UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 000-30110
SBA COMMUNICATIONS CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0716501
- ----------------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Town Center Road, Boca Raton, Florida 33486
- ----------------------------------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(561) 995-7670
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 twelve (12) months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
--- ---
Number of shares of common stock outstanding at October 31, 2000
Class A Common Stock - 40,547,598 shares
Class B Common Stock - 5,465,595 shares
1
SBA COMMUNICATIONS CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and September 30, 2000 3
Consolidated Statements of Operations for the three and nine months ended September 30, 1999 and 2000 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 2000 5
Consolidated Statement of Shareholders' Equity as of September 30, 2000 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds 20
Item 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
2
ITEM 1: UNAUDITED FINANCIAL STATEMENTS
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, 1999 September 30, 2000
----------------- ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,130,912 $124,840,149
Accounts receivable, net of allowance of $785,299 and
$1,872,860 in 1999 and 2000, respectively 22,644,777 40,374,736
Prepaid and other current assets 4,946,561 8,772,186
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,888,963 9,978,171
------------ ------------
Total current assets 33,611,213 183,965,242
Property and equipment, net 338,891,513 617,323,296
Intangible assets, net 34,387,262 51,586,510
Other assets 22,933,238 22,767,408
------------ ------------
Total assets $429,823,226 $875,642,456
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $40,655,950 $ 60,403,496
Accrued expenses 6,094,669 10,343,459
Notes payable 50,176 50,176
Due to shareholder 2,500,000 -
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,600,981 4,548,086
Other current liabilities 3,654,584 8,150,236
------------ ------------
Total current liabilities 54,556,360 83,495,453
------------ ------------
Other liabilities:
Senior discount notes payable 186,041,542 203,010,214
Notes payable 132,175,616 50,137,984
Deferred tax liabilities 7,950,454 8,612,278
Other long-term liabilities 517,007 567,939
------------ ------------
Total long-term liabilities 326,684,619 262,328,415
------------ ------------
Commitments and contingencies (see Note 8)
Shareholders' equity:
Common stock:
Class A, par value $.01 (100,000,000 shares authorized) 21,546,737
and 40,464,837 shares issued and outstanding in 1999 and 2000 215,467 404,648
Class B, par value $.01 (8,100,000 shares authorized) 7,644,264 and
5,465,595 shares issued and outstanding in 1999 and 2000 76,443 54,656
Additional paid in capital 109,049,538 613,654,857
Accumulated deficit (60,759,201) (84,295,573)
------------ ------------
Total shareholders' equity 48,582,247 529,818,588
------------ ------------
Total liabilities and shareholders' equity $429,823,226 $875,642,456
============ ============
The accompanying Notes to Consolidated Financial Statements on pages 7
through 11 herein are an integral part of these consolidated financial
statements.
3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months For the nine months
ended September 30, ended September 30,
----------------------------- -----------------------------
1999 2000 1999 2000
---- ---- ---- ----
Revenues:
Site development revenue $ 17,500,989 $ 31,741,769 $ 39,723,133 $ 78,775,293
Site leasing revenue 7,110,004 13,653,234 18,009,433 35,551,621
------------- ------------- ------------- -------------
Total revenues 24,610,993 45,395,003 57,732,566 114,326,914
------------- ------------- ------------- -------------
Cost of revenues (exclusive of depreciation shown below):
Cost of site development revenue 13,450,262 23,833,940 30,043,555 60,053,304
Cost of site leasing revenue 3,238,123 5,000,908 8,392,646 13,324,922
------------- ------------- ------------- -------------
Total cost of revenues 16,688,385 28,834,848 38,436,201 73,378,226
------------- ------------- ------------- -------------
Gross profit 7,922,608 16,560,155 19,296,365 40,948,688
Operating expenses:
Selling, general and administrative 5,020,697 7,036,945 13,993,236 19,492,952
Depreciation and amortization 4,313,319 9,517,172 10,982,712 24,279,402
------------- ------------- ------------- -------------
Total operating expenses 9,334,016 16,554,117 24,975,948 43,772,354
------------- -------------
Operating income (loss) (1,411,408) 6,038 (5,679,583) (2,823,666)
Other income (expense):
Interest income 160,242 2,055,598 766,907 4,876,694
Interest expense (1,013,398) (1,059,905) (3,239,717) (5,493,833)
Amortization of original issue discount and
debt issuance costs (5,552,718) (6,553,473) (16,205,675) (19,215,519)
Other 4,499 (18,507) 28,026 32,068
------------- ------------- ------------- -------------
Total other expense (6,401,375) (5,576,287) (18,650,459) (19,800,590)
------------- ------------- ------------- -------------
Loss before provision for income taxes and
extraordinary item (7,812,783) (5,570,249) (24,330,042) (22,624,256)
(Provision) benefit for income taxes (172,898) (335,079) 403,003 (912,116)
------------- ------------- ------------- -------------
Net loss before extraordinary item and dividends (7,985,681) (5,905,328) (23,927,039) (23,536,372)
Extraordinary item - - (1,149,954) -
------------- ------------- ------------- -------------
Net loss (7,985,681) (5,905,328) (25,076,993) (23,536,372)
Dividends on preferred stock - - 733,403 -
------------- ------------- ------------- -------------
Net loss to common shareholders $ (7,985,681) $ (5,905,328) $ (24,343,590) $ (23,536,372)
============= ============= ============= =============
Basic and diluted loss per common share before
extraordinary item $ (.28) $ (.14) $ (1.42) $ (.60)
Extraordinary item - - (.07) -
------------- ------------- ------------- -------------
Basic and diluted loss per common share $ (.28) $ (.14) $ (1.49) $ (.60)
============= ============= ============= =============
Basic and diluted weighted average number of shares of
common stock 28,450,537 43,370,255 16,348,073 39,343,638
============= ============= ============= =============
The accompanying Notes to Consolidated Financial Statements on pages 7 through
11 herein are an integral part of these consolidated financial statements.
