to AAT Communications of $188.0 million. However, we intend to seek an amendment to the senior credit facility and in exchange for certain modifications, we would repay approximately $150.0 million of this facility in 2003. The receipt of this amendment is a condition to the consummation of the AAT Transaction. Borrowings under the senior credit facility accrue interest at the Euro dollar rate plus a margin or a base rate plus a margin, as defined in the credit agreement. At December 31, 2002, $100.0 million term loan outstanding under the senior credit facility was at variable rates of 3.41% to 3.43% and $155.0 million outstanding under the revolving credit facility was at variable rates of 3.41% to 3.81%.
The senior credit facility requires SBA Telecommunications to maintain specified financial ratios, including ratios regarding our consolidated debt coverage, debt service, cash interest expense and fixed charges for each quarter and to satisfy certain financial condition tests including maintaining minimum consolidated EBITDA. The senior credit facility also contains affirmative and negative covenants which, among other things, require us to submit audited financial statements without a “going-concern” qualification in the audit opinion and restricts our 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. The August 2002 amendment adjusted certain covenants and financial covenants, but did not change the amount or repayment terms of the facility. Specifically, the August 2002 amendment (1) amended certain financial covenants to (a) decrease the required ratios for cash interest expense coverage, fixed charges coverage and debt service coverage in 2003 to 2005 and (b) reduce the permitted senior leverage and debt per tower ratios and (2) increased the interest margin over the Euro dollar rate as specified in the original agreement by 25 basis points. Availability under the senior credit facility is contingent upon compliance with the financial ratios and tests and other covenants in the credit agreement. As of December 31, 2002 we were in full compliance with the covenants contained in the senior credit facility; however, the issuance of the audit opinion on the 2002 financial statements with a “going-concern” qualification, if not remedied by April 30, 2003, would be an event of default which would permit the lenders, by a majority vote, to immediately accelerate the maturity of the principal and interest outstanding under the senior credit facility and to terminate our ability to access any remaining available funds. Our ability in the future to comply with the covenants and access the available funds under the senior credit facility in the future will depend on our future financial performance. The senior credit facility is secured by substantially all of the assets of SBA Telecommunications and its subsidiaries.
One of our goals is the attainment of sustained positive free cash flow(1). We define free cash flow as EBITDA less net cash interest, cash capital expenditures and cash taxes. We are focused on maintaining sufficient liquidity until we reach our goal of sustained positive free cash flow. Based on our current estimates of wireless carrier activity, we believe that subsequent to the successful sale of either 679 or 801 towers, and the amendment to the senior credit facility, we will have sufficient liquidity to achieve positive free cash flow.
(1)Free cash flow is not intended to represent cash flows for the periods presented, nor has it been presented as an alternative to cash flows from operations or as an indicator of operating performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States.
We have on file with the Securities and Exchange Commission (“SEC”) shelf registration statements on Form S-4 registering up to a total of 8.0 million shares of Class A common stock that we may issue in connection with the acquisition of wireless communication towers or companies that provide related services at various locations in the United States. During the year ended December 31, 2002, we issued 1.3 million shares of Class A common stock under
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these registration statements in connection with one acquisition and certain earn-outs. As of December 31, 2002, we had 4.4 million shares of Class A common stock remaining available under these shelf registration statements.
We have on file with the SEC a universal shelf registration statement registering the sale of up to $252.7 million of any combination of the following securities: Class A common stock, preferred stock, debt securities, depositary shares or warrants.
INFLATION
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.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. 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, the cost is to be capitalized 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 are required to adopt this standard effective January 1, 2003. We have not completed our analysis determining the effect adoption of SFAS 143 will have on our consolidated financial statements, but believe it may be material given that we have obligations to restore leaseholds to their original condition upon termination of ground leases underlying a majority of our towers. We will record the cumulative effect of adopting this statement effective January 1, 2003.
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. For most companies, SFAS 145 will require 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 will be required for certain extinguishments as provided in APB Opinion No. 30. The statement also amended SFAS 13 for certain sale-leasebacks and sublease accounting. We are required to adopt the provisions of SFAS 145 effective January 1, 2003. Pursuant to SFAS 145, our previously reported extraordinary item will be reclassified to operating expense in consolidated financial statement presentation subsequent to December 31, 2002.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities 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 are required to adopt the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The effect of adopting SFAS 146 is not expected to be material to the consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. 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 will continue to account for stock-based compensation in accordance with APB No. 25. As such, we do not expect this standard to have a material impact on our consolidated financial position or results of operations. We have adopted the disclosure-only provisions of SFAS No. 148 as of December 31, 2002.
In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 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 issued 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.
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In January 2003, the FASB issued Interpretation (“FIN”) No. 46, Consideration 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 a holder of a significant amount of beneficial interests, but not the majority. FIN 46 is effective for all VIEs 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 interim or annual period beginning after June 15, 2003. We do not expect the effect of adopting FIN 46 to be material to the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
We have identified the policies and significant estimation processes below as critical to our business operations and the understanding of our results of operations. The listing is not intended to be a comprehensive list of all of our accounting policies.list. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United 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 detailed discussion on the application of these and other accounting policies, see Note 32 in the Notes to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K, beginning on page F-10. Note that ourfor the year ended December 31, 2004, included herein. Our preparation of this Annual Report on Form 10-Kour financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the datesdate of our financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant.
Construction 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. Rental amounts received in advance are recorded in deferred revenues.
Site development projects in which we perform consulting services include contracts on a time and materials basis or a fixed price basis. Time and materials based contracts are billed at contractual rates as the services are rendered. For those site development contracts in which we perform work on a fixed price basis, site development billing (and revenue recognition) is based on the completion of agreed upon phases 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. Revenue related to services performed on uncompleted phases of site development projects was not recorded by us at the end of the reporting periods presented as it was not material to our 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 considerswe consider total cost to be the best available measure of progress on the contracts.each contract. These amounts are based on estimates, and the uncertainty inherent in the estimates initially is reduced as work on the contractseach contract 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 development project revenue and construction revenue include all material costs, salaries and labor costs, including payroll taxes, subcontract labor, vehicle expense and other costs directly related to the projects. All costs related to site development projects and construction projects are recognized as incurred. Cost of site leasing revenue include rent, maintenance (exclusive of employee related costs) and other tower expenses. Provisions
Allowance for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable.Doubtful Accounts
We perform periodic credit evaluations of our customers. We continuously monitor collections and payments from our customers and maintain a provisionan allowance for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. Establishing reserves against specific accounts receivable and the overall adequacy of our allowance is a matter of judgment.
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Property and EquipmentAsset Impairment
Property and equipment are recorded at cost. 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 perform ongoing evaluations of the estimated useful lives of our 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. Maintenance and repair items are expensed as incurred.
Asset classes and related estimated useful lives are as follows:
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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 term.
We evaluate the potential impairment of individual long-lived assets, principally the tower sites. 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 make certain assumptions when making this assessment, including but not limited toto; 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 sell for purposes of calculating the amount of an impairment charge. Changes in those assumptions or market conditions may result in a fair 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 future. In addition, if our assumptions regarding future undiscounted cash flows and related assumptions are incorrect, a future impairment charge may be required.
The restructuring and other charges
Asset Retirement Obligations
Effective January 1, 2003, we adopted the provisions of $ 77.6 million recordedSFAS 143. Under the new accounting principle, we recognize asset retirement obligations in 2002 includesthe period in which they are incurred if a $16.4 million asset impairment charge. The asset impairment charge was determined through an evaluationreasonable estimate of our tower asset portfolio using a projected cash flow analysis and assets were written down to fair value determined on a discounted cash flow analysis.can be made and we accrete such liability through the obligation’s estimated settlement date. The tower assets determined to be impaired were primarily those with no current tenants and little or no lease-up potential. Long-lived assetsassociated asset retirement costs are subject to an impairment assessment any time that indicators of impairment are present. If wireless carrier capital expenditures and their ability to access capital remain weak or deteriorate further, we believe the valuation of certain of our long-lived assets may be negatively impacted.
In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed of. SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, Reporting Results of Operations – Reporting the Effects of Disposal of a Segment of a Business. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001. We adopted SFAS 144 on January 1, 2002.
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Goodwill
During 2002, we completed the transitional impairment test of goodwill required under SFAS 142, which was adopted effective January 1, 2002. As a result of completing the required transitional test, we recorded a charge retroactive to the adoption date for the cumulative effect of the accounting change in the amount of $80.6 million, representing the excesscapitalized as part of the carrying amount of the related tower fixed assets and depreciated over its estimated useful life.
Significant management estimates and assumptions are required in determining the scope and fair value of reporting units as comparedour obligations to restore leaseholds to their estimated fair value. Oforiginal condition upon termination of ground leases. In determining the total $80.6 million cumulative effect adjustment, $61.6 million related to the site development construction reporting segmentscope and $19.0 million related to the site leasing reporting segment. The change modified the first quarter’s previously reported net loss of ($83.2) million, or ($1.70) per share to ($163.8) million, or ($3.34) per share.
During 2002, we recorded additional goodwill totaling approximately $13.4 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, in addition to the transitional test described above, goodwill is subject to an impairment assessment at least annually, or at any time that indicators of impairment are present. We 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 further deterioration of company value, further activities under our restructuring plan, and market conditions related to demand for wireless construction services. As a result of this analysis, using a discounted cash flow valuation method for estimating fair value $13.4 million of goodwill within the site development construction segment was determined to be impaired as of June 30, 2002. The $13.4 million goodwill impairment charge is included within restructuring and other charges in the Consolidated Statement of Operations for the year ended December 31, 2002. As of December 31, 2002 we did not have any remaining goodwill or other intangible assets subject to SFAS 142.
Restructuring Accruals
In establishing the accrual for the restructuring costs discussed in Note 14 to the consolidated financial statements, we made certain assumptions to estimate future severance costs and other exit costs. In addition, while performing impairment tests for certain long-term assets,our obligations, assumptions were made aswith respect to the historical retirement experience as an indicator of future cash flows associated with these assets.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 feel the assumptions were appropriate, there can be no assuranceassurances that actual costs and the probability of incurring obligations will not differ from estimates used to establish the restructuring accrual. If actual results differ from the estimates,estimates. We will review these assumptions periodically and we may need to adjust upward or downward,them as necessary. See Note 6 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
Operating results in prior periods may not be meaningful predictors of future results as our restructuring accrualgross profit mix shifts more towards site leasing. You should be aware of the dramatic changes in the future.nature and scope of our business in prior periods when reviewing the ensuing discussion of comparative historical results.
Accounting for Income TaxesYear Ended 2004 Compared to Year Ended 2003
Revenues:
| For the year ended December 31, | |||||||||||||||
| 2004 | Percentage of Revenues | 2003 | Percentage of Revenues | Percentage Change | |||||||||||
| (dollars in thousands) | |||||||||||||||
Site leasing | $ | 144,004 | 62.2 | % | $ | 127,852 | 66.6 | % | 12.6 | % | |||||
Site development consulting | 14,456 | 6.2 | % | 12,337 | 6.4 | % | 17.2 | % | |||||||
Site development construction | 73,022 | 31.6 | % | 51,920 | 27.0 | % | 40.6 | % | |||||||
Total revenues | $ | 231,482 | 100.0 | % | $ | 192,109 | 100.0 | % | 20.5 | % | |||||
Site leasing revenue increased due to the increased number of tenants and the amount of equipment added to our towers. As partof December 31, 2004 we had 7,257 tenants as compared to 6,847 tenants at December 31, 2003. During the year ended 2004, 88% of contractual revenues from new leases and amendments executed in 2004 were related to new tenant installation and 12% were related to additional equipment being added by existing tenants. During the year ended 2003, 89% of contractual revenues from new leases and amendments executed in 2003 were related to new tenant installation and 11% were related to additional equipment being added by existing tenants. Additionally, we have experienced, on average, higher rents per tenant due to higher rents from new tenants, higher rents upon renewal by existing tenants and additional equipment added by existing tenants.
Site development construction revenue increased primarily as a result of the processsignificant services contract awarded by Sprint Spectrum L.P. in mid 2003, which increased our volume of preparingactivity for the year ended December 31, 2004 compared to the same period a year ago.
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Cost of Revenues:
For the year ended December 31, | Percentage Change | ||||||||
| 2004 | 2003 | ||||||||
| (in thousands) | |||||||||
Site leasing | $ | 47,283 | $ | 47,793 | (1.1 | )% | |||
Site development consulting | 12,768 | 11,350 | 12.5 | % | |||||
Site development construction | 68,630 | 47,333 | 45.0 | % | |||||
Total cost of revenues | $ | 128,681 | $ | 106,476 | 20.9 | % | |||
Cost of revenues increased primarily due to increased activity associated with the significant services contract awarded by Sprint in mid 2003 related to the site development construction business.
Gross Profit:
For the year ended December 31, | Percentage Change | ||||||||
| 2004 | 2003 | ||||||||
| (in thousands) | |||||||||
Site leasing | $ | 96,721 | $ | 80,059 | 20.8 | % | |||
Site development consulting | 1,688 | 987 | 71.0 | % | |||||
Site development construction | 4,392 | 4,587 | (4.2 | )% | |||||
Total gross profit | $ | 102,801 | $ | 85,633 | 20.0 | % | |||
Gross Profit Margin Percentages:
For the year ended December 31, | ||||||
| 2004 | 2003 | |||||
Site leasing | 67.2 | % | 62.6 | % | ||
Site development consulting | 11.7 | % | 8.0 | % | ||
Site development construction | 6.0 | % | 8.8 | % | ||
Gross profit margin | 44.4 | % | 44.6 | % | ||
Gross profit and gross profit margin percentage for the site leasing business increased as a result of higher revenues per tower and tower operating cost reduction initiatives. Gross profit from site development construction decreased as a result of lower pricing without a commensurate reduction in cost and performance issues which resulted in actual margins below estimates.
Operating Expenses:
For the year ended December 31, | Percentage Change | ||||||||
| 2004 | 2003 | ||||||||
| (in thousands) | |||||||||
Selling, general and administrative | $ | 28,887 | $ | 30,714 | (5.9 | )% | |||
Restructuring and other charges | 250 | 2,094 | (88.1 | )% | |||||
Asset impairment charges | 7,092 | 12,993 | (45.4 | )% | |||||
Depreciation, accretion and amortization | 90,453 | 93,657 | (3.4 | )% | |||||
Total operating expenses | $ | 126,682 | $ | 139,458 | (9.2 | )% | |||
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In 2004, we recognized approximately $7.1 million in asset impairment charges related to 40 towers. By comparison, in 2003 we recognized approximately $13.0 million of asset impairment charges related to 70 towers. In addition, selling general and administrative expenses decreased primarily due to the reduction of bad debt expense of approximately $2.0 million as a result of improved collections and credit quality of our consolidated financial statements we are requiredreceivables.
Operating Loss From Continuing Operations:
For the year ended December 31, | Percentage Change | ||||||||||
| 2004 | 2003 | ||||||||||
| (in thousands) | |||||||||||
Operating loss from continuing operations | $ | (23,881 | ) | $ | (53,825 | ) | (55.6 | )% | |||
The decrease in operating loss from continuing operations primarily was a result of higher gross profit and lower impairment charges in 2004 as compared to estimate our income taxes in each2003.
Other Expense:
For the year ended December 31, | Percentage Change | ||||||||||
| 2004 | 2003 | ||||||||||
| (in thousands) | |||||||||||
Interest income | $ | 516 | $ | 692 | (25.4 | )% | |||||
Interest expense | (47,460 | ) | (81,501 | ) | (41.8 | )% | |||||
Non-cash interest expense | (28,082 | ) | (9,277 | ) | 202.7 | % | |||||
Amortization of debt issuance costs | (3,445 | ) | (5,115 | ) | (32.6 | )% | |||||
Loss from write-off of deferred financing fees and extinguishment of debt | (41,197 | ) | (24,219 | ) | 70.1 | % | |||||
Other | 236 | 169 | 39.6 | % | |||||||
Total other income (expense) | $ | (119,432 | ) | $ | (119,251 | ) | 0.2 | % | |||
Interest expense decreased primarily as a result of the jurisdictionsrepurchases and redemption of the 12% senior discount notes with proceeds from the 9¾% senior discount notes issued in December 2003 and proceeds from our senior credit facility which we operate. This process involves us estimatingobtained in January 2004, as well as repurchases of 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 sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and10¼% senior notes throughout 2004.
Non cash interest expense increased due to the extent we believe that recovery is not likely, we must establishamortization of the original interest discount of the 9¾% senior discount notes, which replaced the 12% senior discount notes.
The increase in loss from write-off of deferred financing fees and extinguishment of debt was attributed to a valuation allowance. Towrite-off of $13.1 million of deferred financing fees and $28.1 million loss on the extent we establishextinguishment of debt associated with the early retirement of our 12% senior discount notes, a valuation allowance or increase this allowance in a period, we must include an expense withinsignificant portion of our 10¼% senior notes and the tax provisiontermination of the prior senior credit facility in the statementyear ended December 31, 2004 versus the write-off of operations.$4.4 million of deferred financing fees associated with the refinancing of our senior credit facility loans which were repaid in full, and a loss on extinguishment of debt of $19.8 million relating to the repurchase of our 12% senior discount notes for the comparable period in 2003.
Significant management judgment
Discontinued Operations, Net of Income Taxes:
For the year ended December 31, | Percentage Change | |||||||||
| 2004 | 2003 | |||||||||
| (in thousands) | ||||||||||
(Loss) gain from discontinued operations, net of income taxes | $ | (3,257 | ) | $ | 202 | (1,712.4 | )% | |||
The increase in loss from discontinued operations was primarily a result of the gain from discontinued operations relating to the towers sold in the Western tower sale in 2003 versus the loss on the Western Services business which was sold in 2004.
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Cumulative Effect of Changes In Accounting Principle:
For the year ended December 31, | Percentage Change | |||||||||
| 2004 | 2003 | |||||||||
| (in thousands) | ||||||||||
Cumulative effect of changes in accounting principle | $ | — | $ | (545 | ) | (100.0 | )% | |||
The decrease in the cumulative effect of changes in accounting principle was the result of the adoption of SFAS 143 on January 1, 2003.
Net Loss:
For the year ended December 31, | Percentage Change | ||||||||||
| 2004 | 2003 | ||||||||||
| (in thousands) | |||||||||||
Net loss | $ | (147,280 | ) | $ | (175,148 | ) | (15.9 | )% | |||
The decrease in net loss is requiredprimarily a result of higher gross profit, lower asset impairment charges and lower depreciation expense and restructuring expense for the year ended December 31, 2004 as compared with the year ended December 31, 2003.
Year Ended 2003 Compared to Year Ended 2002
Revenues:
| For the year ended December 31, | |||||||||||||||
| 2003 | Percentage of Revenues | 2002 | Percentage of Revenues | Percentage Change | |||||||||||
| (dollars in thousands) | |||||||||||||||
Site leasing | $ | 127,852 | 66.6 | % | $ | 115,121 | 53.7 | % | 11.1 | % | |||||
Site development consulting | 12,337 | 6.4 | % | 17,361 | 8.1 | % | (28.9 | )% | |||||||
Site development construction | 51,920 | 27.0 | % | 81,991 | 38.2 | % | (36.7 | )% | |||||||
Total revenues | $ | 192,109 | 100.0 | % | $ | 214,473 | 100.0 | % | (10.4 | )% | |||||
Site leasing revenue increased due to the increased number of tenants and the amount of equipment added to our towers. As of December 31, 2003 we had 6,847 tenants as compared to 6,389 tenants at December 31, 2002. During the year ended 2003, 89% of contractual revenues from new leases and amendments executed in determining2003 were related to new tenant installation and 11% were related to additional equipment being added by existing tenants. During the year ended 2002, 87% of contractual revenues from new leases and amendments executed in 2002 were related to new tenant installation and 13% were related to additional equipment being added by existing tenants. Additionally, we have experienced, on average, higher rents per tenant due to higher rents from new tenants, higher rents upon renewal by existing tenants and additional equipment added by existing tenants.
Both site development consulting and construction revenue decreased primarily as a result of the decline in capital expenditures by wireless carriers for additional antenna sites and vigorous competition, which adversely affected our provisionvolume of activity and the pricing for income taxes, our deferred tax assetsservices.
24
Cost of Revenues:
For the year ended December 31, | Percentage Change | ||||||||
| 2003 | 2002 | ||||||||
| (in thousands) | |||||||||
Site leasing | $ | 47,793 | $ | 46,709 | 2.3 | % | |||
Site development consulting | 11,350 | 13,434 | (15.5 | )% | |||||
Site development construction | 47,333 | 68,131 | (30.5 | )% | |||||
Total cost of revenues | $ | 106,476 | $ | 128,274 | (17.0 | )% | |||
Both site development consulting and liabilitiesconstruction cost of revenues decreased due primarily to lower levels of activity.
Gross Profit:
For the year ended December 31, | Percentage Change | ||||||||
| 2003 | 2002 | ||||||||
| (in thousands) | |||||||||
Site leasing | $ | 80,059 | $ | 68,412 | 17.0 | % | |||
Site development consulting | 987 | 3,927 | (74.9 | )% | |||||
Site development construction | 4,587 | 13,860 | (66.9 | )% | |||||
Total gross profit | $ | 85,633 | $ | 86,199 | (0.7 | )% | |||
Gross Profit Margin Percentages:
For the year ended December 31, | ||||||
| 2003 | 2002 | |||||
Site leasing | 62.6 | % | 59.4 | % | ||
Site development consulting | 8.0 | % | 22.6 | % | ||
Site development construction | 8.8 | % | 16.9 | % | ||
Gross profit margin | 44.6 | % | 40.2 | % | ||
Gross profit and any valuation allowance recorded against our net deferred tax assets. We have recordedgross profit margin percentage for the site leasing business increased as a valuation allowanceresult of $136.2 millionhigher 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 cost.
Operating Expenses:
For the year ended December 31, | Percentage Change | ||||||||
| 2003 | 2002 | ||||||||
| (in thousands) | |||||||||
Selling, general and administrative | $ | 30,714 | $ | 32,740 | (6.2 | )% | |||
Restructuring and other charges | 2,094 | 47,762 | (95.6 | )% | |||||
Asset impairment charges | 12,993 | 24,194 | (46.3 | )% | |||||
Depreciation, accretion and amortization | 93,657 | 95,627 | (2.1 | )% | |||||
Total operating expenses | $ | 139,458 | $ | 200,323 | (30.4 | )% | |||
Selling, general, and administrative expenses decreased primarily as a result of reductions in the number of offices, elimination of personnel and elimination of other infrastructure. As of December 31, 2003, we had approximately 600 employees whereas as of December 31, 2002, we had approximately 750 employees.
In 2003, we recognized approximately $13.0 million in asset impairment charges related to 70 towers. By comparison, in 2002 we recognized approximately $15.0 million of asset impairment charges related to 144 towers. The impairment of operational tower assets resulted primarily from our 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 impairment 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 a result of the deterioration of capital market conditions for wireless carriers, we reduced our capital 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 build and acquisition work in progress and related construction materials on approximately 764 sites. The remaining $6.9 million related primarily to the costs of employee separation for approximately 470 employees and exit costs associated with the closing and consolidation of approximately 40 offices. During 2003, in response to a decline in expenditures by wireless services providers, particularly with respect to site development activities, we committed to new plans of restructuring associated with further downsizing activities. Of the $2.1 million charge recorded for the year ended December 31, 2003, approximately $0.1 million related to the abandonment of new tower build work in process and trailing costs associated with previously abandoned new tower build work in process. The remaining $2.0 million related primarily to the costs of employee separation for approximately 165 employees and exit costs associated with the closing or consolidation of 17 offices. Annualized aggregate lease costs associated with the 17 offices closed or consolidated during 2003 were $0.7 million.
