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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 June 30, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 333-50219
SBA COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Florida 65-0716501
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Town Center Road,
Boca Raton, Florida 33486
(Address of principal executive (Zip code)
offices)
(561) 995-7670
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such report), and (2) has been subject to
such filing requirement for the past 90 days.
[X] Yes [_] No
Number of shares of common stock outstanding at August 16, 1999
Class A Common Stock -- 21,054,255 shares
Class B Common Stock -- 7,644,264 shares
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SBA COMMUNICATIONS CORPORATION
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 and June 30, 1999... 4
Consolidated Statements of Operations for the three and six months ended
June 30, 1998 and 1999................................................. 5
Consolidated Statements of Stockholders' Equity (Deficit) for the six
months ended June 30, 1999............................................. 6
Consolidated Statements of Cash Flows for the six months ended June 30,
1998 and 1999.......................................................... 7-8
Condensed Notes to Consolidated Financial Statements.................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 21
PART II--OTHER INFORMATION
Item 2--Changes in Securities............................................. 23
Item 4--Submission of Matters to a Vote of Security Holders............... 23
Item 5--Other Events...................................................... 24
Item 6--Exhibits and Reports on Form 8-K.................................. 24
SIGNATURES................................................................ 25
2
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 six months ended June 30, 1999 are not necessarily
indicative of the results for the entire fiscal year ending December 31, 1999.
3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
December 31, June 30,
1998 1999
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents, includes interest
bearing amounts of $26,227,973 and $4,479,000 in
1998 and 1999................................... $ 26,743,270 $ 5,037,336
Accounts receivable, net of allowances of
$436,671 and $943,014 in 1998 and 1999.......... 12,512,574 18,378,516
Prepaid and other current assets................. 5,981,134 6,139,537
Costs and estimated earnings in excess of
billings on uncompleted contracts............... 598,971 1,589,307
------------ ------------
Total current assets........................... 45,835,949 31,144,696
------------ ------------
Property and equipment, net...................... 150,946,480 232,529,244
Note receivable--stockholder..................... 3,784,768 --
Intangible assets, net........................... 6,932,486 16,396,060
Deferred financing fees, net..................... 6,563,772 10,907,184
Other assets..................................... 509,871 1,521,031
------------ ------------
Total assets................................... $214,573,326 $292,498,215
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $ 14,447,384 $ 24,152,560
Accrued expenses................................. 2,247,282 3,594,842
Accrued salaries and payroll taxes............... 1,841,392 2,282,842
Notes payable.................................... 17,001,000 50,176
Billings in excess of costs and estimated
earnings on uncompleted contracts............... 166,526 965,627
Other current liabilities........................ 2,049,058 3,315,650
------------ ------------
Total current liabilities...................... 37,752,642 34,361,697
------------ ------------
Other liabilities:
Senior discount notes payable.................... 165,572,133 175,508,675
Notes payable.................................... -- 35,200,703
Deferred tax liabilities......................... 3,370,439 3,390,859
Other long-term liabilities...................... 415,201 465,795
------------ ------------
Total long-term liabilities.................... 169,357,773 214,566,032
------------ ------------
Commitments and contingencies (see Note 10)
Redeemable preferred stock (30,000,00 shares
authorized) 8,050,000 shares issued and
outstanding in 1998, none outstanding in 1999..... 33,558,333 --
Shareholders' equity (deficit):
Common stock:
Class A (100,000,000 shares authorized) 880,922
and 19,710,922 shares issued and outstanding
in 1998 and 1999, respectively................ 8,809 197,109
Class B (8,100,000 shares authorized) 8,075,000
and 7,644,264 shares issued and outstanding in
1998 and 1999, respectively................... 80,750 76,443
Additional paid in capital....................... 716,131 86,555,956
Accumulated deficit.............................. (26,901,112) (43,259,022)
------------ ------------
Total shareholders' equity (deficit)........... (26,095,422) 43,570,486
------------ ------------
Total liabilities and shareholders' equity
(deficit)..................................... $214,573,326 $292,498,215
============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets
4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
For the three months For the six months
ended June 30, ended June 30,
