UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITES EXCHANGE
ACT OF 1934.
For the transition period from to
Commission file number 333-50219
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SBA COMMUNICATIONS CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0716501
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Town Center Road, Boca Raton, Florida 33486
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(Address of principal executive offices) (Zip code)
(561) 995-7670
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such report), and (2) has been subject to such filing
requirement for the past 90 days.
Yes _________ No X
------
Number of shares of common stock outstanding at November 16, 1998
Class A Common Stock - 802,771 shares
Class B Common Stock - 8,075,000 shares
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SBA COMMUNICATIONS CORPORATION
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997............................... 4
Consolidated Statements of Operations for the three and nine months ended
September 30, 1998 and 1997........................................................................... 5
Consolidated Statements of Cash Flows for the nine months ended September 30,
1998 and 1997......................................................................................... 6
Condensed Notes to Consolidated Financial Statements..................................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................................. 10
PART II - OTHER INFORMATION
Item 2 - Changes in Securities and Use of Proceeds........................................................ 15
Item 6 - Exhibits and Reports on Form 8-K................................................................. 15
SIGNATURE.................................................................................................... 16
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SBA COMMUNICATIONS CORPORATION
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
The following consolidated financial statements of SBA Communications
Corporation, a Florida corporation (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
In the opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial
information for the interim period reported have been made. Results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results for the entire fiscal year ending December
31, 1998.
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SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents, includes interest bearing amounts
of $52,107,929 and $1,397,047 in 1998 and 1997 $ 52,497,500 $ 6,109,418
Accounts receivable, net of allowances of $821,144
and $508,268 in 1998 and 1997 9,848,012 10,931,038
Prepaid and other current assets 3,173,706 982,722
Current deferred tax asset 421,503 -
Costs and estimated earnings in excess of billings on
uncompleted contracts 372,175 118,235
--------------- ---------------
Total current assets 66,312,896 18,141,413
Property and equipment, net 118,072,019 16,445,008
Note receivable-stockholder 3,727,506 3,561,306
Intangible assets, net 2,747,764 3,499,992
Deferred financing fees 6,501,876 740,338
Deferred tax asset 214,245 2,257,462
Other assets 990,970 151,885
--------------- ---------------
Total assets $ 198,567,276 $ 44,797,404
=============== ===============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 17,251,507 $ 2,182,447
Accrued expenses 1.141,173 919,563
Accrued salaries and payroll taxes 1,817,340 1,729,273
Notes payable 1,000 10,184,054
Current deferred tax liability - 1,621,714
Billings in excess of costs and estimated earnings
on uncompleted contracts 1,331,685 956,688
Other current liabilities 1,652,030 530,964
--------------- ---------------
Total current liabilities 23,194,735 18,124,703
Other liabilities:
Senior discount notes payable 160,794,990 -
Other long-term liabilities 484,856 33,635
--------------- ---------------
Total long-term liabilities 161,279,846 33,635
--------------- ---------------
Commitments and contingencies (see Note 8)
Redeemable preferred stock 32,845,833 30,983,333
Stockholders deficit:
Common stock (40,100,000 shares authorized, 8,877,771 shares
issued and outstanding in 1998, 8,075,000 shares issued and
outstanding in 1997) 88,778 80,750
Additional paid in capital 112,276 -
Accumulated deficit (18,954,192) (4,425,017)
--------------- ---------------
Total stockholders' deficit (18,753,138) (4,344,267)
--------------- ---------------
Total liabilities and stockholders' deficit $ 198,567,276 $ 44,797,404
=============== ===============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets
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SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF OPERATIONS
------------------------------------
(unaudited)
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues:
Site development revenue $ 9,965,367 $12,314,733 $ 33,623,782 $33,711,725
Site leasing revenue 3,327,964 1,699,240 8,132,215 4,844,431
----------- ----------- ------------ -----------
Total revenues 13,293,331 14,013,973 41,755,997 38,556,156
----------- ----------- ------------ -----------
Cost of revenues (exclusive of depreciation shown below)
