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, 2001
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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 November 7, 2001
Class A Common Stock - 42,458,358 shares
Class B Common Stock - 5,455,595 shares
----------
SBA COMMUNICATIONS CORPORATION
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 3
Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 5
Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2001 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
2
ITEM 1: UNAUDITED FINANCIAL STATEMENTS
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
September 30, 2001 December 31, 2000
------------------ -----------------
<s><c>
ASSETS
Current assets:
Cash and cash equivalents $ 70,447 $ 14,980
Accounts receivable, net of allowance of $4,449 and $2,117 in
2001 and 2000, respectively 51,668 47,704
Prepaid and other current assets 11,323 5,968
Costs and estimated earnings in excess of billings on
uncompleted contracts 17,379 13,584
----------- ---------
Total current assets 150,817 82,236
Property and equipment, net 1,104,060 765,815
Intangible assets, net 115,987 83,387
Other assets 10,243 17,380
----------- ---------
Total assets $1,381,107 $948,818
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 65,632 $ 76,944
Accrued expenses 18,490 13,504
Current portion - notes payable 289 2,606
Interest payable 8,848 49
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,837 5,942
Other current liabilities 15,233 10,665
----------- ---------
Total current liabilities 112,329 109,710
----------- ---------
Long-term liabilities:
Senior discount notes payable 228,108 209,042
Senior notes payable 500,000 -
Notes payable 50,275 72,625
Deferred tax liabilities, net 18,895 18,445
Other long-term liabilities 1,481 836
----------- ---------
Total long-term liabilities 798,759 300,948
----------- ---------
Commitments and contingencies (see Note 8)
Shareholders' equity:
Common stock-Class A par value $.01 (100,000 shares authorized), 42,458
and 40,989 shares issued and outstanding in 2001 and 2000,
respectively 424 410
Common stock-Class B par value $.01 (8,100 shares authorized),
5,456 shares issued and outstanding in 2001 and 2000 55 55
Additional paid-in capital 654,650 627,370
Accumulated deficit (185,110) (89,675)
----------- ---------
Total shareholders' equity 470,019 538,160
----------- ---------
Total liabilities and shareholders' equity $1,381,107 $948,818
The accompanying Condensed Notes to Consolidated Financial Statements on
pages 7 through 12 herein are an integral part of these consolidated
financial statements.
3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
For the three months For the nine months
ended September 30, ended September 30,
------------------------ -----------------------------
2001 2000 2001 2000
---- ---- ---- ----
<s><c>
Revenues:
Site development $ 35,359 $ 31,741 $100,872 $ 78,775
Site leasing 27,674 13,654 72,872 35,552
-------- -------- -------- --------
Total revenues 63,033 45,395 173,744 114,327
-------- -------- -------- --------
Cost of revenues (exclusive of depreciation and
amortization shown below):
Cost of site development 27,223 23,834 77,455 60,053
Cost of site leasing 9,886 5,001 26,124 13,325
-------- -------- -------- --------
Total cost of revenues 37,109 28,835 103,579 73,378
-------- -------- -------- --------
Gross profit 25,924 16,560 70,165 40,949
Operating expenses:
Selling, general and administrative 10,009 7,037 31,409 19,494
Non-recurring developmental charge 24,399 - 24,399 -
Depreciation and amortization 20,145 9,517 53,520 24,279
-------- -------- -------- --------
Total operating expenses 54,553 16,554 109,328 43,773
-------- -------- -------- --------
Operating income (loss) (28,629) 6 (39,163) (2,824)
Other income (expense):
Interest income 1,578 2,056 6,785 4,877
Interest expense (14,099) (967) (34,736) (5,494)
Non-cash amortization of original issue discount and
debt issuance costs (7,614) (6,646) (21,870) (19,215)
Other 54 (19) (142) 32
-------- -------- -------- --------
Total other expense (20,081) (5,576) (49,963) (19,800)
-------- -------- -------- --------
Loss before provision for income taxes and
extraordinary item (48,710) (5,570) (89,126) (22,624)
Provision for income taxes (408) (335) (1,240) (912)
-------- -------- -------- --------
Net loss before extraordinary item (49,118) (5,905) (90,366) (23,536)
Extraordinary item - write-off of deferred financing fees - - (5,069) -
-------- -------- -------- --------
Net loss $(49,118) $ (5,905) $(95,435) $(23,536)
========= ========= ========= =========
Basic and diluted loss per common share before
extraordinary item $(1.03) $(0.14) $(1.91) $(0.60)
Extraordinary item - write-off of deferred financing fees - - (0.11) -
-------- -------- -------- --------
Basic and diluted loss per common share $(1.03) $(0.14) $(2.02) $(0.60)
Basic and diluted weighted average number of shares of
common stock 47,600 43,370 47,172 39,344
========= ========= ========= =========
The accompanying Condensed Notes to Consolidated Financial Statements on
pages 7 through 12 herein are an integral part of these consolidated
financial statements.