25
Operating Loss From Continuing Operations:
For the years ended December 31, | Percentage Change | ||||||||||
| 2003 | 2002 | ||||||||||
| (in thousands) | |||||||||||
Operating loss from continuing operations | $ | (53,825 | ) | $ | (114,124 | ) | (52.8 | )% | |||
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 year ended December 31, | Percentage Change | ||||||||||
| 2003 | 2002 | ||||||||||
| (in thousands) | |||||||||||
Interest income | $ | 692 | $ | 601 | 15.1 | % | |||||
Interest expense | (81,501 | ) | (54,822 | ) | 48.7 | % | |||||
Non-cash interest expense | (9,277 | ) | (29,038 | ) | (68.1 | )% | |||||
Amortization of debt issuance costs | (5,115 | ) | (4,480 | ) | (14.2 | )% | |||||
Loss from write-off of deferred financing fees and extinguishment of debt | (24,219 | ) | — | — | % | ||||||
Other | 169 | (169 | ) | (200.0 | )% | ||||||
Total other income (expense) | $ | (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 existed 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.
Discontinued Operations, Net of Income Taxes:
For the years ended December 31, | Percentage Change | |||||||||
| 2003 | 2002 | |||||||||
| (in thousands) | ||||||||||
Gain (loss) from discontinued operations, net of income taxes | $ | 202 | $ | (4,081 | ) | (104.9 | )% | |||
The decrease in loss from discontinued operations was the result of the gain on the sale of the 784 towers sold in the Western tower sale in 2003.
26
Cumulative Effect of Changes In Accounting Principle:
For the years ended December 31, | Percentage Change | ||||||||||
| 2003 | 2002 | ||||||||||
| (in thousands) | |||||||||||
Cumulative effect of changes in accounting principle | $ | (545 | ) | $ | (60,674 | ) | (99.1 | )% | |||
The decrease in the cumulative effect of changes in accounting principle was the result of completing the transitional impairment test of goodwill under FAS 142 effective January 1, 2002, which resulted in a cumulative effect of 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 this amount, $58.5 million related to the site development construction segment and $2.2 million related to the site leasing reporting segment. In 2003, we recorded $0.5 million in cumulative effect of accounting change related to the adoption of SFAS 143 effective January 1, 2003, which resulted in the recording of an asset retirement obligation on our tower portfolio.
Net Loss:
For the years ended December 31, | Percentage Change | ||||||||||
| 2003 | 2002 | ||||||||||
| (in thousands) | |||||||||||
Net Loss | $ | (175,148 | ) | $ | (267,087 | ) | (34.4 | )% | |||
The 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.
LIQUIDITY AND CAPITAL RESOURCES
SBA Communications Corporation is a holding company with no business operations of its own. Our only significant asset is the outstanding capital stock of SBA Telecommunications, Inc. (“Telecommmunications”), 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 SBA Senior Finance 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, we cannot assure you that our subsidiaries will generate sufficient cash flow to pay a dividend. Furthermore, the ability of our subsidiaries to pay cash or stock dividends is restricted under the terms of our senior credit facility and the indenture for the 9¾% senior discount notes and the 8½% senior notes.
A summary of our cash flows is as follows:
For the year ended December 31, 2004 | |||
| (in thousands) | |||
Summary Cash Flow Information: | |||
Cash provided by operating activities | $ | 14,216 | |
Cash provided by investing activities | 1,326 | ||
Cash provided by financing acitivities | 45,747 | ||
Increase in cash and cash equivalents | 61,289 | ||
Cash and cash equivalents, December 31, 2003 | 8,338 | ||
Cash and cash equivalents, December 31, 2004 | $ | 69,627 | |
27
Sources of Liquidity
In December 2003, SBA Communications and Telecommunications co-issued $402.0 million of aggregate principal amount at maturity of their 9¾% senior discount notes, which produced net proceeds of approximately $267.1 million after deducting offering expenses. A portion of the proceeds from the senior discount notes were used to tender, repurchase and redeem all of our 12% senior discount notes during the first quarter of 2004 and to repurchase a portion of our 10¼% senior notes during the quarter ended March 31, 2004.
During January 2004, SBA Senior Finance closed on a new senior credit facility in the amount of $400.0 million. This new credit 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, in part, to repay the old credit facility in full, consisting of $144.2 million of principal and accrued interest outstanding. In addition to the amounts outstanding on the old credit facility, we were required to pay $8.0 million to the lenders under the old credit facility to facilitate the assignment of the old credit facility to the new lenders. SBA Senior Finance has recorded additional deferred financing fees of approximately $6.5 million associated with this new credit facility. Between June and November 2004, we drew an additional $50.0 million on the delayed draw term loan. As of December 31, 2004, we were in full compliance with the financial covenants contained in this agreement and had an outstanding balance of $323.4 million, which consisted entirely of the term loan. As of December 31, 2004, we have approximately $36.5 million of additional borrowing capacity under our senior credit facility, subject to maintenance covenants, borrowing base limitations and other conditions.
On December 1, 2004, we issued $250.0 million of 8½% senior notes due 2012, which produced net proceeds of $244.8 million after deducting offering expenses. Interest accrues on the notes and is payable in cash semi-annually in arrears on June 1 and December 1, commencing June 1, 2005. Proceeds from the 8½% senior notes were used to uncertaintiesrepay $236.5 million of our outstanding 10¼% senior notes, of which we redeemed $186.5 million in December 2004 and the remaining $50.0 million on February 1, 2005.
In order to manage our significant levels of indebtedness and to ensure continued compliance with our financial covenants, in addition to our capital restructuring activities completed in 2003 and 2004 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 existing indebtedness 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.
Cash provided by operating activities was $14.2 million for the year ended December 31, 2004. Included in this amount is $15.2 million related to a decrease in short-term investments associated with the sale of trading securities. Additionally, growth in our site leasing business during the year ended December 31, 2004 also contributed to the increase in cash provided by operating activities, offset by a net increase of other working capital items.
Uses of Liquidity
During the first quarter of 2004, we repurchased and redeemed all $65.7 million of our outstanding 12% senior discount notes. During the year ended December 31, 2004 we repurchased in the open market $373.2 million of our outstanding 10¼% senior notes. Of these repurchases, $306.8 million were repurchased with cash and $49.7 million were exchanged for 8.7 million shares of our Class A common stock. On February 1, 2005, we called the remaining $50.0 million of our 10¼% senior notes. Additionally, during the year ended December 31, 2004, we paid approximately $63.7 million of cash for interest on our various debt instruments. As a result of our refinancing activities discussed above and the effect of this offering, our cash interest requirements for 2005 are expected to be significantly lower than our requirements in 2004.
Our cash capital expenditures for the year ended December 31, 2004 were $9.0 million, which was comprised of $4.0 million of tower upgrades and other capital improvements, $1.9 million of new tower construction, $1.8 million of earn-outs and acquisitions, and $1.3 million for general corporate expenditures. 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 funds 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 maintenance capital expenditures. For 2005, we expect to incur capital expenditures of approximately $10.0 million to $15.0 million primarily in connection with our plans to build 50 to 75 new towers. Additionally, we expect to incur capital expenditures of approximately $12.0 million to $13.0 million primarily in connection with acquiring towers during the first quarter of 2005. All of these planned capital expenditures are expected to be funded by cash on hand, cash flow from operations and availability under our senior credit facility. The exact amount of our future capital expenditures will depend on a number of factors including amounts necessary to support our tower portfolio.
28
Debt Service Requirements
At December 31, 2004, we had $51.9 million outstanding of our 10¼% senior notes. This amount includes a $1.9 million deferred gain related to the termination of a derivative instrument in 2002. These notes were redeemed in full on February 1, 2005 at the call price of 105.125% of the aggregate principal amount. The 10¼% senior notes were scheduled to mature February 1, 2009.
At December 31, 2004, we had $302.4 million outstanding of our 9¾% senior discount notes. The 9¾% notes accrete in value until December 15, 2007, at which time they will have a fully accreted balance of $400.8 million. These notes mature December 15, 2011. Interest on these notes is payable June 15 and December 15, beginning June 15, 2008.
At December 31, 2004, we had $250.0 million outstanding of our 8½% senior notes. The 8½% notes mature on December 1, 2012. Interest on these notes is payable June 1 and December 1, beginning June 1, 2005. Based on the amounts outstanding at December 31, 2004, annual debt service on these notes is $21.3 million.
As of December 31, 2004, we had $323.4 million outstanding under our senior credit facility. Based on this outstanding amount and rates in effect at such time, we estimate our annual debt service including amortization to be approximately $15.7 million annually related to our senior credit facility.
The issuance of our 8½% senior notes in December 2004 as well as the repurchase of $186.5 million of 10¼% senior notes in December 2004 pursuant to a tender offer and the redemption of the remaining $50.0 million of 10¼% senior notes in February 2005 is expected to result in a cash savings of approximately $2.6 million in debt service payments in 2005.
Capital Instruments
Senior Notes and Senior Discount Notes
Our 8½% senior notes are unsecured and arepari passu in right of payment with our other existing and future senior indebtedness. Our 9¾% senior discount notes were co-issued by us and Telecommunications in December 2003, are unsecured, rankpari passu with the senior indebtedness and are structurally senior to all indebtedness of SBA Communications. The 8½% 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 utilize somemerge or consolidate with other entities.
January 2004 Senior Credit Facility
On January 30, 2004, SBA Senior Finance closed on a new senior credit facility in the amount of our deferred tax$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. The revolving line of credit may be borrowed, repaid and redrawn. Amortization of the term loan is at a quarterly rate of 0.25% and is payable quarterly beginning September 30, 2004 and ends September 30, 2008. All remaining outstanding amounts under the term loans are due October 31, 2008. There is no amortization of the revolving line of credit and all amounts outstanding under the revolving line of credit are due on July 31, 2008. On November 12, 2004, we entered into an amendment to the senior credit facility. Under the amendment, amounts borrowed will accrue interest at either the Eurodollar Rate (as defined in the senior credit facility) plus a spread of 275 basis points or the Base Rate (as defined in the senior credit facility) plus a spread of 175 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 primarily consistingto secure such guarantee. In addition, SBA Communications and Telecommunications have pledged, on a non-recourse basis, all of netthe common stock of Telecommunications and SBA Senior Finance to secure SBA Senior Finance’s obligations under this senior credit facility.
The new senior credit facility requires SBA Senior Finance to maintain specified financial ratios, including ratios regarding its debt to annualized operating losses. 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, restrict its ability to incur debt and liens, sell assets, commit to capital expenditures, enter into affiliate transactions or sale-leaseback transactions,
29
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 covenants discussed above. SBA Senior Finance’s ability in the future to comply with the covenants and access the available funds under the senior credit facility in the future will depend on its future financial performance. As of December 31, 2004, we were in full compliance with the financial covenants contained in this agreement.
Registration Statements
We have on file with the Commission shelf registration statements on Form S-4 registering up to a total of 8.0 million shares of Class A common stock that we may issue in connection with the acquisition of wireless communication towers or companies that provide related services at various locations in the United States. During the year ended December 31, 2004, we issued 412,556 shares of Class A common stock under these registration statements in connection with the acquisition of five towers and related assets. As of December 31, 2004, we had 3,972,800 million shares of Class A common stock remaining available under these shelf registration statements. Subsequent to December 31, 2004, we issued 448,000 shares under these shelf registration statements in partial payment of the purchase price in connection with the acquisition of 24 towers.
We have on file with the SEC a universal shelf registration statement registering the sale of up to $252.7 million of any combination of the following securities: Class A common stock, preferred stock, debt securities, depositary shares or warrants.
Inflation
The valuation allowance is basedimpact of inflation on our estimatesoperations has not been significant to date. However, we cannot assure you that a change in the rate of taxable incomeinflation in the future will not adversely affect our operating results.
Recent Accounting Pronouncements
In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revised SFAS No. 123,Share-Based Payment(“Statement 123R”), which is effective for our third quarter of fiscal 2005. Statement 123R requires companies to expense in their consolidated statement of operations the estimated fair value of employee stock options and similar awards. We are currently evaluating which application method will be applied once SFAS 123R is adopted. Depending on the model used to calculate stock-based compensation expense in the future, the implementation of certain other requirements of Statement 123R and additional option grants expected to be made in the future, the pro forma disclosure may not be indicative of the stock-based compensation expense that will be recognized in our future financial statements. We are in the process of determining how the new method of valuing stock-based compensation as prescribed in Statement 123R will be applied to valuing stock-based awards granted after the effective date and the period overimpact the recognition of compensation expense related to such awards will have on its financial statements.
The effective date of certain elements of SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity (“Statement 150”), has been delayed indefinitely by the FASB. These elements of Statement 150 require that noncontrolling interests in limited-life subsidiaries be classified as liabilities. As a result of this indefinite delay, we have not adopted these elements of Statement 150. The Company has adopted the other elements of Statement 150, for which our deferred tax assetsthe effective date was not delayed. Currently, we do not expect that the adoption of the remaining elements of Statement 150 will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to establish an additional valuation allowance which couldhave a material impact ouron its financial position andor results of operations.
In December 2004, the FASB issued SFAS No.153, “Exchanges of Nonmonetary Assets—an Amendment of APB No. 29” (SFAS 153). The net deferred tax liabilityamendments made by SFAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is not expected to impact our Consolidated Financial Statements.
Commitments and Contractual Obligations
The following table summarizes our scheduled contractual commitments as of December 31, 2002 was $18.4 million.2004:
Contractual Obligations | Total | Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | ||||||||||
Short-term and long-term debt | $ | 1,024,134 | $ | 3,250 | $ | 6,500 | $ | 313,625 | $ | 700,759 | |||||
Interest payments(1) | 407,302 | 41,203 | 83,587 | 140,611 | 141,901 | ||||||||||
Operating leases | 623,128 | 26,093 | 49,381 | 49,751 | 497,903 | ||||||||||
Employment agreements | 1,510 | 975 | 535 | — | — | ||||||||||
| $ | 2,056,074 | $ | 71,521 | $ | 140,003 | $ | 503,987 | $ | 1,340,563 | ||||||
| (1) | Represents interest payments of 8 1/2% senior notes, 10 1/4% senior notes, and 9 3/4% senior discount notes based on stated interest rates on those facilities. This also includes interest on the senior credit facility, which had a weighted average interest rate of 4.86% at December 31, 2004. |
ItemOff-Balance Sheet Arrangements
We are not involved in any off-balance sheet arrangements.
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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, and in some cases relate to our acquisition of related businesses.business. We are subject to interest rate risk on our senior credit facility and any future financing requirements. SubstantiallyWe attempt to limit our exposure to interest rate risk by managing the mix of our indebtedness currently consists oflong-term fixed rate debt.
senior notes and our borrowings under our senior credit facility. As of December 31,
The following table presents the future principal payment obligations and weighted average interest rates associated with our long-term debt instruments assuming our actual level of long-term indebtedness as of December 31, 2002:
|
| 2003 |
| 2004 |
| 2005 |
| 2006 |
| 2007 |
| Thereafter |
| Fair Value |
| |||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
(in thousands) |
| |||||||||||||||||||||
| Long-term debt: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Fixed rate (10¼%) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 500,000 |
| $ | 275,000 |
| |
| Fixed rate (12.0%) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 269,000 |
| $ | 145,148 |
| |
| Term loan, $100.0 million, variable rates (3.41% to 3.43% at December 31, 2002) | $ | 75,039 |
| $ | 3,941 |
| $ | 6,569 |
| $ | 6,568 |
| $ | 7,883 |
| $ | — |
| $ | 100,000 |
| |
| Revolving loan, variable rates (3.41% to 3.81% at December 31, 2002) | $ | 114,275 |
|
| — |
|
| — |
|
| — |
| $ | 40,725 |
|
| — |
| $ | 155,000 |
| |
| Notes payable, variable rates (2.9% to 11.4% at December 31, 2002) | $ | 83 |
| $ | 40 |
|
| — |
|
| — |
|
| — |
|
| — |
| $ | 123 |
| |
In January 2002, we entered into an interest rate swap agreement to manage our exposure to interest rate movements and to take advantage of a favorable interest rate environment by effectively converting a portion of our debt from fixed to variable rates. The notional principal amount of the interest rate swap was $100.0 million. The maturity date of the interest rate swap matched the principal maturity date of the 10¼% senior notes, the underlying debt (February 2009). This swap involved the exchange of fixed rate payments for variable rate payments without the exchange of the underlying principal amount. The variable rates were based on six-month EURO rate plus 4.47% and were reset on a semi-annual basis. The counter-party to the interest rate swap agreement elected to terminate the swap agreement effective October 15, 2002. In connection with this termination, the counter-party paid us $6.2 million, which included approximately $0.8 million in accrued interest. The remaining $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. The deferred gain balance of $5.2 million at December 31, 2002 is included in long-term debt.2004:
| 2005 | 2006 | 2007 | 2008 | 2009 | Thereafter | Total | Fair Value | |||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||
Long-term debt: | ||||||||||||||||||||||||
Fixed rate (10 1/4%)(1) | — | — | — | — | $ | 49,985 | — | $ | 49,985 | $ | 52,547 | |||||||||||||
Fixed rate (9 3/4%) | — | — | — | — | — | $ | 400,774 | $ | 400,774 | $ | 337,652 | |||||||||||||
Fixed rate (8 1/2%) | — | — | — | — | — | $ | 250,000 | $ | 250,000 | $ | 255,000 | |||||||||||||
Senior credit facility (rates varying from 4.81% to 5.51% at December 31, 2004) | $ | 3,250 | $ | 3,250 | $ | 3,250 | $ | 313,625 | — | — | $ | 323,375 | $ | 323,375 | ||||||||||
| (1) | These notes were redeemed in full on February 1, 2005. |
Our primary market risk exposure relates to (1) the interest rate risk on variable-rate long-term and short-term borrowings, (2) our ability to refinance our 10¼9¾% senior discount notes and our 12%8½% senior discount notes, at maturity at market rates, and (3) the impact of interest rate movements on our ability to meet 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 10¼8½% 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, 2004 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, 2002 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 are as follows:
9 3/4% Senior Discount Notes | |||
| (in thousands) | |||
HoldCo Tower Cash Flow for the three months ended December 31, 2004(1) | $ | 26,812 | |
OpCo tower Cash Flow for the three months ended December 31, 2004(2) | $ | 26,812 | |
HoldCo Adjusted Consolidated Cash Flow for the twelve months ended December 31, 2004 | $ | 84,911 | |
OpCo Adjusted Consolidated Cash Flow for the twelve months ended December 31, 2004 | $ | 89,622 | |
| (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. |
| 8½% Senior Notes | |||
Tower Cash Flow for the three months ended December 31, 2004 | $ | 26,812 | |
Adjusted Consolidated Cash Flow of the Company for the twelve months ended December 31, 2004 | $ | 84,911 | |
Adjusted Consolidated Cash Flow of SBA Senior Finance for the twelve months ended December 31, 2004 | $ | 89,918 | |
31 2002 was $18.9 million. Adjusted Consolidated Cash Flow for the year ended December 31, 2002 was $82.2 million.
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.
32
1934. These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this annual report contains forward-looking statements regarding:
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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:
our inability to sufficiently increase our revenues and maintain or decrease expenses and cash capital expenditures to permit us to fund operations and meet our obligations as they become due; the inability of our clients to access sufficient capital or their unwillingness to expend capital to fund network expansion or enhancements; our ability to continue to comply with covenants and the terms of our senior credit facility and to access sufficient capital to fund our operations; our ability to secure as many site leasing tenants as planned; 32 |
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33
our ability to expand our site leasing business and maintain or expand our site development business; our ability to successfully build 50-75 new towers in 2005; our ability to successfully implement our strategy of having at least one tenant on each new build upon completion; our ability to successfully address zoning issues; our ability to retain current lessees on our towers; the actual amount and timing of services rendered and revenues received under our contract with Sprint; our ability to realize economies of scale from our tower portfolio; and the continued use of towers and dependence on outsourced site development services by the wireless communications industry. We assume no responsibility for updating forward-looking statements contained in this Annual Report on Form 10-K. |
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data for the Company are on pages F-1 through F-31.F-35.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures - The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company’s are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2004, an evaluation was performed under the supervision and with the participation of the Company’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). In performing this evaluation, management reviewed the Company’s lease accounting and leasehold depreciation practices partially in light of the recent attention and focus on such practices by restaurant and retail companies. As a result of this review, the Company concluded that its previously established lease accounting and leasehold depreciation practices were not appropriate and determined that the Company’s annual rent and depreciation expense over the last several years had been understated. Accordingly, as described below, the Company determined to restate certain of its previously issued financial statements to reflect the correction in the Company’s lease accounting and leasehold depreciation practices. Based on that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2004.
Management’s Annual Report on Internal Control over Financial Reporting - Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. The Company’s internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control—Integrated Framework.
33
In performing this assessment, management reviewed the Company’s lease accounting and leasehold depreciation practices partially in light of the recent attention and focus on such practices by restaurant and retail companies. As a result of this review, management concluded that the Company’s controls over the selection and monitoring of appropriate assumptions and factors affecting lease accounting and leasehold depreciation practices were insufficient, and, as a result, management has determined that the Company’s annual rent and depreciation expense over the last several years had been understated. On February 25, 2005, the Audit Committee of the Board of Directors (the “Committee”) and senior management determined to restate certain of the Company’s previously issued financial statements to reflect the correction in its lease accounting and leasehold depreciation practices.
Management evaluated the impact of this restatement on the Company’s assessment of its system of internal control and has concluded that the control deficiency that resulted in the incorrect lease accounting and leasehold depreciation practices represented a material weakness. As a result of this material weakness in the Company’s internal control over financial reporting, management has concluded that, as of December 31, 2004, the Company’s internal control over financial reporting was not effective based on the criteria set forth by the COSO of the Treadway Commission in Internal Control—Integrated Framework. A material weakness in internal control over financial reporting is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2), or combination of control deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. PCAOB Auditing Standard No. 2 identifies a number of circumstances that, because of their likely significant negative effect on internal control over financial reporting, are to be regarded as at least significant deficiencies as well as strong indicators that a material weakness exists, including the restatement of previously issued financial statements to reflect the correction of a misstatement.
The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. This report appears below.
Remediation Steps to Address Material Weakness - To remediate the material weakness in the Company’s internal control over financial reporting, subsequent to year end the Company has implemented additional review procedures over the selection and monitoring of appropriate application of accounting standards affecting lease accounting and leasehold depreciation accounting practices.
Change in Internal Control Over Financial Reporting - There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that SBA Communications Corporation and Subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2004, because of the effect of the Company’s insufficient controls over the selection and monitoring of appropriate assumptions and factors affecting lease accounting and leasehold depreciation practices, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). SBA Communications Corporation and Subsidiaries management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
34
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weakness has been identified and included in management’s assessment: In its assessment as of December 31, 2004, management identified as a material weakness the Company’s insufficient controls over the selection and monitoring of appropriate assumptions and factors affecting lease accounting and leasehold depreciation practices. As a result of this material weakness in internal control, management concluded the Company’s previously reported annual depreciation expense and rent expense had been understated and that previously issued financial statements should be restated. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 financial statements, and this report does not affect our report dated March 14, 2005 on those financial statements.