Cost of site development revenue 8,349,164 7,626,128 26,458,738 22,237,281
Cost of site leasing revenue 1,919,516 1,373,841 5,039,074 3,927,789
----------- ----------- ------------ -----------
Total cost of revenues 10,268,680 8,999,969 31,497,812 26,165,070
----------- ----------- ------------ -----------
Gross profit 3,024,651 5,014,004 10,258,185 12,391,086
Operating expenses:
Selling, general and administrative 4,020,707 2,541,135 12,683,736 8,210,156
Depreciation and amortization 1,326,467 135,978 2,803,936 229,926
----------- ----------- ------------ -----------
Total operating expenses 5,347,174 2,677,113 15,487,672 8,440,082
----------- ----------- ------------ -----------
Operating income (loss) (2,322,523) 2,336,891 (5,229,487) 3,951,004
Other (income) expense:
Interest income (1,070,610) (215,000) (3,374,091) (489,927)
Interest expense 4,480,304 41,354 10,811,279 77,127
----------- ----------- ------------ -----------
Total other 3,409,694 (173,646) 7,437,188 (412,800)
----------- ----------- ------------ -----------
Income (loss) before provision for income taxes (5,732,217) 2,510,537 (12,666,675) 4,363,804
Provision (benefit) for income taxes (612,229) 217,399 -- 4,861,768
----------- ----------- ------------ -----------
Net income (loss) (5,119,988) 2,293,138 (12,666,675) (497,964)
Dividends on preferred stock (712,500) (300,000) (1,862,500) (683,333)
----------- ----------- ------------ -----------
Net income (loss) to common stockholders $(5,832,488) $ 1,993,138 $(14,529,175) $(1,181,297)
=========== =========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
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SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the nine months ended September 30
--------------------------------------
1998 1997
----- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (12,666,675) $ (497,964)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 3,239,320 229,926
Provision for doubtful accounts 312,876 (130,908)
Non cash compensation expense - 934,419
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable 770,150 5,452,458
Prepaid and other current assets (2,190,984) 86,423
Costs and estimated earnings in excess of
billings on uncompleted contracts (253,940) (32,542)
Other assets (389,085) (44,394)
Deferred tax asset - (2,283,000)
Intangibles (118,000) (4,182,009)
Increase (decrease)
Accounts payable 15,069,059 40,813
Accrued expenses 221,610 (290,433)
Accrued salaries and payroll taxes 88,067 700,265
Other liabilities 1,121,066 1,016,877
Deferred tax liabilities - 2,407,000
Other long-term liabilities 451,221 32,035
Billings in excess of costs and estimated earnings 374,997 339,765
------------- ------------
Total adjustments 18,696,357 4,276,695
------------- ------------
Net cash provided by operating activities 6,029,682 3,778,731
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower and other capital expenditures (103,560,718) (7,217,386)
------------- ------------
Net cash used in investing activities (103,560,718) (7,217,386)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 120,304 -
Increase in senior discount notes payable 160,794,990 -
Proceeds from notes payable 12,486,767 7,941,818
Repayment on notes payable (22,669,821) (12,863,168)
Increase in notes receivable (450,000) -
Advances to stockholder (166,200) (3,638,056)
Due to stockholder - (10,665,788)
Financing fees (6,196,922) (789,353)
Proceeds from Series A redeemable preferred stock offering - 30,000,000
Stock option redemption in connection with corporate reorganization - (2,236,782)
Costs incurred for Series A redeemable preferred stock offering - (2,427,683)
------------- ------------
Net cash provided by financing activities 143,919,118 5,320,988
------------- ------------
Net increase in cash and cash equivalents 46,388,082 1,882,333
CASH AND CASH EQUIVALENTS:
Beginning of period 6,109,418 310,936
------------- ------------
End of period $ 52,497,500 $ 2,193,269
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:
Cash paid during the period for:
Interest 364,752 $ 78,145
Taxes 2,314,548 3,903,232
NON-CASH ACTIVITIES:
Dividends on preferred stock 1,862,500 683,333
Interest on bonds payable 10,558,490 -
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
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SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. GENERAL
-------
The accompanying unaudited condensed consolidated financial statements include
the accounts of SBA Communications Corporation and its subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated. Certain information related to the Company's organization,
significant accounting policies and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited condensed
consolidated financial statements reflect, in the opinion of management, all
materials adjustments (which included only normal recurring adjustments)
necessary to fairly state the financial position and the results of operations
for the periods presented and the disclosures herein are adequate to make the
information presented not misleading. Operating results for interim periods are
not necessarily indicative of the results that can be expected for a full year.