4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
For the nine months ended September 30,
---------------------------------------
2001 2000
---- ----
<s><c>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (95,435) $ (23,536)
Adjustments to reconcile net loss to net cash provided by
operating activities-
Depreciation and amortization 53,520 24,279
Non-cash non-recurring developmental charge 24,148 -
Non-cash compensation expense 2,533 211
Provision for doubtful accounts 1,166 1,318
Amortization of original issue discount and debt issuance costs 21,870 19,215
Write-off of deferred financing fees 5,069 -
Changes in operating assets and liabilities:
(Increase) decrease in--
Accounts receivable 2,631 (19,048)
Prepaid and other current assets (5,340) (3,826)
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,845) (7,089)
Other assets 5,751 (1,952)
Increase (decrease) in--
Accounts payable (12,951) 19,748
Accrued expenses 3,612 4,249
Accrued interest 8,799 -
Other liabilities 4,623 5,208
Billings in excess of costs and estimated earnings on uncompleted
contracts (2,310) 2,947
--------- ---------
Total adjustments 110,276 45,260
--------- ---------
Net cash provided by operating activities 14,841 21,724
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Tower and other capital expenditures (415,170) (283,113)
--------- ---------
Net cash used in investing activities (415,170) (283,113)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Net proceeds from common stock offerings - 464,603
Proceeds from option exercise 2,853 3,161
Proceeds from senior notes payable, net of financing fees 484,261 -
Borrowings under senior credit facility 30,000 11,000
Proceeds from senior secured credit facility, net of financing fees 44,320
Repayment of senior credit facility and notes payable (105,638) (95,666)
--------- ---------
Net cash provided by financing activities 455,796 383,098
--------- ---------
Net increase in cash and cash equivalents 55,467 121,709
CASH AND CASH EQUIVALENTS:
Beginning of period 14,980 3,131
--------- ---------
End of period $ 70,447 $ 124,840
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 27,897 $5,508
Taxes $1,992 $1,124
NON-CASH INVESTING ACTIVITIES:
Assets acquired in connection with acquisitions $ 48,943 $ 42,351
Liabilities assumed in connection with acquisitions $ (4,549) $ (315)
Common stock issued in connection with acquisitions $ (21,908) $ (36,798)
The accompanying Condensed Notes to Consolidated Financial Statements on pages
7 through 12 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, 2001
(unaudited)
(in thousands)
Additional
Paid-In Accumulated
Common Stock Capital Deficit Total
----------------------------------------- ----------- ------- -----
Class A Class B
------- -------
Number Amount Number Amount
------ ------ ------ ------
BALANCE, December 31, 2000 40,989 $410 5,456 $55 $627,370 $ (89,675) $538,160
Common stock issued in connection with
acquisitions 847 8 - - 21,900 - 21,908
Exercise of employee stock options 622 6 - - 2,847 - 2,853
Non-cash compensation expense - - - - 2,533 - 2,533
Net loss - - - - - (95,435) (95,435)
------ ---- ----- --- -------- ---------- --------
BALANCE, September 30, 2001 42,458 $424 5,456 $55 $654,650 $(185,110) $470,019
====== ==== ===== === ======== ========== ========
The accompanying Condensed Notes to Consolidated Financial Statements on
pages 7 through 12 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 2000 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 accounting
principles generally accepted in the United States. 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, 2001 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
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 computation are the same for all periods presented.
There were 3.7 million and 3.2 million options outstanding at September 30, 2001
and 2000, respectively.
2. CURRENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No.
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS 133. SFAS 133 established accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS 138
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 adopted SFAS 138 on January 1, 2001 and there was not a
significant impact from the adoption.
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
141 ("SFAS 141"), Business Combinations. SFAS 141 addresses financial accounting
and reporting for business combinations and supercedes APB NO. 16, Business
Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of
Purchased Enterprises. All business combinations in the scope of SFAS 141 are to
be accounted for under the purchase method. SFAS 141 is effective June 30, 2001.
The Company adopted SFAS 141 on June 30, 2001. The adoption of SFAS 141 did not
have an impact on the Company's consolidated financial statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets
("SFAS 142"). This standard eliminates the amortization of goodwill against
earnings. Instead, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value-based test. Goodwill will be written-down
against earnings only in the periods in which the recorded value of goodwill is
more than its fair value. Goodwill existing at June 30, 2001 will continue to be
amortized until December 31, 2001. Goodwill acquired subsequent to June 30, 2001
will not be amortized during the year ending December 31, 2001. Management
expects to have SFAS 142 fully implemented by January 1, 2002, however, the
effect SFAS 142 will have on the consolidated financial statements has not been
determined.
7
In June 2001, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment. The proposed SOP may limit
the ability of companies to capitalize certain costs as part of property, plant
and equipment ("PP&E"). The proposed SOP would also require that each
significant separately identifiable part of PP&E with a useful life different
from the useful life of the PP&E to which it relates be accounted for separately
and depreciated over the individual component's expected useful life. The
proposed SOP would be effective for fiscal years beginning after June 15, 2002.
Management has not determined the effect this SOP, if issued as proposed, would
have on the consolidated financial statements, but believes it may be material.
