1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended MARCH 31, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
------------------ ---------------
COMMISSION FILE NUMBER: 0-27217
SPECTRASITE HOLDINGS, INC.
(Name of registrant as specified in its charter)
DELAWARE 4899 56-2027322
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
SPECTRASITE HOLDINGS, INC.
100 Regency Forest Drive, Suite 400
Cary, North Carolina 27511
(919) 468-0112
(Address and telephone number of principal executive offices
and principal place of business)
Check whether the issuer:
(1) Has filed all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES X No
--- ---
As of May 1, 2001, the registrant had only one outstanding class of common
stock, of which there were 148,839,696 shares outstanding.
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INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets
at March 31, 2001 (unaudited) and December 31, 2000...........................3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2001 and 2000............................4
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2000............................5
Notes to the Unaudited Condensed Consolidated Financial Statements............6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................10
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK.............................................................13
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS....................................................14
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS............................14
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES......................................14
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................14
ITEM 5 - OTHER INFORMATION....................................................14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.....................................15
SIGNATURES....................................................................17
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At March 31, 2001 and December 31, 2000
(dollars in thousands)
March 31, December 31,
2001 2000
------------ -----------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents .................................... $ 547,892 $ 552,653
Accounts receivable, net of allowance of $5,002 and $3,585 ... 84,397 92,487
Costs and estimated earnings in excess of billings ........... 24,448 20,531
Inventories .................................................. 14,517 8,995
Prepaid expenses and other ................................... 11,716 10,044
----------- -----------
Total current assets ................................... 682,970 684,710
Property and equipment, net ..................................... 1,877,527 1,540,337
Goodwill and other intangible assets, net ....................... 582,412 570,749
Investments in affiliates ....................................... 172,437 177,117
Other assets .................................................... 77,743 81,192
----------- -----------
Total assets .................................................... $ 3,393,089 $ 3,054,105
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 59,539 $ 54,562
Accrued and other expenses ................................... 52,611 45,227
Billings in excess of costs and estimated earnings ........... 6,770 10,218
----------- -----------
Total current liabilities .............................. 118,920 110,007
Long-term debt .................................................. 500,864 200,812
Senior notes .................................................... 400,000 400,000
Senior convertible notes ........................................ 200,000 200,000
Senior discount notes ........................................... 934,884 908,243
Other long-term liabilities ..................................... 21,826 10,243
----------- -----------
Total liabilities ...................................... 2,176,494 1,829,305
----------- -----------
Shareholders' equity:
Common stock ($0.001 par value, 300,000,000 shares
authorized and 147,686,385 and 144,914,484 issued and
outstanding at March 31, 2001 and December 31, 2000) ...... 148 145
Additional paid-in-capital ................................... 1,550,603 1,492,845
Accumulated other comprehensive income (loss) ................ (146) 1,922
Accumulated deficit .......................................... (334,010) (270,112)
----------- -----------
Total shareholders' equity ............................. 1,216,595 1,224,800
----------- -----------
Total liabilities and shareholders' equity ...................... $ 3,393,089 $ 3,054,105
=========== ===========
See accompanying notes.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2001 and 2000
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
Revenues:
Site leasing .................................... $ 46,388 $ 20,284
Network services ................................ 60,875 54,953
--------- ---------
Total revenues .............................. 107,263 75,237
--------- ---------
Operating Expenses:
Costs of operations, excluding
depreciation and amortization expense
Site leasing ................................. 18,142 9,210
Network service .............................. 48,854 41,080
Selling, general and administrative expenses .... 21,236 15,625
Depreciation and amortization expense ........... 36,710 19,926
Non-cash compensation charges ................... 531 376
--------- ---------
Total operating expenses .................... 125,473 86,217
--------- ---------
Operating loss .................................... (18,210) (10,980)
--------- ---------
Other income (expense):
Interest income ................................... 10,079 3,452
Interest expense .................................. (48,369) (24,204)
Other income (expense) ............................ (7,010) (245)
--------- ---------
Total other income (expense) ...................... (45,300) (20,997)
--------- ---------
Loss before income taxes .......................... (63,510) (31,977)
Income tax expense ................................ 388 518
--------- ---------
Net loss .......................................... $ (63,898) $ (32,495)
========= =========
Net loss per common share
(basic and diluted) ............................ $ (0.44) $ (0.38)
========= =========
Weighted average common
shares outstanding (basic and diluted) ............ 145,880 85,277
========= =========
See accompanying notes.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2001 and 2000
(dollars in thousands)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
OPERATING ACTIVITIES
Net loss .................................................................. $ (63,898) $ (32,495)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation ........................................................... 27,168 13,858