These interim financial statements should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto.
2. CURRENT ACCOUNTING PRONOUNCEMENTS
---------------------------------
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" which establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements. This statement requires that an enterprise
classify items of other comprehensive income separately from accumulated deficit
and additional paid-in capital in the equity section of the balance sheets.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
During the nine months ended September 30, 1998 and 1997, the Company did not
have any changes in its equity resulting from such non-owner sources and
accordingly, comprehensive income as set forth by SFAS No. 130 was equal to the
net loss amounts presented for the respective periods in the accompanying
Consolidated Statements of Operations.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is required to be adopted in fiscal
1998, a public business enterprise must report financial and other descriptive
information about its reportable operating segments. Required disclosures
include, among other things, a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. The Company will
implement SFAS No. 131 effective with its December 31, 1998 financial
statements.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 required that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999.
Management believes adopting this statement will not have a material impact
upon the Company's results of operations or financial position.
3. ACQUISITIONS
------------
During the nine months ended September 30, 1998 the Company acquired 80 towers
and approximately 30 lease/sublease customers in 29 separate transactions for an
aggregate initial investment of approximately $41,807,000 plus up to an
additional $3,250,000 in consideration to be paid in 1998 and 1999 in the event
certain tenant leasing goals are realized.
The following unaudited pro forma summary for the nine months ended September
30, 1998 and 1997 presents the consolidated results of operations as if the
acquisitions had occurred as of the beginning of each of the periods presented,
after giving effect to certain adjustments, such as depreciation. These
unaudited proforma 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 the beginning of the periods presented or of results which may
occur in the future.
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For the nine months ended September 30,
--------------------------------------
1998 1997
---- ----
Revenues $ 45,621,815 $42,421,974
==================================
Net income (loss) $(11,587,032) $ 581,679
==================================
4. PROPERTY AND EQUIPMENT
----------------------
Property and equipment, net consists of the following:
September 30, December 31,
1998 1997
--------------------------------------
Land $ 4,971,635 $ 414,770
Buildings and improvements 451,939 107,931
Vehicles 442,496 358,569
Furniture and equipment 1,789,278 1,299,341
Towers 106,040,531 12,141,428
Construction in process 7,788,422 2,840,593
-------------------------------
121,484,301 17,162,632
Less: Depreciation and
Amortization ( 3,412,282) (717,624)
-------------------------------
Property and equipment, net $118,072,019 $16,445,008
===============================
5. DEBT
----
On March 2, 1998, the Company issued $269,000,000 of 12% Senior Discount Notes
(the "Notes") due March 1, 2008. The issuance of the Notes netted
approximately $150,200,000 in proceeds to the Company. Prior to March 1, 2003,
interest expense on the Notes will consist solely of non-cash accretion of
original issue discount and will not require cash interest payments. After such
time, the Notes will have accreted to $269,000,000.and interest will begin
accruing on the Notes and will be payable semi-annually in arrears on March 1
and September 1, commencing September 1, 2003. The Notes are unsecured
obligations of the Company.
On June 29, 1998, the Company amended and restated its existing Credit
Agreement. The Credit Agreement provides for revolving credit loans of
$55,000,000 and an additional $55,000,000 incremental facility. Availability
thereafter is limited to $25,000,000 until such time as the Company owns, leases
or manages 400 towers and has expended all but $10,000,000 of the proceeds from
the Notes. Availability is further limited at all times by certain financial
conditions and covenants and ratios, and other conditions. Availability as of
September 30, 1998 was approximately $17,300,000. The Credit Agreement matures
on June 29, 2005. The loans under the Credit Agreement will bear interest at
the LIBOR rate plus a margin ranging from 1.0% to 3.25% (determined based on a
leverage ratio) or an "alternate base rate" as defined by the lender.
The Notes and Credit Agreement contain numerous restrictive covenants,
including but not limited to covenants that restrict the Company's ability to
incur indebtedness, pay dividends; create liens, sell assets and engage in
certain mergers and acquisitions. In addition, the Credit Agreement requires
subsidiaries of the Company to maintain certain financial ratios. The ability
of the Company to comply with the covenants and other terms of the Credit
Agreement and the Notes and to satisfy its respective debt obligations will
depend on the future operating performance of the Company. In the event the
Company fails to comply with the various covenants contained in the Credit
Agreement or the Notes, as applicable, it would be in default thereunder, and in
any such case, the maturity of substantially all of its long-term indebtedness
could be accelerated.