4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the nine months ended September 30,
---------------------------------------
1999 2000
---- ----
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (25,076,993) $ (23,536,372)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization 10,982,712 24,279,402
Non-cash compensation expense 186,646 210,646
Provision for doubtful accounts 439,522 1,318,082
Amortization of original issue discount and debt issue costs 16,205,675 19,215,519
Interest on shareholder note (91,858) -
Write-off of deferred financing fees 1,149,954 -
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable (2,003,863) (19,048,042)
Prepaid and other current assets 341,228 (3,825,625)
Costs and estimated earnings in excess of
billings on uncompleted contracts (1,056,649) (7,089,208)
Other assets (2,777,928) (1,952,445)
Increase (decrease) in-
Accounts payable 10,500,346 19,747,546
Accrued expenses 2,472,676 4,248,790
Other liabilities (310,725) 5,208,408
Billings in excess of costs and estimated earnings on uncompleted 501,961 2,947,105
contracts
------------- -------------
Total adjustments 36,539,697 45,260,178
------------- -------------
Net cash provided by operating activities 11,462,704 21,723,806
============= =============
CASH FLOWS USED IN INVESTING ACTIVITIES:
Tower and other capital expenditures (147,973,148) (283,112,744)
------------- -------------
Net cash used in investing activities (147,973,148) (283,112,744)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from common stock offerings 93,641,994 464,603,268
Proceeds from option exercise 238,521 3,161,111
Proceeds from notes payable 121,000,000 11,000,000
Redemption of preferred stock (32,824,930) -
Repayment of notes payable (63,013,543) (95,537,632)
Deferred financing fees (6,570,174) (128,572)
------------- -------------
Net cash provided by financing activities 112,471,868 383,098,175
------------- -------------
Net increase (decrease) in cash and cash equivalents (24,038,576) 121,709,237
CASH AND CASH EQUIVALENTS:
Beginning of period 26,743,270 3,130,912
End of period $ 2,704,694 $ 124,840,149
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 3,166,844 $ 5,507,589
============= =============
Taxes $ 502,424 $ 1,123,853
============= =============
NON-CASH ACTIVITIES:
Dividends on preferred stock $ (733,403) -
Interest on bonds payable $ 15,101,677 $ 16,968,672
============= =============
Note receivable - shareholder $ (3,876,626) -
============= =============
Exchange of Series B preferred stock for common stock $ 8,050,000 -
============= =============
Assets acquired in acquisitions $ 21,601,360 $ 42,351,038
Liabilities assumed in acquisitions (6,666,726) (315,104)
Stock issued for acquisitions (7,020,000) (36,797,688)
------------- -------------
$ 7,914,634 $ 5,238,246
============= =============
The accompanying Notes to Consolidated Financial Statements on pages 7 through
11 herein are an integral part of these consolidated financial statements.
5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(unaudited)
Common Stock
--------------------------------------------------
Class A Class B
------- -------
Number Amount Number Amount
------ ------ ------ ------
BALANCE, December 31, 1999 21,546,737 $ 215,467 7,644,264 $ 76,443
Offering of common stock, net of
issuance costs 14,750,000 147,500 - -
Common stock issued in connection with
acquisitions 822,533 8,225 - -
Exercise of employee stock options 789,511 7,895 - -
Exercise of warrants 357,387 3,574 - -
Issuance of restricted common stock 20,000 200 - -
Conversion of Class B to Class A 2,178,669 21,787 (2,178,669) (21,787)
Non-cash compensation adjustment - - - -
Net loss - - - -
---------- --------- --------- --------
BALANCE, September 30, 2000 40,464,837 $ 404,648 5,465,595 $ 54,656
========== ========= ========= ========
Additional
Paid In Accumulated
Capital Deficit Total
------------ -----------------------------
BALANCE, December 31, 1999 $ 109,049,538 $ (60,759,201) $ 48,582,247
Offering of common stock, net of
issuance costs 464,455,768 - 464,603,268
Common stock issued in connection with
acquisitions 36,789,463 - 36,797,688
Exercise of employee stock options 3,153,216 - 3,161,111
Exercise of warrants (3,574) - -
Issuance of restricted common stock (200) - -
Conversion of Class B to Class A -
Non-cash compensation adjustment 210,646 - 210,646
Net loss - (23,536,372) (23,536,372)
------------- ------------- -------------
BALANCE, September 30, 2000 $ 613,654,857 $ (84,295,573) $ 529,818,588
============= ============= =============
The accompanying Notes to Consolidated Financial Statements on pages 7 through
11 herein are an integral part of these consolidated financial statements.
6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying consolidated financial statements should be read in conjunction
with the 1999 Form 10-K for SBA Communications Corporation. These financial
statements have been prepared in accordance with the instructions to Form 10-Q
and, therefore, omit or condense certain footnotes and other information
normally included in financial statements prepared in accordance with generally
accepted accounting principles. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair financial statement presentation have been made. Certain amounts included
in the prior year's consolidated financial statements have been reclassified to
conform to the current year's presentation. The results of operations for an
interim period may not give a true indication of the results for the year.
During the three and nine months ended September 30, 1999 and 2000, the Company
did not have any changes in its equity resulting from non-owner sources and
accordingly, comprehensive income was equal to the net loss amounts presented
for the respective periods in the accompanying Consolidated Statements of
Operations.
The Company has potential common stock equivalents related to its outstanding
exercisable stock options. Potential common stock equivalents of 1,073,369 and
815,260 shares for the three and nine months ended September 30, 1999 and 2000,
respectively, were not included in diluted loss per share calculations because
the effect would have been antidulutive. Accordingly, basic and diluted loss per
common share are the same for all periods presented.
2. CURRENT ACCOUNTING PRONOUNCEMENTS
---------------------------------
In June 2000, the FASB issued SFAS 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of SFAS 133." The
statement established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. In addition, this Statement addresses a
limited number of issues causing implementation difficulties for numerous
entities that apply SFAS 133 and amends the accounting and reporting standards
of SFAS 133 for certain derivative instruments and certain hedging activities.
The Company has elected to defer the adoption of both SFAS 133 and SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of SFAS No. 133," until fiscal 2001. Management does not believe
that the adoption of SFAS 138 will have a material effect on the Company's
results of operations or financial position.
3. PROPERTY AND EQUIPMENT
----------------------
Property and equipment, net, consists of the following:
December 31, September 30,
1999 2000
------------ ------------
Towers $329,046,558 $583,414,883
Construction in process 18,648,109 56,695,111
Furniture, equipment and vehicles 7,547,827 13,554,623
Land 6,664,178 8,352,917
Buildings and improvements 596,676 874,294
------------ ------------
362,503,348 662,891,828
Less: Depreciation and
amortization (23,611,835) (45,568,532)
------------ ------------
Property and equipment, net $338,891,513 $617,323,296
============ ============
7
Construction in process represents costs incurred related to towers which are
under development and will be used in the Company's operations.