In our opinion, management’s assessment that SBA Communications Corporation and Subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2004 is fairly stated, in all material respects, based on the COSO control criteria. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, SBA Communications Corporation and Subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2004, based on the COSO control criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of SBA Communications Corporation and Subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004, and our report dated March 14, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
West Palm Beach, Florida
March 14, 2005
35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We have adopted a Code of Ethics that applies to our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer. The Code of Ethics is located on our internet web site atwww.sbasite.com under “Investor Relations-Corporate Governance.”
The remaining items required by Part III, Item 10 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20032005 Annual Meeting of Shareholders to be filed on or before April 30, 2003.2005.
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 20032005 Annual Meeting of Shareholders to be filed on or before April 30, 2003.2005.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDERSTOCKHOLDER MATTERS
The items required by Part III, Item 12 are incorporated herein by reference from the Registrant’s Proxy Statement for its 20032005 Annual Meeting of Shareholders to be filed on or before April 30, 2003.2005.
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 20032005 Annual Meeting of Shareholders to be filed on or before April 30, 2003.2005.
ITEM 14. CONTROLSPRINCIPAL ACCOUNTANT FEES AND PROCEDURES SERVICES
(a) Within 90 days prior
The items required by Part III, Item 14 are incorporated herein by reference from the Registrant’s Proxy Statement for its 2005 Annual Meeting of Shareholders to the date of this report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-14(c) and 15d–14(c). Basedbe filed on that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.or before April 30, 2005.
(b) There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation described in the preceding paragraph.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
| (a) Documents filed as part of this report: (1) Financial Statements See Item 8 for Financial Statements included with this Annual Report on Form 10-K. (2) Financial Statement Schedules None. (3) Exhibits 36
37
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.
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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 | ||||
| 16, 2005 | |||
/s/ Jeffrey A. Stoops | Chief Executive Officer and President | |||
(Principal Executive Officer) |
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| March 16, 2005 | |||
/s/ Anthony J. Macaione | Chief Financial Officer | |||
(Principal Financial Officer) | March | |||
| 16, 2005 | |||
/s/ Brian. C. Carr |
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Director |
| March | ||
| 16, 2005 | |||
/s/ Duncan H. Cocroft | Director | |||
March | ||||
| 16, 2005 | |||
/s/ Philip L. Hawkins | Director | |||
March | ||||
| 16, 2005 | |||
/s/ Donald B. Hebb, Jr. | Director | |||
| March 16, 2005 | ||||
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Jack Langer | Director | March 16, 2005 | ||
38
CERTIFICATION
I, Jeffrey A. Stoops, certify that:
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/s/ STEVEN E. NIELSEN Steven E. Nielsen | Director | March 16, 2005 | ||
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CERTIFICATION39
I, John Marino, certify that:
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SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT CERTIFIED REGISTERED PUBLIC ACCOUNTANTSACCOUNTING FIRM
The Board of Directors
and Shareholders of SBA Communications Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of SBA Communications Corporation and Subsidiaries as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended. Our audit also included the 2002 financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The consolidated financial statements of the Company as of December 31, 2001 and for each of the two years in the period ended December 31, 2001, and the financial statement schedule for the years ended December 31, 2001 and 2000 listed in the Index at Item 15(a), were audited by other auditors who have ceased operations and whose report dated February 22, 2002, expressed an unqualified opinion on those statements and schedule.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of SBA Communications Corporation and Subsidiaries as of December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related 2002 financial statement schedule, when considered in relation to the 2002 basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that SBA Communications Corporation and Subsidiaries will continue as a going concern. As more fully described in Note 2, it is likely that the Company will not remain in compliance with certain covenants of its credit agreement during the year ended December 31, 2003. The Company will need to obtain a waiver in order for its credit agreement not to be considered in default. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
As discussed in Note 5 to the consolidated financial statements, effective January 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets.
As discussed above, the consolidated financial statements of SBA Communications Corporation and Subsidiaries as of December 31, 2001 and for each of the two years in the period ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 5, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 5 with respect to 2001 and 2000 included (a) agreeing the previously reported net loss to the previously issued financial statements and the adjustments to reported net loss representing amortization expense recognized in those periods related to goodwill, to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss, and the related loss-per-share amounts. In our opinion, the disclosures for 2001 and 2000 in Note 5 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole.
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F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To SBA Communications Corporation:
We have audited the accompanying consolidated balance sheets of SBA Communications Corporation (a Florida corporation) and subsidiariesSubsidiaries as of December 31, 20012004 and 2000,December 31, 2003 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, 2001.2004. 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 auditingthe standards generally accepted inof the United States.Public Company Accounting Oversight Board (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 subsidiaries as ofSubsidiaries at December 31, 20012004 and 2000,December 31, 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 20012004, in conformity with accounting principlesU.S. generally accepted accounting principles.
As discussed in Note 3 to the United States.consolidated financial statements, the accompanying consolidated balance sheet as of December 31, 2003 and the statement of operations, stockholders’ equity, and cash flows for the years ended December 31, 2003 and December 31, 2002, have been restated to correct the accounting for leases and leasehold depreciation.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of SBA Communications Corporation and Subsidiaries internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 14, 2005 expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of internal control over financial reporting.
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West Palm Beach, Florida | /s/ ERNST & YOUNG LLP | |
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THIS IS A COPY OF THE AUDIT REPORT PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH SBA COMMUNICATIONS CORPORATION’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K.
WE WILL NOT BE ABLE TO OBTAIN THE WRITTEN CONSENT OF ARTHUR ANDERSEN LLP AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT OF 1933 FOR ANY REGISTRATION STATEMENT WE MAY FILE IN THE FUTURE. ACCORDINGLY, INVESTORS WILL NOT BE ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11(A) (4) OF THE SECURITIES ACT WITH RESPECT TO ANY SUCH REGISTRATION STATEMENTS AND, THEREFORE, ULTIMATE RECOVERY FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF ARTHUR ANDERSEN LLP’S FINANCIAL CONDITION OR OTHER MATTERS RESULTING FROM THE VARIOUS CIVIL AND CRIMINAL LAWSUITS AGAINST THAT FIRM.F-2
F-3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except par values)
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| December 31, 2002 |
| December 31, 2001 |
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ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
| $ | 61,141 |
| $ | 13,904 |
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| Accounts receivable, net of allowances of $5,572 and $4,641 in 2002 and 2001, respectively |
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| 36,292 |
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| 56,796 |
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| Costs and estimated earnings in excess of billings on uncompleted contracts |
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| 10,425 |
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| 11,333 |
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| Prepaid and other current assets |
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| 5,741 |
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| 10,254 |
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| Total current assets |
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| 113,599 |
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| 92,287 |
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| Property and equipment, net |
| 1,140,625 |
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| 1,198,559 |
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| Deferred financing fees, net |
| 24,517 |
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| 27,807 |
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| Other assets |
| 21,853 |
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| 24,178 |
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| Intangible assets, net |
| 4,321 |
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| 5,588 |
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| Goodwill, net |
| — |
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| 80,592 |
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| Total assets |
| $ | 1,304,915 |
| $ | 1,429,011 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
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| Accounts payable |
| $ | 16,810 |
| $ | 56,293 |
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| Accrued expenses |
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| 15,081 |
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| 13,046 |
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| Deferred revenue |
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| 12,427 |
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| 11,216 |
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| Interest payable |
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| 22,919 |
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| 21,815 |
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| Long-term debt, current portion |
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| 189,397 |
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| 365 |
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| Billings in excess of costs and estimated earnings on uncompleted contracts |
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| 2,362 |
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| 6,302 |
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| Other current liabilities |
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| 3,595 |
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| 2,664 |
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| Total current liabilities |
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| 262,591 |
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| 111,701 |
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| Long-term liabilities: |
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| Long-term debt |
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| 834,885 |
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| 845,088 |
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| Deferred tax liabilities, net |
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| 18,429 |
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| 18,429 |
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| Deferred revenue |
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| 1,944 |
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| 2,394 |
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| Other long-term liabilities |
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| 1,593 |
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| 755 |
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| Total long-term liabilities |
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| 856,851 |
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| 866,666 |
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| Commitments and contingencies (see Notes 2 and 17) |
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| Shareholders’ equity: |
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| Common stock-Class A par value $.01 (200,000 and 100,000 shares authorized, 45,674 and 43,233 shares issued and outstanding in 2002 and 2001, respectively) |
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| 457 |
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| 432 |
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| Common stock-Class B par value $.01 (8,100 shares authorized, 5,456 shares issued and outstanding in 2002 and 2001) |
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| 55 |
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| 55 |
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| Additional paid-in capital |
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| 672,946 |
|
| 664,977 |
| ||
| Accumulated deficit |
|
| (487,985 | ) |
| (214,820 | ) | ||
|
|
| |||||||
| Total shareholders’ equity |
|
| 185,473 |
|
| 450,644 |
| ||
|
|
| |||||||
| Total liabilities and shareholders’ equity |
| $ | 1,304,915 |
| $ | 1,429,011 |
| ||
|
|
| |||||||
| December 31, 2004 | December 31, 2003 As restated | |||||||
| ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 69,627 | $ | 8,338 | ||||
Short-term investments | — | 15,200 | ||||||
Restricted cash | 2,017 | 10,344 | ||||||
Accounts receivable, net of allowance of $1,731 and $1,400 in 2004 and 2003, respectively | 21,125 | 19,414 | ||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 19,066 | 10,227 | ||||||
Prepaid and other current expenses | 4,327 | 5,009 | ||||||
Assets held for sale | 10 | 1,733 | ||||||
Total current assets | 116,172 | 70,265 | ||||||
Property and equipment, net | 745,831 | 830,145 | ||||||
Deferred financing fees, net | 19,421 | 24,253 | ||||||
Other assets | 34,455 | 31,181 | ||||||
Intangible assets, net | 1,365 | 2,408 | ||||||
Total assets | $ | 917,244 | $ | 958,252 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 15,204 | $ | 11,352 | ||||
Accrued expenses | 14,997 | 17,866 | ||||||
Deferred revenue | 10,810 | 11,137 | ||||||
Interest payable | 3,729 | 20,319 | ||||||
Long term debt, current portion | 3,250 | 11,538 | ||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 1,251 | 1,168 | ||||||
Other current liabilities | 1,762 | 1,959 | ||||||
Liabilities held for sale | — | 608 | ||||||
Total current liabilities | 51,003 | 75,947 | ||||||
Long Term Liabilities: | ||||||||
Long-term debt | 924,456 | 859,220 | ||||||
Deferred revenue | 384 | 511 | ||||||
Other long-term liabilities | 30,072 | 24,140 | ||||||
Total long term liabilities | 954,912 | 883,871 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ deficit: | ||||||||
Preferred stock - $.01 par value, 30,000 shares authorized, none issued or outstanding | — | — | ||||||
Common Stock - Class A par value $.01, 200,000 shares authorized, 64,903 and 55,016 shares issued and outstanding in 2004 and 2003, respectively | 649 | 550 | ||||||
Common stock - Class B par value $.01, 8,100 shares authorized, none issued or outstanding | — | — | ||||||
Additional paid-in capital | 740,037 | 679,961 | ||||||
Accumulated deficit | (829,357 | ) | (682,077 | ) | ||||
Total shareholders’ deficit | (88,671 | ) | (1,566 | ) | ||||
Total liabilities and shareholders’ deficit | $ | 917,244 | $ | 958,252 | ||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
F-4
F-3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
|
| For the years ended December 31, |
| |||||||||
|
|
| ||||||||||
|
| 2002 |
| 2001 |
| 2000 |
| |||||
|
|
|
|
| ||||||||
| Revenues: |
|
|
|
|
|
|
|
|
| |||
| Site development |
| $ | 125,041 |
| $ | 139,735 |
| $ | 115,892 |
| ||
| Site leasing |
|
| 139,633 |
|
| 103,159 |
|
| 52,014 |
| ||
|
|
| ||||||||||
| Total revenues |
|
| 264,674 |
|
| 242,894 |
|
| 167,906 |
| ||
| Cost of revenues (exclusive of depreciation and amortization shown below): |
|
|
|
|
|
|
|
|
| |||
| Cost of site development |
|
| 102,473 |
|
| 107,932 |
|
| 88,892 |
| ||
| Cost of site leasing |
|
| 49,641 |
|
| 36,722 |
|
| 19,502 |
| ||
|
|
| ||||||||||
| Total cost of revenues |
|
| 152,114 |
|
| 144,654 |
|
| 108,394 |
| ||
|
|
| ||||||||||
| Gross profit |
|
| 112,560 |
|
| 98,240 |
|
| 59,512 |
| ||
| Operating expenses: |
|
|
|
|
|
|
|
|
| |||
| Selling, general and administrative |
|
| 35,605 |
|
| 41,342 |
|
| 27,799 |
| ||
| Restructuring and other charges |
|
| 77,560 |
|
| 24,399 |
|
| — |
| ||
| Depreciation and amortization |
|
| 102,328 |
|
| 80,465 |
|
| 34,831 |
| ||
|
|
| ||||||||||
| Total operating expenses |
|
| 215,493 |
|
| 146,206 |
|
| 62,630 |
| ||
|
|
| ||||||||||
| Operating loss |
|
| (102,933 | ) |
| (47,966 | ) |
| (3,118 | ) | ||
| Other income (expense): |
|
|
|
|
|
|
|
|
| |||
| Interest income |
|
| 601 |
|
| 7,059 |
|
| 6,253 |
| ||
| Interest expense, net of amounts capitalized |
|
| (56,171 | ) |
| (47,709 | ) |
| (4,879 | ) | ||
| Non-cash amortization of original issue discount and debt issuance costs |
|
| (33,518 | ) |
| (29,730 | ) |
| (26,006 | ) | ||
| Other |
|
| (169 | ) |
| (76 | ) |
| 68 |
| ||
|
|
| ||||||||||
| Total other expense |
|
| (89,257 | ) |
| (70,456 | ) |
| (24,564 | ) | ||
|
|
| ||||||||||
| Loss before provision for income taxes, extraordinary item and cumulative effect of change in accounting principle |
|
| (192,190 | ) |
| (118,422 | ) |
| (27,682 | ) | ||
| Provision for income taxes |
| (383 | ) |
| (1,654 | ) |
| (1,233 | ) | |||
|
|
| ||||||||||
| Loss before extraordinary item and cumulative effect of change in accounting principle |
|
| (192,573 | ) |
| (120,076 | ) |
| (28,915 | ) | ||
| Extraordinary item, write-off of deferred financing fees |
| — |
|
| (5,069 | ) |
| — |
| |||
| Cumulative effect of change in accounting principle |
| (80,592 | ) |
| — |
|
| — |
| |||
|
|
| ||||||||||
| Net loss |
| $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | ||
|
|
| ||||||||||
| Basic and diluted loss per common share before extraordinary item and cumulative effect of change in accounting principle | $ | (3.83 | ) | $ | (2.53 | ) | $ | (0.70 | ) | |||
| Extraordinary item |
| — |
|
| (0.11 | ) |
| — |
| |||
| Cumulative effect of change in accounting principle |
| (1.60 | ) |
| — |
|
| — |
| |||
|
|
| ||||||||||
| Basic and diluted loss per common share | $ | (5.43 | ) | $ | (2.64 | ) | $ | (0.70 | ) | |||
|
|
| ||||||||||
| Basic and diluted weighted average number of shares of common stock |
| 50,308 |
|
| 47,437 |
|
| 41,156 |
| |||
|
|
| ||||||||||
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
Revenues: | ||||||||||||
Site leasing | $ | 144,004 | $ | 127,852 | $ | 115,121 | ||||||
Site development | 87,478 | 64,257 | 99,352 | |||||||||
Total revenues | 231,482 | 192,109 | 214,473 | |||||||||
Cost of revenues (exclusive of depreciation, accretion and amortization shown below): | ||||||||||||
Cost of site leasing | 47,283 | 47,793 | 46,709 | |||||||||
Cost of site development | 81,398 | 58,683 | 81,565 | |||||||||
Total cost of revenues | 128,681 | 106,476 | 128,274 | |||||||||
Gross profit | 102,801 | 85,633 | 86,199 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative | 28,887 | 30,714 | 32,740 | |||||||||
Restructuring and other charges | 250 | 2,094 | 47,762 | |||||||||
Asset impairment charges | 7,092 | 12,993 | 24,194 | |||||||||
Depreciation, accretion and amortization | 90,453 | 93,657 | 95,627 | |||||||||
Total operating expenses | 126,682 | 139,458 | 200,323 | |||||||||
Operating loss from continuing operations | (23,881 | ) | (53,825 | ) | (114,124 | ) | ||||||
Other income (expense): | ||||||||||||
Interest income | 516 | 692 | 601 | |||||||||
Interest expense | (47,460 | ) | (81,501 | ) | (54,822 | ) | ||||||
Non-cash interest expense | (28,082 | ) | (9,277 | ) | (29,038 | ) | ||||||
Amortization of debt issuance costs | (3,445 | ) | (5,115 | ) | (4,480 | ) | ||||||
Loss from write-off of deferred financing fees and extinguishment of debt | (41,197 | ) | (24,219 | ) | — | |||||||
Other | 236 | 169 | (169 | ) | ||||||||
Total other expense | (119,432 | ) | (119,251 | ) | (87,908 | ) | ||||||
Loss from continuing operations before provision for income taxes and cumulative effect of change in accounting principle | (143,313 | ) | (173,076 | ) | (202,032 | ) | ||||||
Provision for income taxes | (710 | ) | (1,729 | ) | (300 | ) | ||||||
Loss from continuing operations before cumulative effect of change in accounting principle | (144,023 | ) | (174,805 | ) | (202,332 | ) | ||||||
(Loss) gain from discontinued operations, net of income taxes | (3,257 | ) | 202 | (4,081 | ) | |||||||
Loss before cumulative effect of change in accounting principle | (147,280 | ) | (174,603 | ) | (206,413 | ) | ||||||
Cumulative effect of change in accounting principle | — | (545 | ) | (60,674 | ) | |||||||
Net loss | $ | (147,280 | ) | $ | (175,148 | ) | $ | (267,087 | ) | |||
Basic and diluted loss per common share amounts: | ||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (2.47 | ) | $ | (3.35 | ) | $ | (4.01 | ) | |||
Loss from discontinued operations | (0.05 | ) | — | (0.08 | ) | |||||||
Cumulative effect of change in accounting principle | — | (0.01 | ) | (1.20 | ) | |||||||
Net loss per common share | $ | (2.52 | ) | $ | (3.36 | ) | $ | (5.29 | ) | |||
Weighted average number of common shares | 58,420 | 52,204 | 50,491 | |||||||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
F-5
F-4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
(in thousands)
| Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total | |||||||||||||||||||||
| Class A | Class B | |||||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||
BALANCE, December 31, 2001, as previously reported | 43,233 | $ | 432 | 5,456 | $ | 55 | $ | 663,724 | $ | (215,467 | ) | $ | 448,744 | |||||||||||
Effect of restatement | — | — | — | — | — | (24,375 | ) | (24,375 | ) | |||||||||||||||
BALANCE, December 31, 2001, as restated | 43,233 | 432 | 5,456 | 55 | 663,724 | (239,842 | ) | 424,369 | ||||||||||||||||
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 plans | 1,125 | 12 | — | — | 317 | — | 329 | |||||||||||||||||
Net loss, as restated | — | — | — | — | — | (267,087 | ) | (267,087 | ) | |||||||||||||||
BALANCE, December 31, 2002, as restated | 45,674 | 457 | 5,456 | 55 | 667,441 | (506,929 | ) | 161,024 | ||||||||||||||||
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 10 1/4% senior notes | 3,853 | 38 | — | — | 12,593 | — | 12,631 | |||||||||||||||||
Common stock issued in connection with employee stock purchase/option plans | 33 | — | — | — | 31 | — | 31 | |||||||||||||||||
Net loss, as restated | — | — | — | — | — | (175,148 | ) | (175,148 | ) | |||||||||||||||
BALANCE, December 31, 2003, as restated | 55,016 | 550 | — | — | 679,961 | (682,077 | ) | (1,566 | ) | |||||||||||||||
Common stock issued in connection with acquisitions | 413 | 4 | — | — | 3,003 | — | 3,007 | |||||||||||||||||
Non-cash compensation | — | — | — | — | 470 | — | 470 | |||||||||||||||||
Common stock issued in exchange for 10 1/4% senior notes and 9 3/4% senior discount notes | 8,818 | 88 | — | — | 54,484 | — | 54,572 | |||||||||||||||||
Common stock issued in connection with stock purchase/option plans | 657 | 7 | — | — | 2,119 | — | 2,126 | |||||||||||||||||
Net loss | — | — | — | — | — | (147,280 | ) | (147,280 | ) | |||||||||||||||
BALANCE, December 31, 2004 | 64,903 | $ | 649 | — | $ | — | $ | 740,037 | $ | (829,357 | ) | $ | (88,671 | ) | ||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (147,280 | ) | $ | (175,148 | ) | $ | (267,087 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation, accretion, and amortization | 90,453 | 93,657 | 95,627 | |||||||||
Non-cash restructuring and other charges | 250 | 1,119 | 43,438 | |||||||||
Asset impairment charges | 7,092 | 12,993 | 24,194 | |||||||||
Non-cash items reported in discontinued operations (primarily depreciation, asset impairment charges, and gain/loss on sale of assets) | 29 | 5,370 | 18,886 | |||||||||
Non-cash compensation expense | 470 | 832 | 2,017 | |||||||||
Provision for doubtful accounts | (287 | ) | 3,554 | 3,371 | ||||||||
Amortization of original issue discount and debt issuance costs | 30,994 | 11,011 | 33,518 | |||||||||
Interest converted to term loan | 554 | 3,227 | — | |||||||||
Loss from write-off of deferred financing fees and exintinguishment of debt | 41,197 | 24,219 | — | |||||||||
Amortization of deferred gain of derivative | (746 | ) | (676 | ) | (133 | ) | ||||||
Cumulative effect of change in accounting principle | — | 545 | 60,674 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Short term investments | 15,200 | (15,200 | ) | — | ||||||||
Accounts receivable | (1,208 | ) | 13,129 | 17,133 | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | (8,839 | ) | 198 | 908 | ||||||||
Prepaid and other current assets | 641 | (343 | ) | 1,356 | ||||||||
Other assets | (3,759 | ) | (4,176 | ) | (5,674 | ) | ||||||
Accounts payable | 3,559 | (5,758 | ) | (15,229 | ) | |||||||
Accrued expenses | (3,164 | ) | 103 | (144 | ) | |||||||
Deferred revenue | (493 | ) | 1,466 | 761 | ||||||||
Interest payable | (15,732 | ) | (2,387 | ) | 1,104 | |||||||
Other liabilities | 5,202 | 1,790 | 7,127 | |||||||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 83 | 667 | (4,040 | ) | ||||||||
Net cash provided by (used in) operating activities | 14,216 | (29,808 | ) | 17,807 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Proceeds from termination of interest rate swap agreement | — | — | 5,369 | |||||||||
Capital expenditures | (7,214 | ) | (15,136 | ) | (86,361 | ) | ||||||
Acquisitions and related earn-outs | (1,791 | ) | (3,126 | ) | (29,724 | ) | ||||||
Proceeds from sale of fixed assets | 1,496 | 192,450 | — | |||||||||