-------------------------- --------------------------
1998 1999 1998 1999
------------ ------------ ------------ ------------
Revenues:
Site development
revenue.............. $11,127,165 $13,647,457 $ 23,658,415 $ 22,222,144
Site leasing revenue.. 2,645,712 5,757,815 4,804,251 10,899,429
------------ ------------ ------------ ------------
Total revenues...... 13,772,877 19,405,272 28,462,666 33,121,573
------------ ------------ ------------ ------------
Cost of revenues
(exclusive of
depreciation shown
below)
Cost of site
development revenue.. 8,981,287 10,009,566 17,970,672 16,632,761
Cost of site leasing
revenue.............. 1,612,687 2,777,017 3,119,558 5,154,523
------------ ------------ ------------ ------------
Total cost of
revenues........... 10,593,974 12,786,583 21,090,230 21,787,284
------------ ------------ ------------ ------------
Gross profit........ 3,178,903 6,618,689 7,372,436 11,334,289
Operating expenses:
Selling, general and
administrative....... 4,859,883 4,855,498 8,801,931 8,933,071
Depreciation and
amortization......... 970,224 3,538,092 1,477,469 6,669,393
------------ ------------ ------------ ------------
Total operating
expenses........... 5,830,107 8,393,590 10,279,400 15,602,464
------------ ------------ ------------ ------------
Operating loss...... (2,651,204) (1,774,901) (2,906,964) (4,268,175)
Other income (expense):
Interest income....... 1,539,323 339,722 2,303,481 846,665
Interest expense...... -- (1,650,830) (77,682) (2,466,320)
Non-cash amortization
of original issue
discount and debt
issue costs.......... (4,451,048) (5,452,712) (6,253,293) (10,652,956)
Other................. -- 14,312 -- 23,526
------------ ------------ ------------ ------------
Total other income
(expense).......... (2,911,725) (6,749,508) (4,027,494) (12,249,085)
------------ ------------ ------------ ------------
Loss before
provision for
income taxes and
extraordinary
item............... (5,562,929) (8,524,409) (6,934,458) (16,517,260)
(Provision) benefit for
income taxes........... (525,645) (209,680) (612,229) 575,901
------------ ------------ ------------ ------------
Net loss before
extraordinary
item............... (6,088,574) (8,734,089) (7,546,687) (15,941,359)
Extraordinary item,
write-off of deferred
financing fees......... -- -- -- (1,149,954)
------------ ------------ ------------ ------------
Net loss............ (6,088,574) (8,734,089) (7,546,687) (17,091,313)
Dividends on preferred
stock.................. (712,500) 1,445,903 (1,150,000) 733,403
------------ ------------ ------------ ------------
Net loss to common
shareholders....... $ (6,801,074) $ (7,288,186) $ (8,696,687) $(16,357,910)
============ ============ ============ ============
Basic and diluted loss
per common share before
extraordinary item..... $ (.82) $ (.64) $ (1.06) $ (1.49)
Extraordinary item...... -- -- -- (.11)
------------ ------------ ------------ ------------
Basic and diluted loss
per common share....... $ (.82) $ (.64) $ (1.06) $ (1.60)
============ ============ ============ ============
Basic and diluted
weighted average number
of shares of common
stock.................. 8,260,155 11,423,533 8,168,089 10,196,544
============ ============ ============ ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Common Stock
--------------------------------------
Class A Class B Additional Retained
------------------- ------------------ Paid In Earnings
Number Amount Number Amount Capital (Deficit) Total
---------- -------- --------- ------- ----------- ------------- ------------
BALANCE, December 31,
1998.................... 880,922 $ 8,809 8,075,000 $80,750 $ 716,131 $ (26,901,112) $(26,095,422)
Initial public offering
of common stock, net of
issuance costs......... 10,000,000 100,000 -- -- 82,643,794 -- 82,743,794
Non-cash compensation
adjustment............. -- -- -- -- 136,650 -- 136,650
Preferred stock
dividends.............. -- -- -- -- -- (1,345,500) (1,345,500)
Preferred stock
conversion/redemption.. 8,050,000 80,500 -- -- (80,500) 2,078,903 2,078,903
Repayment of shareholder
loan................... -- -- (430,736) (4,307) (3,872,319) -- (3,876,626)
Issuance of common
stock.................. 780,000 7,800 -- -- 7,012,200 -- 7,020,000
Net loss................ -- -- -- -- -- (17,091,313) (17,091,313)
---------- -------- --------- ------- ----------- ------------- ------------
BALANCE, June 30, 1999... 19,710,922 $197,109 7,644,264 $76,443 $86,555,956 $ (43,259,022) $ 43,570,486
========== ======== ========= ======= =========== ============= ============
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
-----------------------------------
1998 1999
---------------- -----------------
Cash flows from operating activities:
Net loss................................ $ (7,546,687) $ (17,091,313)
Adjustments to reconcile net loss to net
cash provided by operating activities--
Depreciation and amortization........... 1,477,469 6,669,393
Provision for doubtful accounts......... 18,017 326,301
Non-cash compensation expense........... -- 136,650
Non-cash amortization of original issue
discount and debt issue costs.......... 6,289,076 10,652,957
Interest on shareholder note............ (114,713) (91,858)
Write-off of deferred financing fees.... -- 1,149,954
Changes in operating assets and
liabilities:
(Increase) decrease in-- (1,415,746) 328,478
Accounts receivable...................
