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, 2000
[ ] 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 56-3027322
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
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 April 30, 2000, the registrant had only one outstanding class of common
stock, of which there were 123,258,014 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, 2000 (unaudited) and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations
for the three months ended March 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statement
of Shareholders' Equity for the three months
ended March 31, 2000 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2000 and 1999 6
Notes to the Unaudited Condensed 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 15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 16
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 16
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16
ITEM 5 - OTHER INFORMATION 16
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
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3
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
At March 31, 2000 and December 31, 1999
(dollars in thousands)
March 31, December 31,
2000 1999
--------------- ---------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 796,908 $ 37,778
Accounts receivable, net of allowance
of $1,936 and $1,530 52,249 31,785
Costs and estimated earnings in excess of billings 12,535 11,545
Inventories 5,438 4,083
Prepaid expenses and other 4,315 4,353
--------------- ---------------
Total current assets 871,445 89,544
Property and equipment, net 852,439 763,757
Goodwill and other intangible assets, net 402,774 307,197
Other assets 76,330 59,455
--------------- ---------------
Total assets $ 2,202,988 $ 1,219,953
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,745 $ 21,230
Accrued and other expenses 22,909 16,942
Billings in excess of costs and estimated earnings 7,628 5,247
--------------- ---------------
Total current liabilities 52,282 43,419
Long-term debt 202,427 202,527
Senior discount notes 832,594 516,251
Senior notes 200,000 --
--------------- ---------------
Total liabilities 1,287,303 762,197
--------------- ---------------
Shareholders' equity:
Convertible preferred stock (Series A, B and C) -- 339,494
Common stock ($.001 par value, 300,000,000 shares
authorized and 123,179,486 and 20,191,604 issued and
outstanding at March 31, 2000 and December 31, 1999) 123 20
Additional paid-in-capital 1,060,514 230,546
Accumulated other comprehensive income 39 192
Accumulated deficit (144,991) (112,496)
--------------- ---------------
Total shareholders' equity 915,685 457,756
--------------- ---------------
Total liabilities and shareholders' equity $ 2,202,988 $ 1,219,953
=============== ===============
See accompanying notes to these financials
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2000 and 1999
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
--------------- ---------------
Revenues:
Site leasing $ 20,284 $ 572
Network services 54,953 2,383
--------------- ---------------
Total revenues 75,237 2,955
--------------- ---------------
Operating Expenses:
Costs of operations, excluding
depreciation and amortization expense
Site leasing 9,210 354
Network services 41,080 550
Selling, general and administrative expenses 15,625 2,830
Depreciation and amortization expense 19,926 501
Non-cash compensation charges 376 --
Restructuring and non-recurring charges -- 600
--------------- ---------------
Total operating expenses 86,217 4,835
--------------- ---------------
Operating loss (10,980) (1,880)
--------------- ---------------
Other income (expense):
Interest income 3,452 1,268
Interest expense (24,204) (3,905)
Other income (expense) (245) --
--------------- ---------------
Total other income (expense) (20,997) (2,637)
--------------- ---------------
Loss before income taxes (31,977) (4,517)
Income tax expense 518 --
--------------- ---------------
Net loss $ (32,495) $ (4,517)
=============== ===============
Loss applicable to common shareholders:
Net loss $ (32,495) $ (4,517)
Accretion of redemption
value of preferred stock -- (760)
--------------- ---------------
Net loss applicable to common shareholders $ (32,495) $ (5,277)
=============== ===============
Net loss per common share (basic and diluted) $ (0.38) (5.51)
=============== ===============
Weighted average common
shares outstanding (basic and diluted) 85,277 957
=============== ===============
See accompanying notes to these financials