6. REDEEMABLE PREFERRED STOCK
--------------------------
In February 1998, the terms of the Series A Redeemable Preferred Stock of the
Company were amended to defer payment of cash dividends on or redemptions of the
Series A Preferred Stock until permitted by the terms of the Notes due 2008. In
connection with the amendment, the dividend rate on the Series A Preferred Stock
was increased to 14% of the Series A Base Liquidation amount commencing March 7,
2003.
7. INCOME TAXES
------------
Income taxes have been provided for based upon the Company's annual effective
income tax rate.
8 of 16
A reconciliation of the statutory U.S. Federal tax rate (34%) and the effective
income tax rate for the period is as follows:
For the nine months ended
-------------------------
September 30, 1998 September 30, 1997
------------------ ------------------
Federal income tax $(4,306,670) $1,483,693
State income tax 144,298 218,190
Corporate reorganization 40,120 3,248,649
Non deductible expenses 3,632,856 -
Change in valuation allowance 1,111,721 -
Other (622,325) (88,764)
-----------------------------------------
$ - $4,861,768
=========================================
8. COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is involved in various claims, lawsuits and proceedings arising in
the ordinary course of business. While there are uncertainties inherent in the
ultimate outcome of such matters and it is impossible to presently determine the
ultimate costs that may be incurred, management believes the resolution of such
uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
In February 1998 the Company moved its corporate headquarters. In connection
with the move, the Company vacated its previously leased office space. The
Company had entered into several leases related to the vacated space, which will
expire at various times through February 2002. The Company has recorded net
rental expense of approximately $172,000 in the first nine months of fiscal 1998
related to the vacant space.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion and analysis reflects only changes from information
previously presented for the 1997 fiscal year. Financial information relating
to the September 30, 1998 and September 30, 1997 periods is unaudited. This
interim discussion and analysis should be read in conjunction with the Company's
1997 audited financial statements, notes thereto and management's discussion and
analysis of financial condition and results of operations. As of September 30,
1998, the Company had no Unrestricted Subsidiaries, as defined in the Company's
Indenture to the Notes.
Additionally, the following discussion includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act and 21E of the Exchange
Act. This discussion contains statements concerning projections, plans,
objective, future events or performance and underlying assumptions and other
statements which are other than statements of historical fact. The Company
wishes to caution readers that certain important factors may have affected and
could in the future affect the Company's actual results and could cause the
Company's actual results for subsequent periods to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
Such factors include (i) substantial capital requirements and leverage
principally as a consequence of its ongoing acquisition and construction
activities, (ii) dependence on demand for wireless communications, and (iii) the
success of the Company's new tower construction program. The following
discussion should be read in conjunction with the "Risk Factors" section of the
Company's Registration Statement of Form S-4 declared effective August 12, 1998
(File No. 333-50219).
OVERVIEW
The Company is a leading independent provider of communication site services to
the wireless communications industry. The Company is transitioning its revenue
stream from project driven revenues to recurring revenues through the leasing of
antennae space at or on communications facilities. The Company's strategy is
to utilize its historical leadership position in the site development business,
a project revenue business, to become a leading owner and operator of
communication towers, a recurring revenue business. While the Company intends
to continue to offer site development services to wireless carriers, where
demand and profitable opportunities exist, it will emphasize its site leasing
business through the construction of Company-owned towers pursuant to build-to-
suit programs for lease to wireless service providers, the acquisition of
existing sites and the leasing, sub-leasing and management of other antennae
sites. Management believes that as the site development industry matures,
revenues and gross profit from that business will decline in the near term and
this rate of decline will increase for the foreseeable future as wireless
service providers choose to outsource ownership of communication sites in order
to conserve capital. Management also believes that, over the longer term, site
leasing revenues will correspondingly increase as carriers move to outsourced
tower ownership and the number of towers owned by the Company grows.
As a result of these trends and shift in business, the Company expects that
revenue will decline over the short term and capital expenditures will continue
at current or increased levels as the Company accumulates towers. In addition,
the Company anticipates that its operating expenses will remain at current
levels as the Company continues to construct and acquire tower assets.