Prepaid and other current assets...... (1,803,496) 720,742
Costs and estimated earnings in excess
of billings on uncompleted
contracts............................ (27,443) (122,530)
Other assets.......................... (497,802) (1,003,297)
Deferred tax asset.................... 1,682,462 --
Intangible assets..................... -- (370,559)
Increase (decrease) in-- (1,202,537) 5,811,066
Accounts payable......................
Accrued expenses...................... 8,010,478 666,664
Accrued salaries and payroll taxes.... 344,796 353,752
Other liabilities..................... 823,143 (168,885)
Deferred tax liabilities.............. (1,070,233) (3,817)
Other long-term liabilities........... 461,365 --
Billings in excess of costs and
estimated earnings on uncompleted
contracts............................ 330,183 173,782
---------------- -----------------
Total adjustments................... 13,305,018 25,228,793
---------------- -----------------
Net cash provided by operating
activities......................... 5,758,331 8,137,480
---------------- -----------------
Cash flows from investing activities:
Cash paid for Com-Net acquisition....... -- (7,914,634)
Tower and other capital expenditures.... (61,452,819) (83,636,863)
---------------- -----------------
Net cash used in investing
activities........................... (61,452,819) (91,551,497)
---------------- -----------------
Cash flows from financing activities:
Net proceeds from senior discount notes
payable................................ 150,236,500 --
Proceeds from notes payable............. 12,486,767 81,000,000
Repayment of notes payable.............. (22,669,821) (63,001,000)
Proceeds of initial public offering, net
of issuance costs...................... -- 82,743,793
Issuance of common stock................ 120,041 --
Preferred stock redemption.............. -- (32,824,930)
Deferred financing fees................. (5,971,301) (6,209,781)
---------------- -----------------
Net cash provided by financing
activities......................... 134,202,186 61,708,082
---------------- -----------------
Net increase (decrease) in cash and
cash equivalents................... 78,507,698 (21,705,934)
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(continued)
For the six months ended June 30,
----------------------------------
1998 1999
----------------- ----------------
Cash and cash equivalents:
Beginning of period...................... 6,109,418 26,743,270
----------------- ----------------
End of period............................ $ 84,617,116 $ 5,037,336
================= ================
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest................................. $ 364,752 $ 2,507,796
Taxes.................................... $ 2,032,607 $ 185,751
Non-cash activities:
Dividends on preferred stock............. $ 1,150,000 $ (733,403)
Interest on bonds payable................ $ 6,009,460 $ 9,936,542
Note receivable -- shareholder........... $ -- $ (3,876,626)
Exchange of Series B preferred stock for
common stock............................ $ -- $ 8,050,000
Acquisition summary:
Assets acquired in Com-Net acquisition... -- $ 21,601,360
Liabilities acquired in acquisition...... -- (6,666,726)
Stock issued for acquisition............. -- (7,020,000)
----------------- ----------------
Cash paid for Com-Net acquisition........ $ -- $ 7,914,634
================= ================
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements
8
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
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
material 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.
Certain reclassifications have been made to the 1998 financial statements to
conform to the 1999 presentation.
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 six months ended June 30, 1998 and 1999, the
Company did not have any changes in its equity resulting from such non-owner
sources and accordingly, comprehensive loss 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.
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. In June 1999,
the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of SFAS No. 133." This
statement deferred the effective date of SFAS No. 133 until June 15, 2000.
3. Acquisitions
During the six months ended June 30, 1999, the Company completed 18
acquisitions consisting of 96 towers and related assets from various sellers,
all of which were individually insignificant to the Company. The aggregate
purchase price was approximately $37.3 million and was paid with proceeds from
long-term borrowings as well as with proceeds from the initial public
offering.