Receipt (payment) of restricted cash | 8,835 | (18,732 | ) | 8,000 | ||||||||
Net cash provided by (used in) investing activities | 1,326 | 155,456 | (102,716 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from employee stock purchase/option plans | 2,126 | 31 | 329 | |||||||||
Proceeds from 9 3/4% senior discount notes payable, net of financing fees | — | 267,109 | — | |||||||||
Proceeds from 8 1/2% senior notes, net of financing fees | 244,788 | — | — | |||||||||
Borrowings under senior credit facility, net of financing fees | 363,457 | 356,955 | 143,809 | |||||||||
Bank overdraft borrowings (repayments) | 126 | 400 | (11,547 | ) | ||||||||
Payment of restricted stock guarantee | — | (936 | ) | — | ||||||||
Repayment of senior credit facility and notes payable | (173,403 | ) | (505,085 | ) | (445 | ) | ||||||
Repurchase of 10 1/4% senior notes | (320,553 | ) | — | — | ||||||||
Repurchase of 12% senior notes | (70,794 | ) | (296,925 | ) | — | |||||||
Net cash provided by (used in) financing activities | 45,747 | (178,451 | ) | 132,146 | ||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 61,289 | (52,803 | ) | 47,237 | ||||||||
CASH AND CASH EQUIVALENTS: | ||||||||||||
Beginning of period | 8,338 | 61,141 | 13,904 | |||||||||
End of period | $ | 69,627 | $ | 8,338 | $ | 61,141 | ||||||
F-6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYCASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(in thousands, except share amounts)thousands)
|
| Common Stock |
|
|
|
|
|
|
|
|
|
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Class A |
| Class B |
| Additional |
|
|
|
|
|
|
| |||||||||
|
|
|
|
| Accumulated |
|
|
|
| |||||||||||||
|
| Number |
| Amount |
| Number |
| Amount |
|
|
| Total |
| |||||||||
|
|
|
|
|
|
|
|
| ||||||||||||||
| 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 |
| — |
|
| — |
|
| — |
|
| — |
|
| 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 |
| — |
|
| — |
|
| — |
|
| — |
|
| 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 |
| |
| Common stock issued in connection with acquisitions |
| 1,316 |
|
| 13 |
|
| — |
|
| — |
|
| 5,635 |
|
| — |
|
| 5,648 |
| |
| 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 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (273,165 | ) |
| (273,165 | ) | |
|
|
|
|
|
|
| ||||||||||||||||
| BALANCE, December 31, 2002 |
| 45,674 |
| $ | 457 |
|
| 5,456 |
| $ | 55 |
| $ | 672,946 |
| $ | (487,985 | ) | $ | 185,473 |
| |
|
|
|
|
|
|
| ||||||||||||||||
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||||||
Cash paid during the period for: | ||||||||||||
Interest, net of amounts capitalized | $ | 63,746 | $ | 84,847 | $ | 58,261 | ||||||
Income taxes, net of refunds | $ | 971 | $ | 1,852 | $ | 1,502 | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION OF NON-CASH ACTIVITIES: | ||||||||||||
Assets acquired in connection with acquisitions | $ | 3,051 | $ | — | $ | 3,396 | ||||||
Liabilities assumed in connection with acquisitions | $ | (44 | ) | $ | — | $ | (2,000 | ) | ||||
Common stock issued in connection with acquisitions | $ | (3,007 | ) | $ | — | $ | (1,396 | ) | ||||
Class A common stock issued in exchange for 10 1/4% senior notes, 9 3/4% senior discount notes, and accrued interest | $ | 54,572 | $ | 12,631 | $ | — | ||||||
10 1/4% senior notes and accrued interest redeemed for Class A common stock | $ | (51,433 | ) | $ | (13,713 | ) | $ | — | ||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
F-6
F-7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
|
| For the years ended December 31 |
| |||||||||
| ||||||||||||
|
| 2002 |
| 2001 |
| 2000 |
| |||||
|
|
|
|
| ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
| Net loss |
| $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
| ||
| Depreciation and amortization |
|
| 102,328 |
|
| 80,465 |
|
| 34,831 |
| ||
| Non-cash restructuring and other charges |
|
| 73,236 |
|
| 24,399 |
|
| — |
| ||
| Non-cash compensation expense |
|
| 2,017 |
|
| 3,326 |
|
| 313 |
| ||
| Provision for doubtful accounts |
|
| 2,590 |
|
| 1,361 |
|
| 1,663 |
| ||
| Amortization of original issue discount and debt issuance costs |
|
| 33,518 |
|
| 29,730 |
|
| 26,006 |
| ||
| Amortization of deferred gain from termination of interest rate swap agreement |
|
| (133 | ) |
| — |
|
| — |
| ||
| Write-off of deferred financing fees |
|
| — |
|
| 5,069 |
|
|
|
| ||
| Cumulative effect of change in accounting principle |
|
| 80,592 |
|
| — |
|
| — |
| ||
| Changes in operating assets and liabilities, net of effect of acquisitions |
|
|
|
|
|
|
|
|
|
| ||
| Accounts receivable |
|
| 17,914 |
|
| (2,692 | ) |
| (25,193 | ) | ||
| Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 908 |
|
| 3,201 |
|
| (10,029 | ) | ||
| Prepaid and other current assets |
|
| 1,356 |
|
| (4,271 | ) |
| (929 | ) | ||
| Other assets |
|
| 2,325 |
|
| (5,212 | ) |
| (14,480 | ) | ||
| Accounts payable |
|
| (39,483 | ) |
| (22,290 | ) |
| 35,342 |
| ||
| Accrued expenses |
|
| (144 | ) |
| (1,334 | ) |
| 7,055 |
| ||
| Deferred revenue |
|
| 761 |
|
| 6,113 |
|
| 4,569 |
| ||
| Interest payable |
|
| 1,104 |
|
| 21,766 |
|
| — |
| ||
| Other liabilities |
|
| (230 | ) |
| (1,626 | ) |
| 2,809 |
| ||
| Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| (3,940 | ) |
| 156 |
|
| 3,980 |
| ||
| Deferred tax liabilities |
|
| — |
|
| (16 | ) |
| 10,494 |
| ||
|
|
| ||||||||||
| Total adjustments |
|
| 274,719 |
|
| 138,145 |
|
| 76,431 |
| ||
|
|
| ||||||||||
| Net cash provided by operating activities |
|
| 1,554 |
|
| 13,000 |
|
| 47,516 |
| ||
|
|
| ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
| Proceeds from termination of interest rate swap agreement |
|
| 5,369 |
|
| — |
|
| — |
| ||
| Tower acquisitions and other capital expenditures |
|
| (103,379 | ) |
| (530,273 | ) |
| (445,280 | ) | ||
|
|
| ||||||||||
| Net cash used in investing activities |
|
| (98,010 | ) |
| (530,273 | ) |
| (445,280 | ) | ||
|
|
| ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
| |||
| Proceeds of common stock offerings, net of issuance costs |
|
| — |
|
| — |
|
| 465,044 |
| ||
| Proceeds from employee stock purchase/option plans |
|
| 329 |
|
| 3,250 |
|
| 4,364 |
| ||
| Proceeds from senior notes payable |
|
| — |
|
| 484,261 |
|
| — |
| ||
| Borrowings under senior credit facility, net of financing fees |
|
| 143,809 |
|
| 134,320 |
|
| 11,000 |
| ||
| Repayment of senior credit facility and notes payable |
|
| (445 | ) |
| (105,634 | ) |
| (70,795 | ) | ||
|
|
| ||||||||||
| Net cash provided by financing activities |
|
| 143,693 |
|
| 516,197 |
|
| 409,613 |
| ||
|
|
| ||||||||||
| Net increase (decrease) in cash and cash equivalents |
|
| 47,237 |
|
| (1,076 | ) |
| 11,849 |
| ||
| CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
| |||
| Beginning of year |
|
| 13,904 |
|
| 14,980 |
|
| 3,131 |
| ||
|
|
| ||||||||||
| End of year |
| $ | 61,141 |
| $ | 13,904 |
| $ | 14,980 |
| ||
|
|
| ||||||||||
F-7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)(in thousands)
|
| For the years ended December 31, |
| ||||||||
| |||||||||||
|
| 2002 |
| 2001 |
| 2000 |
| ||||
|
|
|
|
| |||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
| ||
| Cash paid during the year for: |
|
|
|
|
|
|
|
|
| ||
| Interest, net of amounts capitalized |
| $ | 58,261 |
| $ | 25,943 |
| $ | 4,896 |
| |
|
|
| |||||||||
| Taxes |
| $ | 1,502 |
| $ | 2,215 |
| $ | 1,996 |
| |
|
|
| |||||||||
| NON-CASH ACTIVITIES: |
|
|
|
|
|
|
|
|
| ||
| Assets acquired in connection with acquisitions |
| $ | 7,648 |
| $ | 58,088 |
| $ | 63,049 |
| |
|
|
| |||||||||
| Liabilities assumed in connection with acquisitions |
| $ | (2,000 | ) | $ | (4,655 | ) | $ | (2,197 | ) | |
|
|
| |||||||||
| Common stock issued in connection with acquisitions |
| $ | (5,648 | ) | $ | (31,053 | ) | $ | (48,773 | ) | |
|
|
| |||||||||
The accompanying notes to consolidated financial statements are an integral part of these consolidated financial statements.
F-8
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. (“SBA Telecommunications”). SBA Telecommunications holds all of the capital stock of SBA Network Services,Senior Finance, Inc. (“Network Services”), SBA Leasing, Inc., (“Leasing”Senior Finance”),. SBA 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. (“SBA Leasing”) and SBA Network Services, Inc. SBA Network Services, Inc. holds all of the capital stock of other companies engaged in similar businesses.businesses (collectively “Network Services”).
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.
SBA Leasing leases antenna tower sites from owners and then subleases such sites to wireless telecommunications providers.
Network Services provides comprehensive turnkey 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 turnkey services to the telecommunications industry, Network Services historically has constructed, manyor has overseen the construction of, approximately 60% of the newly-builtnewly built towers that the Company owns.
The Tower Companies own and operate transmission towers in various parts 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.
2. LIQUIDITY AND MANAGEMENT’S PLANS
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has significant borrowings under the senior credit facility, the 10 ¼% senior notes and the 12% senior discount notes, each containing certain covenants. Among other things, these covenants restrict the Company’s ability to incur additional indebtedness, sell assets for less than fair market value, pay dividends, redeem outstanding debt or engage in other restricted payments. If the Company fails to comply with these covenants, it could result in an event of default under one or all of these debt instruments. The senior credit facility requires SBA Telecommunications to maintain specified financial ratios, including ratios regarding SBA Telecommunications’ consolidated debt coverage, debt service, cash interest expense and fixed charges for each quarter and satisfy certain financial condition tests including maintaining a minimum consolidated EBITDA (earnings (loss) before interest, taxes, depreciation, amortization, non-cash charges and unusual or non-recurring expenses). The Company is in full compliance with all of the financial ratios and tests as of December 31, 2002. Based on declines that the Company has been experiencing in its site development business and that it believes will continue in 2003, the Company estimated that it would not be in compliance with one or more of the senior credit facility’s existing financial ratios or tests in 2003.
As a result of these estimates and the Company’s expectations that it will not comply with one or more of the financial covenants of the senior credit facility during 2003, the auditor’s opinion on the Company’s 2002 consolidated financial statements calls attention to substantial doubts about the Company’s ability to continue as a going concern through 2003.
The issuance of this audit opinion with a “going concern” qualification, if not remedied by April 30, 2003, would be an event of default under the senior credit facility. Upon the occurrence of this, or any other event of default, the lenders can prevent the Company from borrowing any additional amounts under the senior credit facility. In addition, upon the occurrence of any event of default, other than certain bankruptcy events, the 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. The acceleration of amounts due under the senior credit facility would cause a cross-default under the indentures governing the 10¼% senior notes and the 12% senior discount notes, thereby permitting the acceleration of such indebtedness. If the indebtedness under the senior credit facility and/or indebtedness under the 10¼% senior notes or 12% senior discount notes were to be accelerated, the current assets of the Company would not be sufficient to repay in full the indebtedness. If the Company was unable to repay amounts that become due under the senior credit facility, its lenders could proceed against the collateral granted to them to secure that indebtedness. Substantially all of the Company’s assets are pledged as security under the senior credit facility.
F-9
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
As part of the Company’s plan to addresss its anticipated non-compliance with certain financial covenants under its senior credit facility commencing in 2003 and to reduce its significant level of indebtedness and the risks associated with such indebtedness, certain of the Company’s subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers (see Note 20). The Company is also currently exploring, and may from time to time take advantage of, various strategic opportunities including, but not limited to, the sale of certain assets or lines of business, the issuance of equity or the repurchasing, restructuring, or refinancing of some or all of its debt. The Company believes that the AAT Transaction, in conjunction with the amendment to the senior credit facility, will upon consummation, eliminate the issues that gave rise to the “going concern” qualification from its auditors with respect to its 2002 consolidated financial statements. Furthermore, based on its current estimates, subsequent to the successful sale of either 679 or 801 towers, and the anticipated amendment to the senior credit facility, the Company expects to have sufficient liquidity to achieve positive free cash flow. However, the Company cannot assure you that either the AAT Transaction and/or any other plan or action can be consummated, or if consummated, would effectively address its liquidity concerns, the possible defaults under its debt instruments or any of the other risks associated with its significant level of indebtedness.
Based on its previous experience with its lender syndicate for its senior credit facility, the Company believes that it will be able to successfully negotiate with its present senior credit bank syndicate, an amendment to its senior credit facility that, among other things, (1) waives any default that arises as a result of receiving an audit opinion with a “going concern” qualification, (2) modifies the financial covenants to levels that we believe are better aligned with our site leasing business and can be satisfied during 2003 and beyond and (3) permits certain actions that are part of the AAT Transaction. This would thereby permit the Company to prevent the occurrence of any event of default or the acceleration of its indebtedness. However, the Company’s prior ability to obtain necessary waivers and/or amendments does not insure its ability to obtain these waivers and/or amendments, especially in light of the recent financial performance of the wireless telecommunications industry and the Company.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from this uncertainty.
3. 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 intercompanyinter-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, carrying value of long-lived assets, and the economic useful lives of towers.towers and asset retirement obligations. Actual results couldwill differ from those estimates.estimates and such differences could be material.
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.
F-10
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIESd. Short Term Investments
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 on trading securities are included in earnings.
d.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 on towers and related components is provided using the straight-line method over the estimated useful lives.lives, not to exceed the minimum
F-8
lease term of the underlying ground lease as defined in Note 3. 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. For all other property and equipment, depreciation is provided using the straight-line method over the estimated useful lives. The Company performs ongoing evaluations of the estimated useful lives of its 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. If the useful lives of assets are reduced, depreciation may be accelerated in future years. Maintenance and repair items are expensed as incurred.
Asset classes and related estimated useful lives are as follows:
Towers and related components | 2 –15 | years | |
Furniture, equipment and vehicles | 2 | years | |
Buildings and improvements | 5 –39 | years |
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-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 $1.7$0.01 million, $0.1 million and $3.5$1.7 million of interest cost was capitalized in 2004, 2003, and 2002, and 2001, respectively. Approximately $1.9 million of capitalized interest was reclassified to discontinued operations in 2002. No capitalized interest was reclassified in 2004 or 2003.
e.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.
f.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 $2.2$1.8 million, $2.0 million, and $1.9$1.7 million and in 20022004, 2003, and 2001,2002, respectively. Amortization expense was $1.0$1.6 million, $1.3 million, and $0.8 million for the year ended December 31, 2004, 2003 and 2002, respectively, and is included in cost of site leasing in the accompanying 2002 Consolidated StatementStatements of Operations. As of December 31, 20022004 and 2001,2003, unamortized deferred lease costs were $4.2$4.3 million and $3.1$4.1 million, respectively, and are included in other assets. Accumulated amortization totaled $2.0$4.7 million and $0.9$3.2 million at December 31, 20022004 and 2001,2003, respectively.
g.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 105 years. Amortization expense was $1.4 million for the year ended December 31, 2002. As of December 31, 2002, covenants not to compete totaled $7.6 million and accumulated amortization totaled $3.3 million.
h.i. Goodwill
Goodwill at December 31, 2001, is comprised of costs paid in excess of the fair value of assets acquired. There was no goodwill at December 31, 20022004 or 2003 or amortization of goodwill during 2002,2004 and 2003, as a result of adopting the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142,Goodwill and Other Intangible Assets (“SFAS 142”) in 2002. During 2001, goodwill was being amortized over periods that ranged from 7 to 40 years.
i.j. Impairment of Long-Lived Assets
In accordance with SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, long-lived assets are reviewed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If an asset is
F-11
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
determined to be impaired, the loss is measured by the excess of the carrying amount of the asset 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, general market conditions, historical operating results, tower lease-up potential and expected timing of lease-up.
In early 2002, certain tower sites held and used in operations were considered to be impaired. Towers determined to be impaired were primarily towers with no current tenants and little or no prospects for future lease-up. An impairment charge of approximately $16.4 million was recorded to restructuring and other charges during 2002.
Losses on assets held for disposal are recognized when management has approved and committed to a plan to dispose of the assets, and the assets are available for disposal.F-9
j.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, 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%9 3/4% senior discount notes are publicly tradedregistered and the 10 1/4% senior notes were trading based on a 28.5% yield atregistered. The 8 1/2% senior notes were sold in December 31, 2002, indicating a fair value2004 pursuant to Rule 144A and Regulation S of approximately $145.2 million as compared to a carrying value of approximately $263.9 million. The Company’s 10¼the Securities Act. Since the 8 1/2% senior notes are publicly traded and were trading basednot registered, they are subject to certain restrictions on a 25.0% yield at December 31, 2002, indicating aresale. The following table reflects fair value of approximately $275.0 millionvalues as compared to a carrying value of $500.0 million.
At December 31, 2001,determined by quoted market prices (except for the Company’s 12% senior discount notes were trading based on a 14.4% yield, indicating a fair value of approximately $209.8 million as compared to a carrying value of $234.9 million and the Company’s 10¼10 1/4% senior notes were trading based on a 13.1% yield, indicating a fairfor which the tendered value of approximately $435.0 millionthe notes was used in 2004) and carrying values of these notes as compared to a carrying value of $500.0 million.December 31, 2004 and 2003:
| At December 31, 2004 | At December 31, 2003 | |||||||||||
| Fair Value | Carrying Value | Fair Value | Carrying Value | |||||||||
| (dollars in millions) | ||||||||||||
12% Senior Discount Notes | $ | — | $ | — | $ | 71.6 | $ | 65.7 | ||||
10 1/4% Senior Notes | $ | 52.5 | $ | 50.0 | $ | 398.3 | $ | 406.4 | ||||
9 3/4% Senior Discount Notes | $ | 337.7 | $ | 302.4 | $ | 279.9 | $ | 275.8 | ||||
8 1/2% Senior Notes | $ | 255.0 | $ | 250.0 | $ | — | $ | — | ||||
k.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.agreements, which are generally five years. 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 revenue in the consolidated balance sheets.
Site development projects in which the Company performs consulting services include contracts on a time and materials basis or a fixed price 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 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 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. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined to be probable.
Cost of site development project revenue and construction revenue include all material costs, salaries and labor costs, including payroll taxes, subcontract labor, vehicle expense and other costs directly related to the projects. All costs related to site development projects and construction projects are recognized as incurred.
Cost of site leasing revenue includes rent, property taxes, maintenance (exclusive of employee related costs) and other tower expenses.
F-12
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)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, and specific customer collection issues identified.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 remains weak or further deteriorates,were to deteriorate, the ultimate collectibilitycollectability of accounts receivable may be negatively impacted.
l. Selling, General and Administrative Expenses
Selling, general and administrative expenses represent those costs incurred which are related to the administration or managementThe following is a rollforward of the Company. Also, included in this category are corporate development expenses incurred in the normal course of business that represented costs incurred in connection with proposed acquisitions which have not been consummated, new build activities where a capital asset is not produced, and expansion of the customer base. The above costs are expensed as incurred. Development expenses included in selling, general and administrative were $4.2 million and $2.6 millionallowance for doubtful accounts for the years ended December 31, 20012004, 2003 and 2000, respectively. There were no recurring development expenses in 2002.2002:
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 | 2002 | ||||||||||
Beginning Balance | $ | 1,400 | $ | 5,572 | $ | 5,921 | ||||||
Provisions (credits) | (287 | ) | 3,554 | 3,371 | ||||||||
Writeoffs, net of recoveries | 618 | (7,726 | ) | (3,720 | ) | |||||||
Ending Balance | $ | 1,731 | $ | 1,400 | $ | 5,572 | ||||||
F-10
m.Income Taxes
m. Income Taxes
The Company accounts for income taxes in accordance with the provisions of SFAS No. 109,Accounting for Income Taxes. 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.
n.Stock-Based Compensation
In December 2002, the FASBFinancial Accounting Standards Board (“FASB”) issued SFAS No. 148,Accounting for Stock-Based Compensation –- Transition and Disclosure –- an amendmentAmendment of SFAS 123 (“SFAS 148”) which provides alternative methods for a voluntary change to the fair value method of accounting for stock-based employee compensation and amends the disclosure requirements of SFAS 123.123, Accounting for Stock-Based Compensation. The Company has elected to continue to account for its stock-based employee compensation plans under APBAccounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (“APB 25”), and related interpretations. The following disclosures are provided in accordance withinterpretations and adopt the disclosure provisions of SFAS 148.
The Company has various stock-based employee compensation plans, which are described in Note 13 of the Notes to Consolidated Financial Statements. The company accounts for those plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. 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 $2.0 million, $3.3 million and $0.3 million for the years ended December 31, 2002, 2001 and 2000, respectively. Except for the amount on non-cash compensation recognized, no other stock-based employee compensation cost is reflected in net income, as all other options granted the Company’s stock-based employee compensation plans had an exercise price equal to 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:
|
| 2002 |
| 2001 |
| 2000 |
| |||
|
|
|
|
| ||||||
| Risk free interest rate |
| 4.5 | % |
| 10 | % |
| 10 | % | |
| Dividend yield |
| 0 | % |
| 0 | % |
| 0 | % | |
| Expected volatility |
| 171 | % |
| 99 | % |
| 86 | % | |
| Expected lives |
| 4 years |
|
| 4 years |
|
| 3 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 FASB Statement No.SFAS 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.
| Net loss, as reported | $ | (273.2 | ) | $ | (125.1 | ) | $ | (28.9 | ) |
| Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (7.2 | ) | (9.0 | ) | (9.4 | ) | |||
| Pro forma net loss | $ | (280.4 | ) | $ | (134.1 | ) | $ | (38.3 | ) |
| Loss per share: | |||||||||
Basic and Diluted—as reported | $ | (5.43 | ) | $ | (2.64 | ) | $ | (0.70 | ) |
Basic and Diluted—pro forma | $ | (5.57 | ) | $ | (2.83 | ) | $ | (0.93 | ) |
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
| (in millions) | ||||||||||||
Net loss, as reported | $ | (147.3 | ) | $ | (175.1 | ) | $ | (267.1 | ) | |||
Non-cash compensation charges included in net loss | 0.5 | 0.8 | 2.0 | |||||||||
Incremental stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects | (5.4 | ) | (4.2 | ) | (6.2 | ) | ||||||
Pro forma net loss | $ | (152.2 | ) | $ | (178.5 | ) | $ | (271.3 | ) | |||
Loss per share | ||||||||||||
Basic and diluted - as reported | $ | (2.52 | ) | $ | (3.35 | ) | $ | (5.29 | ) | |||
Basic and diluted - pro forma | $ | (2.61 | ) | $ | (3.42 | ) | $ | (5.37 | ) | |||
The Black-Scholes option-pricing model was used with the following assumptions:
| For the year ended December 31, | |||||||||
| 2004 | 2003 | 2002 | |||||||
Risk free interest rate | 3.5 | % | 2.0 | % | 3.25 | % | |||
Dividend yield | 0 | % | 0 | % | 0 | % | |||
Expected volatility | 113 | % | 90 | % | 171 | % | |||
Expected lives | 4 years | 4 years | 4 years | ||||||
The effect of applying SFAS 123 in the pro-forma disclosure is not necessarily indicative of future results.
o. Reclassifications
Certain reclassifications have been made to the 2001 and 2000 consolidated financial statements to conform to the 2002 presentation.