During the first nine months of 1998 the Company acquired 80 towers and
approximately 30 lease/sublease customers in 29 separate transactions for an
aggregate initial investment of $41.8 million plus up to an additional
$3,250,000 in consideration to be paid in 1998 and 1999 in the event certain
leasing goals are realized. Of the 391 towers owned by the Company as of
October 31, 1998, 258 towers were constructed by the Company pursuant to build-
to-suit programs.
As of October 31, 1998 the Company had over 400 new tower build projects in
process, over half of which consisted of non-binding mandates to build towers
under build-to-suit programs with wireless communications carriers. The Company
believes it has one of the largest number of non-binding build-to-suit mandates
from wireless service providers in the industry. The remaining new build
projects related to strategic sites which the Company believes will be desirable
for future carrier antenna installations. In addition, the Company is
currently actively negotiating to acquire additional towers, although no letters
of interest or binding agreements with respect to any such acquisitions have
been reached other than with respect to approximately 75 towers (as of October
31, 1998) that the Company may acquire in the near term. There can be no
assurance that the Company will be able to identify sites, towers or tower
companies to develop or acquire in the future.
RESULTS OF OPERATIONS
As the Company transitions its business by expanding into site leasing,
operating results in prior periods may not be meaningful predictors of future
prospects. Readers of the foregoing should be aware of the dramatic changes in
the nature and scope of the Company's business when reviewing the ensuing
discussion of comparative historical results.
Management expects that the acquisitions consummated to date and any future
acquisitions, as well as the Company's build-to-suit tower construction
programs, will have a material impact on future revenues, expenses and net
income. In particular, operating expenses, depreciation and amortization and
interest expense increased significantly over prior comparable 1997 periods.
10 of 16
Management believes that the Company's construction programs will have a
material effect on future operation, which effect will probably be negative
until such time, if ever, as the newly constructed towers attain higher levels
of utilization.
Three Months Ended September 30, 1998 Compared to Three Months Ended September
30, 1997
Total revenues decreased 5% to $13.3 million for the three months ended
September 30, 1998 from $14.0 million for the three months ended September 30,
1997. Within the category of total revenues, site development revenues
decreased 19% to $10.0 million for the three months ended September 30, 1998,
from $12.3 million for the three months ended September 30, 1997, primarily due
to decreased demand for site acquisition and zoning services from A and B block
broadband PCS licenses. This decreased demand was partially offset by
construction services revenues which were not present in the comparable period
and which were generated by the Company's construction subsidiary acquired in
September, 1997. Site leasing revenues increased 96% to $3.3 million in the
three months ended September 30, 1998, due primarily to the ownership by the
Company of a substantially larger number of revenue producing towers at period
end. Within the category of site leasing revenues, tower leasing revenues
increased to $1.6 million for the three months ended September 30, 1998 from $72
thousand for the three months ended September 30, 1997, due to the substantially
greater number of towers owned by the Company in the 1998 period.
Total cost of revenues increased 14% to $10.3 million for the three months ended
September 30, 1998 from $9.0 million for the three months ended September 30,
1997. Site development cost of revenues increased 9% to $8.3 million for the
1998 period, due primarily to the cost of construction revenues not present in
the prior period and higher than historical costs associated with maturing or
completed site acquisition and zoning projects. Site leasing cost of revenues
increased 40% to $1.9 million in the 1998 period, due primarily to higher site
leasing revenues. Gross profit decreased 40% to $3 million for the 1998 period
from $5.0 million for the 1997 period, due primarily to the increased cost of
revenues for site acquisition and zoning services. The decline in site
development services gross profit was partially offset by increased site leasing
gross profit. Gross profit for site development services decreased 66% to $1.6
million for the three months ended September 30, 1998, due to decreased margins
on services. Gross profit for the site leasing business increased 333% to $1.4
million for the 1998 period, due primarily to the greater number of towers owned
in 1998. As a percentage of total revenues, gross profit decreased to 23% for
the three months ended September 30, 1998 from 36% for the three months ended
September 30, 1997, due primarily to decreased margins on site acquisition and
zoning services.
Selling, general and administrative expenses increased 58% to $4.0 million for
the three months ended September 30, 1998, primarily due to the addition of
personnel, the expansion of office space and overall increases in operating
expenses attributable to the growth in the organization and building the
Company's tower development infrastructure. As a percentage of total revenues,
general and administrative expenses increased to 30% for the three months ended
September 30, 1998 from 18% for the three months ended September 30, 1997.