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF
SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2000
(dollars in thousands)
Convertible
Preferred Common Stock Additional Comprehensive
------------------------------------------ Paid-in Income
Stock Shares Amount Capital (Loss)
----------------------------------------------------------
Balance at December 31, 1999 $ 339,494 20,191,604 $ 20 $ 230,546
Net loss -- -- -- -- $ (32,495)
Foreign currency translation
adjustment -- -- -- -- (153)
----------
Total comprehensive loss $ (32,648)
==========
Issuance of common stock, net of
stock issuance costs of $24,475 -- 32,238,257 32 490,169
Non-cash compensation charges -- -- -- 376
Conversion of preferred stock to
common stock (339,494) 70,749,625 71 339,423
---------------------------------------------------------
Balance at March 31, 2000 $ -- 123,179,486 $ 123 $1,060,514
=========================================================
Accumulated
Other
Comprehensive Accumulated
Income Deficit Total
------------- ----------- ----------
Balance at December 31, 1999 $ 192 $ (112,496) $ 457,756
Net loss -- (32,495) $ (32,495)
Foreign currency translation
adjustment (153) -- (153)
Total comprehensive loss
Issuance of common stock, net of
stock issuance costs of $24,475 -- -- 490,201
Non-cash compensation charges -- -- 376
Conversion of preferred stock to
common stock -- -- --
---------- ---------- ----------
Balance at March 31, 2000 $ 39 $ (144,991) $ 915,685
========== ========== ==========
See accompanying notes to these financials
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months Ended March 31, 2000 and 1999
(dollars in thousands)
Three Months Three Months
Ended Ended
March 31, 2000 March 31, 1999
--------------- ---------------
OPERATING ACTIVITIES
Net loss $ (32,495) $ (4,517)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 13,858 501
Amortization of goodwill 6,068 154
Amortization of debt issuance costs 1,133 75
Amortization of senior discount notes 16,368 3,962
Non-cash compensation charges 376 --
Equity in net loss of affiliate 328 --
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (16,835) 209
Costs and estimated earnings in excess of billings (330) --
Inventories (418) --
Prepaid expenses and other 1,571 13
Accounts payable (1,702) (784)
Other current liabilities (2,986) 109
--------------- ---------------
Net cash used in operating activities (15,064) (278)
--------------- ---------------
INVESTING ACTIVITIES
Purchases of property and equipment (90,544) (3,373)
Deposits on asset purchases (23,000) --
Maturities of short term investments -- 15,414
Acquisitions, net of cash acquired (14,507) --
Other, net (350) 21
--------------- ---------------
Net cash provided by (used in)
investing activities (128,401) 12,062
--------------- ---------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock 443,075 --
Stock issuance costs (24,475) --
Repayments of debt (383) (3)
Proceeds from issuance of senior notes 200,000 --
Proceeds from issuance of senior discount notes 299,974 --
Debt issuance costs (15,596) (250)
--------------- ---------------
Net cash provided by (used in) financing activities 902,595 (253)
--------------- ---------------
Net increase in cash and cash equivalents 759,130 11,531
Cash and cash equivalents at beginning of period 37,778 99,548
--------------- ---------------
Cash and cash equivalents at end of period $ 796,908 $ 111,079
=============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 7,305 $ --
=============== ===============
Cash paid during the period for income taxes $ 370 $ --
=============== ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for acquisitions $ 71,667 $ --
=============== ===============
See accompanying notes to these financials
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED 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. 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, one customer, which is a
significant shareholder of the Company, accounted for 26.1% of revenues. In the
three months ended March 31, 1999, three different customers accounted for
57.4%, 14.5% and 14.2% of revenues, respectively.
RESTRUCTURING AND NON-RECURRING CHARGES
In March 1999, the Company announced that it would relocate its
marketing and administrative operations from Little Rock, Arkansas and
Birmingham, Alabama to its corporate headquarters in Cary, North Carolina. As a
result, the Company recorded a non-recurring charge of $0.6 million for
employee termination and other costs related to the relocation of these
activities.