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
-----------------------------------------------------
Costs and estimated earnings on uncompleted contracts consist of the following:
As of As of
December 31, 1999 September 30, 2000
----------------- ------------------
Costs incurred on uncompleted contracts $ 11,259,511 $ 29,433,664
Estimated earnings 2,830,072 5,301,892
Billings to date (12,801,601) (29,305,471)
------------- -------------
$ 1,287,982 $ 5,430,085
============= =============
As of As of
December 31, 1999 September 30, 2000
----------------- ------------------
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 2,888,963 $ 9,978,171
Billings in excess of costs and estimated earnings on
uncompleted contracts (1,600,981) (4,548,086)
------------- -------------
$ 1,287,982 $ 5,430,085
============= =============
5. CURRENT AND LONG-TERM DEBT
--------------------------
As of As of
December 31, 1999 September 30, 2000
----------------- ------------------
Senior credit facility term loan, variable rate interest (10.14%
at September 30, 2000) quarterly installments based on reduced
availability beginning March 31, 2000, maturing December 31,
2005.
$ 75,000,000 $ 50,000,000
Senior credit facility revolving loan, interest at variable rates
(9.62% to 11.00% at December 31, 1999) quarterly installments
based on reduced availability beginning March 31, 2002,
maturing December 31, 2004.
57,000,000 -
Senior 12% discount notes, net of unamortized original issue
discount of $65,989,786 at September 30, 2000, unsecured, cash
interest payable semi-annually in arrears beginning September 1,
2003, balloon principal payment of $269,000,000 due at maturity
on March 1, 2008. 186,041,542 203,010,214
Note payable, monthly principal installments of $4,181 plus
interest at 90 day LIBOR plus 2.25% (8.87% at September 30, 2000,
maturing June 30, 2004). Secured by vehicles. 225,792 188,160
------------- -------------
318,267,334 253,198,374
Less: current maturities (50,176) (50,176)
------------- -------------
Long-term debt $ 318,217,158 $ 253,148,198
============= =============
8
6. SHAREHOLDERS' EQUITY
--------------------
a. Offering of Common Stock
In February 2000, the Company completed an equity offering of 9.0 million shares
of its Class A common stock. The Company raised gross proceeds of $243.0
million, which produced net proceeds of approximately $229.5 million, after
deduction of the underwriting discount and offering expenses. The Company used
$70.5 million of these net proceeds to repay all revolving credit loans under
the senior credit facility. Remaining proceeds were used for the construction
and acquisition of towers and for general working capital purposes.
In February 2000, the managing underwriters of the equity offering exercised and
closed on their over-allotment option to purchase an additional 1.4 million
shares of the Company's Class A common stock. Certain shareholders along with
the Company had granted this option to the underwriters in connection with the
equity offering. These certain shareholders satisfied from their shareholdings
the exercise of the over-allotment option in full, resulting in no proceeds to
the Company as a result of this exercise.
In July 2000, the Company filed a universal shelf registration statement on Form
S-3 with the Securities and Exchange Commission registering the sale of up to
$500.0 million of any combination of the following securities: Class A common
stock, preferred stock, debt securities, depositary shares, or warrants. In
August 2000, the Company drew down $247.3 million under this universal shelf in
connection with an offering of 5.8 million shares of its Class A common stock,
including 750,000 shares issued upon the exercise of the managing underwriter's
over-allotment option. From this offering, the Company raised gross proceeds of
$247.3 million, which produced net proceeds of approximately $235.1 million,
after deduction of the underwriting discount and offering expenses. The Company
used $25.0 million of these net proceeds to repay a portion of the term loans
under the senior credit facility. Remaining proceeds have and will be used for
the construction and acquisition of towers and general working capital purposes.
As of September 30, 2000, we may issue under this universal shelf registration
statement, any combination of the registered securities with an aggregate
offering price of up to $252.7 million.
b. Registration of Additional Shares During the Nine Months Ended
September 30, 2000
In January 2000, the Company filed a shelf registration statement on Form S-4
with the Securities and Exchange Commission registering 1.0 million shares of
its Class A common stock. These shares may be issued in connection with
acquisitions of wireless communication towers or companies that provide related
services at various locations in the United States. During the nine months ended
September 30, 2000, the Company issued 422,533 shares of Class A common stock
pursuant to this registration statement in connection with four acquisitions.
The Company accounted for these acquisitions using the purchase method of
accounting. The results of operations of the acquired assets and companies are
included with those of the Company from the date of the acquisitions. The
historical results of operations of the assets acquired are not material in
relation to the Company's consolidated financial statements; accordingly, pro
forma financial information has not been presented. Subsequent to September 30,
2000, the Company issued 71,879 shares under this registration statement for one
acquisition. As of the date of this report, we may issue up to 505,588
additional shares under this registration statement.
c. Exercise of Warrants
In February 2000, the holders of warrants issued in 1997 exercised, pursuant to
a cashless option, warrants to purchase 402,500 shares of SBA's Class A common
stock at an exercise price of $3.73 per share. Pursuant to the cashless exercise
option, the Company issued 357,387 shares of Class A common stock and the
holders surrendered warrants to purchase 45,113 additional shares as
consideration. The shares of Class A common stock were issued pursuant to
Section 3(a) 9 of the Securities Act.
d. Issuance of Common Stock
On September 30, 2000, the Company issued 400,000 restricted shares of Class A
common stock to the former shareholders of SBA Network Services, Inc. ("Network
Services" f/k/a Com-Net Construction Services, Inc.) in accordance with the
terms of our acquisition of Network Services.
9
In September 2000, the Company granted 20,000 shares of Class A common stock
pursuant to the Company's 1999 Equity Participation Plan. Deferred compensation
representing the fair value of the shares on the date of grant was recorded as
an adjustment to additional paid in capital and compensation expense is being
recognized over the three-year vesting period.
7. INCOME TAXES
------------
The components of the (provision) benefit for income taxes related to continuing
operations are as follows:
For the nine months ended
-------------------------
September 30, 1999 September 30, 2000
------------------ ------------------
Federal income tax $ 4,031,453 $ 8,002,366
State income tax (643,708) (814,372)
Foreign tax (243,881) (9,431)
Change in valuation allowance (2,740,861) (8,090,679)
------------ -------------
$ 403,003 $ (912,116)
============ =============
The Company recorded a benefit in the first quarter of 1999 as a result of net
operating loss carry-backs available. The amount recorded as a benefit
represents the entire carry-back amount available. The Company has taxable
losses in the nine months ended September 30, 1999 and 2000, and as a result net
operating loss carry-forwards have been generated. These net operating loss
carry-forwards are fully reserved as management believes it is not "more likely
than not" that the Company will generate sufficient taxable income in future
periods to recognize the assets.