Depreciation and amortization increased to $1.3 million for the three months
ending September 30, 1998 from $.1 million for the three months ended September
30, 1997. This increase is directly related to the increased amount of fixed
assets (primarily towers) owned by the Company in 1998 as compared to 1997.
Operating income (loss) decreased to $(2.3) million for the three months ended
September 30, 1998 from $2.3 million for the three months ended September 30,
1997, due primarily to decreased site development gross profit and higher
selling, general and administrative expenses and depreciation and amortization.
Interest income increased to $1.1 million for the three months ended September
30,1998 as compared to $.2 million for the three months ended September 30,
1997. This increase is attributable to the increase in cash and cash
equivalents generated from the issuance of the Notes in the three months ended
September 30, 1998 as compared to the balances as of September 30, 1997.
Interest expense was $4.5 million for the three months ended September 30, 1998
as compared to $41 thousand for the three months ended September 30, 1997. The
increase in interest expense is attributable to the issuance of the Notes.
Provision (benefit) for income taxes was ($.6) million for the three months
ended September 30, 1998 as compared to $.2 million for the three months ended
September 30, 1997. The benefit for income taxes in the 1998 period was a
result primarily of significant losses, the current impact of the corporate
reorganization which took place in 1997, and the current impact of the exercise
of certain stock options. The provision for income taxes in the 1997 period
also exceeded the amount computed at the statutory U.S. Federal rate (34%) as a
result of the income tax effect of the corporate reorganization in 1997.
The net loss was $5.1 million for the three months ended September 30, 1998 as
compared to net income of $2.3 million for the three months ended September 30,
1997. These increased losses resulted primarily from a decrease in site
development gross profit and an increase in selling, general and administrative
expenses, depreciation and amortization, and increased interest expense.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Total revenues increased 8% to $41.8 million for nine months ended September 30,
1998, due to an increase in site leasing revenues. Within the category of total
revenues, site development revenues remained relatively constant at $33.6
million for the nine months ended September 30, 1998 as compared to $33.7
million in the prior comparable period, due to construction services revenues
not present in the comparable period generated by the Company's construction
subsidiary which was acquired
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in September 1997, which more than offset a decline in revenues from site
acquisition and zoning services. Site leasing revenues increased 68% to $8.1
million in the nine months ended September 30, 1998, from $4.8 million for the
nine months ended September 30, 1997 due primarily to the ownership by the
Company of a substantially larger number of revenue producing towers in the 1998
period. Tower leasing revenues increased to $3.0 million for the nine months
ended September 30, 1998 from $82 thousand for the nine months ended September
30, 1997, due to the substantially greater number of towers owned by the Company
in the 1998 period.
Total cost of revenues increased 20% to $31.5 million for the nine months ended
September 30, 1998 from $26.2 million for the nine months ended September 30,
1997. Site development cost of revenues increased 19% to $26.5 million for the
1998 period, due primarily to the cost of construction revenues not present in
the prior period and higher than historical costs associated with maturing or
completed site acquisition and zoning projects. Site leasing cost of revenues
increased 28% to $5.0 million in the 1998 period from $3.9 million in the 1997
period, due primarily to higher site leasing revenues. Gross profit decreased
17% to $10.3 million for the 1998 period, due primarily to the lower gross
profit earned on site development revenues. Gross profit for site development
services decreased 38% to $7.2 million for the nine months ended September 30,
1998, due primarily to the lower margins earned on site acquisition and zoning
services. Gross profit for the site leasing business increased 237% to $3.1
million for the 1998 period, due to the substantially greater number of towers
owned by the Company in the 1998 period. As a percentage of total revenues,
gross profit decreased to 25% for the nine months ended September 30, 1998 from
32% for the nine months ended September 30, 1997.
Selling, general and administrative expenses increased 54% to $12.7 million for
the nine months ended September 30, 1998 from $8.2 million for the nine months
ended September 30, 1997, primarily due to the addition of personnel, the
expansion of office space and overall increases in operating expenses
attributable to the growth in the organization and building the Company's tower
development infrastructure. As a percentage of total revenues, selling, general
and administrative expenses increased to 30% for the nine months ended September
30, 1998 from 21% for the nine months ended September 30, 1997.