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. 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
preferred stock and outstanding stock options. These potential common stock
equivalents were not included in diluted earnings per share for all
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
periods 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 1999 condensed
consolidated financial statements to conform to the 2000 presentation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133 requires that derivative instruments be recognized as
either assets or liabilities in the consolidated balance sheet based on their
fair values. Changes in the fair values of such derivative instruments will be
recorded either in results of operations or in other comprehensive income,
depending on the intended use of the derivative instrument. The initial
application of SFAS 133 will be reported as the effect of a change in
accounting principle. SFAS 133 is effective for all fiscal quarters beginning
after June 15, 2000. The Company has not yet determined the effect that the
adoption of SFAS 133 will have on its 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. LONG-LIVED ASSETS
Property and equipment consists of the following (in thousands):
March 31, December 31,
2000 1999
--------------- ---------------
Towers $ 792,249 723,075
Equipment 11,318 9,884
Furniture and fixtures 3,360 2,256
Other 22,882 15,240
--------------- ---------------
829,809 750,455
Less accumulated depreciation (46,695) (32,837)
--------------- ---------------
783,114 717,618
Construction in progress 69,325 46,139
--------------- ---------------
$ 852,439 $ 763,757
=============== ===============
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
Goodwill and other intangible assets consist of the following (in
thousands):
March 31, December 31,
2000 1999
--------------- ---------------
Goodwill $ 365,717 280,666
Debt issuance costs 49,549 33,955
Other 1,000 --
--------------- ---------------
416,266 314,621
Less accumulated amortization (13,492) (7,424)
--------------- ---------------
$ 402,774 $ 307,197
=============== ===============
Other assets consist of the following (in thousands):
March 31, December 31,
2000 1999
--------------- ---------------
Deposits $ 63,548 49,153
Other 12,782 10,302
--------------- ---------------
$ 76,330 $ 59,455
=============== ===============
3. ACQUISITION ACTIVITIES
On January 5, 2000, SpectraSite acquired Vertical Properties, Inc. in
a merger for 225,000 shares of its common stock valued at $2.6 million and
repaid outstanding indebtedness of $1.5 million. Vertical Properties was a
broadcast tower development company formed to meet the needs of broadcasters in
secondary broadcast markets faced with the complexities of converting to
digital technology through site acquisition, tower placement and leasing of
antenna space.
On January 5, 2000, SpectraSite acquired Apex Site Management
Holdings, Inc. ("Apex") in a merger transaction for 4.5 million shares of its
common stock valued at $55.8 million and 191,465 options to purchase common
stock at an exercise price of $3.58 per share to the shareholders of Apex at
the closing of the merger. In addition, SpectraSite issued approximately 1.5
million additional shares of common stock into escrow. These shares may be
released to Apex's shareholders on or about August 4, 2000 based on the average
trading price for SpectraSite's common stock for the 30-day period immediately
preceding such release. SpectraSite also used approximately $6.2 million in
cash to repay outstanding indebtedness and other obligations of Apex in
connection with the merger. Apex provides rooftop and in-building access to
wireless carriers.
On January 28, 2000, SpectraSite acquired substantially all of the
assets of International Towers Inc. and its subsidiaries, including S&W
Communications Inc. International Towers owned a broadcast tower manufacturing
facility and, through S&W Communications, provided integrated services for the
erection of broadcast towers, foundations and multi-tenant transmitter
buildings. SpectraSite paid $5.4 million and issued 350,000 shares of its
common stock valued at $7.1 million in connection with this acquisition.
On March 14, 2000, SpectraSite acquired substantially all of the
assets of TelCo Site Services, Inc. ("TelCo"), which provided network services.
SpectraSite issued 155,000 shares of common stock valued at $4.2 million in
connection with the acquisition.
The acquisitions of Vertical Properties, Apex, International Towers
and TelCo were accounted for as purchases, and the excess of cost over fair
value of the net assets acquired is being amortized on a straight-line basis
over 15 years. The operations of each are included in the consolidated
statement of operations from the date of acquisition.
The following unaudited pro forma summary for the three months ended
March 31, 2000 and 1999 presents the condensed consolidated results of
operations as if the 1999 acquisitions of Westower, Stainless and Doty-Moore
and the 2000 acquisitions discussed above had occurred as of January 1, 1999.