In August, 2001, the FASB issued SFAS 143, Accounting for Asset Retirement
Obligations. SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This standard requires that the fair value of
a liability for an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of the carrying amount
of the long-lived asset. The statement is effective for fiscal years beginning
after June 15, 2002. Management has not determined the effect SFAS 143 will have
on the Company's consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supercedes FAS 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 statement issued for
fiscal years beginning after December 15, 2001. Management has not determined
the effect, if any, this standard will have on the Company's consolidated
financial statements.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
As of
September 30, December 31,
2001 2000
---- ----
(in thousands)
Towers $1,122,554 $ 721,361
Construction in process 43,128 69,012
Furniture, equipment and vehicles 29,421 19,497
Land 11,533 10,014
Buildings and improvements 1,286 625
---------- --------
1,207,922 820,509
Less: accumulated depreciation and
amortization (103,862) (54,694)
---------- --------
Property and equipment, net $1,104,060 $765,815
========== ========
Construction in process represents costs incurred related to towers which are
under development. Interest is capitalized in connection with the construction
of towers. Approximately $2.0 and $1.6 million of interest cost was capitalized
during the nine months ended September 30, 2001 and the year ended December 31,
2000, respectively.
During the quarter ended September 30, 2001, the Company wrote off $23.6 million
in costs that were recorded in the Company's balance sheet as construction in
process. This write-off occurred as a result of the Company's decision to reduce
the scale of construction activities, in response to current capital market
conditions.
8
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following:
For the nine months ended For the year ended
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Costs incurred on uncompleted contracts $44,371 $ 48,060
Estimated earnings 9,471 9,941
Billings to date (40,300) (50,359)
------- --------
$13,542 $ 7,642
======= ========
As of As of
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Costs and estimated earnings in
excess of billings on
uncompleted contracts $ 17,379 $ 13,584
Billings in excess of costs
and estimated earnings on
uncompleted contracts (3,837) (5,942)
-------- --------
$ 13,542 $ 7,642
======== ========
5. CURRENT AND LONG-TERM DEBT
As of As of
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
12% senior discount notes, net of unamortized original issue
discount of $40,892 at September 30, 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. $228,108 $209,042
10 1/4% senior notes, unsecured, interest payable semi-annually beginning
August, 2001, balloon principal payment of $500,000 due
at maturity on February 1, 2009. 500,000 -
Senior secured credit facility term loan, interest at varying rates (6.28% at
September 30, 2001) quarterly installments based on reduced availability
beginning September 30, 2003, maturing June
15, 2007. 50,000 -
Notes payable, interest at varying rates (4.9% to 9.0% at
September 30, 2001). 564 231
Senior credit facility term loan, repaid in February 2001. - 50,000
Senior credit facility revolving loan, repaid in March 2001. - 25,000
-------- --------
778,672 284,273
Less: current maturities (289) (2,606)
-------- --------
Long-term debt $778,383 $281,667
======== ========
9
6. SHAREHOLDERS' EQUITY
In January 2001, the Company entered into bonus agreements with certain
executives and employees to issue shares, or options to acquire shares, of the
Company's Class A common stock. The Company expects to record approximately $3.3
million of non-cash compensation expense in 2001 and $1.1 million in non-cash
compensation expense in each year from 2002 through 2006. The Company recorded
approximately $0.9 million and $2.5 million in non-cash compensation expense
during the three and nine months ended September 30, 2001, respectively.
7. INCOME TAXES
The components of the provision for income taxes are as follows:
For the nine months ended
-------------------------
September 30, 2001 September 30, 2000
------------------ ------------------
(in thousands)
Federal income tax $ 32,026 $ 8,002
State income tax (1,231) (814)
Foreign tax (9) (9)
Change in valuation allowance (32,026) (8,091)
-------- -------
$(1,240) $ (912)
======== =======
The Company has taxable losses in the three and nine months ended September 30,
2001 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
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 should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
As part of the consideration for its 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, 2001, the Company
had the obligation to issue approximately 2.7 million additional shares of Class
A common stock and pay approximately $7.2 million in cash if the earnings
targets identified in various acquisition agreements are met.
9. ACQUISITONS
During the nine months ended September 30, 2001 the Company completed 59
acquisitions, all of which were individually insignificant to the Company. The
aggregate purchase price for the acquisitions was $217.9 million for the nine
months ended September 30, 2001, of which $21.9 million was paid through the
issuance of the Company's stock and the remaining $196.0 million was paid in
cash.