8. COMMITMENTS AND CONTINGENCIES
-----------------------------
We are 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 should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
As part of the consideration for our acquisitions, the Company sometimes agrees
to issue additional shares of Class A common stock 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 September 30, 2000, the Company
had the obligation to issue approximately 330,000 additional shares of Class A
common stock if the earnings targets identified in various acquisition
agreements are met.
9. 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.
These business units are managed separately based on the fundamental differences
in their operations.
The Company's segment information for revenue, gross profit, capital
expenditures (including assets acquired through the issuance of the Company's
Class A common stock) and assets is as follows:
For the nine months ended September 30,
---------------------------------------
1999 2000
---- ----
Revenue:
Site development - consulting $ 12,746,182 $ 17,522,260
Site development - construction 26,976,951 61,253,033
Site leasing 18,009,433 35,551,621
------------ ------------
$ 57,732,566 $114,326,914
============ ============
10
For the nine months ended September 30,
---------------------------------------
1999 2000
---- ----
Gross profit:
Site development - consulting $ 3,810,671 $ 5,872,537
Site development - construction 5,868,907 12,849,452
Site leasing 9,616,787 22,226,699
------------ ------------
$ 19,296,365 $ 40,948,688
============ ============
Capital expenditures:
Site development - consulting $ 1,797 $ 1,133,935
Site development - construction 7,627,973 3,977,894
Site leasing 146,460,478 313,632,308
Assets not identified by segment 902,899 1,166,295
------------ ------------
$154,993,147 $319,910,432
============ ============
As of As of
December 31, 1999 September 30, 2000
----------------- ------------------
Assets:
Site development - consulting $ 22,418,344 $ 6,631,603
Site development - construction 48,519,024 90,595,835
Site leasing 338,722,978 638,646,648
Assets not identified by segment 20,162,880 139,768,370
------------ ------------
$429,823,226 $875,642,456
============ ============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
We are a leading independent owner and operator of wireless communications
towers in the United States. We generate revenues from our two primary
businesses, site leasing and site development. In our site leasing business, we
lease antenna space on towers and other structures that we own or manage for
others. The towers that we own have either been built by us at the request of a
carrier or built or acquired based on our own initiative. In our site
development business, we offer wireless service providers assistance in
developing their own networks, including designing a network with full signal
coverage, identifying and acquiring locations to place their antennas, obtaining
zoning approvals, building towers when necessary and installing their antennas.
Since our founding in 1989, we have participated in the development of more than
14,000 antenna sites in 49 of the 51 major wireless markets in the United
States.
Site Leasing Services
In 1997, we began aggressively expanding our site leasing business by
capitalizing on our nationally recognized site development experience and strong
relationships with wireless service providers to take advantage of the trends
toward independent tower ownership and colocation, which is the placement of
multiple antennas on one tower. As of September 30, 2000, we owned or controlled
1,950 towers and had agreements to acquire 419 towers. We also had carrier
directives to build over 600 additional towers and had, in various phases of
development, over 1,000 locations which we had internally identified as
desirable locations on which to build a tower.
We believe our history and experience in providing site development services
gives us a competitive advantage in choosing the most attractive locations on
which to build new towers or buy existing towers, as measured by our success in
increasing tower revenues and cash flows. Our same tower revenue growth at
September 30, 2000 on the 956 towers we owned as of September 30, 1999 was 35%,
based on tenant leases signed and revenues annualized as of September 30, 1999
and 2000. We signed 245 new tenant leases in the quarter ended September 30,
2000 on the 1,660 towers we owned at the beginning of the quarter, at an average
initial monthly rent of $1,498.
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:
11
o the towers we construct through carrier directives under build-to-suit
programs;
o existing towers we acquire;
o the towers we build on locations we have selected which we call
"strategic" new tower builds; and
o towers we lease, sublease and/or manage for third parties.
Under a build-to-suit program, we build a tower for a wireless service provider
on a location of their direction. We retain ownership of the tower and the
exclusive right to place additional tenants on the tower. Many wireless service
providers are choosing the build-to-suit option as an alternative to tower
ownership, and we believe that this outsourcing trend is likely to continue. Our
build-to-suit sites come from a variety of wireless carriers, including Alamosa
PCS, AT&T Wireless, Cingular, Georgia PCS, Horizon PCS, Southwestern Bell,
Sprint PCS, TeleCorp PCS and VoiceStream.
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) identification of potential locations for towers and
antennas; (3) support in buying or leasing of the location; and (4) assistance
in obtaining zoning approvals and permits. In the construction segment of our
site development business we provide a number of services, including the
following; (1) tower and related site construction; (2) switch construction; and
(3) antenna installation. We will continue to use our site development expertise
to complement our site leasing business and secure additional new tower build
opportunities. We have capitalized on our leadership position in the site
development business and our strong relationships with wireless service
providers to develop our build-to-suit and strategic new tower build programs.
For our strategic new tower build activities, we are often able to use our site
development activities to identify an area without wireless signal coverage on
which to build a tower for the benefit of a current or potential customer.
We have a diverse range of customers, including cellular, PCS, wireless data and
Internet services, paging, ESMR, and ESMR providers as well as other users of
wireless transmission and reception equipment.
We believe that our total site development business will grow with the expected
overall growth of wireless and other telecommunications networks. We anticipate
that site development construction revenues will continue to exceed site
development consulting revenues. We also believe that our site leasing revenues
will grow as wireless service providers continue to lease antenna space on our
towers and the number of towers we own or control grows.
We have focused our capital expenditures on building new towers and acquiring
existing towers. In general, we have chosen to build rather than buy the
substantial majority, 67%, of our towers because we believe the economics of
building are more favorable. To date, our average construction cost of a new
tower is between $240,000 and $250,000, while we believe the industry's average
acquisition cost of a new tower over the last two years has been approximately
$400,000.