F-11
p. o.Loss Per Share
Basic and diluted loss per share areis calculated in accordance with SFAS No. 128,Earnings per Share. 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 2.84.4 million, 3.8 million and 3.12.8 million options outstanding at December 31, 2004, 2003, and 2002, 2001 and 2000, respectively. The computation of basic and fully diluted loss per share is as follows:
F-13
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
| For the years ended December 31, |
| |||||||
|
|
| ||||||||
|
| 2002 |
| 2001 |
| 2000 |
| |||
|
|
|
|
| ||||||
|
| (in thousands except per share information) |
| |||||||
| Loss before extraordinary item and cumulative effect of change in accounting principle | $ | (192,573 | ) | $ | (120,076 | ) | $ | (28,915 | ) | |
| Extraordinary item |
| — |
|
| (5,069 | ) |
| — |
| |
| Cumulative effect of change in accounting principle |
| (80,592 | ) |
| — |
|
| — |
| |
|
|
| ||||||||
| Loss to common stockholders | $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | |
|
|
| ||||||||
| Weighted average number of shares outstanding |
| 50,308 |
|
| 47,437 |
|
| 41,156 |
| |
| Loss per share before extraordinary item and cumulative effect of change in accounting principle | $ | (3.83 | ) | $ | (2.53 | ) | $ | (0.70 | ) | |
| Extraordinary item |
| — |
|
| (0.11 | ) |
| — |
| |
| Cumulative effect of change in accounting principle |
| (1.60 | ) |
| — |
|
| — |
| |
|
|
| ||||||||
| Loss per share | $ | (5.43 | ) | $ | (2.64 | ) | $ | (0.70 | ) | |
|
|
| ||||||||
q. Comprehensive Income (Loss)
p.Comprehensive Loss
During the years ended December 31, 2002, 20012004, 2003 and 2000,2002, 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.
q.Reclassifications
Certain reclassifications have been made to the 2003 and 2002 consolidated financial statements to conform to the 2004 presentation.
3. RESTATEMENT
On February 7, 2005, the Office of the Chief Accountant of the Securities and Exchange Commission (“SEC”) issued a letter to the American Institute of Certified Public Accountants expressing its views regarding certain operating lease accounting issues and their application under generally accepted accounting principles in the United States of America (“GAAP”). In light of this letter, the Company’s management initiated a review of its accounting practices and determined that it will adjust its method of accounting for certain types of ground leases underlying its tower sites, while in line with industry practice was not in accordance with GAAP. As a result, the Company restated its consolidated financial statements the fiscal years ended December 31, 2003 and 2002 in this Report, as well as the first three quarters of fiscal 2004 (see note 25).
The Company had previously defined the minimum lease term of its ground leases underlying its tower sites as the initial term of the leases and had been straight lining all rental payments due to the lessor evenly over this term, which typically is five years in length. Management determined tht the appropriate interpretation of the minimum lease term under SFAS 13, “Accounting for Leases” as the shorter of the period from lease inception through the end of the term of all tenant lease obligations in existence at ground lease inception, including renewal periods, or the ground lease term, including renewal periods. If no tenant lease obligations existed at the date of ground lease inception, the initial term of the ground lease is considered the minimum lease term. All rental obligations due to be paid out over the minimum lease term, including fixed escalations, have therefore been straight-lined evenly over the minimum lease term. Additionally, if the minimum lease term ends prior to the originally established depreciable life of the tower (typically 15 years), the Company has shortened the depreciable life of the tower to coincide with the minimum lease term of the ground lease.
As a result of the adjustments described above, the accompanying results of operations for the years ended December 31, 2003 and 2002 have been adjusted to record additional rent expense (included in cost of sales on the statement of operations) of $5.7 million and $5.9 million, respectively; additional depreciation expense of $9.5 million and $10.1 million, respectively; a reduction of asset impairment charges of $4.0 million and $1.4 million (included in other operating expenses), respectively; a decrease of provision for income taxes of $.09 million and $.01 million; and an increase (decrease) in loss from discontinued operations of ($8.1) million and $3.4 million, respectively.
The consolidated balance sheets have been adjusted to record additional straight line rent liabilities (included in other long term liabilities) of $2.4 million and $7.3 million, a reduction in fixed assets of $5.5 million and $8.8 million, as well as a reduction in assets held for sale of $0.02 million and $4.9 million, at December 31, 2003 and 2002, respectively. Additionally, retained (deficit) earnings has been reduced by $45.5 million and $42.5 million at December 31, 2003 and 2002, respectively. These adjustments did not have any impact on the overall cash flows of the Company.
Following is a summary of the effects of these changes on the Company’s consolidated balance sheets as of December 31, 2003, as well as the effects of these changes on the Company’s consolidated statements of operations for the years ended December 31, 2003 and 2002.
F-12
CONSOLIDATED STATEMENT OF OPERATIONS
| For the year ended December 31, 2003 | For the year ended December 31, 2002 | |||||||||||||||
| As previously reported | As restated | As previously reported | As restated | |||||||||||||
| (in thousands) | ||||||||||||||||
Total revenues | $ | 192,109 | $ | 192,109 | $ | 214,473 | $ | 214,473 | ||||||||
Site leasing cost of revenue | (42,119 | ) | (47,793 | ) | (40,759 | ) | (46,709 | ) | ||||||||
Site development cost of revenue | (58,683 | ) | (58,683 | ) | (81,565 | ) | (81,565 | ) | ||||||||
Depreciation, accretion, and amortization | (84,149 | ) | (93,657 | ) | (85,502 | ) | (95,627 | ) | ||||||||
Other operating expenses | (49,773 | ) | (45,801 | ) | (106,047 | ) | (104,696 | ) | ||||||||
Operating loss from continuing operations | (42,615 | ) | (53,825 | ) | (99,400 | ) | (114,124 | ) | ||||||||
Total other expense | (119,251 | ) | (119,251 | ) | (87,908 | ) | (87,908 | ) | ||||||||
Provision for income taxes | (1,820 | ) | (1,729 | ) | (309 | ) | (300 | ) | ||||||||
Loss from continuing operations before cumulative effect of change in accounting principle | (163,686 | ) | (174,805 | ) | (187,617 | ) | (202,332 | ) | ||||||||
(Loss) gain from discontinued operations, net | (7,940 | ) | 202 | (705 | ) | (4,081 | ) | |||||||||
Loss before cumulative effect of change in accounting principle | (171,626 | ) | (174,603 | ) | (188,322 | ) | (206,413 | ) | ||||||||
Cumulative effect of change in accounting principle | (545 | ) | (545 | ) | (60,674 | ) | (60,674 | ) | ||||||||
Net loss | $ | (172,171 | ) | $ | (175,148 | ) | $ | (248,996 | ) | $ | (267,087 | ) | ||||
Net loss per common share | $ | (3.30 | ) | $ | (3.36 | ) | $ | (4.93 | ) | $ | (5.29 | ) | ||||
CONSOLIDATED BALANCE SHEET
| December 31, 2003 | |||||||
| As previously reported | As restated | ||||||
| (in thousands) | |||||||
Current assets | $ | 70,283 | $ | 70,265 | |||
Property and equipment | 854,857 | 830,145 | |||||
Other non-current assets | 57,842 | 57,842 | |||||
Total assets | $ | 982,982 | $ | 958,252 | |||
Current liabilities | $ | 76,047 | $ | 75,947 | |||
Long term debt | 859,220 | 859,220 | |||||
Deferred revenue and other long term liabilities | 3,838 | 24,651 | |||||
Total liabilities | 939,105 | 959,818 | |||||
Total shareholders’ (deficit) equity | 43,877 | (1,566 | ) | ||||
Total liabilities and shareholders’ (deficit) equity | $ | 982,982 | $ | 958,252 | |||
F-13
4. 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 as part of the Western tower sale, representing all but three of the 787 total towers sold in 2003. Gross proceeds realized during 2003 from the sale of the 784 towers were $196.7 million, subject to certain remaining potential adjustments. At December 31, 2003, $7.3 million of the proceeds were held by an escrow agent in accordance with the adjustment provisions of the agreement. On April 29, 2004, the Company received notification from the purchaser of the Western towers as to certain claims for indemnification totaling approximately $4.3 million. As a result of these claims, $3.0 million of the escrowed funds were released to the Company in May 2004. In December 2004, the remaining claims for indemnification of $4.3 million were settled for $2.8 million and this amount was released to the purchaser of the Western towers. The remaining $1.5 million was released to the Company in December 2004. The Company recorded a charge of $2.1 million in 2004 relating to the settlement of the claims, which is included in discontinued operations, net of income taxes in the Statement of Operations.
During the year ended December 31, 2004, the Company sold or disposed of 41 of the 61 towers held for sale at December 31, 2003, and reclassified 14 towers back to continuing operations, leaving six towers accounted for as discontinued operations as of December 31, 2004. Five of the six towers accounted for as discontinued operations at December 31, 2004 are under contract to be sold. The Company considers the other tower abandoned. Gross proceeds realized from the sale of towers during the year ended December 31, 2004 was $1.2 million, resulting in a loss on sale of approximately $1.6 million, which is included in loss from discontinued operations, net of income taxes in the accompanying Consolidated Statement of Operations.
The December 31, 2003 loss from discontinued operations includes $3.4 million in asset impairment charges associated with the write-down of the carrying value of the 47 towers to their fair value less estimated cost to sell.
The following is a summary of the operating results of the discontinued operations relating to the Western tower sale and the 47 towers accounted for as discontinued operations:
| For the years ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
| (in thousands) | ||||||||||||
Revenues | $ | 168 | $ | 11,208 | $ | 24,582 | ||||||
Gross (loss) profit | $ | (174 | ) | $ | 6,240 | $ | 14,180 | |||||
Loss from operations, net of income taxes | $ | (270 | ) | $ | (6,170 | ) | $ | (6,974 | ) | |||
(Loss) gain on disposal of discontinued operations, net of income taxes | (1,622 | ) | 6,750 | — | ||||||||
(Loss) gain from discontinued operations, net of income taxes | $ | (1,892 | ) | $ | 580 | $ | (6,974 | ) | ||||
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 2004 as there was no associated debt outstanding during 2004.
In May 2004, the Company’s Board of Directors approved a plan of disposition related to site development services operations (including both the site development consulting and site development construction segments) in the Western portion of the United States (“Western site development services”). In June 2004, two business units were sold, and two business units were abandoned within the Western site development services unit. In the third quarter of 2004, the remaining two site development construction business units within the Western site development services unit were sold. Gross proceeds realized from sale during the third quarter were $0.4 million, and a loss on disposal of discontinued operations of $0.8 million was recorded during 2004.
F-14
The following is a summary of the operating results of the discontinued operations relating to the Western site development services:
| For the year ended December 31, | |||||||||||
| 2004 | 2003 | 2002 | |||||||||
| (in thousands) | |||||||||||
Revenues | $ | 14,280 | $ | 19,961 | $ | 25,689 | |||||
Gross (loss) profit | $ | (383 | ) | $ | 834 | $ | 4,781 | ||||
Income (loss) from operations, net of income taxes | $ | (578 | ) | $ | (378 | ) | $ | 2,893 | |||
Loss on disposal of discontinued operations, net of income taxes | (787 | ) | — | — | |||||||
(Loss) gain from discontinued operations, net of income taxes | $ | (1,365 | ) | $ | (378 | ) | $ | 2,893 | |||
No interest expense has been allocated to discontinued operations related to Western site development services for the years ended December 31, 2004, 2003 and 2002.
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 (six at December 31, 2004 and 61 at December 31, 2003) and the western services division which are classified as discontinued operations as of December 31, 2004 and 2003, respectively:
| As of December 31, 2004 | As of December 31, 2003 As restated | |||||
| (in thousands) | ||||||
Property and equipment, net | $ | 10 | $ | 1,361 | ||
Other assets | — | 372 | ||||
Assets held for sale | $ | 10 | $ | 1,733 | ||
Liabilities held for sale | $ | — | $ | 608 | ||
The notes to the consolidated financial statements for all years presented have been adjusted for the discontinued operations described above.
5. RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001,December 2004, the Financial Accounting Standards Board (“FASB”) issued a revised SFAS No. 123,Share-Based Payment(“Statement 123R”), which is effective for the Company’s third quarter of fiscal 2005. Statement 123R requires companies to expense in their consolidated statement of operations the estimated fair value of employee stock options and similar awards. The Company is currently evaluating which application method will be applied once SFAS 123R is adopted. Depending on the model used to calculate stock-based compensation expense in the future, the implementation of certain other requirements of Statement 123R and additional option grants expected to be made in the future, the pro forma disclosure (included in Note 2) may not be indicative of the stock-based compensation expense that will be recognized in the Company’s future financial statements. The Company is in the process of determining how the new method of valuing stock-based compensation as prescribed in Statement 123R will be applied to valuing stock-based awards granted after the effective date and the impact the recognition of compensation expense related to such awards will have on its financial statements.
In December 2004, the FASB issued SFAS 142. This standard eliminatedNo.153, “Exchanges of Nonmonetary Assets—an Amendment of APB No. 29” (SFAS 153). The amendments made by SFAS 153 are based on the amortizationprinciple that exchanges of goodwill and certain intangiblenonmonetary assets against earnings. Instead, goodwill is subject to at least an annual assessment for impairment by applying a fair-value-based test. Goodwill and indefinite-lived intangible assets will
F-15
should be written-down against earnings only inmeasured based on the periods in which the recordedfair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” This standard is effective for nonmonetary asset exchanges occurring after July 1, 2005. The adoption of this standard is more than its fair value. not expected to impact the Company’s Consolidated Financial Statements.
6. CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
a.SFAS 142 required143
Effective January 1, 2003, the Company to complete a transitional goodwill impairment test within six months from the date of adoption. The Company adopted the provisions of SFAS 142 effective January 1, 2002 and completed143. Under the required transitional tests prior to June 30, 2002. In addition,new accounting principle, the Company performed an impairment assessment of goodwill as of June 30, 2002. Other intangibles will continue to be amortized over their estimated useful lives, generally 3 to 15 years. See Note 5 for further discussion regarding the implementation of SFAS 142.
In October 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”).This standard requires companies to record the fair value of a liability for anrecognizes asset retirement obligationobligations in the period in which it is incurred. Whenthey are incurred, if a reasonable estimate of a fair value can be made, and accretes such liability through the liability is initially recorded, the Company capitalizes a cost by increasingobligation’s estimated settlement date. The associated asset retirement costs are capitalized as part of the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period,tower fixed assets and the capitalized cost is depreciated over the estimated useful lifelife.
The Company has entered into ground leases for the land underlying the majority of the related asset. Upon settlementCompany’s towers. A majority of the liability,these leases require the Company either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard will be adopted effective January 1, 2003. Management has not completed its analysis as to the effect adoption of SFAS 143 will have on the consolidated financial statements, but believes it may be material given the Company’s obligations to restore leaseholds to their original condition upon termination of the ground leases underlyinglease. SFAS 143 requires that the net present value of future restoration obligations be recorded as a majorityliability as of the Company’s towers. The Company will recorddate 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 adopting this Statement asthe change on prior years resulted in a charge of January 1,approximately $0.5 million ($0.01 per share), which is included in net loss for the year ended December 31, 2003.
Effective January 1, 2002,In addition, at the date of adoption, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposalrecorded an increase in tower assets of Long-Lived Assets (“SFAS 144”). SFAS 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assetsapproximately $0.6 million and for Long Lived Assets to Be Disposed of (“SFAS 121”). This Statement supersedes SFAS 121, however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be “held and used.” In addition, the Statement provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sales (e.g. abandoned) be classified as “held and used” until it is disposed of, and establishes more
F-14
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
restrictive criteria to classifyrecorded an asset (group) as “held for sale.”retirement obligation liability of approximately $1.1 million. The Statement also supersedes the accounting and reporting provisionsasset retirement obligation at December 31, 2004 of APB 30 for the disposal of a segment of a business and would extend the reporting of a discontinued operation to a “component of an entity” increasing the likelihood that a disposition will represent a discontinued operation. Further, the Statement requires operating losses from a “component of an entity” to be recognized$1.4 million is included in other long-term liabilities in the period(s) in which they occur (rather than as ofDecember 31, 2004 Consolidated Balance Sheet. In determining the measurement date as previously required by APB 30). The adoptionimpact of SFAS 144 did not have a material effect on143, the consolidated financial statements.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.
In April 2002,
The following pro-forma summary presents 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”). For most companies, SFAS 145 will require gains and losses on extinguishments of debt to be classified as income orCompany’s loss from continuing operations, rather thannet loss and related loss per share information as extraordinary items as previously requiredif the Company had been accounting for asset retirement obligations under SFAS 4. Extraordinary treatment will be required143 for certain extinguishments as provided in APB Opinion No. 30. all periods presented:
For the year ended December 31, 2002 As restated | ||||
| (in thousands, except per share amounts) | ||||
Loss from continuing operations before cumulative effect of change in acccounting principles | $ | (202,332 | ) | |
Per share loss from continuing operations before cumulative effect of change in accounting principles | $ | (4.01 | ) | |
Net loss | $ | (267,087 | ) | |
Net loss per common share | $ | (5.29 | ) | |
Weighted shares outstanding | 50,491 | |||
The statement also amended SFAS 13 for certain sales-leaseback and sublease accounting. The Company is required to adoptfollowing summarizes the provisions of SFAS 145 effective January 1, 2003. Pursuant to SFAS 145, the Company’s previously reported extraordinary item will be reclassified to operating expense in consolidated financial statement presentation subsequent to December 31, 2002.
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 required recognition of the liability at the commitment date to an exit plan. SFAS 146 requires that the initial measurement of a liability be at fair value. The Company is required to adopt the provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The effect of adopting SFAS 146 is not expected to be material to the consolidated financial statements.asset retirement obligation liability:
| For the year ended December 31, | |||||||||||
| 2004 | 2003 | 2002 | |||||||||
| (in thousands) | |||||||||||
Asset retirement obligation at January 1 | $ | 1,195 | $ | — | $ | 957 | |||||
Liability recorded in transition | — | 1,140 | — | ||||||||
Accretion expense | 131 | 119 | 130 | ||||||||
Reclassification of asset retirement obligation from discontinued operations | 78 | — | — | ||||||||
Revision in estimates | — | (64 | ) | (38 | ) | ||||||
Asset retirement obligation at December 31 | $ | 1,404 | $ | 1,195 | $ | 1,049 | |||||
In December 2002, the FASB issued b.SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure142 (“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 method used on reported results. The standard is effective for fiscal years beginning after December 15, 2002. The Company will continue to account for stock-based compensation in accordance with APB No. 25. As such, the Company does not expect this standard to have a material impact on its consolidated financial position or results of operations. The Company has adopted the disclosure-only provisions of SFAS No. 148 as of December 31, 2002.
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 issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for interim or annual financial statements after December 15, 2002. The Company implemented the disclosure requirements of FIN 45 as of December 31, 2002 and there was no material impact on its 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 for all VIEs 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 interim or annual period beginning after June 15, 2003. The Company does not expect the effect of adopting this FIN will be material to the Consolidated Financial Statements.
F-15
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. GOODWILL AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
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 $80.6$60.7 million, representing the excess of the carrying value of reporting unitscertain assets as compared to their estimated fair value. Of the total $80.6$60.7 million cumulative effect adjustment, $61.6$58.5 million related to the site development construction reporting segment and $19.0$2.2 million related to the site leasing reporting segment.
DuringIn addition, during 2002, the Company recorded additional goodwill totaling approximately $13.4$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, in addition to the transitional test described above, goodwill is subject to an impairment assessment at least annually, or at any time that indicators of impairment are present. The Company determined that during 2002 indicators of impairment were present, thereby requiring an impairment analysis be completed. The indicators of impairment giving rise to this analysis included significant deterioration of overall company value, continued negative trends with respect to 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 analysis, using a discounted cash flow valuation method for estimating fair value, $13.4 million of goodwill within the site development construction reporting segment2001, which was determined to be impaired.impaired during 2002 and written off (See Note 19). The $13.4 millionCompany currently does not have any remaining goodwill impairment charge is included within restructuring andor other charges in the Consolidated Statement of Operations for the year ended December 31, 2002. intangible assets subject to SFAS 142.
The following unaudited pro forma summary presents the Company’s net loss (in thousands) 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 |
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|
|
| ||||||||
|
| December 31, |
| December 31, |
| December 31, |
| |||
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|
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|
| (in thousands, except per share data) |
| |||||||
| Reported net loss | $ | (273,165 | ) | $ | (125,145 | ) | $ | (28,915 | ) | |
| Cumulative effect of change in accounting principle |
| 80,592 |
|
| — |
|
| — |
| |
|
|
| ||||||||
| Loss excluding cumulative effect of change in accounting principle |
| (192,573 | ) |
| (125,145 | ) |
| (28,915 | ) | |
| Add back goodwill amortization |
| — |
|
| 5,560 |
|
| 3,344 |
| |
|
|
| ||||||||
| Adjusted net loss | $ | (192,573 | ) | $ | (119,585 | ) | $ | (25,571 | ) | |
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| ||||||||
| Reported basic and diluted loss per share | $ | (5.43 | ) | $ | (2.64 | ) | $ | (0.70 | ) | |
| Cumulative effect of change in accounting principle |
| 1.60 |
|
| — |
|
| — |
| |
|
|
| ||||||||
| Loss per share excluding cumulative effect of change in accounting principle | $ | (3.83 | ) | $ | (2.64 | ) | $ | (0.70 | ) | |
| Add back goodwill amortization |
| — |
|
| .12 |
|
| .08 |
| |
|
|
| ||||||||
| Adjusted net loss per share | $ | (3.83 | ) | $ | (2.52 | ) | $ | (0.62 | ) | |
|
|
| ||||||||
For the year ended December 31, 2002 As restated | ||||
| (in thousands, except per share amounts) | ||||
Reported net loss | $ | (267,087 | ) | |
Cumulative effect of change in accounting principle | 60,674 | |||
Adjusted net loss | $ | (206,413 | ) | |
Reported basic and diluted loss per share | $ | (5.29 | ) | |
Cumulative effect of change in accounting principle | 1.20 | |||
Adjusted net loss per share | $ | (4.09 | ) | |
7. 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.
F-16
8. RESTRICTED CASH
Restricted cash at December 31, 2004 was $9.9 million. This balance includes $7.9 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 ordinary course of business, and is included in other assets in the December 31, 2004 Consolidated Balance Sheet. Approximately $2.0 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.
At December 31, 2003, there was $7.3 million of restricted cash which related to funds being held by an escrow agent in accordance with certain potential purchase price adjustments to the Western tower purchase and sale agreement. On April 29, 2004, the Company received notification from the purchaser of the Western towers as to certain claims for indemnification totaling approximately $4.3 million. As a result of these claims, $3.0 million of the restricted cash was released to the Company in May 2004. In December 2004, the remaining claims for indemnification of $4.3 million were settled for $2.8 million and this amount was released to the purchaser of the Western towers. The remaining $1.5 million was released to the Company in December 2004.