Amortization of goodwill and other intangibles ......................... 9,542 6,068
Amortization of debt issuance costs .................................... 2,334 1,133
Amortization of senior discount notes .................................. 26,641 16,368
Non-cash compensation charges .......................................... 531 376
Equity in net loss of affiliates ....................................... 6,415 328
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable ................................................. 8,090 (16,835)
Costs and estimated earnings in excess of billings .................. (7,366) (330)
Inventories ......................................................... (5,522) (418)
Prepaid expenses and other .......................................... (2,656) 1,571
Accounts payable .................................................... 4,980 (1,702)
Other current liabilities ........................................... 4,385 (2,986)
--------- ---------
Net cash provided by (used in) operating activities .............. 10,644 (15,064)
--------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment ....................................... (301,773) (90,544)
Refunds of deposits (deposits on) asset purchases ......................... 6,847 (23,000)
Acquisitions, net of cash acquired ........................................ -- (14,507)
Other, net ................................................................ (4,062) (350)
--------- ---------
Net cash used in investing activities ............................ (298,988) (128,401)
--------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of common stock .................................... 3,614 443,075
Stock issuance costs ...................................................... (393) (24,475)
Proceeds from issuance of long-term debt .................................. 300,000 --
Proceeds from issuance of senior notes .................................... -- 200,000
Proceeds from issuance of senior discount notes ........................... -- 299,974
Repayments of debt ........................................................ (170) (383)
Debt issuance costs ....................................................... (19,468) (15,596)
--------- ---------
Net cash provided by financing activities ........................ 283,583 902,595
--------- ---------
Net increase (decrease) in cash and cash equivalents ............. (4,761) 759,130
Cash and cash equivalents at beginning of period .......................... 552,653 37,778
--------- ---------
Cash and cash equivalents at end of period ................................ $ 547,892 $ 796,908
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest .................................. $ 16,398 $ 7,305
========= =========
Cash paid during the period for income taxes .............................. $ 598 $ 370
========= =========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions and property and equipment ........... $ 54,006 $ 71,667
========= =========
Property and equipment acquired under capital lease ....................... $ 11,647 $ --
========= =========
See accompanying notes.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
SpectraSite Holdings, Inc. ("SpectraSite") and its wholly owned
subsidiaries (collectively referred to as the "Company") are principally engaged
in providing services to companies operating in the telecommunications industry,
including leasing antenna sites on multi-tenant towers, network design, tower
construction and antenna installation throughout the United States and Canada.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of SpectraSite and its subsidiaries. All significant intercompany transactions
and balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the unaudited condensed
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
REVENUE RECOGNITION
Site leasing revenues are recognized when earned. Fixed escalation
clauses present in the lease agreements with the Company's customers are
recognized on a straight-line basis over the term of the lease. Network service
revenues from site selection, construction and construction management
activities are derived under service contracts with customers which provide for
billing on a time and materials or fixed price basis. Revenues are recognized as
services are performed with respect to time and materials contracts. Revenues
are recognized using the percentage-of-completion method for fixed price
contracts, measured by the percentage of contract costs incurred to date
compared to estimated total contract costs. Costs and estimated earnings in
excess of billings on uncompleted contracts represent revenues recognized in
excess of amounts billed. Billings in excess of costs and estimated earnings on
uncompleted contracts represent billings in excess of revenues recognized.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined.
SIGNIFICANT CUSTOMERS
In the three months ended March 31, 2000 and 2001, one customer, which
is a significant shareholder of the Company, accounted for 26% and 18% of
revenues, respectively.
INCOME TAXES
The Company provides for income taxes at the end of each interim period
using the liability method based on the estimated effective tax rate for the
full fiscal year for each tax reporting entity. Any cumulative adjustments to
the Company's estimate are recorded in the interim period in which a change in
the estimated annual effective rate is determined.
EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128 "Earnings per Share". The
Company has potential common stock equivalents related to its convertible notes,
warrants and outstanding stock options. These potential common stock equivalents
were not included in diluted earnings per share because the effect would have
been antidilutive. Accordingly, basic and diluted net loss per share are the
same for all periods presented.
RECLASSIFICATIONS
Certain reclassifications have been made to the 2000 condensed
consolidated financial statements to conform to the 2001 presentation. These
reclassifications had no effect on previously reported net loss or shareholders'
equity.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting and in accordance with the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and disclosures normally required by generally accepted
accounting principles for complete financial statements or those normally
reflected in the Company's Annual Report on Form 10-K. The financial information
included herein reflects all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for interim periods. Results of interim periods are not
necessarily indicative of the results to be expected for a full year.