9
SBA COMMUNICATIONS AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On April 30, 1999, the Company acquired through merger all of the issued and
outstanding stock of Com-Net Construction Services, Inc. ("Com-Net"). The
Company issued 780,000 shares of its Class A common stock to the shareholders
of Com-Net, of which 480,000 shares have been pledged back to the Company and
are subject to forfeiture if certain 1999 earnings targets are not achieved by
the acquired company. In addition, the shareholders of Com-Net may receive up
to $2.5 million in cash and 320,000 additional shares of Class A common stock
if certain 1999 earnings targets are met by the acquired company, and up to an
additional 400,000 shares of Class A common stock if certain 2000 earnings
targets are met.
The Company accounted for the above acquisitions using the purchase method
of accounting. The above acquisitions resulted in goodwill of approximately
$9.4 million. The results of operations of the acquired assets are included
with those of the Company from the dates of the respective acquisitions. The
following unaudited pro forma summary for the six months ended June 30, 1998
and 1999 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 and
amortization.
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 the beginning of the periods presented or
of results which may occur in the future.
For the six months ended June 30,
----------------------------------
1998 1999
---------------- ----------------
Unaudited Pro-forma Revenues............ $ 41,858,041 $ 43,786,974
================ ================
Unaudited Pro-forma Net Loss............ $ (7,078,281) $ (16,719,322)
================ ================
Basic and diluted loss per share........ $ (.92) $ (1.49)
================ ================
Common shares outstanding............... 8,948,089 10,709,362
================ ================
4. Property and equipment
Property and equipment, net consists of the following:
December 31, June 30,
1998 1999
------------ ------------
Land............................................. $ 5,307,754 $ 6,197,438
Towers........................................... 141,755,358 223,172,500
Buildings and improvements....................... 506,120 589,168
Vehicles......................................... 442,496 465,681
Furniture and equipment.......................... 1,708,132 4,090,214
Construction in process.......................... 7,736,769 12,338,284
------------ ------------
157,456,629 246,853,285
Less: Depreciation and amortization.............. (6,510,149) (14,324,041)
------------ ------------
Property and equipment, net...................... $150,946,480 $232,529,244
============ ============
Construction in process represents costs incurred related to towers which
are under development and will be used in the Company's operations.
10
SBA COMMUNICATIONS AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Costs and estimated earnings on uncompleted contracts
December 31, June 30,
1998 1999
------------ ------------
Costs incurred on uncompleted contracts.......... $ 4,633,768 $ 9,941,803
Estimated earnings............................... 1,357,134 2,546,897
Billings to date................................. (5,558,457) (11,865,020)
----------- ------------
$ 432,445 $ 623,680
=========== ============
This amount is included in the accompanying balance sheet under the
following captions:
December 31, June 30,
1998 1999
------------ ----------
Costs and estimated earnings in excess of
billing.......................................... $ 598,971 $1,589,307
Billings in excess of costs and estimated
earnings......................................... (166,526) (965,627)
--------- ----------
$ 432,445 $ 623,680
========= ==========
6. Current and long term debt
Current and long term debt consists of the following:
December 31, June 30,
1998 1999
------------ ------------
Senior Credit Facility term loan, variable inter-
est at 8.705% at June 30, 1999 quarterly in-
stallments based on reduced availability begin-
ning March 31, 2001, maturing December 31,
2004............................................ -- $ 25,000,000
Senior Credit Facility revolving loan, variable
interest at 8.6563% at June 30, 1999 quarterly
installments based on reduced availability be-
ginning March 31, 2001, maturing December 31,
2004............................................ -- 10,000,000
Senior 12% discount notes, net of unamortized
original issue discount of $25,272,175 at June
30, 1999, unsecured, cash interest payable semi-
annually in arrears beginning March 1, 2003,
balloon principal payment of $269,000,000 due at
maturity on March 1, 2008....................... 165,572,133 175,508,675
Note Payable, principal installments of $4,181
plus interest at 90 day LIBOR plus 2.25% (7.605%
at June 30, 1999). Secured by vehicles.......... -- 250,879
Bank Credit Agreement............................ 17,001,000 --
------------ ------------
182,573,133 210,759,554
Less: current maturities (17,001,000) (50,176)
------------ ------------
Long term debt................................... $165,572,133 $210,709,378
============ ============
7. Stockholders' equity (deficit)
In April 1999, the Company adopted the 1999 Equity Participation Plan. A
total of 2.5 million shares of Class A common stock are reserved for issuance
under this plan. In April, 1999, the Company granted options to employees for
the purchase of approximately 900,000 shares of Class A common stock at an
exercise price of $8.00 per share, which approximated fair market value. The
options vest over 32 to 36-month periods commencing December 31, 1999 and
ending in April, 2002.