9. INTANGIBLE ASSETS, NET
As of December 31, 2004 and 2003, total costs of covenants not to compete were $6.3 million, and accumulated amortization totaled $4.9 million and $3.9 million, respectively. Amortization expense was $1.4$1.0 million, $6.9$1.3 million and $3.6$1.1 million for the yearsyear ended December 31, 2004, 2003 and 2002, 2001, and 2000, respectively.
Estimated amortization expense on the Company’s covenants not to compete for the next five calendar years and thereafter is as follows:follows (in thousands):
F-16
For the year ended December 31, | (In thousands) | ||
2005 | $ | 951 | |
2006 | 406 | ||
2007 | 8 | ||
Total | $ | 1,365 | |
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
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|
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|
| |||
Year ending December 31, (in thousands) |
|
|
|
| ||
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|
|
| |||
| 2003 |
| $ | 1,297 |
| ||
| 2004 |
|
| 1,276 |
| ||
| 2005 |
|
| 1,119 |
| ||
| 2006 |
|
| 417 |
| ||
| 2007 |
|
| 40 |
| ||
| Thereafter |
|
| 172 |
| ||
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| |||||
| $ | 4,321 |
| |||
|
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6.10. ACQUISITIONS
During 2004, the Company acquired five towers and related assets from various sellers. The aggregate consideration paid was $0.5 million in cash and 412,566 shares of Class A common stock. In addition, the Company paid $0.6 million in settlement of contingent purchase price amounts payable as a result of towers it acquired having met or exceeded certain earnings or new tower targets.
During 2003, the Company did not acquire any towers or businesses. However, during 2003, the Company paid approximately $3.1 million in settlement of contingent purchase price amounts payable as a result of towers it acquired having met or exceeded earnings or new tower targets.
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 addition, the Company issued 397,773 shares of Class A Common Stockcommon stock in settlement of contingent purchase price amounts payable as a result of towers or businesses it previously acquired having met or exceeded certain earnings or new tower targets. The 397,773 shares issued excludes the shares issued to Atlantic Telecom Services discussed below.
During 2001, the Company purchased two site development construction companies. On January 1, 2001, the Company acquired all of the issued and outstanding stock of Atlantic Telecom Services, Inc. (“Atlantic Telecom”). The Company paid $2.4 million in cash and issued 213,524 shares of its Class A common stock to the shareholders of Atlantic Telecom. During the first quarter of 2002, the shareholders received 587,260 shares as a result of certain 2001 earnings targets being met. In addition, as of December 31, 2002, the former shareholders of Atlantic Telecom were entitled to receive an additional $2.0 million as a result of certain 2002 earnings targets being met. Therefore, the Company has accrued $2.0 million within other current liabilities in the Consolidated Balance Sheet as of December 31, 2002. The excess of the purchase price over the estimated fair value of the net assets acquired, or approximately $9.7 million was recorded as goodwill, which was being amortized on a straight-line basis over a period of 15 years. The $9.7 million in goodwill plus the $2.0 million in goodwill that was recorded as a result of the earn-out targets having been met, were written off during 2002 in connection with the implementation of SFAS 142. (See Note 5). Subsequent to December 31, 2002, this $2.0 million was paid in cash by the Company.
On June 1, 2001, the Company acquired all of the issued and outstanding stock of Total Tower Service, Inc. (“Total Tower”). The Company paid $12.1 million in cash and issued 200,107 shares of its Class A common stock to the shareholders of Total Tower. The former shareholders of Total Tower were paid $7.0 million during 2002 as a result of meeting certain net income targets during the first year after the closing date. The excess of the original purchase price over the estimated fair value of the net assets acquired, or approximately $10.1 million was recorded as goodwill, which was being amortized on a straight-line basis over a period of 15 years. The $10.1 million in goodwill plus the $7.0 million in goodwill that was recorded as a result of the earn-out payment, were written off during 2002 in connection with the implementation of SFAS 142 (see Note 5).
Additionally, during 2001, the Company acquired 677 towers and related assets from various sellers. The aggregate consideration paid to sellers for these acquisitions for the year ended December 31, 2001 was $214.4 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 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 tower acquisitions usingat the purchase methodfair market value at the date of accounting.acquisition. The results of operations of the acquired assets and companies are included with those of the Company from the dates of the respective acquisitions. The Company is currently evaluating all 2004 acquisitions within one year after the respective closing date of the transaction for compliance with the provisions of SFAS 141-Business Combinations, which requires disclosure of the primary reasons for a business combination and the allocation of the purchase price paid to the assets acquired and liabilities assumed by major balance sheet caption, as well as the separate recognition of intangible assets from goodwill if certain criteria are met. None of the individual acquisitions consummated were deemed significant to the Company and, accordingly, pro forma financial information has not been presented. The acquisitions were paid for from the issuance of Class A common stock, proceeds from debt offerings, cash provided from operations, cash on hand and borrowings under the senior credit facility.
F-17
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.11. 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 governmental 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. The Company generally does not require collateral. The following is a list of significant customers and the percentage of total revenue derived from such customers:
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| Percentage of Total Revenues for the year ended December 31, | |||||||||
| 2004 | 2003 | 2002 | |||||||
Cingular (including AT&T Wireless) | 22.7 | % | 20.3 | % | 14.5 | % | |||
Sprint PCS | 15.7 | % | 8.6 | % | 5.2 | % | |||
Bechtel Corporation | 6.1 | % | 10.4 | % | 13.8 | % | |||
The Company’s site development consulting, site development construction and site leasing segments derive revenue from these customers. Client concentrations with respect to revenues in each of the segments are as follows:
| Percentage of Site Leasing Revenue for the year ended December 31, | |||||||||
| 2004 | 2003 | 2002 | |||||||
Cingular (including AT&T Wireless) | 27.5 | % | 28.0 | % | 16.9 | % | |||
Verizon | 9.5 | % | 10.0 | % | 11.7 | % | |||
Nextel | 7.3 | % | 6.5 | % | 11.3 | % | |||
Percentage of Site Development for the year ended December 31, | |||||||||
| 2004 | 2003 | 2002 | |||||||
Bechtel Corporation* | 24.7 | % | 40.3 | % | 46.2 | % | |||
Cingular (including AT&T Wireless) | 26.6 | % | 4.3 | % | 16.0 | % | |||
Verizon Wireless | 26.1 | % | 13.6 | % | 4.5 | % | |||
Horizon | — | 1.5 | % | 13.1 | % | ||||
Percentage of Site Development Construction Revenue for the year ended December 31, | |||||||||
| 2004 | 2003 | 2002 | |||||||
Bechtel Corporation* | 14.5 | % | 28.9 | % | 26.2 | % | |||
Sprint PCS | 35.8 | % | 13.1 | % | 3.0 | % | |||
Cingular (including AT&T Wireless) | 12.5 | % | 5.4 | % | 13.2 | % | |||
T-Mobile | 3.9 | % | 7.5 | % | 10.7 | % | |||
| * | Substantially all the work performed for Bechtel Corporation was for its clients Cingular and AT&T wireless. |
F-18
8.12. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings in excess of billings on uncompleted contracts consist of the following:
|
| As of December 31, |
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|
|
| |||||
|
| 2002 |
| 2001 |
| ||
|
|
|
| ||||
|
| (in thousands) |
| ||||
| Costs incurred on uncompleted contracts | $ | 74,506 |
| $ | 64,400 |
| |
| Estimated earnings |
| 17,148 |
|
| 14,200 |
| |
| Billings to date |
| (83,591 | ) |
| (73,569 | ) | |
|
| ||||||
$ | 8,063 |
| $ | 5,031 |
| ||
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| ||||||
| As of December 31, 2004 | As of December 31, 2003 | |||||||
| (in thousands) | ||||||||
Costs incurred on uncompleted contracts | $ | 63,198 | $ | 43,738 | ||||
Estimated earnings | 10,334 | 4,218 | ||||||
Billings to date | (55,717 | ) | (38,897 | ) | ||||
| $ | 17,815 | $ | 9,059 | |||||
These amounts are included in the accompanying consolidated balance sheetsheets under the following captions:
|
| As of December 31, |
| ||||
|
|
| |||||
|
| 2002 |
| 2001 |
| ||
|
|
|
| ||||
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| (in thousands) |
| ||||
| Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 10,425 |
| $ | 11,333 |
| |
| Billings in excess of costs and estimated earnings on uncompleted contracts |
| (2,362 | ) |
| (6,302 | ) | |
|
| ||||||
$ | 8,063 |
| $ | 5,031 |
| ||
|
| ||||||
F-18
As of December 31, 2004 | As of December 31, 2003 | |||||||
| (in thousands) | ||||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 19,066 | $ | 10,227 | ||||
Billings in excess of costs and estimated earnings on uncompleted contracts | (1,251 | ) | (1,168 | ) | ||||
| $ | 17,815 | $ | 9,059 | |||||
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9.13. PROPERTY AND EQUIPMENT
Property and equipment, excluding assets held for sale, consists of the following:
|
| As of December 31, |
| ||||
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|
| |||||
|
| 2002 |
| 2001 |
| ||
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| (in thousands) |
| ||||
| Towers and related components | $ | 1,297,220 |
| $ | 1,224,891 |
| |
| Construction-in-process |
| 5,288 |
|
| 48,998 |
| |
| Furniture, equipment and vehicles |
| 41,751 |
|
| 38,148 |
| |
| Buildings and improvements |
| 2,689 |
|
| 2,406 |
| |
| Land |
| 15,406 |
|
| 12,275 |
| |
|
| ||||||
| 1,362,354 |
|
| 1,326,718 |
| ||
| Less: accumulated depreciation and amortization |
| (221,729 | ) |
| (128,159 | ) | |
|
| ||||||
| Property and equipment, net | $ | 1,140,625 |
| $ | 1,198,559 |
| |
|
| ||||||
As of December 31, 2004 | As of December 31, 2003 As restated | |||||||
| (in thousands) | ||||||||
Towers and related components | $ | 1,064,085 | $ | 1,059,880 | ||||
Construction-in-process | 55 | 498 | ||||||
Furniture, equipment and vehicles | 30,223 | 38,403 | ||||||
Land, buildings and improvements | 20,658 | 16,160 | ||||||
| 1,115,021 | 1,114,941 | |||||||
Less: accumulated depreciation and amortization | (369,190 | ) | (284,796 | ) | ||||
Property and equipment, net | $ | 745,831 | $ | 830,145 | ||||
Construction-in-process represents costs incurred related to towers that are under development and will be used in the Company’s operations (see Note 14).operations.
Depreciation expense was $100.9$89.3 million, $92.3 million, and $94.4 million for the year ended December 31, 2002.2004, 2003, and 2002, respectively.
F-19
10.14. ACCRUED EXPENSES
The Company’s accrued expenses are comprised of the following:
|
| As of December 31, 2002 |
| |
|
|
| ||
|
| (in thousands) |
| |
| Salaries and benefits | $ | 1,791 |
| |
| Real estate and property taxes |
| 5,289 |
| |
| Restructuring and other charges |
| 2,181 |
| |
| Insurance |
| 3,738 |
| |
| Other |
| 2,082 |
| |
| ||||
$ | 15,081 |
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| As of December 31, | ||||||
| 2004 | 2003 | |||||
| (in thousands) | ||||||
Salaries and benefits | $ | 2,941 | $ | 2,420 | ||
Real estate and property taxes | 4,319 | 6,084 | ||||
Restructuring and other charges | 733 | 1,040 | ||||
Tower sale purchase price adjustment | — | 2,573 | ||||
Other | 7,004 | 5,749 | ||||
Total | $ | 14,997 | $ | 17,866 | ||
F-20
11.15. CURRENT AND LONG-TERM DEBT
|
| As of December 31, |
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|
|
| |||||
|
| 2002 |
| 2001 |
| ||
|
|
|
| ||||
|
| (in thousands) |
| ||||
| 10¼% senior notes, unsecured, interest payable semi-annually, balloon principal payment of $500,000 due at maturity on February 1, 2009, including deferred gain at December 31, 2002 related to termination of interest rate swap agreement of $5,236 (see Note 16). | $ | 505,236 |
| $ | 500,000 |
| |
| 12% senior discount notes, net of unamortized original issue discount of $5,077 at December 31, 2002, and $34,115 at December 31, 2001, 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. |
| 263,923 |
|
| 234,885 |
| |
| Senior secured credit facility loans, interest at varying rates (3.41% to 3.81% at December 31, 2002) quarterly installments based on reduced availability beginning September 30, 2003, maturing June 15, 2007. |
| 255,000 |
|
| 110,000 |
| |
| Notes payable, interest at varying rates (2.9% to 11.4% at December 31, 2002). |
| 123 |
|
| 568 |
| |
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| 1,024,282 |
|
| 845,453 |
| ||
| Less: current maturities |
| (189,397 | ) |
| (365 | ) | |
|
| ||||||
| Long-term debt | $ | 834,885 |
| $ | 845,088 |
| |
|
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F-19
| As of December 31, 2004 | As of December 31, 2003 | |||||||
| (in thousands) | ||||||||
| 10 1/4% senior notes, unsecured, interest payable semi-annually in arrears, balloon principal payment of $49,985 due at maturity on February 1, 2009, includes deferred gain related to termination of derivative of $1,909 and $4,559 at December 31, 2004 and December 31, 2003, respectively (See Note 21). These notes were redeemed in full February 1, 2005. | $ | 51,894 | $ | 411,000 | ||||
| 8 1/2% senior notes, unsecured, interest payable semi - -annually in arrears on June 1 and December 1. Balance due in full December 1, 2012. | 250,000 | — | ||||||
| 9 3/4% senior discount notes, net of unamortized original issue discount of $98,337 and $124,954 at December 31, 2004 and 2003, respectively, unsecured, cash interest payable semi-annually in arrears beginning June 15, 2008, balloon principal payment of $400,774 due at maturity on December 15, 2011. | 302,437 | 275,820 | ||||||
| 12% senior discount notes, unsecured, cash interest payable semi-annually in arrears beginning September 1, 2003. Balance redeemed in full March 1, 2004. | — | 65,673 | ||||||
| Senior secured credit facility, interest at varying rates (5.15% to 5.175%) at December 31, 2003. This facility was paid in full in January 2004. | — | 118,227 | ||||||
| Senior secured credit facility, interest at varying rates (4.81% to 5.51%) at December 31, 2004. Amortization of 0.25% is payable quarterly on term loans and commenced September 30, 2004. Outstanding term loan balance due October 31, 2008. Outstanding revolving line of credit balance due July 31, 2008. | 323,375 | — | ||||||
| Notes payable, interest at varying rates (2.9% to 11.4% at December 31, 2003). Notes matured on November 2, 2004. | — | 38 | ||||||
| 927,706 | 870,758 | |||||||
| Less: current maturities | (3,250 | ) | (11,538 | ) | ||||
| Long-term debt | $ | 924,456 | $ | 859,220 | ||||
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10¼10 1/4% Senior Notes
In February 2001, the Company issued $500.0 million of its 10¼% senior notes due 2009, which produced net proceeds of approximately $484.3 million after deducting offering expenses. Interest accruesaccrued on the notes and iswas 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 $105.6 million of the proceeds were used to repay all borrowing under the senior credit facility, and the senior credit agreement in existence at the time it was terminated. The Company wrote off the deferred financing fees relating to the senior credit facility and recorded a $5.1 million extraordinary loss in the first quarter of 2001 in connection with the termination of this facility.
The 10¼% senior notes arewere unsecured and are werepari 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, transactiontransactions with affiliates, sale and leaseback transactions, certain investments and the Company’s ability to merge or consolidate with other entities.
During the year ended December 31, 2004, the Company exchanged $49.7 million in principal amount of the notes for 8.7 million shares of Class A common stock. Additionally, the Company repurchased $306.8 million in principal amount of
F-21
the notes in the open market for $320.5 million in cash. During 2004, the Company recognized a loss on extinguishment of debt of $14.9 million and wrote-off deferred financing fees of $6.2 million in connection with the 10¼% senior note retirement transactions.
On November 16, 2004, the Company commenced a cash tender offer to purchase up to $236.5 million aggregate principal amount of its 10¼% senior notes. The Company offered consideration of $1,050.75 per $1,000 of principal amount of the notes tendered plus a premium of $10.00 per $1,000 of principal amount of notes tendered prior to November 30, 2004. Tenders submitted after November 30, 2004, and prior to the expiration date of December 14, 2004 did not receive the premium of $10.00 per $1,000 of principal amount tendered. An aggregate of $186.5 million of the senior notes were redeemed in connection with the tender offer. Consequently at December 31, 2004, there was $50.0 million of the 10¼% senior notes remaining outstanding. The remaining 10¼% senior notes were redeemed by the Company on February 1, 2005 for $52.5 million plus accrued interest, in accordance with the terms of the indenture.
8 1/2% Senior Notes
On December 1, 2004, the Company issued $250.0 million of its 8½% senior notes due 2012, which produced net proceeds of $244.8 million after deducting offering expenses. Interest accrues on the notes and is payable in cash semi-annually in arrears on June 1 and December 1, commencing June 1, 2005. Proceeds from the 8½% senior notes were used to repurchase and/or redeem the 10¼% senior notes as discussed above.
The 8 1/2% senior notes are unsecured and arepari passu in right of payment with the Company’s other existing and future senior indebtedness. The 8½% 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 merge or consolidate with other entities. The ability of the Company to comply with the covenants and other terms of the 10¼8½% 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 10¼8½% senior notes, it would be in default thereunder,there under, 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 willwould also cause a cross-default under the indenture for the 10¼8½% senior notes.
12%9 3/4% Senior Discount Notes
In March 1998,December 2003, the Company issued $269.0and Telecommunications co-issued $402.0 million of its 12%their 9¾% senior discount notes due March 1, 2008. The issuance2011, which produced net proceeds of the senior discount notes netted approximately $150.2$267.1 million in proceeds to the Company.after deducting offering expenses. The senior discount notes accrete in value until March 1, 2003December 15, 2007 at which time they will have an aggregate principal amount of $269.0$400.8 million. Thereafter, interest will accrueaccrues on the senior discount notes and will be payable in cash semi-annually in arrears on March 1June 15 and September 1,December 15, commencing September 1, 2003.June 15, 2008. Proceeds from the senior discount notes were used to acquiretender for approximately $153.3 million of the Company’s 12% senior discount notes and construct telecommunications towers as well as for general working capital purposes. During 2004, the Company exchanged $1.3 million in face value of the 9 3/4%senior discount notes for approximately 136,000 shares of the Company’s Class A common stock.
The 12%9 3/4% senior discount notes are unsecured and arepari passu in right of payment with the Company’s other existing and future senior indebtedness. The 12%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 12%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 12%9¾% senior discount notes, it would be inan event of default thereunder,under the indenture governing the notes and in any such case,the trustee may accelerate the maturity of a portion or all of its long-term indebtedness could be accelerated.the notes. In addition, the acceleration of amounts due under the senior credit facility willwould 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, which produced net proceeds of approximately $150.2 million. The senior discount notes accreted in value until March 1, 2003 at which time they had an aggregate principal amount of $269.0 million. Thereafter, interest accrued on the senior discount notes and was 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. During the year ended December 31, 2003, the Company repurchased $50.0 million in principal amount of its 12% senior discount notes in the open market for $50.3 million in cash. Additionally, during 2003, the Company completed a
F-22
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.
In the first quarter of 2004, 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 loss of $1.6 million related to these debt repurchases and wrote-off $0.4 million of deferred financing fees. Additionally, on March 1, 2004 the Company, pursuant to the indenture for the 12% senior discount notes, redeemed all remaining outstanding 12% notes. These notes were redeemed at a price of 107.5% of the principal balances outstanding. As a result of this transaction, the Company recorded a loss of $3.5 million associated with the premium paid and wrote off $1.0 million of deferred financing fees associated with this transaction.
The 12% senior discount notes were unsecured and werepari 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, transaction with affiliates, sale and leaseback, certain investments and the Company’s ability to merge or consolidate with other entities.
Senior Secured Credit Facility (closed in January 2004)
On January 30, 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. This facility accrued interest at either the Eurodollar Rate (as defined in the senior credit facility) plus a spread of 350 basis points or the Base Rate (as defined in the senior credit facility) plus a spread of 250 basis points. 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 of principal and accrued interest outstanding. In addition to the amounts outstanding, the Company was required to pay $8.0 million associated with the assignment to the new lenders of the old credit 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. These amounts are included in loss from write-off of deferred financing fees and extinguishment of debt in the Company’s Consolidated Statements of Operations. SBA Senior Finance has recorded deferred financing fees of approximately $6.5 million associated with this new facility.
The revolving line of credit may be borrowed, repaid and redrawn. Amortization of the term loan is at a quarterly rate of 0.25% and is payable quarterly beginning September 30, 2004 and ending September 30, 2008. All remaining outstanding amounts under the term loans are due October 31, 2008. There is no amortization of the revolving line of credit and all amounts outstanding under the revolving line of credit are due on July 31, 2008. The new credit facility required amortization payments of $1.6 million during 2004. This facility may be prepaid at any time with no prepayment penalty. On November 12, 2004, we entered into an amendment to the senior credit facility. Under the amendment, amounts borrowed will accrue interest at either the Eurodollar Rate (as defined in the senior credit facility) plus a spread of 275 basis points or the Base Rate (as defined in the senior credit facility) plus a spread of 175 basis points.
Amounts borrowed under this facility are secured by a first priority 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. In addition, SBA Communications and Telecommunications have pledged, on a non-recourse basis, all of the common stock of Telecommunications and SBA Senior Finance to secure SBA Senior Finance’s obligations under this senior credit facility.
The 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, restrict 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 covenants and access the available funds under the senior credit facility in the future will depend on its future financial performance. As of December 31, 2004, SBA Senior Finance was in full compliance with the terms of the new credit facility and had the ability to draw an additional $36.5 million.
F-23
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 assumed all rights and obligations of Telecommunications under the senior credit facility pursuant to an amended and restated credit agreement with the senior credit lenders. Telecommunications was released from any obligation to repay the indebtedness under the senior credit facility. Simultaneously with this assumption, Telecommunications contributed substantially all of its assets, consisting primarily of stock in our various operating subsidiaries, to SBA Senior Finance. 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, SBA 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 covenants. As of December 31, 2002, the Company had $100.0 million outstanding under the term loan and $155.0 million under the revolving loan.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. BasedThe Company refinanced this credit facility in May 2003 and used the proceeds from the new credit facility, cash on the current agreement, the term loanhand and the revolving loan mature June 15, 2007 and amortizationa portion of the term loan begins
F-20
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in September 2003. Underproceeds from the current terms of the seniorWestern tower sale to repay this credit facility the Company is required to use substantially all net proceeds of asset sales to repay outstanding debt under the senior credit facility.in full. As a result of this prepayment, the Company has calculated its current debt outstanding at December 31, 2002 to include substantially all of the net proceeds from the proposed sale of 801 towers to AAT Communications of $188.0 million. However, as more fully discussed in Note 2, it is the Company’s intent to seek an amendment to the senior credit facility and in exchange for certain modifications, the Company would repay approximately $150.0 million ofwrote-off deferred financing fees associated with this facility inof approximately $4.4 million during 2003. The receipt of this amendment to the senior credit facility is a condition to the consummation of the AAT Transaction. Borrowings under the senior secured credit facility accrue interest at 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 all of the assets of SBA Telecommunications and its subsidiaries. The senior credit facility contains certain restrictive covenants. These covenants place 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 can be built without anchor tenants. If the Company fails to comply with these covenants, it could result in an event of default under the senior credit facility. The acceleration of amounts due under the senior credit facility will also cause a cross-default under both of the Company’s indentures.