2. ACQUISITION ACTIVITIES
AirTouch transaction -- On February 16, 2000, the Company entered into
an agreement with AirTouch Communications and several of its affiliates, under
which it agreed to lease or sublease approximately 430 communications towers
located throughout southern California for $155.0 million, subject to
adjustment. As partial security for obligations under the agreement to sublease,
the Company deposited $23.0 million into escrow. Under the terms of the
agreement, the Company will manage, maintain and lease the available space on
the AirTouch towers covered by the agreement. AirTouch will pay a monthly fee
per site for its cellular, microwave and paging facilities. The Company also has
the right to lease available tower space to co-location tenants in specified
situations. In addition, the Company entered into a three-year exclusive
build-to-suit agreement with AirTouch in southern California. Under the terms of
the build-to-suit agreement, the Company will develop and construct locations
for wireless communications towers on real property designated by AirTouch.
The AirTouch transaction closed in stages with the initial closing
occurring on August 15, 2000 and the final closing under the original agreement
occurring on February 15, 2001. At each respective closing, the Company paid for
the towers included in that closing according to a formula contained in the
master sublease. During 2000, the Company subleased 233 towers for aggregate
cash consideration of $83.9 million, including $12.5 million released from the
deposit escrow. The final closing of 69 towers occurred on February 15, 2001 for
aggregate cash consideration of $24.8 million, including $3.7 million released
from the deposit escrow. The leases for the remaining 128 towers contemplated in
the original agreement were not closed. As a result, the remaining $6.8 million
escrow deposit was returned to the Company on the date of the final closing. In
March 2001, the Company agreed to amend the agreement with AirTouch and extend
the opportunity to sublease the remaining 128 towers through the second quarter
of 2001. The Company cannot predict the timing of any additional closings and
there can be no assurance that the Company will lease any additional towers from
AirTouch.
SBC transaction -- On August 25, 2000, the Company entered into an
agreement to acquire leasehold and sub-leasehold interests in approximately
3,900 wireless communications towers from affiliates of SBC Communications in
exchange for $982.7 million in cash and approximately 14.3 million shares of
common stock, subject to adjustment, valued at $325.0 million. The Company will
manage, maintain and lease available space on the SBC towers and will have the
right to co-locate tenants on the towers. SBC is an anchor tenant on all of the
towers and will pay a monthly fee per tower of $1,400, subject to an annual
adjustment. In addition, the Company entered into a five-year exclusive
build-to-suit agreement with SBC under which it will develop and construct
substantially all of SBC's new towers during the term of the agreement. The SBC
transaction will close in stages. The initial closing occurred on December 14,
2000 and involved 739 towers, for which the Company paid $175.0 million in cash
and issued 2.5 million shares of common stock valued at $57.9 million. In the
three months ended March 31, 2001, the Company subleased an additional 632
towers, for which the Company paid $161.9 million in cash and issued 2.4 million
shares of common stock valued at $53.5 million.
3. FINANCING TRANSACTIONS
CREDIT FACILITY
In connection with the acquisition of communications towers from Nextel
Communications, Inc. in April 1999, SpectraSite Communications, Inc.
("Communications"), a wholly-owned subsidiary of SpectraSite, entered into a
$500.0 million credit facility. In February 2001, Communications amended and
restated its credit facility to, among other things, provide for an aggregate
borrowing capacity of up to $1.3 billion, subject to certain conditions. The
amended and restated credit facility consists of a $350.0 million revolving
credit facility of which $50.0 million may be drawn, subject to the satisfaction
of certain financial covenants, at any time prior to the earlier of February 22,
2002 or the date on which at least 50% of the multiple draw term loan has been
funded, and, after that date, the entire $350.0 million may be drawn, subject to
the satisfaction of certain financial covenants, at any time prior to June 30,
2007, at which time all amounts drawn under the
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
revolving credit facility must be paid in full; a $500.0 million multiple draw
term loan that may be drawn, subject to the satisfaction of certain financial
covenants, at any time through August 22, 2002, of which the amount drawn must
be repaid in quarterly installments beginning on September 30, 2003 and ending
on June 30, 2007; and a $450.0 million term loan that was drawn in full in
February 2001 which will, from September 30, 2003 through June 30, 2007,
amortize at a rate of .25% per quarter and be payable in quarterly installments
and, from July 1, 2007 through December 31, 2007, amortize at a rate of 48% per
quarter and be payable on September 30, 2007 and December 31, 2007.