10. 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 revenues, gross profit, capital
expenditures (including assets acquired through the issuance of the Company's
Class A common stock) and assets is as follows:
10
For the three months ended For the nine months ended
-------------------------- -------------------------
September 30, September 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Revenues:
Site development - consulting $ 4,977 $ 5,091 $ 18,867 $ 17,522
Site development - construction 30,382 26,650 82,005 61,253
Site leasing 27,674 13,654 72,872 35,552
------- ------- -------- --------
$63,033 $45,395 $173,744 $114,327
======= ======= ======== ========
Gross profit:
Site development - consulting $ 1,550 $ 1,637 $ 6,037 $ 5,872
Site development - construction 6,586 6,271 17,380 12,850
Site leasing 17,788 8,652 46,748 22,227
------- ------- -------- -------
$25,924 $16,560 $ 70,165 $40,949
======= ======= ======== =======
For the nine months ended For the nine months ended
September 30, 2001 September 30, 2000
------------------ -------------------
Capital expenditures:
Site development - consulting $ 1,062 $ 1,134
Site development - construction 31,491 3,978
Site leasing 402,237 313,633
Assets not identified by segment 2,288 1,166
-------- --------
$437,078 $319,911
======== ========
As of As of
September 30, 2001 December 31, 2000
------------------ -----------------
(in thousands)
Assets:
Site development - consulting $ 12,727 $ 14,248
Site development - construction 125,172 99,962
Site leasing 1,141,546 815,660
Assets not identified by segment 101,662 18,948
---------- --------
$1,381,107 $948,818
========== ========
11. NON-RECURRING DEVELOPMENTAL CHARGE
In August 2001, the Company announced that, in light of its assessment of
capital market conditions, acquisition opportunities and the Company's success
in growing its tower portfolio year to date, it was adjusting its new tower
build construction plan and operation to produce 100 to 150 new towers per
quarter commencing with the third quarter of 2001, instead of the 200 to 250 new
towers per quarter previously built or capable of being built. The Company now
expects to build a total of approximately 600 to 700 new towers in 2001, and
approximately 400 to 600 new towers in 2002. In connection with the adjustment
to the scale of its new tower construction operation, the Company recorded a
$24.4 million non-recurring developmental charge in the third quarter of 2001.
Included in the charge is a write-off of approximately $23.6 million of costs
recorded in the balance sheet as work in process for certain new tower build
sites for which development activity has ceased. The remaining $.8 million
relates primarily to the costs of employee separation for 102 employees and the
costs associated with the closing and consolidation of selected offices that
were utilized primarily in its new asset development activities. Approximately
$.5 million remains in accrued liabilities at September 30, 2001, representing
primarily the future lease commitments for the closed offices that extend
through September 2002.
11
12. SUBSEQUENT EVENT
In October 2001, the Company filed a shelf registration statement on Form S-4
registering up to a total of 3.5 million shares of Class A Common Stock which
the Company may issue in connection with the acquisition of wireless
communication towers or companies that provide related services at various
locations in the United States. This registration statement has not yet been
declared effective.
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 to wireless service providers on towers and other structures
that we own or manage for others. The towers that we own have either been
constructed by us at the request of a carrier, built or constructed based on our
own initiative or acquired. In our site development business, we offer wireless
service providers assistance in developing 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 15,000 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 ownerships and co-location, which is the placement of
multiple antennas on one tower. As of September 30, 2001, we owned or controlled
3,464 towers and had agreements providing us with the rights to acquire 270
additional existing towers. As of September 30, 2001 we had carrier directives
to build approximately 600 additional towers and had, in various phases of
development, approximately 500 sites 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. Based on tenant leases executed as of
September 30, 2001, same tower revenue growth for the trailing twelve months on
the 1,950 towers we owned as of September 30, 2000 was 26%. Our annualized rate
of tenants added per tower, on a broadband equivalent basis, was .44, .47, .52,
and .56, for the quarters ended September 30, 2001, June 30, 2001, March 31,
2001, and December 31, 2000, respectively. A broadband equivalent basis is
calculated by dividing total lease revenue by $1,500, an industry benchmark for
monthly rent per tenant.
We have focused our capital expenditures on building new towers and acquiring
existing towers and related businesses. Our average construction cost of a new
tower is approximately $250,000, while we believe the industry's average
acquisition cost of a new tower over the last two years has been approximately
$350,000. As a result of these favorable economics, we have historically elected
to build the majority, 60%, of our towers. However, this trend changed somewhat
in 2001 as the average acquisition price per tower declined. We acquired more
towers than we built in the first nine months of 2001 and expect this trend to
continue through year ending December 31, 2001. On August 9, 2001, we announced
that, in light of our assessment of capital market conditions, acquisition
opportunities and its success in growing the tower portfolio year-to-date, we
were adjusting our new tower build construction plan and operation to produce
100 to 150 new towers per quarter commencing with the third quarter of 2001,
instead of the 200 to 250 new towers per quarter previously built or capable of
being built. We now expect to build a total of approximately 600 to 700 new
towers in 2001 and approximately 400 to 600 in 2002. The adjustment is not
expected to impact our anticipated portfolio at year-end 2001 of 3,800 to 4,000
towers. In connection with the adjustment to the scale of our new tower
construction operation, we recorded a $24.4 million, non-recurring developmental
charge in the third quarter of 2001. Included in the charge was a $23.6 million
write-off of costs previously reflected on our balance sheet as work in process
for certain new tower build sites for which development activity has ceased. The
remaining $.8 million relates primarily to the costs of employee separation for
certain employees and costs associated with the closing and consolidation of
selected offices that were utilized primarily in our new asset development
activities. Approximately $.5 million remains in accrued liabilities at
September 30, 2001, representing primarily the future lease commitments for the
closed offices that extend through September 2002.
12
We have acquired 1,398 towers as of September 30, 2001. 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. During the
quarter ended September 30, 2001, we acquired 77 towers. The 77 tower
acquisitions were completed at an aggregate purchase price of $23.8 million, an
average price of approximately $309,000 per tower. In addition to what we have
previously acquired, we are actively negotiating to acquire additional existing
towers. As of September 30, 2001, we had agreements to acquire 270 additional
towers for an aggregate purchase price of approximately $67.8 million or an
average acquisition price of approximately $251,000 per tower. These numbers do
not include an option to purchase up to 100 additional towers from US Unwired
later in 2001, as we do not expect to exercise this option as of the date of
this report. These acquisitions are subject to a number of conditions and may or
may not close.