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what would have occurred had the
acquisitions been made as of January 1, 1999 or of results that may occur in
the future.
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SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS
Three months Three months
Ended Ended
March 31, March 31,
2000 1999
--------------- --------------
Revenues $ 76,139 $ 30,835
Net loss $ (33,747) $ (14,362)
Basic and diluted net loss
per common share $ (0.40) $ (0.74)
4. DEBT
12 7/8% SENIOR DISCOUNT NOTES DUE 2010
In March 2000, SpectraSite issued $559.8 million aggregate principal
amount at maturity of senior discount notes due 2010 (the "2010 Notes") for
gross proceeds of $300.0 million. Interest on the 2010 Notes accretes daily at
a rate of 12.875% per annum, compounded semiannually, to an aggregate principal
amount of $559.8 million on March 15, 2005. Cash interest will not accrue on
the 2010 Notes prior to March 15, 2005. Commencing March 15, 2005, cash
interest will accrue and be payable semiannually in arrears on each March 15
and September 15, commencing September 15, 2005, at a rate of 12.875% per
annum. After March 15, 2005, the Company may redeem all or a portion of the
2010 Notes at specified redemption prices, plus accrued and unpaid interest. On
one or more occasions prior to March 15, 2003, the Company may redeem up to 35%
of the aggregate principal amount at maturity of the 2010 Notes with the net
cash proceeds from one or more equity offerings. The redemption price would be
112.875% of the accreted value on the redemption date. The Company is required
to comply with certain covenants under the terms of the 2010 Notes that
restrict the Company's ability to incur additional indebtedness and make
certain payments, among other things.
10 3/4% SENIOR NOTES DUE 2010
In March 2000, SpectraSite issued $200.0 million aggregate principal
amount of senior discount notes due 2010 (the "Cash Notes"). The Cash Notes
bear interest at a rate of 10.75% per annum, payable semi-annually in arrears
on March 15 and September 15, commencing September 15, 2000. After March 15,
2005, the Company may redeem all or a portion of the Cash Notes at specified
prices, plus accrued interest. On one or more occasions prior to March 15,
2003, the Company may redeem up to 35% of the Cash Notes with the net cash
proceeds from one or more equity offerings. The redemption price would be
110.75% of the principal amount of the Cash Notes bought, plus accrued
interest. The Company is required to comply with certain covenants under the
terms of the Cash Notes that restrict the Company's ability to incur additional
indebtedness and make certain payments, among other things.
5. SHAREHOLDERS' EQUITY
On February 4, 2000, SpectraSite completed an underwritten public
offering of 25.6 million shares of common stock for net proceeds of
approximately $411.3 million. As a result of the offering, all Series A, B and
C preferred stock automatically converted to common stock on a share-for-share
basis.
6. 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 antennae 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 FINANCIAL STATEMENTS
Summarized financial information concerning the reportable segments as
of and for the three months ended March 31, 2000 and 1999 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, 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
1999
Revenues $ 572 $ 2,383 $ -- $ 2,955
Income (loss) before income taxes 218 1,833 (6,568) (4,517)
Assets 25,367 -- 135,345 160,712
7. SUBSEQUENT EVENTS
On February 17, 2000, the Company signed a definitive agreement with
AirTouch Communications, Inc. to obtain the rights to approximately 430 towers
through a master sublease for approximately $155 million. The transaction is
expected to close in stages with the initial closing to occur no later than
November 15, 2000, if certain conditions are met.
On April 7, 2000, the Company acquired Ample Design, Ltd. for
approximately $20.2 million. Ample Design provided wireless network development
services in the United Kingdom.