Depreciation and amortization increased to $2.8 million for the nine months
ended September 30, 1998 as compared to $.2 million for the nine months ended
September 30, 1997. This increase is directly related to the increased amount
of fixed assets (primarily towers) owned by the Company in 1998 as compared to
1997.
Operating income (loss) to $(5.2) million for the nine months ended September
30, 1998 from $4.0 million for the nine months ended September 30, 1997, due
primarily to decreased site development gross profit and higher selling, general
and administrative expenses and depreciation and amortization. Interest income
was $3.4 million for the nine months ended September 30, 1998 as compared to $.5
million for the nine months ended September 30, 1997. Interest expense was
$10.8 million for the nine months ended September 30, 1998 as compared to $77
thousand for the nine months ended September 30, 1997. The primary differences
between the periods relate to the above mentioned variances as well as increased
interest expense associated with the Notes (defined below).
Provision for income taxes was zero for the nine months ended September 30, 1998
as compared to $4.9 million for the nine months ended September 30, 1997. The
provision for income taxes in the 1998 period was higher than that at the
statutory U.S. Federal rate (34%) for this period as a result primarily of non-
deductible interest and the current impact of the corporate reorganization which
took place in 1997. The provision for income taxes in the 1997 period also
exceeded the amount computed at the statutory U.S. Federal rate (34%) as a
result of the income tax effect of the corporate reorganization in 1997.
The net loss was $(12.7) million for the nine months ended September 30, 1998 as
compared to net loss of $(.5) million for the nine months ended September 30,
1997. These increased losses resulted from decreased site development gross
profit, increased selling, general and administrative expenses, and increased
interest expense offset by a decrease in the provision for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations during the nine months ended September 30, 1998
was $6.0 million compared to net cash provided by operations of $3.8 million in
the comparable period in 1997. The increase in net cash provided by operations
was primarily attributable to the changes in the account balances associated
with accounts receivable, accounts payable, intangibles and various tax accounts
for the respective periods. Net cash used in investing activities for the nine
months ended September 30, 1998 was $103.6 million compared to $7.2 million for
the nine months ended September 30, 1997. The increase in cash used for
investing activities resulted primarily from the acquisition of 80 towers and
the construction of 235 build-to-suit towers. Net cash provided by financing
activities for the nine months ended September 30, 1998 was $143.9 million
compared to net cash used in financing activities of $5.3 million for the same
period in 1997. The increase in net cash provided by financing activities was
attributable to the proceeds from the Notes.
As of September 30, 1998 the Company had positive working capital of $43.1
million. As of December 31, 1997, the Company had positive working capital of
$.02 million.
EBITDA decreased to ($1.0) million in the three months ended September 30, 1998
from $2.5 million in the three months ended September 30, 1997, as a result of
the factors discussed above. Tower Cash Flow, as defined in the Company's
Indenture related
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to the Notes, as defined below (the "Indenture"), ( which requires an allocation
of the Company's total operating expenses to its site leasing business) for the
quarter ending September 30, 1998 was $40 thousand. Adjusted EBITDA, as defined
in the Indenture, for the twelve months ended September 30, 1998 was $1.6
million. Neither EBITDA nor Adjusted EBITDA represents cash flow from operations
as defined by generally accepted accounting principles.
EBITDA decreased to $(2.4) million in the nine months ended September 30, 1998
from $4.2 million in the nine months ended September 30, 1997, as a result of
the factors discussed above.
On March 2, 1998 the Company issued $269 million in principal amount of 12%
senior discount notes due 2008 (the "Notes"). This offering provided
approximately $150.2 million of gross proceeds to the Company. From these gross
proceeds, the Company repaid approximately $20.2 million of existing
indebtedness and paid approximately $5.7 million of fees and expenses. The
remaining proceeds will be used primarily for the acquisition and construction
of telecommunications towers. Prior to March 1, 2003, interest expense on the
Notes will consist solely of non-cash accretion of original issue discount and
the Notes will not require cash interest payments. After such time, the Notes
will have accreted to $269 million and will require annual cash interest
payments of approximately $32.3 million. In addition, the Notes mature on March
1, 2008.