The following chart shows the number of towers we constructed for our own
account and the number of towers we acquired during the periods indicated:
Nine months ended Year ended
September 30, 2001 December 31, 2000
------------------ -----------------
Towers constructed 524 779
Towers acquired 550 448
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 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; (3) antenna
installation; and (4) radio equipment installation, optimization and service.
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.
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. We believe that our new tower build programs may have a
material effect on future financial results, and that effect will probably be
negative until such time, if ever, as the newly constructed towers attain higher
levels of tenant use. 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 period
ended September 30, 2001 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.
Additionally, during the nine months ended September 30, 2001, we recorded an
extraordinary loss of $5.1 million for the write-off of deferred financing fees
associated with the termination of a prior senior credit facility and a $24.4
million non-recurring developmental charge arising from our decision to reduce
the scale of our new tower construction operations.
13
Third Quarter 2001 compared to the Third Quarter 2000
Total revenues increased 38.9% to $63.0 million for the third quarter of 2001
from $45.4 million for the third quarter of 2000. Site development revenues
increased 11.4% to $35.4 million for the third quarter of 2001 from $31.7
million for the third quarter of 2000 due primarily to an increase in site
construction revenues. Site development consulting revenues remained relatively
consistent for the third quarter of 2001 at $5.0 million as compared to $5.1
million for the same period in 2000. Site development construction revenues
increased 14.0% to $30.4 million for the third quarter of 2001 from $26.7
million for the third quarter of 2000, due to the increased demand for
construction services from wireless communications carriers, the number of
projects on which services were rendered and the acquisition of several small
construction companies. Site leasing revenues increased 102.7% to $27.7 million
for the third quarter of 2001 from $13.7 million for the third quarter of 2000,
due to the increased number of tenants added to our towers, higher average rents
received and the increase in the number of towers added to our portfolio.
Total cost of revenues increased 28.7% to $37.1 million for the third quarter of
2001 from $28.8 million for the third quarter of 2000. Site development cost of
revenues increased 14.2% to $27.2 million for the third quarter of 2001 from
$23.8 million for the third quarter of 2000 due primarily to the increased
volume in site development construction activity. Site development consulting
cost of revenues remained relatively consistent at $3.4 million for the third
quarter of 2001 as compared to $3.5 million for the same period in 2000. Site
development construction cost of revenues increased 16.8% to $23.8 million for
the third quarter of 2001 from $20.4 million for the third quarter of 2000 due
primarily to higher volume of construction activity. Site leasing cost of
revenues increased 97.7% to $9.9 million for the third quarter of 2001 from $5.0
million for the third quarter of 2000, due primarily to the increased number of
towers owned resulting in an increased amount of lease payments to site owners
and other related site costs.
Gross profit increased 56.5% to $25.9 million for the third quarter of 2001 from
$16.6 million for the third quarter of 2000, due primarily to increased site
leasing revenues. Gross profit from site development increased 2.9% to $8.1
million in the third quarter of 2001 from $7.9 million in the third quarter of
2000. Gross profit margin on site development consulting remained relatively
consistent at 32.1% for the third quarter of 2001 and 31.1% for the same period
in 2000. Gross profit margin on site development construction decreased in the
third quarter of 2001 to 21.7% from 23.5% in the third quarter of 2000 but met
our minimum expectations of at least 21%. Gross profit for the site leasing
business increased 105.6% to $17.8 million in the third quarter of 2001 from
$8.7 million in the third quarter of 2000, and site leasing gross profit margin
improved to 64.3% in the third quarter of 2001 from 63.4% in the third quarter
of 2000. The increased gross profit was due to the substantially greater number
of towers owned, the increase in the number of tenants and the greater average
revenue per tower in the 2001 period. As a percentage of total revenues, gross
profit increased to 41.1% of total revenues for the third quarter of 2001 from
36.5% for the third quarter of 2000 due primarily to increased levels of higher
margin site leasing gross profit.
Selling, general and administrative expenses increased 42.2% to $10.0 million
for the third quarter of 2001 from $7.0 million for the third quarter of 2000.
The increase in selling, general and administrative expenses represents the
addition of support personnel and other infrastructure necessary to support our
growth as well as increased non-cash compensation expense. The amount recorded
as non-cash compensation in the third quarter of 2001 was $0.9 million as
compared to only eight thousand dollars of non-cash compensation expense in the
third quarter of 2000. This increase results from our increased usage of common
stock and stock options as a means of rewarding and retaining key employees.
In the third quarter, we recorded a $24.4 million non-recurring developmental
charge relating to a reduction in the scale of our new tower construction
operations. Approximately $23.6 million of this charge related to costs that
were previously reflected in the Company's balance sheet as construction in
process. The remaining $.8 million relates 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 $20.1 million for the third quarter
of 2001 as compared to $9.5 million for the third quarter of 2000. This increase
is directly related to the increased amount of fixed assets (primarily towers)
we owned in 2001 as compared to 2000.