As of December 31, 2002,2004, the Company was in compliance with the covenants of each of the above agreements (see Note 2).
indentures relating to the 10 1/4% senior notes, the 8 1/2% senior notes and the 9 3/4% senior discount notes, and the January 2004 senior secured credit facility, as amended. The Company’s debt, excluding the deferred interest rate swap of $1.9 million (discussed in Note 21) at December 31, 20022004, matures as follows:
|
| (in thousands) |
| ||
| 2003 | $ | 189,397 |
| ||
| 2004 |
| 3,981 |
| ||
| 2005 |
| 6,569 |
| ||
| 2006 |
| 6,568 |
| ||
| 2007 |
| 48,608 |
| ||
| Thereafter |
| 763,923 |
| ||
| |||||
| Total |
| $ | 1,019,046 |
| |
|
| ||||
For the year ended December 31, | (in thousands) | ||
2005 | $ | 3,250 | |
2006 | 3,250 | ||
2007 | 3,250 | ||
2008 | 313,625 | ||
2009 | 49,985 | ||
Thereafter* | 552,437 | ||
Total | $ | 925,797 | |
| * | Includes 9 3/4% senior discount notes at accreted value of $302.4 million as of December 31, 2004. These notes will have an accreted value of $400.8 million at their maturity date of December 15, 2011. |
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$500.0 million senior notes from interest-rate fixed interest rate to variable rate notes. During October 2002, the counter-partycounter party to this agreement elected to terminateterminated the agreement. ThisThe termination resulted in a $5.4 million deferred gain which is recorded in long-termlong term debt and is being recognized as a reduction to interest expense over the remaining term of the notes to which the swap related. Amortization during 2004, 2003, and 2002 was approximately $0.7 million, $0.7 million, and $0.2 million, respectively. The amortization of the remaining deferred gain as of December 31, 20022004 is as follows:
|
| (in thousands) |
| ||
| 2003 | $ | 676 |
| ||
| 2004 |
| 740 |
| ||
| 2005 |
| 810 |
| ||
| 2006 |
| 886 |
| ||
| 2007 |
| 969 |
| ||
| Thereafter |
| 1,155 |
| ||
| |||||
| Total |
| $ | 5,236 |
| |
|
| ||||
For the year ended December 31, | (in thousands) | ||
2005 | $ | 405 | |
2006 | 443 | ||
2007 | 485 | ||
2008 | 530 | ||
2009 | 46 | ||
Total | $ | 1,909 | |
See Note 16note 21 for further discussion regarding the interest rate swap agreement.
F-24
12.16. SHAREHOLDERS’ EQUITY
a. Offerings of Common Stock
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, depositarydepository shares, or warrants.
F-21
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
b. Registration of Additional Shares
During 2001, the Company filed a shelf registration statement on Form S-4 with the Securities and Exchange Commission registering an aggregate 5.0 million shares of its Class A common stock. These 5.0 million shares are in addition to 3.0 million shares registered during 2000. These shares may be issued in connection with acquisitions of wireless communication towers or companies that provide related services. During the yearyears ended December 31, 2004, 2003 and 2002, the Company issued 0.4 million shares, zero shares and 1.3 million shares, under these registration statements for one acquisition and certain earn-outs. During the year ended December 31, 2001, the Company issued 1.6 million sharesrespectively, of its Class A common stock pursuant to these registration statements in connection with six acquisitions and certain earn-outs. acquisitions.
c. Other Common Stock Transactions
During the year ended December 31, 2000,2004, the Company issued 1.1exchanged $49.7 million of its 10¼% senior notes for 8.7 million shares pursuantof its Class A common stock. The Company also exchanged $1.3 million in face value of its 9¾% senior discount notes for approximately 136,000 shares of its Class A common stock.
During 2003, the Company exchanged $13.5 million of its 10¼% senior notes for 3.85 million shares of its Class A common stock. The issuance of these shares triggered an event whereby the 5.5 million of Class B common stock outstanding automatically converted to these registration statements in connection with ten acquisitions.Class A common stock.
c.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. AsNo compensation expense is recognized for the difference between the employees’ purchase price and the fair value of the stock. The pro forma net income and earnings per share is included in the SFAS 123 calculation included in Note 2. For the year ended December 31, 2002,2004, employees had purchased 271,038484,564 shares under the Purchase Plan.
d. Shareholder rights plane. Non-cash Compensation
From time to time, restricted shares of Class A common stock or options to purchase Class A common stock have been granted under the Company’s equity participation plans at prices below market value at the time of grant. In addition, the Company had bonus agreements with certain executives and employees to issue shares of the Company’s Class A common stock in lieu of cash payments. The Company recorded approximately $0.5 million, $0.8 million and $2.0 million of non-cash compensation expense during the years ended December 31, 2004, 2003 and 2002, respectively.
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 difference between $1.0 million and the value of all vested options and restricted stock belonging
F-25
to this 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 as non-cash compensation expense.
| f. | Shareholder Rights Plan and Preferred Stock |
During January 2002, the Company’s Board of Directors adopted a shareholder 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 shareholder value in the event of transactions that may arise in the future, the Board retains the power to redeem the rights for a set amount. The rights 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.
13.17. STOCK OPTIONS AND WARRANTS
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, 2004 is as follows:
| |||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||
These options generally vest between three and six year periodsyears from the date of grant. The Company accounts for these plans under APB Opinion No. 25 Accounting for Stock Issued to Employees under which compensation cost is not recognizedgrant 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 Class A common stocka straight-line basis and generally have been granted under the 1999 Equity Participation Plan and the 2001 Equity Participation Plan which were below market value at the time of grant.
F-22
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recorded non-cash compensation expense of $2.0 million, $3.3 million and $0.3 million for the years ended December 31, 2002, 2001 and 2000, respectively.
As required by FASB Statement No. 123 Accounting for Stock-Based Compensation (“SFAS 123”), for those options which the Company granted at or above fair market value, 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 ten year life.
A summary of the status of the Company’s stock option plans including their weighted average exercise price is as follows:
|
| 2002 |
| 2001 |
| 2000 |
| ||||||||||||
|
|
|
|
| |||||||||||||||
|
| Shares |
| Price |
| Shares |
| Price |
| Shares |
| Price |
| ||||||
|
|
|
|
|
|
|
| ||||||||||||
| Outstanding at beginning of year |
| 3,823,911 |
| $ | 20.57 |
|
| 3,089,656 |
| $ | 16.97 |
|
| 3,177,194 |
| $ | 7.11 |
| |
| Granted |
| 2,444,610 |
|
| 10.17 |
|
| 1,748,195 |
|
| 23.34 |
|
| 1,001,493 |
|
| 36.87 |
| |
| Exercised/redeemed |
| (144,652 | ) |
| 0.93 |
|
| (587,560 | ) |
| 4.26 |
|
| (973,569 | ) |
| 3.95 |
| |
| Forfeited/canceled |
| (3,276,083 | ) |
| 21.59 |
|
| (426,380 | ) |
| 27.65 |
|
| (115,462 | ) |
| 24.99 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Outstanding at end of year |
| 2,847,786 |
| $ | 11.37 |
|
| 3,823,911 |
| $ | 20.57 |
|
| 3,089,656 |
| $ | 16.97 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Options exercisable at end of year |
| 993,110 |
| $ | 12.63 |
|
| 1,616,968 |
| $ | 14.12 |
|
| 1,172,564 |
| $ | 6.29 |
| |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
| Weighted average fair value of options granted during the year |
|
|
| $ | 6.63 |
|
|
|
| $ | 27.37 |
|
|
|
| $ | 36.91 |
| |
| 2004 | 2003 | 2002 | ||||||||||||||||
| Shares | Price | Shares | Price | Shares | Price | |||||||||||||
| (shares in thousands) | ||||||||||||||||||
Outstanding at beginning of year | 3,788 | $ | 7.79 | 2,848 | $ | 11.37 | 3,824 | $ | 20.57 | |||||||||
Granted | 1,390 | $ | 4.27 | 1,630 | $ | 2.20 | 2,445 | $ | 10.17 | |||||||||
Exercised/redeemed | (173 | ) | $ | 3.11 | (34 | ) | $ | 1.26 | (145 | ) | $ | 0.93 | ||||||
Forfeited/canceled | (590 | ) | $ | 6.81 | (656 | ) | $ | 9.78 | (3,276 | ) | $ | 21.59 | ||||||
Outstanding at end of year | 4,415 | $ | 7.04 | 3,788 | $ | 7.79 | 2,848 | $ | 11.37 | |||||||||
Options exercisable at end of year | 1,588 | $ | 11.56 | 1,235 | $ | 12.66 | 993 | $ | 12.63 | |||||||||
F-26
Option groups outstanding at December 31, 20022004 and related weighted average exercise price and remaining life, in years, information areis as follows:
Options Outstanding |
| Options Exercisable |
| ||||||||||
|
| ||||||||||||
Range |
| Outstanding |
| Average |
| Average Exercise |
| Exercisable |
| Weighted Average |
| ||
|
|
|
|
|
| ||||||||
| $ 0.05 - $ 4.00 | 387,019 |
| 6.7 |
| $ | 1.76 |
| 230,554 |
| $ | 2.25 |
| |
| $ 5.37 - $ 9.75 | 1,491,326 |
| 6.8 |
| $ | 8.07 |
| 339,687 |
| $ | 8.29 |
| |
| $ 10.17 - $ 13.35 | 361,715 |
| 8.1 |
| $ | 12.49 |
| 20,440 |
| $ | 10.99 |
| |
| $ 15.25 - $ 24.75 | 352,069 |
| 5.8 |
| $ | 17.52 |
| 273,257 |
| $ | 16.35 |
| |
| $ 26.63 - $ 51.94 | 255,657 |
| 4.0 |
| $ | 35.17 |
| 129,172 |
| $ | 34.95 |
| |
|
|
|
|
|
|
|
|
|
| ||||
2,847,786 |
| 6.6 |
| $ | 11.37 |
| 993,110 |
| $ | 12.63 |
| ||
|
|
|
|
|
|
|
|
|
| ||||
F-23
| Options Outstanding | Options Exercisable | |||||||||||
| Range | Outstanding (in thousands) | Weighted Average Contractual Life | Weighted Average Exercise Price | Exercisable (in thousands) | Weighted Average Exercise Price | |||||||
| $ 0.05 -$ 4.00 | 1,740 | 7.8 | $ | 2.22 | 588 | $ | 2.27 | |||||
| $ 5.37 -$ 9.75 | 1,840 | 8.7 | $ | 5.69 | 337 | $ | 8.01 | |||||
| $10.17 -$13.35 | 321 | 7.0 | $ | 12.42 | 171 | $ | 12.31 | |||||
| $15.25 -$24.75 | 295 | 5.4 | $ | 17.27 | 276 | $ | 16.95 | |||||
| $26.63 -$51.94 | 219 | 6.0 | $ | 35.01 | 216 | $ | 34.96 | |||||
| 4,415 | $ | 7.04 | 1,588 | $ | 11.56 | |||||||
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14.18. RESTRUCTURING AND OTHER CHARGES
In August 2001, in response to deteriorating capital market conditions withinin the telecommunications industry during the past three years, the Company has implemented a plan ofvarious 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.plans discussed below.
2002 Plan
In February 2002, as a result of the continuing deterioration of capital market conditions for wireless carriers, the Company announced that it was further reducing its capital expenditures for new tower development and acquisition activities, suspending any material new investment for additional towers, reducingand reduced its workforce and closingclosed or consolidatingconsolidated offices. Under current capital market conditions, the Company does not anticipate building or buying a material number of new towers beyond those it is currently contractually obligated to build or buy, thereby resulting in the abandonment of a majority of its existing new tower build and acquisition work in process during 2002. In connection with this restructuring, a portion of the Company’s workforce has beenwas reduced and certain offices have beenwere closed, substantially all of which were primarily dedicated to new tower development activities. As a result of the implementation of its plans, the Company recorded a restructuring charge of $63.7$47.3 million. The accrual of approximately $0.7 million in accordanceremaining at December 31, 2004, with SFAS 144, andEmerging Issues Task Force 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costsrespect to Exit an Activity, including Certain Costs Incurred in a Restructuring. the 2002 plan, relates 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, 2004 related to the 2002 restructuring plan:
| Accrual as of January 1, 2004 | Restructuring Charges (credits) | Payments | Non-cash adjustments | Accrual as of December 31, 2004 | |||||||||||||
| (in thousands) | |||||||||||||||||
Abandonment of new tower build work in process | $ | — | $ | (99 | ) | $ | — | $ | 99 | $ | — | ||||||
Employee separation of costs | 1,040 | 308 | (615 | ) | — | 733 | |||||||||||
| $ | 1,040 | $ | 209 | $ | (615 | ) | $ | 99 | $ | 733 | |||||||
2003 Plan
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 $2.1 million during the year ended December 31, 2003. Of the $63.7$2.1 million restructuring charge recorded during the year ended December 31, 2002,2003, approximately $40.4$0.6 million related to the abandonment of new tower build and acquisition work in process and related construction materials on approximately 764 sites and approximately $16.4 million relates to the impairment of approximately 144 tower sites held and used in operations. The abandonment of new tower build and acquisition work in process resulted in the write-off of all costs incurred to date. The impairment of operating tower assets resulted primarily from the Company’s evaluation of its operating tower portfolio using a projected cash flow analysis and assets were written down to fair value determined on a discounted cash flow analysis. Towers determined to be impaired were primarily towers with no current tenants and little or no prospects for future lease-up.process. The remaining $6.9$1.5 million charge related primarily to the costs of employee separation for approximately 470 employees and exit costs associated with the closing andor consolidation of approximately 4012 offices. ExitIn connection with employee separation costs, associated with the closing and consolidation of offices primarily representCompany paid approximately $0.7 million in one-time termination benefits. Of the Company’s estimate of future lease obligations after considering sublease opportunities.
Approximately $1.7$2.1 million remains in accrued liabilities at December 31, 2002, representing primarily future lease obligations related to closed offices and future ground lease obligations on canceled sites. A summary of the restructuring charge forexpense recorded during the year ended December 31, 2003, $2.0 million pertains to the Company’s site development segment and $0.1 million pertains to the Company’s site leasing segment.
During the year ended December 31, 2004, restructuring charges of $0.04 million and non-cash adjustments reducing these charges of $0.04 million were recorded relating to the 2003 restructuring plan. At December 31, 2004, there are no remaining liabilities relating to the 2003 restructuring plan.
F-27
Restructuring expense for the years ended December 31, 2004, 2003, and 2002, iswhich relate to the 2003 and 2002 restructuring plans consisted of the following:
| For the year ended December 31, | ||||||||||
| 2004 | 2003 | 2002 | ||||||||
| (in thousands) | ||||||||||
Abandonment of new tower build and acquisition work-in-process and related construction materials | $ | (110 | ) | $ | 617 | $ | 40,380 | |||
Employee separation and exit costs | 360 | 1,477 | 6,907 | |||||||
| $ | 250 | $ | 2,094 | $ | 47,287 | |||||
19. ASSET IMPAIRMENT CHARGES
During 2004, the Company reevaluated its future cash flow expectations on ten towers and other related equipment that have not achieved expected lease up results. The change in fair value of these towers, as follows:
|
| Total charges |
| Deductions |
| Accrued as of |
| ||||||
|
|
|
|
| |||||||||
|
|
| Cash |
|
| Non-cash |
|
| |||||
|
|
|
|
|
|
| |||||||
|
|
|
| (in thousands) |
|
|
|
| |||||
| Abandonment of new tower build and acquisition work in process and related construction materials | $ | 40,380 |
| $ | — |
| $ | 40,380 |
| $ | — |
| |
| Impairment of tower assets held and used in operations |
| 16,381 |
|
| — |
|
| 16,381 |
|
| — |
| |
| Employee separation and exit costs |
| 6,907 |
|
| 4,324 |
|
| 877 |
|
| 1,706 |
| |
|
|
|
| ||||||||||
$ | 63,668 |
| $ | 4,324 |
| $ | 57,638 |
| $ | 1,706 |
| ||
|
|
|
| ||||||||||
In connectiondetermined using a discounted cash flow analysis, resulted in an impairment charge of $2.6 million. Additionally, the Company reevaluated its future cash flow expectations on three microwave networks utilized by its customers. One of these customers had their microwave backhaul agreement with the Company’s implementationCompany set aside by the bankruptcy court presiding over their bankruptcy proceedings. The other customer notified the Company in the fourth quarter of SFAS 142, goodwill2004 of $13.4 million recorded during 2002 resulting fromtheir intention not to renew their agreement upon expiration. An analysis of these networks resulted in a remote possibility of other customers utilizing the achievement of certain contingent earn-out obligations under various construction acquisition agreements was subject to an impairment.network. As a result, the Company wrote down the value of this analysis, the entire $13.4 millionunderlying equipment utilized in these networks and recorded a charge of goodwill within the site development construction segment was determined to be impaired (see Note 5). The $13.4 goodwill$4.5 million. These amounts are included in asset impairment charge is included within the restructuring and other charges in the Consolidated Statement of Operations for the year ended December 31, 2004.
During the second quarter of 2004, the Company identified 14 towers previously classified as held for sale and included in discontinued operations and reclassified them into continuing operations as of June 30, 2004 in accordance with the provisions of SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. As a result of this reclassification, the book value of the towers were recorded at the lower of (1) the carrying amount of the tower before it was classified as held for sale, net of any depreciation expense that would have been recognized had the asset never been classified as held for sale; or (2) the estimated fair value of the tower at the date of the subsequent decision not to sell. As a result of applying SFAS 144, the Company increased the book value of these towers by $0.3 million, and recorded this charge as a net reduction to asset impairment charges in the Consolidated Statements of Operations for the year ended December 31, 2004.
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 these towers, as determined using a discounted cash flow analysis, resulted in an impairment charge of $7.9 million during the second quarter of 2003 related to approximately 40 operating towers and an impairment charge of $4.6 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 assets 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, 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 determined 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, the Company determined that as of June 30, 2002, indicators of impairment were present related to this goodwill, 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 wireless 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 analysis, 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 impaired as of June 30, 2002 and was written off.
F-28
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 $15.0 million was recorded during the first quarter of 2002.
F-24
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15.20. INCOME TAXES
The provision (benefit) for income taxes in the consolidated statements offrom continuing operations consists of the following components:
|
| For the years ended December 31, |
| ||||||||||
|
|
| |||||||||||
|
| 2002 |
| 2001 |
| 2000 |
| ||||||
|
|
|
|
| |||||||||
|
| (in thousands) |
| ||||||||||
| Current provision (benefit) for taxes: |
|
|
|
|
|
|
|
|
| ||||
| Federal income tax |
| $ | (1,382 | ) | $ | — |
| $ | — |
| |||
| Foreign income tax |
|
| — |
|
| — |
|
| — |
| |||
| State income tax |
|
| 1,765 |
|
| 1,654 |
|
| 1,233 |
| |||
|
|
| |||||||||||
| Total current |
|
| 383 |
|
| 1,654 |
|
| 1,233 |
| |||
|
|
| |||||||||||
| Deferred provision (benefit) for taxes: |
|
|
|
|
|
|
|
|
| ||||
| Federal income tax |
|
| (58,271 | ) |
| (39,799 | ) |
| (8,156 | ) | |||
| State income tax |
|
| (3,767 | ) |
| (1,528 | ) |
| (1,173 | ) | |||
| Increase in valuation allowance |
|
| 62,038 |
|
| 41,327 |
|
| 9,329 |
| |||
|
|
| |||||||||||
| Total deferred |
|
| — |
|
| — |
|
| — |
| |||
|
|
| |||||||||||
| Total |
| $ | 383 |
| $ | 1,654 |
| $ | 1,233 |
| |||
|
|
| |||||||||||
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
| (in thousands) | ||||||||||||
Current provision (benefit) for taxes: | ||||||||||||
Federal income tax | $ | — | $ | 125 | $ | (1,381 | ) | |||||
State and local taxes | 710 | 1,604 | 1,681 | |||||||||
Total current | 710 | 1,729 | 300 | |||||||||
Deferred provision (benefit) for taxes: | ||||||||||||
Federal income tax | (44,937 | ) | (54,941 | ) | (59,763 | ) | ||||||
State and local taxes | (10,622 | ) | (12,658 | ) | (14,418 | ) | ||||||
Increase in valuation allowance | 55,559 | 67,599 | 74,181 | |||||||||
Total deferred | — | — | — | |||||||||
Total | $ | 710 | $ | 1,729 | $ | 300 | ||||||
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, |
| |||||||
|
|
| ||||||||
|
| 2002 |
| 2001 |
| 2000 |
| |||
|
|
|
|
| ||||||
|
| (in thousands) |
| |||||||
| Statutory Federal benefit | $ | (92,746 | ) | $ | (41,987 | ) | $ | (9,401 | ) | |
| State income tax |
| (1,322 | ) |
| 83 |
|
| 40 |
| |
| Cumulative effect of change in accounting principle |
| 31,865 |
|
| — |
|
| — |
| |
| Other |
| 395 |
|
| 367 |
|
| 235 |
| |
| Goodwill amortization |
| 153 |
|
| 1,864 |
|
| 1,029 |
| |
| Valuation allowance |
| 62,038 |
|
| 41,327 |
|
| 9,330 |
| |
|
|
| ||||||||
$ | 383 |
| $ | 1,654 |
| $ | 1,233 |
| ||
|
|
| ||||||||
| For the year ended December 31, | ||||||||||||
| 2004 | 2003 As restated | 2002 As restated | ||||||||||
| (in thousands) | ||||||||||||
Statutory Federal benefit | $ | (48,726 | ) | $ | (59,031 | ) | $ | (67,660 | ) | |||
State and local taxes | (6,542 | ) | (7,171 | ) | (9,788 | ) | ||||||
Cumulative effect of changes in accounting principle | — | — | 3,018 | |||||||||
Other | 419 | 332 | 395 | |||||||||
Goodwill amortization | — | — | 154 | |||||||||
Valuation allowance | 55,559 | 67,599 | 74,181 | |||||||||
| $ | 710 | $ | 1,729 | $ | 300 | |||||||
F-29
The components of the net deferred income tax asset (liability) accounts are as follows:
|
| As of December 31, |
| ||||
|
|
| |||||
|
| 2002 |
| 2001 |
| ||
|
|
|
| ||||
|
| (in thousands) |
| ||||
| Allowance for doubtful accounts | $ | 1,922 |
| $ | 1,876 |
| |
| Deferred revenue |
| 8,555 |
|
| 5,818 |
| |
| Accrued liabilities |
| 4,612 |
|
| 2,220 |
| |
| Other |
| 106 |
|
| 87 |
| |
| Valuation allowance |
| (15,195 | ) |
| (10,001 | ) | |
|
| ||||||
| Current deferred tax liabilities | $ | — |
| $ | — |
| |
|
| ||||||
| Original issue discount | $ | 44,559 |
| $ | 33,176 |
| |
| Net operating loss |
| 95,913 |
|
| 51,096 |
| |
| Book vs. tax depreciation |
| (38,727 | ) |
| (39,090 | ) | |
| Straight-line rents |
| (4,930 | ) |
| (3,392 | ) | |
| Other |
| 5,721 |
|
| 1,813 |
| |
| Valuation allowance |
| (120,965 | ) |
| (62,032 | ) | |
|
| ||||||
| Non-current deferred tax liabilities | $ | (18,429 | ) | $ | (18,429 | ) | |
|
| ||||||
F-25
| As of December 31, | ||||||||
| 2004 | 2003 As restated | |||||||
| (in thousands) | ||||||||
Allowance for doubtful accounts | $ | 391 | $ | 345 | ||||
Deferred revenue | 4,186 | 4,313 | ||||||
Accrued liabilities | 2,971 | 2,490 | ||||||
Other | — | — | ||||||
Valuation allowance | (7,548 | ) | (7,148 | ) | ||||
Current net deferred taxes | $ | — | $ | — | ||||
Original issue discount | 10,717 | 12,947 | ||||||
Net operating loss | 250,322 | 198,058 | ||||||
Property, equipment and intangible basis differences | (3,738 | ) | (7,404 | ) | ||||
Straight-line rents | 10,273 | 7,000 | ||||||
Other | 2,966 | 2,471 | ||||||
Valuation allowance | (270,540 | ) | (213,072 | ) | ||||
Non-current net deferred taxes | $ | — | $ | — | ||||
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In connection with the acquisition of certain towers during 2001, the Company recorded deferred tax liabilities of $4.6 million related to book/tax basis difference in the acquired towers. No deferred tax liabilities were recorded in connection with tower acquisitions during 2002.