11
SBA COMMUNICATIONS AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On June 21, 1999, the Company completed an initial public offering of its
Class A common stock. The Company raised gross proceeds of $90 million, which
produced net proceeds after deduction of the underwriting discount and
estimated offering expenses of $82.7 million. The Company used approximately
$32.8 million of these net proceeds to pay all outstanding dividends on all
outstanding shares of the Company's Series A preferred stock and to redeem all
shares of the Company's Series B preferred stock. The Company also used $46.0
million to repay all revolving credit loans under the Senior Credit Facility.
Remaining proceeds were used for the construction and acquisition of towers
and for general working capital purposes. As a result of the initial public
offering, all 8,050,000 shares of Series A preferred stock were converted into
8,050,000 shares of Class A common stock and the Company no longer has any
shares of preferred stock outstanding.
On June 21, 1999 the Chief Executive Officer of the Company surrendered
430,736 shares of Class B common stock to fully repay principal and accrued
interest on a promissory note issued to the Company in March, 1997. These
shares have been retired by the Company.
8. Income taxes
Income taxes have been provided for based upon the Company's annual
effective income tax rate. A reconciliation of the statutory U.S. Federal tax
rate (34%) and the effective income tax for the period is as follows:
For the six months ended June 30,
----------------------------------
1998 1999
---------------- ----------------
Federal income tax....................... $ 2,357,716 $ 5,311,527
State income tax......................... (76,529) (444,266)
Foreign tax.............................. -- (243,881)
Change in valuation allowance............ (947,675) (4,047,479)
Other.................................... (1,945,741) --
---------------- ----------------
$ (612,229) $ 575,901
================ ================
The Company has recorded a benefit in the first six months of 1999 as a
result of net operating loss carry-backs available. The amount recorded as a
benefit represents the entire carry-back amount available. If the Company
generates taxable losses in the future, net operating loss carry-forwards will
be generated.
9. Earnings per share
In computing loss per share in accordance with SFAS No. 128, the weighted
average number of shares for the basic and diluted loss per share calculations
is the same.
Options to purchase 2,513,607 shares of the Company's common stock, with
exercise prices ranging from $.05 to $8.00 per share and expiration dates
between 2004 and 2008, were outstanding at June 30, 1999, but were not
included in the computation of diluted earnings per share because their effect
would be anti-dilutive if exercised.
Also outstanding at June 30, 1999 was a warrant to acquire 402,500 shares of
common stock at an exercise price of $3.73 and expiring in 2002. This was also
not included in the computation of diluted earnings per share because of the
anti-dilutive effect.
12
SBA COMMUNICATIONS AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. 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.
11. Segment data
The Company operates principally in three business segments: site
development consulting, site development construction, and site leasing. The
Company's reportable segments are strategic business units that offer
different services. They are managed separately based on the fundamental
differences in their operations. Revenue, operating income, identifiable
assets, cash capital expenditures and depreciation and amortization pertaining
to the segments in which the Company operates are presented below:
For the six months ended June 30,
------------------------------------
1998 1999
------------------ ----------------
Revenue:
Site development -- consulting........ $ 17,653,933 $ 8,060,191
Site development -- construction...... 6,004,482 14,161,953
Site leasing.......................... 4,804,251 10,899,429
---------------- ----------------
$ 28,462,666 $ 33,121,573
================ ================
Gross Profit:
Site development -- consulting........ $ 3,641,126 $ 2,460,426
Site development -- construction...... 2,046,617 3,128,957
Site leasing.......................... 1,684,693 5,744,906
---------------- ----------------
$ 7,372,436 $ 11,334,289
================ ================
Capital expenditures:
Site development -- construction...... $ 98,169 $ 4,635,339
Site leasing.......................... 60,725,374 86,663,599
Capital expenditures not identified by
segment.............................. 629,276 252,559
---------------- ----------------
$ 61,452,819 $ 91,551,497
================ ================
As of As of
December 31, 1998 June 30, 1999
------------------ ----------------
Assets:
Site development -- consulting........ $ 14,516,752 $ 17,851,228
Site development -- construction...... 9,690,197 28,440,971
Site leasing.......................... 173,075,271 229,836,656
Assets not identified by segment...... 17,291,106 16,369,360
---------------- ----------------
$ 214,573,326 $ 292,498,215
================ ================
12. Subsequent events
On July 19, 1999, the managing underwriters of the Company's initial public
offering exercised and closed on their right to purchase an additional
1,300,000 shares of the Company's Class A common stock. The Company received
net proceeds of approximately $10.9 million from the sales of shares, which
were sold at the initial public offering price of $9.00 per share.