In June 1998, the Company amended and restated its credit facility (the "Credit
Facility"), originally entered into in August 1997. This facility provides for
revolving credit loans of $55 million and an additional $55 million incremental
facility which may be made available within the initial 24 months of the credit
facility, each to fund the acquisition and construction of towers, to provide
working capital and for general corporate purposes. The facility provides for
quarterly interest payments commencing as soon as any funds are borrowed
thereunder, and the incremental facility is expected to have a 24-month
revolving period after which any outstanding amounts will convert to a term loan
and begin to amortize. Availability under the facility is subject to a
reduction schedule that commences on March 31, 2001. The schedule provides for
a quarterly five percent amortization rate with a balloon payment on March 31,
2005. Availability commenced as of September 30, 1998 and thereafter is limited
to $25.0 million until such time as the company owns, leases or manages 400
towers and has expended all but $10.0 million of the proceeds from the Notes.
Availability is further limited at all times by certain financial conditions and
covenants and ratios and other conditions. As of September 30,1998,
availability under the Credit Facility's leverage covenant (measuring the
permissible debt under the Credit Facility as a multiple of an agreed measure of
cash flow) was $17.3 million.
Subject to availability of financing, the Company currently estimates that it
will make at least $100.0 million of capital expenditures in the next twelve
months through September 30, 1999 for the construction and acquisition of
additional communication sites, primarily towers. The exact amount of the
Company's future capital expenditures for additional assets will depend on a
number of factors, including the attractiveness of acquisition opportunities
that become available, the needs of its primary build-to-suit customers and most
importantly, the availability of additional debt or equity capital on acceptable
terms. The net proceeds from the Notes and available borrowings under the
Credit Facility will not be sufficient to fund such capital expenditure levels.
On November 12, 1998, the Company entered into a commitment with Lehman
Brothers, Inc., whereby Lehman Brothers, Inc. and certain of its affiliates have
committed to provided a $125 million senior secured facility (the "New
Facility"). The New Facility, which will replace the Credit Facility, is
subject to a number of customary closing conditions and is expected to be closed
by January 31, 1999. The New Facility will provide for $125 million of
revolving credit loans for a six year period, subject to certain commitment
reductions over time. Availability under the New Facility will be determined by
certain financial ratios as well as the number of new towers developed by the
Company within certain time periods. On a pro forma basis, availability as of
September 30, 1998 would have been substantially greater under the New Facility
than under the Credit Facility.
Year 2000
During the third quarter of 1998, management continued its review of the
installation of new systems hardware and software and determined that the
installation is on schedule for completion before the year 2000.
There are five phases that describe the Company's process in becoming Year 2000
compliant. The awareness phase encompasses developing a budget and project
plan. The assessment phase identifies mission-critical systems to check for
compliance. Both of these phases have been completed. The Company is at
various stages in the three remaining phases: renovation, validation and
implementation. Renovation is the design of the systems to be Year 2000
compliant. Validation is testing the systems followed by implementation.
The Company has begun implementation of a new financial system. This system is
certified as Year 2000 compliant. In conjunction with this implementation, the
Company has undertaken the renovation of its operational systems. The testing
and implementation of these systems is scheduled for completion in 1999.
Although the Company has not completely determined the effect of expenditures
related to the Year 2000 issue, it is not expected to be significant and will be
expensed as incurred.
The state of Year 2000 readiness for third parties with whom the Company shares
a material relationship, such as banks and vendors used by the Company, is being
reviewed by management. At this time, the Company is unaware of any third party
Year 2000 issues that would materially effect these relationships.
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The Company expects to be Year 2000 compliant in 1999 for all major systems.
The Company is assessing its risks and full impact on operations if the worst
case Year 2000 scenario were to occur. In conjunction with this, the Company is
developing contingency plans and expects to complete the development of the
plans in 1999.
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PART II OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
-----------------------------------------
During the fiscal quarter ended September 30, 1998, the Company issued
100 shares of its Class A Common Stock as follows:
. 100 shares to a former employee upon exercise of options granted
under the Company's 1996 Stock Option Plan at $2.63 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
27. Financial Data Schedule (filed only electronically with the
SEC)
(b) REPORTS ON FORM 8-K
The Company did not file a form 8-K during the nine months ended
September 30, 1998.
ITEMS 1, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 16, 1998 /s/ Robert M. Grobstein
--------------------------------
Robert M Grobstein
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
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