While we have focused primarily on building new towers for growth, we have also
acquired 643 towers as of September 30, 2000. We seek to acquire towers where we
can increase cash flow to substantially reduce the tower cash flow multiple paid
at acquisition through additional tenant leases. The 643 acquisitions to date
were completed at an aggregate purchase price of $252.5 million, which averages
to a price of approximately $393,000 per tower. In addition to what we have
already acquired, we are actively negotiating to acquire existing towers. In
September 2000, we entered into an agreement to acquire 213 existing towers from
TeleCorp PCS, Inc. (TeleCorp). In addition, we may acquire 62 additional towers,
for a total of 275 towers upon receipt by TeleCorp of third-party consents. The
acquisition price of each tower will be $327,500. The tower acquisition
agreement is subject to our satisfactory completion of our review of the
business, financial and legal aspects of towers that may be acquired, and other
items including, but not limited to, TeleCorp's receipt of third party
approvals. We anticipate that this acquisition will be completed in the first
quarter of 2001. As of September 30, 2000 we had agreements to acquire 419
towers in 37 separate transactions for an aggregate purchase price of
approximately $141.2 million or an average acquisition price of approximately
$337,000 per tower. These acquisitions are subject to a number of conditions and
may or may not close.
12
The following chart shows the number of towers we built for our own account and
the number of towers we acquired during the periods indicated:
Year Ended Nine Months Ended
---------- -----------------
December 31, 1999 September 30, 2000
----------------- ------------------
Towers built 438 544
Towers acquired 231 243
RESULTS OF OPERATIONS
As we continue our transition into site leasing, operating results in prior
periods may not be meaningful predictors of future prospects. You should be
aware of the dramatic changes in the nature and scope of our business when
reviewing the ensuing discussion of comparative historical results. We expect
that the acquisitions consummated to date and any future acquisitions, as well
as our new tower builds, will have a material impact on future revenues,
expenses and net loss. Revenues, cost of revenues, selling, general and
administrative expenses, depreciation and amortization, interest income and
interest expense each increased significantly in the three and nine month
periods ended September 30, 2000 as compared to the respective periods in the
prior year, and some or all of those items may continue to increase
significantly in future periods. We believe that our new tower build programs
may have a material effect on future financial results, which effect will
probably be negative until such time, if ever, as the newly constructed towers
attain higher levels of tenant use. As of September 30, 2000, the tenant count
on owned towers was 4,765 or an average of 2.4 tenants per tower. The pro-forma
average monthly rent for all tenants in the portfolio was $1,057 as of September
30, 2000.
Third Quarter 2000 Compared to the Third Quarter 1999
Total revenues increased 84.5% to $45.4 million for the third quarter of 2000
from $24.6 million for the third quarter of 1999. Site development revenues
increased 81.4% to $31.7 million in the third quarter of 2000 from $17.5 million
in the third quarter of 1999 due to increases in both site development
consulting revenues and construction revenues. Site development consulting
revenues increased 8.7% to $5.1 million for the third quarter 2000 from $4.7
million for the third quarter of 1999, due to the increased demand for site
acquisition and zoning services from wireless communications carriers. Site
development construction revenues increased 108.0% to $26.7 million for the
third quarter of 2000 from $12.8 million for the third quarter of 1999, due to
the increased demand for construction services from wireless communications
carriers and the number of projects on which services were rendered. Site
leasing revenues increased 92.0% to $13.7 million for the third quarter of 2000,
from $7.1 million for the third quarter of 1999, due to both tenants added to
our towers and the substantially greater number of towers in our portfolio
during 2000 as compared to 1999.
Total cost of revenues increased 72.8% to $28.8 million for the third quarter of
2000 from $16.7 million for the third quarter of 1999. Site development cost of
revenues increased 77.2% to $23.8 million for the third quarter of 2000 from
$13.5 million in the third quarter of 1999 due to the increased volume in both
site development consulting and construction revenues. Site development
consulting cost of revenues increased 3.6% to $3.5 million for the third quarter
of 2000 from $3.3 million for the third quarter of 1999 due primarily to higher
revenues. Site development construction cost of revenues increased 101.5% to
$20.4 million for the third quarter of 2000 from $10.1 million in the third
quarter of 1999 due primarily to higher revenues. Site leasing cost of revenues
increased 54.4% to $5.0 million for the third quarter of 2000 from $3.2 million
for the third quarter of 1999, due primarily to the increased number of towers
owned resulting in an increased amount of lease payments to site owners and
related site costs.
Gross profit increased 109.0% to $16.6 million for the third quarter of 2000
from $7.9 million for the third quarter of 1999, due to increased site
development and site leasing revenues. Gross profit from site development
increased 95.2% to $7.9 million in the third quarter of 2000 from $4.1 million
in the third quarter of 1999 due to higher site development revenues. Gross
profit margins for site development increased in the third quarter of 2000 to
24.9% from 23.1% in the third quarter of 1999. Gross profit margin on site
development consulting increased to 32.1% for the third quarter of 2000 from
28.8% for the third quarter of 1999. This increase is attributable to a change
13
in the mix of our business to include more multi-purpose projects producing both
site development revenues and build-to-suit towers. Gross profit margin on site
development construction increased in the third quarter of 2000 to 23.5% from
21.1% in the third quarter of 1999, as a result of our efforts to emphasize
higher margin projects, such as antenna installation and use less subcontractor
labor. Gross profit for the site leasing business increased 123.5% to $8.7
million in the third quarter of 2000 from $3.9 million in the third quarter of
1999, and site leasing gross profit margin improved to 63.4% in the third
quarter of 2000 from 54.5% in the third quarter of 1999. The increased gross
profit was due to the substantially greater number of towers owned and the
greater average revenue per tower in the 2000 period. The increase in gross
margin was due to additional tenants added to our towers and the resulting
increase in average tower revenue per tower, which was greater than the increase
in average expenses. As a percentage of total revenues, gross profit increased
to 36.5% of total revenues for the third quarter of 2000 from 32.2% for the
third quarter of 1999 due primarily to increased levels of higher margin site
leasing gross profit.
Selling, general and administrative expenses increased to $7.0 million for the
third quarter of 2000 from $5.0 million for the third quarter of 1999. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 15.5% for the third quarter of 2000 from 20.4% for the third
quarter of 1999. The increase in selling, general and administrative expenses
represents the addition of additional offices, personnel and other
infrastructure necessary to support our continued growth as well as increased
development expenses associated with our higher levels of new tower builds and
acquisition activities.