Communications has $500.0 million outstanding under the credit facility at March
31, 2001.
The revolving credit loans and the multiple draw term loans will bear
interest, at Communications' option, at either Canadian Imperial Bank of
Commerce's base rate plus an initial applicable margin of 1.5% per annum, which
margin may, after a period of time, decrease based on a leverage ratio, or the
Eurodollar rate plus an initial applicable margin of 2.75% per annum, which
margin may, after a period of time, decrease based on a leverage ratio.
The term loan bears interest, at Communications' option, at either
Canadian Imperial Bank of Commerce's base rate plus 2.25% per annum, which
margin may, after a period of time, decrease based on a leverage ratio, or the
Eurodollar rate plus 3.50% per annum, which margin may, after a period of time,
decrease based on a leverage ratio.
Communications will be required to pay a commitment fee of between
1.375% and 0.500% per annum in respect of the undrawn portions of the multiple
draw term loan and the revolving credit facility, depending on the respective
undrawn amounts. Communications may be required to prepay the amended and
restated credit facility in part upon the occurrence of certain events, such as
a sale of assets, the incurrence of certain additional indebtedness, the
termination of the SBC transaction or the generation of excess cashflow.
SpectraSite and each of Communications' domestic subsidiaries have
guaranteed the obligations under the amended and restated credit facility. The
credit facility is further secured by substantially all the tangible and
intangible assets of Communications and its domestic subsidiaries and a pledge
of all of the capital stock of Communications and its domestic subsidiaries and
66% of the capital stock of Communications' foreign subsidiaries.
The amended and restated credit facility contains a number of covenants
that, among other things, restrict Communications' ability to incur additional
indebtedness; create liens on assets; make investments or acquisitions or engage
in mergers or consolidations; dispose of assets; enter into new lines of
business; engage in certain transactions with affiliates; and pay dividends or
make capital distributions. Communications, however, is permitted to pay
dividends for the purpose of paying interest on the senior notes, senior
convertible notes and senior discount notes so long as no default under the
credit facility then exists or would exist after giving effect to such payment.
In addition, the amended and restated credit facility requires compliance with
certain financial covenants, including a requirement that Communications and its
subsidiaries, on a consolidated basis, maintain a maximum ratio of total debt to
annualized EBITDA, a minimum interest coverage ratio and a minimum fixed charge
coverage ratio.
CAPITAL LEASE
In February 2001, the Company entered into a capital lease for a
building adjacent to its corporate headquarters. The building and capital lease
obligation at inception was $10.6 million. At March 31, 2001, the current
portion of the capital lease obligation of $1.2 million is included in accrued
and other expenses. The long-term portion of the capital lease obligation of
$10.4 million is included in other long-term liabilities.
4. BUSINESS SEGMENTS
The Company operates in two business segments, site leasing and network
services. Prior period information has been restated to reflect the current
business segments. The site leasing segment provides for leasing and subleasing
of antenna sites on multi-tenant towers for a diverse range of wireless
communication services, including personal communication services, paging,
cellular and microwave. The network services segment offers a broad range of
network development services, including network design, tower construction and
antenna installation.
In evaluating financial performance, management focuses on operating
profit (loss), excluding depreciation and amortization and restructuring
charges. This measure of operating profit (loss) is also before interest income,
interest expense, other income (expense) and income taxes. All reported segment
revenues are generated from external customers as intersegment revenues are not
significant.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information concerning the reportable segments as
of and for the three months ended March 31, 2001 and 2000 is shown in the
following table. The "Other" column represents amounts excluded from specific
segments, such as income taxes, corporate general and administrative expenses,
depreciation and amortization, restructuring and other non-recurring charges and
interest. In addition, "Other" also includes corporate assets such as cash and
cash equivalents, tangible and intangible assets and income tax accounts which
have not been allocated to a specific segment.