On April 12, 2000, the Company entered into an agreement to acquire
Lodestar Towers, Inc. for approximately $170.0 million. Lodestar owns and
operates 90 wireless towers and 10 broadcast towers, and manages an additional
139 wireless towers and 10 broadcast towers. Lodestar is also in the process of
acquiring 27 multi-tenant towers and developing approximately 200 wireless
towers. The acquisition is expected to close in the second quarter of 2000,
subject to customary regulatory approvals.
On April 13, 2000, the Company entered into a joint venture
shareholders' agreement, pursuant to which the Company and Transco, the arm of
BG Group plc which runs Britains' gas network, will jointly develop a tower
business to support Europe's mobile communications industry. The Company and
Transco will each own 50% of the joint venture. Transco will transfer existing
operational communications towers and industrial land suitable for construction
of new towers into the joint venture, and the Company will provide intellectual
property and wireless network development skills. In addition, the Company will
contribute approximately $165.0 million for future network development and
possible acquisitions and will contribute Ample Design to the joint venture.
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ITEM 2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
This report contains "forward looking statements" concerning our
future expectations, plans or strategies that involve risks and uncertainties.
When we use the words or phrases "will likely result," "management expects" or
"will continue," "is anticipated," "estimated" or similar expressions
(including oral confirmations by our authorized executive officers), these
statements are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. Readers are
cautioned not to place undue reliance on any such forward-looking statements,
each of which speaks only as of the date made. Such statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. Factors that could impact our expectations include (i) substantial
capital requirements and leverage principally as a consequence of our ongoing
acquisition and construction activities, (ii) dependence on demand for wireless
communications services, (iii) the success of our network development and tower
construction programs, and (iv) the successful integration of assets and
businesses we have acquired. We have no obligation to release publicly the
result of any revisions, which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after
the date of such statements.
BUSINESS OVERVIEW
SpectraSite's primary focus is on the ownership of multi-tenant towers
and leasing of antenna space on such towers. As of March 31, 2000, we had 3,070
towers in service, as compared to 2,765 towers at December 31, 1999.
Historically, we have derived most of our revenues from network
services activities. As a result of recent acquisitions, principally the Nextel
and Westower transactions, we expect that network services and antenna site
leasing will generate most of our revenues. We believe that our site leasing
business will continue to represent a substantial portion of our revenues and
will continue to grow as we increase our network of towers.
Our two largest expense line items have been depreciation and
amortization and selling, general and administrative expense. Depreciation
expense primarily relates to our towers, which we depreciate over 15 years. In
2000, amortization expense is primarily due to goodwill associated with the
acquisitions of Westower, Stainless, Doty Moore, Apex and International Towers.
We experienced a significant increase in selling, general and administrative
expense in 2000 as we integrated Westower's operations and increased our
employee base to market and manage the 2,000 Nextel towers and build towers for
Nextel under the master site commitment agreement.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1999.
Consolidated revenues for the three months ended March 31, 2000 were
$75.2 million, an increase of $72.3 million from the three months ended March
31, 1999. Revenues from site leasing increased to $20.3 million for the three
months ended March 31, 2000 from $0.6 million for the three months ended March
31, 1999 primarily as a result of revenues derived from 2,000 communications
towers which we acquired from Nextel in April 1999. We owned 3,070
communications towers at March 31, 2000 compared to 125 communications towers
at March 31, 1999.
Revenues from network services increased to $55.0 million for the
three months ended March 31, 2000 compared to $2.4 million in the three months
ended March 31, 1999 primarily as a result of the acquisitions of Westower,
Stainless, Doty-Moore and International Towers.
Costs of operations increased to $50.3 million for the three months
ended March 31, 2000 from $0.9 million for the three months ended March 31,
1999. The increase in costs was primarily attributable to operating costs of
the 2,000 communications towers purchased from Nextel and to the acquisitions
of Westower, Stainless, Doty-Moore and International Towers. Costs of
operations for site leasing as a percentage of site leasing revenues decreased
to 45.4% for the three months ended March 31, 2000 from 61.9% for the three
months ended March 31, 1999 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
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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 74.8% for the three months ended March 31, 2000 from 23.1% for the
three months ended March 31, 1999. This increase is due to construction
activities associated with the operations of Westower, Stainless, Doty-Moore
and International Towers which have higher levels of direct costs than
historical site acquisition activities.