Depreciation and amortization increased to $9.5 million for the third quarter of
2000 as compared to $4.3 million for the third quarter of 1999. This increase is
directly related to the increased amount of fixed assets (primarily towers) we
owned in 2000 as compared to 1999.
Operating income was $6,038 for the third quarter 2000, as compared to an
operating loss of $(1.4) million for the third quarter of 1999. Increased
interest expense in the third quarter of 2000 was offset by increased interest
income on higher cash balances in the third quarter of 2000. Net loss was $(5.9)
million for the third quarter of 2000 as compared to net loss of $(8.0) million
for the third quarter of 1999.
Earnings before interest, taxes, depreciation and amortization and non-cash
compensation expense ("EBITDA") increased 222.9% to $9.5 million for the third
quarter of 2000 from $3.0 million in the third quarter of 1999. The following
table provides a reconciliation of EBITDA to net loss:
Three months ended September 30,
--------------------------------
1999 2000
---- ----
($ in thousands)
EBITDA $ 2,952 $ 9,531
Interest expense (1,013) (1,060)
Amortization of original issue discount
and debt issuance costs (5,553) (6,553)
Interest income 160 2,056
Provision for income taxes (173) (335)
Depreciation and amortization (4,313) (9,517)
Other income (expense) 4 (19)
Non-cash compensation expense (50) (8)
-------- --------
Net loss $(7,986) $(5,905)
======== ========
First Nine Months of 2000 Compared to the First Nine Months of 1999
Total revenues increased 98.0% to $114.3 million for the first nine months of
2000 from $57.7 million for the first nine months of 1999. Site development
revenues increased 98.3% to $78.8 million in the first nine months of 2000 from
$39.7 million in the first nine months of 1999 due to increases in both site
development consulting revenues and construction revenues. Site development
consulting revenues increased 37.5% to $17.5 million for the first nine months
of 2000 from $12.7 million for the first nine months of 1999, due to the
14
increased demand for site acquisition and zoning services from wireless
communications carriers. Site development construction revenues increased 127.1%
to $61.3 million for the first nine months of 2000 from $27.0 million for the
first nine months of 1999, due primarily to the inclusion of Network Services,
acquired in April 1999 for a full nine months in 2000, as well as an increase in
demand for construction services from wireless communication carriers and the
number of projects on which construction services were rendered. Site leasing
revenues increased 97.4% to $35.6 million for the first nine months of 2000 from
$18.0 million for the first nine months of 1999, due to both tenants added to
our towers and the substantially greater number of towers in our portfolio
during 2000 compared to 1999.
Total cost of revenues increased 90.9% to $73.4 million for the first nine
months of 2000 from $38.4 million for the first nine months of 1999. Site
development cost of revenues increased 99.9% to $60.1 million for the first nine
months of 2000 from $30.0 million in the first nine months of 1999 due to the
increased volume in both the site development consulting and construction
revenues. Site development consulting cost of revenues increased 30.4% to $11.6
million for the first nine months of 2000 from $8.9 million for the first nine
months of 1999 due primarily to the higher volume of activity. Site development
construction cost of revenues increased 129.3% to $48.4 million for the first
nine months of 2000 from $21.1 million in the first nine months of 1999 due to
the inclusion of Network Services, acquired in April 1999, for a full nine
months in 2000, and to increased construction activity. Site leasing cost of
revenues increased 58.8% to $13.3 million for the first nine months of 2000 from
$8.4 million for the first nine months of 1999, due primarily to the increased
number of towers owned resulting in an increased amount of lease payments to
site owners and related site costs.
Gross profit increased 112.2% to $40.9 million for the first nine months of 2000
from $19.3 million for the first nine months of 1999, due to increased site
development and site leasing revenues. Gross profit from site development
increased 93.4% to $18.7 million in the first nine months of 2000 from $9.7
million in the first nine months of 1999 due to higher site development
revenues. Gross profit margins for site development decreased in the first nine
months of 2000 to 23.8% from 24.4% in the first nine months of 1999 due to a
greater relative amount of lower margin site development construction business.
Gross profit margin on site development consulting increased to 33.5% for the
first nine months of 2000 from 29.9% for the first nine months of 1999. This
increase is attributable to a change in the mix of our business to include more
multi-purpose projects producing both site development revenue and build-to-suit
towers. Gross profit margin on site development construction remained relatively
consistent at 21.0% for the first nine months of 2000, and 21.8% for the first
nine months of 1999. Gross profit for the site leasing business increased 131.1%
to $22.2 million in the first nine months of 2000 from $9.6 million in the first
nine months of 1999, and site leasing gross profit margin improved to 62.5% in
the first nine months of 2000 from 53.4% in the first nine months of 1999. The
increased gross profit was due to the substantially greater number of towers
owned and the greater average revenue per tower in the 2000 period. The increase
in gross margin was due to additional tenants added to our towers and the
resulting increase in average tower revenue per tower, which was greater than
the increase in average expenses. As a percentage of total revenues, gross
profit increased to 35.8% of total revenues for the first nine months of 2000
from 33.4% for the first nine months of 1999 due primarily to increased levels
of higher margin site leasing gross profit.
Selling, general and administrative expenses increased to $19.5 million for the
first nine months of 2000 from $14.0 million for the first nine months of 1999.
As a percentage of total revenues, selling, general and administrative expenses
decreased to 17.1% for the first nine months of 2000 from 24.2% for the first
nine months of 1999. The increase in selling, general and administrative
expenses represents the addition of additional offices, personnel, and other
infrastructure necessary to support our continued growth, as well as increased
development expenses associated with our higher levels of new tower builds and
acquisition activities.
Depreciation and amortization increased to $24.3 million for the first nine
months of 2000 as compared to $11.0 million for the first nine months of 1999.
This increase is directly related to the increased amount of fixed assets
(primarily towers) we owned in 2000 as compared to 1999.
Operating loss decreased to $(2.8) million for the first nine months of 2000
from $(5.7) million for the first nine months of 1999 as a result of the
increased gross profit in 2000. Other expense increased to $(19.8) million for
the first nine months of 2000 from $(18.7) million for the first nine months of
1999. This increase is attributable to increased interest expense associated
with the senior credit facility and amortization of deferred financing charges
and original issue discount partially offset by increased interest income. The
extraordinary item in 1999 of $(1.1)
15
million relates to the write-off of deferred financing fees associated with our
prior bank credit agreement. Net loss was $(23.5) million for the first nine
months of 2000 as compared to net loss of $(24.3) million for the first nine
months of 1999.