Network
Site Leasing Services Other Total
----------- ----------- ----------- -----------
(in thousands)
Three months ended March 31,
- ----------------------------
2001
Revenues ............................ $ 46,388 $ 60,875 $ -- $ 107,263
Income (loss) before income taxes ... 25,403 10,442 (99,355) (63,510)
Assets .............................. 1,933,992 136,328 1,322,769 3,393,089
2000
Revenues ............................ $ 20,284 $ 54,953 $ -- $ 75,237
Income (loss) before income taxes ... 9,549 5,892 (47,418) (31,977)
Assets .............................. 872,996 76,061 1,253,931 2,202,988
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This discussion contains forward-looking statements, including
statements concerning possible or assumed future results of operations. You
should understand that the factors described below, in addition to those
discussed elsewhere, could affect our future results and could cause those
results to differ materially from those expressed in such forward-looking
statements. These factors include:
- material adverse changes in economic conditions in the markets we serve;
- future regulatory actions and conditions in our operating areas;
- competition from others in the communications tower industry;
- the integration of our operations with those of businesses we have acquired
or may acquire in the future and the realization of the expected benefits;
and
- other risks and uncertainties as may be detailed from time to time in our
public announcements and SEC filings.
We are one of the largest wireless tower operators in the United States
and a leading provider of outsourced network services to the wireless
communications and broadcast industries in the United States and Canada. Our
businesses include the ownership and leasing of antenna sites on towers,
managing rooftop and in-building telecommunications access on commercial real
estate, network planning and deployment and construction of towers and related
facilities. As of March 31, 2001, we owned or operated 5,982 towers as compared
to 5,030 towers at December 31, 2000. We also own 50% of SpectraSite-Transco
Communications, Ltd., a joint venture with Lattice Group plc, the former arm of
BG Group plc that operates Britain's natural gas distribution network.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THE RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 2000.
Consolidated revenues for the three months ended March 31, 2001 were
$107.3 million, an increase of $32.0 million from the three months ended March
31, 2000. Revenues from site leasing increased to $46.4 million for the three
months ended March 31, 2001 from $20.3 million for the three months ended March
31, 2000, primarily as a result of revenues derived from towers acquired or
built from March 31, 2000 to March 31, 2001. We owned or operated 5,982
communications towers at March 31, 2001 compared to 3,070 communications towers
at March 31, 2000. The remaining factor contributing to the increase is
incremental revenue in 2001 from new co-location tenants on towers that were
part of our portfolio on March 31, 2000.
Revenues from network services increased to $60.9 million for the three
months ended March 31, 2001 compared to $55.0 million in the three months ended
March 31, 2000, primarily as a result of revenue generated from acquisitions in
2000 and increased demand in existing services.
Costs of operations increased to $67.0 million for the three months
ended March 31, 2001 from $50.3 million for the three months ended March 31,
2000. Costs of operations for site leasing as a percentage of site leasing
revenues decreased to 39.1% for the three months ended March 31, 2001 from 45.4%
for the three months ended March 31, 2000 primarily due to revenues generated
from the acquisition of towers from Nextel and co-location revenues on those
towers. As our site leasing operations mature, additional tenants on a tower
will generate decreases in costs of operations for site leasing as a percentage
of site leasing revenues and increases in cash flow because a significant
proportion of tower operating costs are fixed and do not increase with
additional tenants. Costs of operations for network services as a percentage of
network services revenues increased to 80.3% for the three months ended March
31, 2001 from 74.8% for the three months ended March 31, 2000. This increase is
due to costs associated with the opening of construction offices in regions
where there are clusters of SBC towers, weather related costs and delayed
customer capital expenditures.
Selling, general and administrative expenses increased to $21.2 million
for the three months ended March 31, 2001 from $15.6 million for the three
months ended March 31, 2000. The increase is a result of expenses related to
additional corporate overhead and field operations to manage and operate the
growth in our ongoing activities. Selling, general and
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administrative expenses as a percentage of revenues decreased to 19.8% for the
three months ended March 31, 2001 from 20.8% for the three months ended March
31, 2000.
Depreciation and amortization expense increased to $36.7 million for the
three months ended March 31, 2001 from $19.9 million for the three months ended
March 31, 2000 primarily as a result of the increased depreciation from the
towers we have acquired or constructed and amortization of goodwill related to
acquisitions.
Net interest expense increased to $38.3 million during the three months
ended March 31, 2001 from $20.8 million for the three months ended March 31,
2000, reflecting additional interest expense due to the issuance of our 12.875%
senior discount notes due 2010 and 10.75% senior notes due 2010 in March 2000,
our 6.75% senior convertible notes due 2010 in November 2000 and our 12.5%
senior notes due 2010 in December 2000, as well as $300 million in additional
borrowings under our credit facility in February 2001.
Other income (expense) was an expense of $7.0 million in the three
months ended March 31, 2001. Of this amount, $6.4 million related to losses from
investments in affiliates accounted for under the equity method, primarily the
investment in SpectraSite-Transco Communications, Ltd. Other income (expense)
was an expense of $0.2 million in the three months ended March 31, 2000
primarily due to a loss of $0.3 million from investments in an affiliate
accounted for under the equity method.