Selling, general and administrative expenses increased to $15.6
million for the three months ended March 31, 2000 from $2.8 million for the
three months ended March 31, 1999. The increase is a result of expenses related
to additional corporate overhead and field operations to manage and operate the
growth in the ongoing activities of SpectraSite and the acquisitions of
Westower, Stainless, Doty-Moore, International Towers and Apex.
Depreciation and amortization expense increased to $19.9 million for
the three months ended March 31, 2000 from $0.5 million for the three months
ended March 31, 1999 primarily as a result of the increased depreciation from
the towers we have acquired or constructed and amortization of goodwill related
to acquisitions.
For the three months ended March 31, 2000, we recorded non-cash
compensation charges of $0.4 million related to the issuance of stock options
and restricted shares issued to employees. We did not incur non-cash
compensation charges in the quarter ended March 31, 1999.
In March 1999, we announced that we would relocate our marketing and
administrative operations from Little Rock, Arkansas and Birmingham, Alabama to
our corporate headquarters in Cary, North Carolina. As a result, we recorded a
non-recurring charge of $0.6 million for employee termination and other costs
related to the relocation of these activities.
As a result of the factors discussed above, our loss from operations
was $11.0 million for the three months ended March 31, 2000 compared to $1.9
million for the three months ended March 31, 1999.
Net interest expense increased to $20.8 million during the three
months ended March 31, 2000 from $2.6 million for the three months ended March
31, 1999, reflecting additional interest expense due to the issuance of 12%
senior discount notes due 2008 in June 1998, 11 1/4% senior discount notes due
2009 in April 1999, 12 7/8% senior discount notes due 2010 in March 2000 and 10
3/4% senior discount notes due 2010 in March 2000, as well as borrowings under
our credit facility.
LIQUIDITY AND CAPITAL RESOURCES
SpectraSite Holdings is a holding company whose only significant asset
is the outstanding capital stock of its subsidiary, SpectraSite Communications.
Our only source of cash to pay interest on and principal of our debt is
distributions from SpectraSite Communications. Prior to July 15, 2003, interest
expense on the 2008 notes 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 2008 notes 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. Similarly, the 2009
notes will not require cash interest payments prior to October 15, 2004 and
mature on April 15, 2009. On April 15, 2004, the 2009 notes will have accreted
to $586.8 million and will require semi-annual cash interest payments of $33.0
million. The 2010 discount notes will not require cash interest payments prior
to October 15, 2005, and mature March 15, 2010. On March 15, 2005, the 2010
discount notes will have accreted to $559.8 million and will require
semi-annual cash interest payments of $36.0 million. The 2010 cash notes
require semi-annual cash interest payments of $10.75 million and mature March
15, 2010. Furthermore, our credit facility provides for periodic principal and
interest payments.
We currently have $200.0 million outstanding and $300.0 million
available under our credit facility to fund new tower construction or
acquisition activity. The weighted average interest rate on outstanding
borrowings under our credit facility as of March 31, 2000 was 9.49%. The
facility also requires compliance with certain financial covenants. At March
31, 2000, we were in compliance with these covenants. In addition, our cash and
cash equivalents were $796.9 million at March 31, 2000.
For the three months ended March 31, 2000, cash flows used in
operating activities were $15.1 million as compared to $0.3 million for the
three months ended March 31, 1999. The change is primarily attributable to
increased accounts receivable partially offset by the favorable cash flow
generated from acquisitions completed in 1999.
For the three months ended March 31, 2000, cash flows used in
investing activities were $128.4 million compared to cash flows provided by
investing activities of $12.1 million for the three months ended March 31,
1999. In the three months
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ended March 31, 2000, SpectraSite invested $113.5 million in purchases of
property and equipment and deposits on future acquisitions, primarily related
to the acquisition of communications towers. In addition, we used $14.5 million
in connection with our acquisitions of Apex and Vertical Properties and the
acquisition of substantially all of the assets of International Towers in
January 2000. In the three months ended March 31, 1999, $15.4 million in
maturities of short-term investments were partially offset by $3.4 million in
purchases of property and equipment.