EBITDA increased 294.7% to $21.7 million for the first nine months of 2000 from
$5.5 million for the first nine months of 1999. The following table provides a
reconciliation of EBITDA to net loss:
Nine Months ended September 30,
-------------------------------
1999 2000
---- ----
($ in thousands)
EBITDA $ 5,490 $ 21,666
Interest expense (3,239) (5,494)
Amortization of original issue discount
and debt issuance costs (16,206) (19,215)
Interest income 767 4,877
(Provision) benefit for income taxes 403 (912)
Depreciation and amortization (10,983) (24,279)
Other income 28 32
Non-cash compensation expense (187) (211)
Extraordinary item (1,150) -
-------- --------
Net loss $(25,077) $(23,536)
======== ========
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 our
subsidiaries. We conduct all 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 or distribute
funds, or that we will be permitted to pay any dividends under the terms of the
senior credit facility.
Net cash provided by operations during the first nine months ended September 30,
2000 was $21.7 million as compared to $11.5 million in the nine months ended
September 30, 1999. This increase is primarily attributable to the increase in
revenues. Net cash used in investing activities for the nine months ended
September 30, 2000 was $283.1 million compared to $148.0 million for the nine
months ended September 30, 1999. This increase is primarily attributable to a
higher level of tower acquisition and new build activity in 2000 versus 1999.
Net cash provided by financing activities for the nine months ended September
30, 2000 was $383.1 million compared to $112.5 million for the nine months ended
September 30, 1999. The increase in net cash provided by financing activities in
2000 was attributable to our equity offerings of Class A common stock which
closed in February and August 2000.
Our balance sheet reflected positive working capital of $100.5 million as of
September 30, 2000 and negative working capital of $(20.9) million as of
December 31, 1999. This change is attributable to increased cash balances as a
result of the August 2000 equity offering.
In February 2000, we completed an offering of 9.0 million shares of our Class A
common stock. We raised gross proceeds of $243.0 million, which produced net
proceeds of approximately $229.5 million, after deduction of the underwriting
discount and offering expenses. We used $70.5 million of these net proceeds to
repay all revolving credit loans under the senior credit facility. Remaining
proceeds have been used for the construction and acquisition of towers and for
general working capital purposes. Additionally, in February 2000 the managing
underwriters of the offering exercised and closed on their over-allotment option
to purchase an additional 1,350,000 shares of our Class A common stock from
certain shareholders. We did not receive any proceeds as a result of this
exercise.
16
In July 2000, we filed a universal shelf registration statement on Form S-3
registering the sale of up to $500.0 million of any combination of the following
securities: Class A common stock, preferred stock, debt securities, depositary
shares, or warrants. In August 2000, we completed an offering under this
universal shelf of 5.8 million shares of our Class A common stock, including
shares issued upon the exercise of the over-allotment option. We raised gross
proceeds of $247.3 million, which produced net proceeds of approximately $235.1
million, after deduction of the underwriting discount and offering expenses. We
used $25.0 million of these net proceeds to repay a portion of the term loans
under the senior credit facility. Remaining proceeds have and will be used for
the construction and acquisition of towers, general working capital purposes and
the possible repayment of a portion or all of the remaining term loan under the
senior credit facility. As of September 30, 2000 we may issue any combination of
the registered securities with an aggregate offering price of up to $252.7
million under this universal shelf registration statement.
We have on file with the Commission a shelf registration statement on Form S-4
registering up to a total of 1,000,000 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 nine months ended September 30, 2000, we issued 422,533
shares of Class A common stock in connection with four acquisitions. Subsequent
to September 30, 2000, the Company issued 71,879 shares under this registration
statement for one acquisition. As of the date of this report we may issue up to
505,588 additional shares under this registration statement. In addition, in
October 2000, we filed a second shelf registration statement on Form S-4
registering up to a total of 2,000,000 shares of Class A common stock which we
may also issue in connection with the acquisition of wireless communication
towers or companies that provide related services at various locations in the
United States. This second registration statement has not yet been declared
effective.
Outside of the shelf, on September 30, 2000, we issued 400,000 restricted shares
of Class A common stock to the former shareholders of Network Services (f/k/a
Com-Net Construction), in accordance with the terms of the acquisition
agreement.
As of September 30, 2000, our senior credit facility, as amended, consists of a
$50.0 million term loan and a $225.0 million revolving line of credit.
Availability under the senior credit facility is determined by a number of
factors, including the number of towers built by us with anchor tenants on the
date of completion, the financial performance of our towers, the financial
performance of our site development segment, as well as by other financial
covenants, financial ratios and other conditions. The revolving line of credit
matures on December 31, 2004 and reduced availability begins on March 31, 2001.
The $50.0 million term loan matures on December 31, 2005 and amortization of
this term loan begins on June 30, 2002. The senior credit facility is secured by
substantially all of the assets of SBA Telecommunications, Inc.
("Telecommunications") and its direct and indirect subsidiaries and requires
Telecommunications to maintain certain financial covenants, and places
restrictions on, among other things, the incurrence of debt and liens,
disposition of assets, transaction with affiliates and certain investments. As
of September 30, 2000, we had the $50.0 million term loan outstanding under the
senior credit facility at a 10.14% variable rate. At September 30, 2000 we had
$203.0 million outstanding on our 12% senior discount notes, net of unamortized
original issue discount of $66.0 million. The senior discount notes mature March
1, 2008.
We currently anticipate building a significant number of towers pursuant to our
build-to-suit program or pursuant to our strategic site initiatives. We also
intend to continue to explore opportunities to acquire additional wireless
communications towers or companies that provide related services. The exact
amount of our future capital expenditures will depend on a number of factors
including acquisition opportunities that become available during the period, the
needs of our build-to-suit customers and the availability to us of additional
debt or equity capital on acceptable terms. Our cash capital expenditures for
the year ended December 31, 1999 were $208.9 million, and for the nine months
ended September 30, 2000 were $283.1 million. We currently plan to make total
cash capital expenditures during the twelve months ending September 30, 2001 of
at least $250 million to $300 million, including up to $90.1 for the acquisition
of up to 275 towers we may acquire from TeleCorp. Substantially all of these
planned capital expenditures are expected to be funded by cash on hand,
borrowings under our senior credit facility and cash flow from operations.