LIQUIDITY AND CAPITAL RESOURCES
SpectraSite Holdings is a holding company whose only significant asset
is the outstanding capital stock of its subsidiaries, SpectraSite Communications
and SpectraSite International. Our only source of cash to pay interest on and
principal of our debt is distributions from SpectraSite Communications and
SpectraSite International. Prior to July 15, 2003, interest expense on the 12%
senior discount notes due 2008 will consist solely of non-cash accretion of an
original issue discount and the notes will not require annual cash interest
payments. After such time, the 12% senior discount notes due 2008 will have
accreted to approximately $225.2 million and will require semi-annual cash
interest payments of $13.5 million. In addition, the notes mature on July 15,
2008. The 11 1/4% senior discount notes due 2009 will not require cash interest
payments prior to October 15, 2004 and mature on April 15, 2009. On April 15,
2004, the 11 1/4% senior discount notes due 2009 will have accreted to $586.8
million and will require semi-annual cash interest payments of $33.0 million.
The 12 7/8% senior discount notes due 2010 will not require cash interest
payments prior to October 15, 2005, and mature March 15, 2010. On March 15,
2005, the 12 7/8% senior discount notes due 2010 will have accreted to $559.8
million and will require semi-annual cash interest payments of $36.0 million.
The 10 3/4% senior notes due 2010 require semi-annual cash interest payments of
$10.75 million and mature March 15, 2010. The 6 3/4% convertible notes require
semi-annual cash interest payments of $6.75 million and mature on November 15,
2010. The 12 1/2% senior notes due 2010 require semi-annual cash interest
payments of $12.5 million and mature on November 15, 2010. Furthermore, our
credit facility provides for periodic principal and interest payments.
We currently have $500.0 million outstanding and $800.0 million
available under our credit facility to fund new tower construction and
acquisition activity. The weighted average interest rate on outstanding
borrowings under our credit facility as of March 31, 2001 was 8.68%. The
facility also requires compliance with certain financial covenants. At March 31,
2001, we were in compliance with these covenants. In addition, our cash and cash
equivalents were $547.9 million at March 31, 2001.
Our ability to fund capital expenditures, make scheduled payments of
principal of, or to pay interest on, our debt obligations, and our ability to
refinance any such debt obligations, 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. Our business strategy contemplates substantial capital expenditures,
primarily to fund the construction and acquisition of additional communications
towers. We believe that cash flow from operations, available cash on hand and
anticipated available borrowings under our credit facility will be sufficient to
fund capital expenditures for the foreseeable future. However, if we make
additional acquisitions or pursue other opportunities or if our estimates prove
inaccurate, we may seek additional sources of debt or equity or reduce the scope
of tower construction and acquisition activity. We cannot assure you that we
will generate sufficient cash flow from operations, or that future borrowings or
equity financing will be available, on terms acceptable to us, in amounts
sufficient to service our indebtedness and make anticipated capital
expenditures.
Cash Flows
For the three months ended March 31, 2001, cash flows provided by
operating activities were $10.6 million compared to cash flows used in operating
activities of $15.1 million for the three months ended March 31, 2000. The
change is primarily attributable to decreased accounts receivable and the
favorable cash flow generated from acquisitions completed in 2000.
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For the three months ended March 31, 2001, cash flows used in investing
activities were $299.0 million compared to cash flows used in investing
activities of $128.4 million for the three months ended March 31, 2000. In the
three months ended March 31, 2001, SpectraSite invested $301.8 million to
purchase property and equipment, primarily related to the acquisition of
communications towers. In the three months ended March 31, 2000, SpectraSite
invested $113.5 million to purchase property and equipment and for deposits on
future acquisitions, primarily related to the acquisition of communications
towers. In addition, we used $14.5 million to acquire Apex, Vertical Properties
and International Towers in January 2000.
In the three months ended March 31, 2001, cash flows provided by
financing activities were $283.6 million as compared to $902.6 million in the
three months ended March 31, 2000. In the three months ended March 31, 2001,
cash flows provided by financing activities consisted primarily of $300.0
million of borrowings under our amended credit facility partially offset by
$19.5 million of debt issuance costs. In the three months ended March 31, 2000,
cash flows provided by financing activities were attributable to the proceeds
from the issuance of common stock, the 11 1/4% discount notes due 2010 and the
10 3/4% senior notes due 2010.