Operating loss was $(28.6) million for the third quarter 2001, as compared to
operating income of approximately six thousand dollars for the third quarter of
2000. Total other expenses increased to $(20.1) million for the third quarter of
14
2001, as compared to $(5.6) million for the third quarter of 2000, primarily as
a result of increased interest expense. The increase in interest expense is due
primarily to interest expense on our $500.0 million 10 1/4 % senior notes issued
in February 2001 and the related amortization of deferred financing fees.
Earnings before interest, taxes, depreciation and amortization, non-cash
compensation expense and non-recurring and extraordinary items ("EBITDA")
increased 75.9% to $16.8 million for the third quarter of 2001 from $9.5 million
in the third quarter of 2000. The following table provides a reconciliation of
EBITDA to net loss:
Three months ended September 30,
--------------------------------
2001 2000
---- ----
(in thousands)
EBITDA $ 16,769 $ 9,531
Interest expense (14,099) (967)
Amortization of original issue discount
and debt issuance costs (7,614) (6,646)
Interest income 1,578 2,056
Provision for income taxes (408) (335)
Depreciation and amortization (20,145) (9,517)
Other (expense) income 54 (19)
Non-recurring developmental charge (24,399) -
Non-cash compensation expense (854) (8)
--------- --------
Net loss $(49,118) $(5,905)
========= ========
First Nine Months of 2001 compared to the First Nine Months of 2000
Total revenues increased 52.0% to $173.7 million for the first nine months of
2001 from $114.3 million for the first nine months of 2000. Site development
revenues increased 28.1% to $100.9 million in the first nine months of 2001 from
$78.8 million in the first nine months of 2000 due to increases in both site
development consulting revenues and construction revenues. Site development
consulting revenues increased 7.7% to $18.9 million for the first nine months of
2001 from $17.5 million for the first nine months of 2000, due to the increased
demand for site acquisition, zoning and other consulting services from wireless
communications carriers. Site development construction revenues increased 33.9%
to $82.0 million for the first nine months of 2001 from $61.3 million for the
first nine months of 2000, due to the increased demand for construction services
from wireless communications carriers, the number of projects on which services
were rendered and the acquisition of several small construction companies. Site
leasing revenues increased 105.0% to $72.9 million for the first nine months of
2001, from $35.6 million for the first nine months of 2000, due to the increased
number of tenants added to our towers, higher average rents received and the
increase in the number of towers added to our portfolio.
Total cost of revenues increased 41.2% to $103.6 million for the first nine
months of 2001 from $73.4 million for the first nine months of 2000. Site
development cost of revenues increased 29.0% to $77.5 million for the first nine
months of 2001 from $60.1 million in the first nine months of 2000 due to the
increased volume in both site development consulting and construction revenues.
Site development consulting cost of revenues increased 10.1% to $12.8 million
for the first nine months of 2001 from $11.7 million for the first nine months
of 2000 due primarily to higher volume. Site development construction cost of
revenues increased 33.5% to $64.6 million for the nine months of 2001 from $48.4
million in the first nine months of 2000 due primarily to higher volume. Site
leasing cost of revenues increased 96.1% to $26.1 million for the first nine
months of 2001 from $13.3 million for the first nine months of 2000, due
primarily to the increased number of towers owned resulting in an increased
amount of lease payments to site owners and other related site costs.
Gross profit increased 71.3% to $70.2 million for the nine months of 2001 from
$40.9 million for the nine months of 2000, due to increased site development and
site leasing revenues. Gross profit from site development increased 25.1% to
$23.4 million in the nine months of 2001 from $18.7 million in the nine months
of 2000. Gross profit margin on site development consulting decreased slightly
to 32.0% for the nine months of 2001 from 33.5% for the nine months of 2000,
reflecting different states of project completions. Gross profit margin on site
development construction remained relatively consistent at 21.0% for the first
15
nine months of 2001 as compared to 21.2% for the first nine months of 2000.
Gross profit for the site leasing business increased 110.3% to $46.7 million in
the nine months of 2001 from $22.2 million in the nine months of 2000, and site
leasing gross profit margin improved to 64.2% in the nine months of 2001 from
62.5% in the nine months of 2000. The increased gross profit was due to the
substantially greater number of towers owned, the increase in the number of
tenants and the greater average revenue per tower in the 2001 period. As a
percentage of total revenues, gross profit increased to 40.4% of total revenues
for the nine months of 2001 from 35.8% for the nine months 2000 due primarily to
increased levels of higher margin site leasing gross profit.
Selling, general and administrative expenses increased 61.0% to $31.4 million
for the first nine months of 2001 from $19.5 million for the first nine months
of 2000. The increase in selling, general and administrative expenses
represented the addition of offices, personnel and other infrastructure
necessary to support our growth as well as increased non-cash compensation
expense and recurring developmental expenses. The amount recorded as non-cash
compensation in the first nine months of 2001 was $2.5 million as compared to
$.2 million in the first nine months of 2000. This increase results from the
Company's increased usage of common stock and stock options as a means of
rewarding and retaining key employees. The increase in recurring developmental
expenses is due to higher levels of new build and acquisition activity, the
increasingly difficult zoning environment and, to a lessor extent, pending
acquisitions that ultimately did not close.