Thereafter, however, or in the event we exceed current anticipated cash capital
expenditures for the twelve months ended September 30, 2001, we anticipate that
we will need to seek additional equity or debt financing to fund our business
plan. In the event that we do not have sufficient liquidity and there is not
sufficient availability under the senior credit facility when an acquisition or
construction opportunity arises, we would be required to seek additional debt or
equity financing. Failure to obtain any such financing could require us to
significantly reduce our planned capital expenditures and scale back the scope
of our tower build-out or acquisitions, either of which could have a material
adverse effect on our
17
projected financial condition or results of operations. In addition we may need
to refinance all or a portion of our indebtedness (including the senior discount
notes and/or the senior credit facility) on or prior to its scheduled maturity.
Our ability to make scheduled payments of principal of, or to pay interest on,
our debt obligations, and our ability to refinance any such debt obligations
(including the senior discount notes), or to fund planned capital expenditures,
will depend on our future performance, which, to a certain extent, is subject to
general economic, financial, competitive, legislative, regulatory and other
factors that are beyond our control.
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.
MARKET RISK
We are exposed to certain market risks which 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. We are subject to interest rate risk on our senior credit
facility and any future financing requirements. Our fixed rate debt consists
primarily of the accreted balance of the senior discount notes.
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 debt indebtedness as of September 30,
2000.
2000 2001 2002 2003 2004 Thereafter
---- ---- ---- ---- ---- ----------
Long-term debt:
Fixed rate (12.0%) -- -- -- -- -- $269,000,000
Term loan ($50.0 million)
variable rate (10.14% at
September 30, 2000) -- -- $ 500,000 $ 500,000 $ 500,000 $ 48,500,000
Note Payable
variable rate (8.87% at
September 30, 2000) $12,545 $ 50,176 $ 50,176 $ 50,176 $ 25,087 --
Our primary market risk exposure relates to (1) the interest rate risk on
long-term and short-term borrowings, (2) our ability to refinance our senior
discount notes at maturity at market rates, (3) the impact of interest rate
movements on our ability to meet interest expense requirements and financial
covenants and (4) the impact of interest rate movements on our ability to obtain
adequate financing to fund future acquisitions. 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 Discount Note Disclosure Requirements
The indenture governing our 12% senior discount notes due 2008 require certain
financial disclosures for restricted subsidiaries separate from unrestricted
subsidiaries and the disclosure to be made of Tower Cash Flow, as defined in the
indenture, for the most recent fiscal quarter and Adjusted Consolidated Cash
Flow, as defined in the indenture, for the most recently completed four-quarter
period. As of September 30, 2000 we had no unrestricted subsidiaries. Tower cash
flow, as defined in the indenture, for the quarter ended September 30, 2000 was
$6.5 million. Adjusted Consolidated Cash Flow for the twelve months ended
September 30, 2000 was $32.6 million.
18
Disclosure Regarding Forward-Looking Statements
This quarterly 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 the section "Management's Discussion and Analysis of
Financial Condition and Results of Operations." 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 quarterly report contains forward-looking
statements regarding:
o our strategy to transition the primary focus of our business from
site development services toward the site leasing business,
including our intent to make strategic acquisitions of towers and
tower companies;
o anticipated trends in the site development industry and its effect
on our revenues and profits;
o our estimates regarding the future development of the site leasing
industry and its effect on our site leasing revenues;
o our plan to continue to construct and acquire tower assets and the
resulting effect on our revenues, capital expenditures, expenses
and net income;
o our ability to successfully conclude letters of intent or
definitive agreements for newly built towers or acquisitions of
existing towers and the resulting effect on our financial
operations;
o our estimate of the amount of capital expenditures for the twelve
months ending September 30, 2001 that will be required for the
construction or acquisition of communications sites, and
o our intention to fund capital expenditures for the twelve months
ending September 30, 2001 from cash on hand, operations and
borrowings under our Senior Credit Facility.
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:
o our ability to secure as many site leasing tenants as planned;
o our ability to expand our site leasing business and maintain or
expand our site development business;
o our ability to complete construction of new towers on a timely and
cost-efficient basis, including our ability to successfully address
zoning issues, carrier design changes, changing local market
conditions and the impact of adverse weather conditions;
o our ability to identify and acquire new towers, including our
capability to timely complete a review of the business, financial,
and legal aspects of a new tower and obtain third party consents;
o our ability to retain current lessees on newly acquired towers; o
our ability to realize economies of scale for newly acquired
towers;
o the continued dependence on towers and outsourced site development
services by the wireless communications industry; o our ability to
compete effectively for new tower opportunities and site
development services in light of increased competition; and
o our ability to raise substantial additional financing to expand the
number of towers we own or operate.
We assume no responsibility for updating forward-looking statements in this
quarterly report.
19
PART II - OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
In September 2000, we issued 400,000 restricted shares of Class A
common stock to the former shareholders of Network Services (f/k/a
Com-Net Construction) as a result of Network Services meeting the
earnings targets identified in the acquisition agreement; the shares
were issued in reliance of Section 4(2) of the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
27. Financial Data Schedule (filed only electronically with the SEC)
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on July 21, 2000. In the
report, the Company reported under Item 5 that it had filed two
registration statements.
The Company filed a report on Form 8-K on July 21, 2000. In the
report, the Company reported under Item 5 certain operational
results.
The Company filed a report on Form 8-K on August 4, 2000. In the
report, the Company reported under Item 5 that it had entered into an
underwriting agreement to issue up to 5,750,000 shares of Class A
common stock.
The Company filed a report on Form 8-K on August 9, 2000. In the
report, the Company reported under Item 5 its schedule for the second
quarter earnings release.
The Company filed a report on Form 8-K on August 17, 2000. In the
report, the Company reported under Item 5 that the underwriters of
their recent offering exercised the over-allotment option to purchase
750,000 shares of its Class A common stock.
The Company filed a report on Form 8-K on August 17, 2000. In the
report, the Company reported under Item 5 certain financial results.
The Company filed a report on Form 8-K on September 28, 2000. In the
report, the Company reported under Item 5 that it had entered into an
agreement to acquire certain towers from TeleCorp PCS, and became the
exclusive build-to-suit provider for TeleCorp PCS.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 14, 2000 /s/ John Marino
-----------------
John Marino
Chief Financial Officer
(Duly Authorized Officer)
November 14, 2000 /s/ Pamela J. Kline
--------------------
Pamela J. Kline
Chief Accounting Officer
(Principal Accounting Officer)