Acquisition Activities
AirTouch transaction -- On February 16, 2000, we entered into an
agreement with AirTouch Communications (now Verizon Wireless) and several of its
affiliates, under which we agreed to lease or sublease approximately 430
communications towers located throughout southern California for $155.0 million,
subject to adjustment. As partial security for obligations under the agreement
to sublease, we deposited $23.0 million into escrow. Under the terms of the
agreement, we will manage, maintain and lease the available space on the
AirTouch towers covered by the agreement. AirTouch will pay a monthly fee per
site for its cellular, microwave and paging facilities. We also have the right
to lease available tower space to co-location tenants in specified situations.
In addition, we entered into a three-year exclusive build-to-suit agreement with
AirTouch in southern California. Under the terms of the build-to-suit agreement,
we will develop and construct locations for wireless communications towers on
real property designated by AirTouch.
The AirTouch transaction closed in stages with the initial closing
occurring on August 15, 2000 and the final closing under the original agreement
occurring on February 15, 2001. At each respective closing, we paid for the
towers included in that closing according to a formula contained in the master
sublease. During 2000, we subleased 233 towers for aggregate cash consideration
of $83.9 million, including $12.5 million released from the deposit escrow. The
final closing of 69 towers occurred on February 15, 2001 for aggregate cash
consideration of $24.8 million, including $3.7 million released from the deposit
escrow. The leases for the remaining 128 towers contemplated in the original
agreement were not closed. As a result, the remaining $6.8 million escrow
deposit was returned to us. In March 2001, we agreed to amend the agreement with
AirTouch and extend the opportunity to sublease the remaining 128 towers through
the second quarter of 2001. We cannot predict the timing of any additional
closings and there can be no assurance that we will lease any additional towers
from AirTouch.
SBC transaction -- On August 25, 2000, we entered into an agreement to
acquire leasehold and sub-leasehold interests in approximately 3,900 wireless
communications towers from affiliates of SBC Communications in exchange for
$982.7 million in cash and approximately 14.3 million shares of common stock,
subject to adjustment, valued at $325.0 million. We will manage, maintain and
lease available space on the SBC towers and will have the right to co-locate
tenants on the towers. SBC is an anchor tenant on all of the towers and will pay
a monthly fee per tower of $1,400, subject to an annual adjustment. In addition,
we entered into a five-year exclusive build-to-suit agreement with SBC under
which we will develop and construct substantially all of SBC's new towers during
the term of the agreement. The SBC transaction will close in stages. The initial
closing occurred on December 14, 2000 and involved 739 towers, for which we paid
$175.0 million in cash and issued 2.5 million shares of common stock. In the
three months ended March 31, 2001, we subleased an additional 632 towers, for
which we paid $161.9 million in cash and issued 2.4 million shares of common
stock. In April 2001, we subleased an additional 304 towers, for which we paid
$79.3 million in cash and issued 6.1 million shares of common stock.
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ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use financial instruments, including fixed and variable rate debt, to
finance our operations. The information below summarizes our market risks
associated with debt obligations outstanding as of March 31, 2001. The following
table presents principal cash flows and related weighted average interest rates
by fiscal year of maturity. Variable interest rate obligations under our credit
facility are not included in the table. We have no long-term variable interest
obligations other than borrowings under our credit facility.
Expected Maturity Date
-------------------------------------------------------------------------------
2001 2002 2003 2004 2005 Thereafter Total
-------- -------- -------- -------- ------- ---------- -----------
(dollars in thousands)
Long-term obligations:
Fixed rate............... $ -- $ -- $ -- $ -- $ -- $1,534,884 $1,534,884
Average interest rate.... -- -- -- -- -- 11.21% 11.21%
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In the first quarter of 2001, we issued approximately 2.4 million shares
of unregistered common stock and paid approximately $161.9 million in cash to
affiliates of SBC Communications in exchange for leasehold and subleasehold
interests in an aggregate of 632 wireless communications towers. The issuance of
these securities was deemed to be exempt from registration under the Securities
Act of 1933, in reliance on Section 4(2) of the Securities Act, as a transaction
by an issuer not involving a public offering. SBC represented its intention to
acquire the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the instruments representing such securities. SBC had adequate access to
information about SpectraSite.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement to Sublease, dated as of August 25, 2000 (the "SBC
Agreement"), by and among SBC Wireless, Inc., for itself and on behalf
of the Sublessor Entities, SpectraSite Holdings, Inc. (the "Registrant")
and Southern Towers, Inc. (incorporated by reference to exhibit 10.1 to
the Registrant's report on Form 8-K dated August 25, 2000 and filed
August 31, 2000).