In the three months ended March 31, 2000, cash flows provided by
financing activities were $902.6 million as compared to cash flows used by
financing activities of $0.3 million in the three months ended March 31, 1999.
The increase in cash provided by financing activities was attributable to the
proceeds from the sales of common stock, the 2010 discount notes and the 2010
cash notes.
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, including the 2008 Notes, 2009 Notes, 2010
Notes and Cash Notes or to fund planned capital expenditures, will depend on
our future performance, which, to a certain extent is subject to general
economic, financial, competitive, legislative, regulatory and other factors
that are beyond our control. Our business strategy contemplates substantial
capital expenditures, primarily to fund the construction and acquisition of
additional communications towers. Management believes that cash flow from
operations, available cash and anticipated available borrowings under our
credit facility will be sufficient to fund capital expenditures and future
acquisitions for the foreseeable future. However, if acquisitions or other
opportunities present themselves more rapidly than we currently anticipate 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.
RECENT EVENTS
On February 17, 2000, the Company signed a definitive agreement with
AirTouch Communications, Inc. to obtain the rights to approximately 430 towers
through a master sublease for approximately $155 million. The transaction is
expected to close in stages with the initial closing to occur no later than
November 15, 2000, if certain conditions are met.
On April 7, 2000, we acquired Ample Design, Ltd. for approximately
$20.2 million. Ample Design provides wireless network development services in
the United Kingdom.
On April 12, 2000, we entered into an agreement to acquire Lodestar
Towers, Inc. for approximately $170.0 million. Lodestar owns and operates 90
wireless towers and 10 broadcast towers, and manages an additional 139
wireless towers and 10 broadcast towers. Lodestar is also in the process of
acquiring 27 multi-tenant towers and developing approximately 200 wireless
towers. This acquisition is expected to close in the second quarter of 2000,
subject to customary regulatory approvals.
On April 13, 2000, we entered into a joint venture shareholders'
agreement, pursuant to which SpectraSite and Transco (BG Group plc), the arm of
BG Group plc which runs Britains' gas network, will jointly develop a tower
business to support Europe's growing mobile communications industry.
SpectraSite and Transco will each own 50% of the joint venture. Transco will
transfer existing operational communications towers and industrial land
suitable for construction of new towers into the joint venture, and SpectraSite
will provide intellectual property and wireless network development skills. In
addition, SpectraSite will contribute funds for future developments and
possible acquisitions. We also plan to incorporate Ample Design into the joint
venture.
In March 2000, we completed the private offering of the 2010 discount
notes and the 2010 cash notes. In connection with this offering, we agreed to
register notes substantially identical to the privately placed notes for
exchange. The registration statement for this exchange offer was declared
effective by the Securities and Exchange Commission on May 1, 2000 and exchange
offer prospectuses were then promptly mailed to holders of the outstanding
notes. The exchange offer expires 5:00 p.m., New York City time, on June 1,
2000, unless extended. All outstanding notes validly tendered in the exchange
offer will be exchanged for registered notes. We will not receive any proceeds
from the exchange offer and will pay all expenses incident to the exchange
offer. The exchange agent for the exchange offer is United States Trust Company
of New York. This is not an offer to exchange or a solicitation of exchange,
such offers and solicitations can only be made by means of the exchange offer
prospectus.
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RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities". SFAS 133 requires that derivative instruments be recognized as
either assets or liabilities in the consolidated balance sheet based on their
fair values. Changes in the fair values of such derivative instruments will be
recorded either in results of operations or in other comprehensive income,
depending on the intended use of the derivative instrument. The initial
application of SFAS 133 will be reported as the effect of a change in
accounting principle. SFAS 133 is effective for all fiscal years beginning
after June 15, 2000. We have not yet determined the effect that the adoption of
SFAS 133 will have on our consolidated financial statements.