During the nine months ended September 30, 2001, we recorded a $24.4 million
non-recurring developmental charge relating to a reduction in the scale of our
new tower construction operations. Approximately $23.6 million of this charge
related to costs that were previously reflected in the Company's balance sheet
as construction in process. The remaining $.8 million relates 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 $53.5 million for the first nine
months of 2001 as compared to $24.3 million for the first nine months of 2000.
This increase is directly related to the increased amount of fixed assets
(primarily towers) we owned in 2001 as compared to 2000.
Operating loss was $39.2 million for the first nine months of 2001, as compared
to an operating loss of $2.8 million for the first nine months of 2000. Total
other expenses increased to $50.0 million for the first nine months of 2001, as
compared to $19.8 million for the first nine months of 2000, primarily as a
result of increased interest expense. The increase in interest expense is
primarily due to additional interest expense on our $500.0 million 10 1/4 %
senior notes issued in February 2001. The extraordinary loss in 2001 of $5.1
million relates to the write-off of deferred financing fees associated with a
prior credit facility we terminated in the first quarter of 2001.
(Continued on the following page)
16
EBITDA increased 90.6% to $41.3 million for the first nine months of 2001 from
$21.7 million in the first nine months of 2000. The following table provides a
reconciliation of EBITDA to net loss:
Nine months ended September 30,
2000 2001
---- ----
(in thousands)
EBITDA $ 41,289 $ 21,666
Interest expense (34,736) (5,494)
Amortization of original issue discount and debt issuance costss (21,870) (19,215)
Interest income 6,785 4,877
Provision for income taxes (1,240) (912)
Depreciation and amortization (53,520) (24,279)
Other income (expense) (142) 32
Non-cash compensation expense (2,533) (211)
Non-recurring developmental charge (24,399) -
Extraordinary item, write-off of deferred financing fees (5,069) -
--------- ---------
Net loss $(95,435) $(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, other than financings, to pay our
obligations is distributions we receive from 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. Our ability to pay cash or stock
dividends is restricted under the terms of our senior secured credit facility
and other loan documents.
Net cash provided by operations during the nine months ended September 30, 2001
was $14.8 million as compared to $21.7 million in the nine months ended
September 30, 2000. Net cash used in investing activities for the nine months
ended September 2001 was $(415.2) million compared to $(283.1) million for the
nine months ended September 30, 2000. This increase is primarily attributable to
a higher level of acquisitions and new build activity in 2001 versus 2000. Net
cash provided by financing activities for the nine months ended September 30,
2001 was $455.8 million compared to $383.1 million for the nine months ended
September 30, 2000. The increase in net cash provided by financing activities is
primarily due to the issuance of our $500.0 million 10 1/4% senior notes
completed in February 2001 and net borrowings under our senior secured credit
facility.
Our balance sheet reflected positive working capital of $38.5 million as of
September 30, 2001 compared to negative working capital of $(27.5) million as of
December 31, 2000. This change is primarily attributable to increased cash
balances as a result of the issuance of our $500.0 million 10 1/4% senior notes
completed in February 2001, the $50.0 borrowing under our senior secured credit
facility.
In February 2001, the Company issued $500.0 million 10 1/4% senior notes due
2009, which produced net proceeds of approximately $483.4 million after
deducting offering expenses. Interest on the 10 1/4% senior notes is payable on
February 1 and August 1 of each year, beginning August 1, 2001. The 10 1/4%
senior notes are unsecured and pari passu in right of payment with the Company's
other existing and future senior indebtedness. The 10 1/4% senior notes place
certain restrictions on, among other things, the incurrance 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, Inc. ("Telecommunications"), a subsidiary
of SBA Communications, entered into a $300.0 million senior secured credit
facility. The facility 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 convenants. Telecommunications drew $50.0 million of the term loan at
closing and the additional $50.0 million available under the term loan will be
drawn by December 15, 2001. The term loan and the revolving loan mature June 15,
2007 and amortization of the term loan begins in September 2003. 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
17
senior secured credit facility is secured by substantially all of the assets of
Telecommunications and its subsidiaries. The facility also places certain
restrictions on, among other things, the incurrance of debt and liens, the sale
of assets, capital expenditures, transactions with affiliates, sale and
lease-back transactions and the number of towers that can be built without
anchor tenants.
Our cash capital expenditures for the nine months ended September 30, 2001 were
$415.2 million, and for the year ended December 31, 2000 were $445.3 million. We
currently plan to make total cash capital expenditures during the year ending
December 31, 2001 of approximately $490.0 million to $500.0 million.
Substantially all of these planned capital expenditures are expected to be
funded by the remaining proceeds of our $500.0 million 10 1/4% senior note
offering completed in February 2001, borrowings under our senior secured credit
facility and cash flow from operations. Cash capital expenditures for fiscal
year end 2002 are currently estimated at approximately $130.0 million to $180.0
million. The borrowings under our senior secured credit facility and cash flows
from operations are expected to be sufficient to fund planned 2002 cash capital
expenditures. 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, the number of
towers we build and the availability to us of additional debt or equity capital
on acceptable terms. Thereafter, however, or in the event we exceed current
estimated cash capital expenditures, 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, there is insufficient availability under
the senior secured 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 construction or acquisition activities, either of which could have a
material adverse effect on our financial condition or results of operations. In
addition we may need to refinance all or a portion of our indebtedness
(including the 12% senior discount notes and the 10 1/4% senior notes) on or
prior to scheduled maturity.