2.2 Amendment No. 1 to the SBC Agreement, dated as of December 14, 2000.
(incorporated by reference to exhibit no. 2.8 to the registration
statement on Form S-3 of the Registrant, file no. 333-45728).
2.3 Agreement to Sublease, dated as of February 16, 2000, by and between
AirTouch Communications, Inc. and the other parties named therein as
Sublessors, California Tower, Inc. and the Registrant (the "AirTouch
Agreement"). (incorporated by reference to exhibit no. 2.9 to the
Registrant's Form 10-K for the year ended December 31, 1999).
2.4 Amendment to the Airtouch Agreement, dated as of March 8, 2001.
3.1 Second Amended and Restated Certificate of Incorporation (incorporated
by reference to exhibit 3.1 to the amended registration statement on
Form 8-A/A of the Registrant as filed on December 12, 2000).
3.2 Amended Bylaws (incorporated by reference to exhibit 3.8 to the
registration statement on Form S-1 of the Registrant, file no.
333-93873).
4.1 Third Amended and Restated Stockholders' Agreement, dated as of April
20, 1999 (incorporated by reference to exhibit no. 10.6 to the
registration statement on Form S-4 of the Registrant, file no.
333-67043).
4.2 Amendment No. 1 to the Third Amended and Restated Stockholders'
Agreement, dated as of November 20, 2000 (incorporated by reference to
exhibit 4.6 of the Registrant's report on Form 8-K, dated November 20,
2000 and filed November 22, 2000).
4.3 Amendment No. 2 to the Third Amended and Restated Stockholders'
Agreement, dated as of December 14, 2000. (incorporated by reference to
exhibit no. 4.15 to the registration statement on Form S-3 of the
Registrant, file no. 333-45728).
4.4 Amendment No. 3 to the Third Amended and Restated Stockholders'
Agreement, dated as of March 31, 2001.
10.1 Employment Agreement with Douglas A. Standley.
10.2 Lease and Sublease, dated as of December 14, 2000, by and among SBC
Tower Holdings LLC, for itself and as agent for certain affiliates of
SBC, Southern Towers, Inc. and SBC Wireless, LLC ("SBCW") and the
Registrant, as guarantors.
10.3 Agreement to Build to Suit (the "Build to Suit Agreement"), dated as of
December 14, 2000, by and among SBCW, for itself and as agent for
certain of its affiliates, the Registrant and SpectraSite
Communications, Inc. ("Communications").
10.4 Amendment No. 1 to the Build to Suit Agreement, dated as of January 31,
2001, by and among SBCW, for itself and as agent for the SBCW
affiliates, the Registrant and Communications.
10.5 Credit Agreement, dated as of February 22, 2001, by and among
Communications, as Borrower; the Registrant, as a Guarantor; CIBC World
Markets Corp. and Credit Suisse First Boston, as Joint Lead Arrangers
and Bookrunners; CIBC World Markets Corp., Credit Suisse First Boston,
Bank Of Montreal, Chicago Branch and TD Securities (USA) Inc., as
Arrangers; Credit Suisse First Boston, as Syndication Agent; Bank Of
Montreal, Chicago Branch and TD Securities (USA) Inc., as
Co-Documentation Agents; Canadian Imperial Bank Of Commerce, as
Administrative Agent and Collateral Agent; and other credit parties
party thereto. (incorporated by reference to exhibit no. 10.6 to the
Registrant's Form 10-K for the year ended December 31, 2000).
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(b) Reports on Form 8-K
An Item 5 report on Form 8-K, dated January 16, 2001, was filed on
January 29, 2001 to announce (i) certain operating statistics for the
fourth quarter of 2000, (ii) that SpectraSite's European joint venture
had purchased 19% of the share capital of Paris-based telecommunications
network development company SOFRER S.A., and (iii) the completion of
SpectraSite's private offering of its 12 1/2% senior notes due 2010 as
well as the commencement of its exchange offer to exchange the 12 1/2%
senior notes due 2010 for registered Series B 12 1/2% senior notes due
2010.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of the 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 2001 SPECTRASITE HOLDINGS, INC.
(Registrant)
/s/DAVID P. TOMICK
------------------------------------------------
David P. Tomick
Executive Vice President, Chief Financial
Officer and Secretary
/s/DANIEL I. HUNT
------------------------------------------------
Daniel I. Hunt
Vice President- Finance and Administration,
Principal Accounting Officer
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