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, 2000. 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
---------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total
---------- ------------- ------------- ------------- ------------- ------------- ------------
(dollars in thousands)
Long-term obligations:
Fixed rate................. $ -- $ -- $ -- $ -- $ -- $1,032,594 $1,032,594
Average interest rate...... -- -- -- -- -- 11.74% 11.74%
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 5, 2000, SpectraSite Holdings issued 225,000 shares of
common stock to the stockholders of Vertical Properties, Inc. in connection
with the acquisition of Vertical Properties, Inc. Also on January 5, 2000,
SpectraSite Holdings issued 4,505,997 shares of common stock to the
stockholders of Apex Site Management Holdings, Inc. and 1,501,999 shares of
common stock into escrow in connection with the acquisition of Apex Site
Management Holdings, Inc. On March 14, 2000, SpectraSite Holdings issued
155,000 shares of common stock in connection with the acquisition of TelCo Site
Services, Inc. The issuance of these securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act or Regulation D promulgated under the Securities Act as
transactions by an issuer not involving a public offering. The recipients of
securities in each such transaction represented their intentions 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 issued in such transactions. All
recipients had adequate access to information about SpectraSite.
On February 4, 2000, SpectraSite Holdings completed an underwritten
public offering of common stock. In connection with consummation of this public
offering, each share of SpectraSite's outstanding Series A, Series B and Series
C preferred stock automatically converted into one share of common stock. As a
result, SpectraSite has no shares of preferred stock issued or outstanding.
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
3.1 Amended and Restated Certificate of Incorporation (incorporated by
reference to Exhibit 3.9 filed with the registration statement on Form
S-4 (File No. 333-67043) of SpectraSite Holdings, Inc.).
4.1 Indenture, dated as of June 26, 1998, between SpectraSite Holdings,
Inc. and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.1 filed with the registration
statement on Form S-4 (File No. 333-67043) of SpectraSite Holdings,
Inc.).
4.2 First Supplemental Indenture, dated as of March 25, 1999, between
SpectraSite Holdings, Inc. and United States Trust Company of New
York, as trustee (incorporated by reference to Exhibit 4.2 filed with
the registration statement on Form S-4 (File No. 333-67043) of
SpectraSite Holdings, Inc.).
4.3 Indenture, dated as of April 20, 1999, between SpectraSite Holdings,
Inc. and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.3 filed with the registration
statement on Form S-4 (File No. 333-67043) of SpectraSite Holdings,
Inc.).
4.4 Indenture, dated as of March 15, 2000, between SpectraSite Holdings,
Inc. and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.4 filed with the registration
statement on Form S-4 (File No. 333-35094) of SpectraSite Holdings,
Inc.).
4.5 Indenture, dated as of March 15, 2000, between SpectraSite Holdings,
Inc. and United States Trust Company of New York, as trustee
(incorporated by reference to Exhibit 4.5 filed with the registration
statement on Form S-4 (File No. 333-35094) of SpectraSite Holdings,
Inc.).
27.1 Financial Data Schedule for the three months ended March 31, 2000
(for SEC use only).
(b) Reports on Form 8-K
An Item 5 report on Form 8-K, dated December 30, 1999, was filed on
January 21, 2000 to report SpectraSite's acquisitions of Stainless, Inc.,
Doty-Moore Tower Services, Inc., Doty-Moore Equipment Company, Inc., Doty Moore
RF Services, Inc., Vertical Properties, Inc., Apex Site Management Holdings,
Inc. and substantially all of the assets of International Towers, Inc.
An Item 5 report on Form 8-K, dated March 6, 2000, was filed on March
10, 2000 to announce the execution of a letter of intent for SpectraSite to
acquire 11 broadcast towers from Pegasus Broadcast Television, Inc.
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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 12, 2000 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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