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 net change in the valuation allowance for the years ended December 31, 2004, 2003 and 2002 was $57.9 million, $68.6 million, and $76.1 million, respectively.
The Company has available at December 31, 2002,2004, a net operating tax loss carry-forward of approximately $282.1$645.2 million. Approximately $8.6 million, $35.8 million, $99.9 million and $137.8 million of theThese net operating tax loss carry-forwards will expire between 2019 and 2024. The Internal Revenue Code places limitations upon the future availability of net operating losses based upon changes in 2019, 2020, 2021 and 2022, respectively.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.
16.21. DERIVATIVE FINANCIAL INSTRUMENT
Effective January 2002, the
The Company entered intopreviously had an interest rate swap agreement to manage its exposure to interest rate movements by effectively converting a portion of its $500.0 millionfixed rate senior notes from interest rate fixed to variable rates. The Company accounted for the swap in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and its corresponding amendments under SFAS 138, Accounting for Derivative Instruments and Hedging Activities, an amendment of FASB Statement No. 133. SFAS 133 required the Company to record the fair value of the swap on the balance sheet. The Company’s swap was accounted forqualified as a fair value hedge under SFAS 133. The swap qualified for the shortcut method of recognition and, therefore, no portion of the swap was treated as ineffective. Accordingly, the entire change in fair value of the swap was offset against the change in fair value of the related senior notes.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 the 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.
During October 2002, the
The counter-party to the interest rate swap agreement elected to terminateterminated the swap agreement effectivein October 15, 2002. In connection with this termination, the counter-party was required to paypaid the Company $6.2 million, which included approximately $.8$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 2002 was approximately $0.2 million.$0.7 million during each of 2004 and 2003. Additionally, $1.9 million of the deferred gain was recognized as a reduction in loss from write-off of deferred financing fees and extinguishment of debt in connection with the repurchase of $186.5 million of 10¼% senior notes in December 2004. The remaining deferred gain balance at December 31, 20022004 and 2003 of $5.2$1.9 million and $4.6 million, respectively, is included in long-term debt in the Consolidated
F-30
Balance Sheets. The balance of $1.9 million outstanding at December 31, 2002 balance sheet.2004 was written off in connection with the repayment of the 10¼% senior notes in February 2005.
17.22. 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, 20022004 are as follows:
|
| (in thousands) |
| ||
| 2003 | $ | 28,519 |
| ||
| 2004 |
| 24,126 |
| ||
| 2005 |
| 18,655 |
| ||
| 2006 |
| 11,767 |
| ||
| 2007 |
| 8,510 |
| ||
| Thereafter |
| 52,262 |
| ||
| |||||
| Total |
| $ | 143,839 |
| |
| |||||
F-26
| (in thousands) | |||
2005 | $ | 26,093 | |
2006 | 24,922 | ||
2007 | 24,459 | ||
2008 | 24,758 | ||
2009 | 24,993 | ||
Thereafter | 494,555 | ||
Total | $ | 619,780 | |
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Principally, all of the leases provide for renewal at varying escalations. Leases providing for fixedFixed rate escalations have been reflectedincluded in the table disclosed above.
Rent expense for operating leases was $34.3$33.0 million, $26.3$34.5 million and $17.0$34.1 million for the years ended December 31, 2004, 2003 and 2002, 2001respectively. These amounts exclude $0.5 million, $0.7 million and 2000, respectively. The rent expense of $34.3 million for year ended December 31, 2002 excludes $2.4 million, respectively, which is included in restructuring and other charge.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 year ended December 31, 2004, 2003 and 2002 was, $1.8 million.$2.0 million, $1.4 million and $1.6 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, 20022004 are as follows:
|
| (in thousands) |
| ||
| 2003 | $ | 137,264 |
| ||
| 2004 |
| 128,152 |
| ||
| 2005 |
| 104,468 |
| ||
| 2006 |
| 67,023 |
| ||
| 2007 |
| 32,599 |
| ||
| Thereafter |
| 59,718 |
| ||
| |||||
| Total |
| $ | 529,224 |
| |
|
| ||||
| (in thousands) | |||
2005 | $ | 135,335 | |
2006 | 109,128 | ||
2007 | 84,226 | ||
2008 | 66,288 | ||
2009 | 41,261 | ||
Thereafter | 46,842 | ||
Total | $ | 483,080 | |
Principally, all of the leases provide for renewal, generally at the tenant’s option, at varying escalations. Leases providing for fixedFixed rate escalations have been reflectedincluded 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, (asas defined by the agreement of such employees).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 has been expensed over the three year period of the original agreement which ended in September 2003 as non-cash compensation expense.
F-31
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, or results of operations.operations or liquidity.
On April 29, 2004, the Company received notification from the purchaser of the Western towers as to certain claims for indemnification totaling approximately $4.3 million. As a result of these claims, $3.0 million of the $7.3 million of restricted cash was released to the Company in May 2004. In December 2004, the remaining claims for indemnification of $4.3 million were settled for $2.8 million and this amount was released to the purchaser of the Western towers. The remaining $1.5 million was released to the Company in December 2004.
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, 2002,2004, the Company had an obligation to pay up to an additional $5.8$1.0 million in consideration if the earnings targets identifiedcontained in various acquisition agreements are met. This obligation consisted of approximately $2.0 million associated with an acquisition within the Company’s site development construction segment and approximately $3.8 millionwas 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 ofFor the year ended December 31, 2004, 2003 and 2002 certain earnings targets associated with an acquisition within the site development construction segmentacquired towers were achieved, and therefore, the Company accrued approximately $2.0 million, within other current liabilities on the Consolidated Balance Sheet. This amount was paid in cash in February 2003.$0.6 million, $1.1 million and $2.0 million, respectively.
F-27
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
18.23. DEFINED CONTRIBUTION PLAN
The Company has a defined contribution profit sharing plan under Section 401 (k)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. TheFor the years ended December 31, 2004, 2003 and 2002, the Company currently makesmade a discretionary matching contribution of 50% of an employee’s contributions up to a maximum of $3,000. Company matching contributions were $.8approximately $0.5 million, $0.4 million and $0.8 million for the yearyears ended December 31, 2002.2004, 2003 and 2002, respectively.
F-32
19.24. 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 operatescontinues to operate are presented below:
|
| Site |
| Site |
| Site |
| Assets not |
| Total |
| |||||
|
|
|
|
|
|
| ||||||||||
December 31, 2002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Revenues | $ | 27,204 |
| $ | 97,837 |
| $ | 139,633 |
| $ | — |
| $ | 264,674 |
| |
| Cost of revenues |
| 20,594 |
|
| 81,879 |
|
| 49,641 |
|
| — |
|
| 152,114 |
| |
| Gross profit |
| 6,610 |
|
| 15,958 |
|
| 89,992 |
|
| — |
|
| 112,560 |
| |
| Capital expenditures |
| 430 |
|
| 13,033 |
|
| 93,999 |
|
| 1,565 |
|
| 109,027 |
| |
| Assets |
| 13,293 |
|
| 54,900 |
|
| 1,162,498 |
|
| 74,224 |
|
| 1,304,915 |
| |
December 31, 2001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Revenues | $ | 24,251 |
| $ | 115,484 |
| $ | 103,159 |
| $ | — |
| $ | 242,894 |
| |
| Cost of revenues |
| 17,097 |
|
| 90,835 |
|
| 36,722 |
|
| — |
|
| 144,654 |
| |
| Gross profit |
| 7,154 |
|
| 24,649 |
|
| 66,437 |
|
| — |
|
| 98,240 |
| |
| Capital expenditures |
| 2,458 |
|
| 36,959 |
|
| 516,859 |
|
| 5,050 |
|
| 561,326 |
| |
| Assets |
| 24,850 |
|
| 177,322 |
|
| 1,198,051 |
|
| 28,788 |
|
| 1,429,011 |
| |
December 31, 2000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Revenues | $ | 24,251 |
| $ | 91,641 |
| $ | 52,014 |
| $ | — |
| $ | 167,906 |
| |
| Cost of revenues |
| 15,626 |
|
| 73,266 |
|
| 19,502 |
|
| — |
|
| 108,394 |
| |
| Gross profit |
| 8,625 |
|
| 18,375 |
|
| 32,512 |
|
| — |
|
| 59,512 |
| |
| Capital expenditures |
| 1,489 |
|
| 25,570 |
|
| 465,400 |
|
| 1,594 |
|
| 494,053 |
| |
| Assets |
| 14,248 |
|
| 99,962 |
|
| 815,660 |
|
| 18,948 |
|
| 948,818 |
| |
We have client concentrations with respect to revenues in each of our financial reporting segments. Of our total site development consulting revenue for the year ended December 31, 2002, the following two customers represented 63.8% of total revenue from this segment: Cingular represented 29.6% and Bechtel Corporation represented 34.2%. Of our total site development construction revenue for the year ended December 31, 2002, one customer, Bechtel Corporation, represented 28.1% of such revenue. Of our total site leasing revenue for the year ended December 31, 2002, one customer, AT&T Wireless, represented 15.7% of such revenue.
| Site Leasing | Site Development Consulting | Site Development Construction | Not Identified by Segment(1) | Total | |||||||||||
| (in thousands) | |||||||||||||||
For the year ended December 31, 2004 | |||||||||||||||
Revenues | $ | 144,004 | $ | 14,456 | $ | 73,022 | $ | — | $ | 231,482 | |||||
Cost of revenues | $ | 47,283 | $ | 12,768 | $ | 68,630 | $ | — | $ | 128,681 | |||||
Gross profit | $ | 96,721 | $ | 1,688 | $ | 4,392 | $ | — | $ | 102,801 | |||||
Capital expenditures(2) | $ | 7,706 | $ | 63 | $ | 317 | $ | 919 | $ | 9,005 | |||||
For the year ended December 31, 2003 As restated | |||||||||||||||
Revenues | $ | 127,852 | $ | 12,337 | $ | 51,920 | $ | — | $ | 192,109 | |||||
Cost of revenues | $ | 47,793 | $ | 11,350 | $ | 47,333 | $ | — | $ | 106,476 | |||||
Gross profit | $ | 80,059 | $ | 987 | $ | 4,587 | $ | — | $ | 85,633 | |||||
Capital expenditures(2) | $ | 15,105 | $ | 124 | $ | 2,458 | $ | 575 | $ | 18,262 | |||||
For the year ended December 31, 2002 As restated | |||||||||||||||
Revenues | $ | 115,121 | $ | 17,361 | $ | 81,991 | $ | — | $ | 214,473 | |||||
Cost of revenues | $ | 46,709 | $ | 13,434 | $ | 68,131 | $ | — | $ | 128,274 | |||||
Gross profit | $ | 68,412 | $ | 3,927 | $ | 13,860 | $ | — | $ | 86,199 | |||||
Capital expenditures(2) | $ | 93,999 | $ | 430 | $ | 21,487 | $ | 1,565 | $ | 117,481 | |||||
Assets | |||||||||||||||
As of December 31, 2004 | $ | 784,332 | $ | 8,843 | $ | 44,750 | $ | 79,319 | $ | 917,244 | |||||
As of December 31, 2003 (As restated) | $ | 873,150 | $ | 9,511 | $ | 46,807 | $ | 28,784 | $ | 958,252 | |||||
| (1) | Assets not identified by segment consist primarily of general corporate assets. |
| (2) | Includes acquisitions and related earn-outs. |
20. SUBSEQUENT EVENTSF-33
In February 2003, in response to the continued deterioration in expenditures by wireless service providers, particularly with respect to site development activities, the Company committed to a new plan of restructuring associated with further downsizing activities, including reduction in workforce and closing or consolidation of offices. The Company anticipates closing an additional 9 to 15 offices and eliminating the positions of 70 to 100 employees during the first quarter of 2003, substantially all related to the Company’s site development operations. The Company anticipates incurring a restructuring charge related to these costs of up to $2.0 million.
F-28
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On March 17, 2003 certain of the Company’s subsidiaries entered into a definitive agreement with AAT Communications to sell 679 towers or, if AAT Communications elects to purchase an additional 122 towers, an aggregate of 801 towers, which represent substantially all of the Company’s towers in the western two-thirds of the U.S. Gross proceeds from the sale are anticipated to be $160.0 million if 679 towers are sold, or $203.0 million if 801 towers are sold, subject to adjustment in certain circumstances. The AAT Transaction is expected to close in stages commencing on May 9, 2003 and ending on September 30, 2003. The Company intends to use substantially all of the proceeds, net of anticipated transaction costs of approximately $5 million, to reduce indebtedness. The sale is subject to a number of conditions, including an amendment to the senior credit facility. As of December 31, 2002, the carrying value of the 679 towers included in the first part of the AAT Transaction was approximately $165.5 and the carrying value of the remaining 122 towers included in the second part of the AAT Transaction was approximately $30.5 million.
21.25. QUARTERLY FINANCIAL DATA (unaudited)
|
| Quarters Ended |
| ||||||||||
|
|
| |||||||||||
|
| December 31, 2002 |
| September 30, 2002 |
| June 30, 2002 |
| March 31, 2002(1) |
| ||||
|
|
|
|
|
| ||||||||
|
| (in thousands except per share) |
| ||||||||||
| Revenues | $ | 64,074 |
| $ | 67,048 |
| $ | 69,608 |
| $ | 63,944 |
| |
| Gross profit |
| 27,369 |
|
| 27,832 |
|
| 29,335 |
|
| 28,024 |
| |
| Restructuring and other charges |
| (1,133 | ) |
| (1,225 | ) |
| (21,085 | ) |
| (54,117 | ) | |
| Loss before cumulative effect of change in accounting principle |
| (30,335 | ) |
| (31,673 | ) |
| (47,336 | ) |
| (83,229 | ) | |
| Cumulative effect of change in accounting principle |
| — |
|
| — |
|
| — |
|
| (80,592 | ) | |
| Net loss |
| (30,335 | ) |
| (31,673 | ) |
| (47,336 | ) |
| (163,821 | ) | |
| Per common share – basic and diluted: |
|
|
|
|
|
|
|
|
|
|
|
| |
| Loss before cumulative effect of change in accounting principle | $ | (0.59 | ) | $ | (0.62 | ) | $ | (0.94 | ) | $ | (1.70 | ) | |
| Cumulative effect of change in accounting principle |
| — |
|
| — |
|
| — |
|
| (1.64 | ) | |
| Net loss |
| (0.59 | ) |
| (0.62 | ) |
| (0.94 | ) |
| (3.34 | ) | |
|
| 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 |
| |
| Restructuring and other charges |
| — |
|
| (24,399 | ) |
| — |
|
| — |
| |
| Loss before extraordinary item |
| (29,710 | ) |
| (49,118 | ) |
| (23,321 | ) |
| (17,927 | ) | |
| Extraordinary item |
| — |
|
| — |
|
| — |
|
| (5,069 | ) | |
| Net loss |
| (29,710 | ) |
| (49,118 | ) |
| (23,321 | ) |
| (22,996 | ) | |
| Per common share – basic and diluted: |
|
|
|
|
| ||||||||
| Loss before extraordinary item | $ | (0.62 | ) | $ | (1.03 | ) | $ | (0.50 | ) | $ | (0.38 | ) | |
| Extraordinary item |
| — |
|
| — |
|
| — |
|
| (0.11 | ) | |
| Net loss |
| (0.62 | ) |
| (1.03 | ) |
| (0.50 | ) |
| (0.49 | ) | |
(1)
| Quarters Ended | ||||||||||||||||
| December 31, 2004 | September 30, 2004 | June 30, 2004 | March 31, 2004 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
Revenues | $ | 65,533 | $ | 58,743 | $ | 56,347 | $ | 50,859 | ||||||||
Gross profit | 28,148 | 26,703 | 25,105 | 22,845 | ||||||||||||
Depreciation, accretion, and amortization | (22,351 | ) | (22,641 | ) | (22,646 | ) | (22,815 | ) | ||||||||
Asset impairment charges | (5,472 | ) | (88 | ) | (1,515 | ) | (17 | ) | ||||||||
Loss from writeoff of deferred financing fees and extinguishment of debt | (16,433 | ) | (2,093 | ) | (454 | ) | (22,217 | ) | ||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | (41,516 | ) | (24,830 | ) | (26,177 | ) | (51,500 | ) | ||||||||
Loss from discontinued operations | (320 | ) | (2,542 | ) | (470 | ) | 75 | |||||||||
Net loss | $ | (41,836 | ) | $ | (27,372 | ) | $ | (26,647 | ) | $ | (51,425 | ) | ||||
Per common share - basic and diluted: | ||||||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (0.65 | ) | $ | (0.43 | ) | $ | (0.46 | ) | $ | (0.92 | ) | ||||
Loss from discontinued operations | (0.01 | ) | (0.04 | ) | (0.01 | ) | — | |||||||||
Net loss per share | $ | (0.66 | ) | $ | (0.47 | ) | $ | (0.47 | ) | $ | (0.92 | ) | ||||
| Quarters Ended | ||||||||||||||||
| December 31, 2003 | September 30, 2003 | June 30, 2003 | March 31, 2003 | |||||||||||||
| (in thousands, except per share amounts) | ||||||||||||||||
Revenues | $ | 51,435 | $ | 47,594 | $ | 45,977 | $ | 47,103 | ||||||||
Gross profit | 22,923 | 21,215 | 20,924 | 20,571 | ||||||||||||
Depreciation, accretion, and amortization | (23,042 | ) | (23,264 | ) | (23,205 | ) | (24,146 | ) | ||||||||
Asset impairment charges | (4,598 | ) | (50 | ) | (7,893 | ) | (452 | ) | ||||||||
Loss from writeoff of deferred financing fees and extinguishment of debt | (18,969 | ) | (408 | ) | (4,842 | ) | — | |||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | (55,127 | ) | (35,845 | ) | (47,024 | ) | (36,809 | ) | ||||||||
Loss from discontinued operations | 2,311 | 14,493 | (15,235 | ) | (1,367 | ) | ||||||||||
Cumulative effect of changes in accounting principle | — | — | — | (545 | ) | |||||||||||
Net loss | $ | (52,816 | ) | $ | (21,352 | ) | $ | (62,259 | ) | $ | (38,721 | ) | ||||
Per common share - basic and diluted: | ||||||||||||||||
Loss from continuing operations before cumulative effect of changes in accounting principle | $ | (1.02 | ) | $ | (0.68 | ) | $ | (0.92 | ) | $ | (0.72 | ) | ||||
Loss from discontinued operations | 0.04 | 0.28 | (0.30 | ) | (0.03 | ) | ||||||||||
Cumulative effect of changes in accounting principle | — | — | — | (0.01 | ) | |||||||||||
Net loss per share | $ | (0.98 | ) | $ | (0.40 | ) | $ | (1.22 | ) | $ | (0.76 | ) | ||||
The reported amounts for 2003 and 2004 above have been restated to reflect the Company’s restatement of financial results discussed in Note 3 and discontinued operations discussed in Note 4.
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 quarter ended March 31, 2002 are different thanfour quarters may not equal the total loss per share amounts previously reported in the Company’s Form 10-Q for the quarter ended March 31, 2002. This difference is a result of the $80.6 million cumulative effect charge related to the implementation of SFAS 142, which was recorded retroactive to the adoption date of January 1, 2002. The charge increased the first quarter’s previously reported net loss of ($83.2) million, or ($1.70) per share to ($163.8) million, or ($3.34) per share.year.
F-29
F-34
REPORT OF INDEPENDENT PREDECESSOR CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE26. SUBSEQUENT EVENTS
We have audited
Subsequent to December 31, 2004, the Company closed on the acquisition of 24 towers for an aggregate purchase price of $8.1 million, of which $4.0 million was paid in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of SBA Communications Corporation,cash and have issued our reports thereon dated February 22, 2002. Our audits were made for the purpose of forming an opinion on those consolidated financial statements taken as a whole. The schedule listed in the index of consolidated financial statements is the responsibilityapproximately 448,000 shares of the Company’s management and is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole.Class A Common Stock was issued.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida, February 22, 2002.
THIS IS A COPY OF THE REPORT ON SCHEDULE PREVIOUSLY ISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH SBA COMMUNICATIONS CORPORATION’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2001. THIS AUDIT REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP IN CONNECTION WITH THIS FILING ON FORM 10-K. THE SCHEDULE LISTED UNDER ITEM 14 IN THE PREVIOUS YEAR IS LISTED UNDER ITEM 15 IN THIS REPORT.F-35
WE WILL NOT BE ABLE TO OBTAIN THE WRITTEN CONSENT OF ARTHUR ANDERSEN LLP AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT OF 1933 FOR ANY REGISTRATION STATEMENT WE MAY FILE IN THE FUTURE. ACCORDINGLY, INVESTORS WILL NOT BE ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11(A)(4) OF THE SECURITIES ACT WITH RESPECT TO ANY SUCH REGISTRATION STATEMENTS AND, THEREFORE, ULTIMATE RECOVERY FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF ARTHUR ANDERSEN LLP’S FINANCIAL CONDITION OR OTHER MATTERS RESULTING FROM THE VARIOUS CIVIL AND CRIMINAL LAWSUITS AGAINST THAT FIRM.
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
|
| Balance at |
| Additions |
| Deduction |
| Balance at |
| ||||
|
|
|
|
|
| ||||||||
|
| (in thousands) |
| ||||||||||
| Allowance for Doubtful Accounts For the Years Ended: |
|
|
|
|
|
|
|
|
|
|
|
| |
| December 31, 2002 | $ | 4,641 |
| $ | 2,590 |
| $ | 1,659 |
| $ | 5,572 |
| |
| December 31, 2001 | $ | 2,117 |
| $ | 2,661 | (2) | $ | 137 |
| $ | 4,641 |
| |
| December 31, 2000 | $ | 785 |
| $ | 1,663 |
| $ | 331 |
| $ | 2,117 |
| |
| Tax Valuation Account For the Years Ended: |
|
|
|
|
|
|
|
|
|
|
|
| |
| December 31, 2002 | $ | 72,033 |
| $ | 64,127 |
| $ | — |
| $ | 136,160 |
| |
| December 31, 2001 | $ | 35,202 |
| $ | 36,831 |
| $ | — |
| $ | 72,033 |
| |
| December 31, 2000 | $ | 17,450 |
| $ | 17,752 |
| $ | — |
| $ | 35,202 |
| |
|
|
|
|
|
|