Our ability to meet our planned capital expenditures in 2002 and beyond, to meet
our long-term liquidity obligations and to grow our business is extremely
dependent on the availability of capital. Prior to September 11, 2001, the U.S.
capital markets, and specifically the availability of capital for wireless
communications infrastructure, had weakened. The terrorist activities of
September 11, 2001 and their aftermath have already caused and may continue to
cause additional weakness in the U.S. business and economic environment and in
the U.S. capital markets.
If we are unable to access sufficient capital to fund our new tower builds or
tower acquisitions, or if our clients are unable to access or are unwilling to
allocate sufficient capital to fund network expension, our liquidity and our
results of operations would be negatively impacted.
We have on file with the Securities & Exchange Commission ("SEC") shelf
registration statements on Form S-4 registering up to a total of 3.0 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 nine months ended
September 30, 2001, we issued 0.8 million shares of Class A common stock under
the terms of certain acquisition agreements. As of the date of this report, the
Company may issue 1.1 million shares under these shelf registration statements.
In addition, in October 2001, we filed another shelf registration statement on
Form S-4 registering up to a total of 3.5 million shares of Class A Common Stock
which we may also issue in connection with the acquisition of wireless
communications towers or companies that provide related services at various
locations in the United States. This registration statement has not yet been
declared effective.
We have on file with the SEC a universal shelf registration statement on Form
S-3 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.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 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 secured
18
credit facility and certain other notes payable and any future financing
requirements, however, the majority of our indebtedness currently consists of
fixed rate debt.
The following table presents the future principal payment obligations and
interest rates associated with our long-term debt instruments assuming our
actual level of long-term debt indebtedness as of September 30, 2001:
(in thousands)
2001 2002 2003 2004 2005 Thereafter
---- ---- ---- ---- ---- ----------
Long-term debt:
Fixed rate (12.0%) -- -- -- -- -- $269,000
Fixed rate (101/4%) -- -- -- -- -- $500,000
Term loan, variable rate
6.28% at Sept. 30, 2001 -- -- $2,500 $7,500 $12,500 $ 27,500
Notes payable variable rates
(between 4.9% and 9.0% at
Sept. 30, 2001) $53 $356 $ 127 $ 28 -- --
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 and our senior 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, and other capital
expenditures.
We manage the interest rate risk on our outstanding long-term and short-term
debt through our use of fixed and variable rate debt and, if warranted, hedging
instruments. Although 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 and Senior Note Disclosure Requirements
The indentures governing our 12% senior discount notes and our 10 1/4% senior
notes require certain financial disclosures for restricted subsidiaries separate
from unrestricted subsidiaries and the disclosure of Tower Cash Flow, as defined
in the indentures, for the most recent fiscal quarter and Adjusted Consolidated
Cash Flow, as defined in the indentures, for the most recently completed
four-quarter period. As of September 30, 2001, we had no unrestricted
subsidiaries. Tower Cash Flow, as defined in the indentures, for the quarter
ended September 30, 2001 was $13.8 million. Adjusted Consolidated Cash Flow for
the twelve months ended September 30, 2001 was $64.3 million.
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:
19
o the impact of the $24.4 million non-recurring developmental charge we
recorded;
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 related
businesses;
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, acquisitions of existing towers and
related businesses, and the resulting effect on our financial
operations;
o our estimate of the amount of planned capital expenditures for the
years ending December 31, 2001 and 2002 that will be required for the
construction or acquisition of towers and related businesses;
o our expectations regarding the average acquisition cost per tower and
our average construction cost per tower and;
o our intention to fund cash capital expenditures through the end of
2002 from the net remaining proceeds of our February 2001 10 1/4%
senior note offering, cash flow from operations and borrowings under
our senior secured 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 access sufficient capital to fund our new tower builds
and acquisitions;
o the inability of our clients to access sufficient capital, or their
unwillingness to expend capital to fund network expansion or
enhancements;
o our ability and the ability of our customers to access sufficient
capital to fund expansion of networks and new tower builds and
acquisitions;
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 and related businesses,
including our capability to timely complete a review of the business,
financial, and legal aspects 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 use of towers and dependence on out-sourced 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 close and raise substantial additional financing to
expand our tower holdings.
o our ability to continue to comply with covenants and the terms of our
senior secured credit facility.
We assume no responsibility for updating forward-looking statements in this
quarterly report.
20
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on July 19, 2001, and
reported, under Item 5, certain operational results.
The Company filed a report on Form 8-K on August 10, 2001 and
reported, under Item 5, certain financial results.
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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 , 2001 /s/ John Marino
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John Marino
Chief Financial Officer
(Duly Authorized Officer)
November , 2001 /s/ John F. Fiedor
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John F. Fiedor
Chief Accounting Officer
(Principal Accounting Officer)
22