13
SBA COMMUNICATIONS AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. Pro forma data
As discussed in Note 7, in June 1999, the Company completed an initial
public offering of 10.0 million shares of its Class A Common Stock resulting
in net proceeds of approximately $82.7 million. In addition, the Company used
approximately $32.8 million of the net proceeds to pay all outstanding
dividends on all outstanding shares of the Company's Series A preferred stock
and to redeem all shares of the Company's Series B preferred stock.
As a result of the initial public offering, all 8,050,000 shares of Series A
preferred stock were converted into 8,050,000 shares of Class A common stock
and the Company no longer has any shares of preferred stock outstanding.
Additionally, as a result of the initial public offering, the Chief
Executive Officer surrendered 430,736 shares of Class B common stock to fully
repay principal and accrued interest on a promissory note issued to the
Company in March, 1997.
The following unaudited pro forma consolidated financial data has been
prepared assuming the initial public offering, the conversion/redemption of
the Series A preferred stock, and the repayment of the shareholder note had
occurred as of the beginning of each period presented. The following pro forma
data does not include the effect of the "Com-Net" acquisition discussed in
Footnote 3.
Six Months
ended June 30,
-------------------------
1998 1999
----------- ------------
Pro Forma Statement of Operations Data:
Operating loss................................... $(2,906,964) $ (4,268,175)
Net loss......................................... (7,512,648) (17,127,764)
Preferred stock dividends........................ -- 2,078,903
----------- ------------
Net loss available to common shareholders........ $(7,512,648) $(15,048,861)
=========== ============
Basic and diluted loss per share................. $ (.28) $ (.54)
=========== ============
Weighted average shares outstanding.............. 26,613,790 27,693,634
=========== ============
14
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 1998 fiscal year. Financial information relating
to the June 30, 1998 and June 30, 1999 three and six month periods is
unaudited. This interim discussion and analysis should be read in conjunction
with our 1998 audited financial statements, notes thereto and management's
discussion and analysis of financial condition and results of operations.
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. We wish
to caution readers that certain important factors may have affected and could
in the future affect our actual results and could cause our actual results for
subsequent periods to differ materially from those expressed in any forward-
looking statement made by us. Such factors 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, and (iii) the success of our new tower construction
program. The following discussion should be read in conjunction with the "Risk
Factors" section of our Form 10-K filed with the SEC on March 31, 1999 and
Form S-1 initially filed with the SEC on April 19, 1999, and as subsequently
amended.
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. Our strategy is to utilize our historical
leadership position in the site development business, a project revenue
business, and to expand our ownership and leasing of communication towers, a
recurring revenue business. We are transitioning our revenue stream from
project driven revenues to recurring revenues through the leasing of antennae
space at or on communications facilities.
While we intend to continue to offer site development services to wireless
carriers where demand and profitable opportunities exist, we will emphasize
our site leasing business through the construction of owned towers for lease
to wireless service providers, the acquisition of existing sites and the
leasing, subleasing and management of other antennae sites. We believe that as
the site development industry matures, our revenues and gross profit from the
consulting segment of that business will continue to decline substantially 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. We also believe that, over
the longer term, site leasing revenues will increase as carriers move to
outsource tower ownership and the number of towers we own grows.
As a result of these trends and the shift in focus of our business, our
earnings and EBITDA declined in 1998 from the prior periods and capital
expenditures increased sharply as we accumulated towers. We expect capital
expenditures to increase even more in 1999 as compared to 1998. In addition,
we anticipate that our operating expenses will remain at or above 1998 levels
as we continue to construct and acquire tower assets.
We derive our revenues from two businesses-site development and site
leasing. Our site development business consists of site development consulting
and site development construction. We provide site development services, both
consulting and construction, on a contract basis which is usually customer and
project specific. We generally charge for site development services on either
a time and materials basis or a fixed price basis. The majority of these
services are performed on a fixed fee basis. We also provide site leasing
services on a contract basis. Revenue from our site development business may
fluctuate from period to period depending on construction activities, which
are a function of our clients' build-out schedules, weather and other factors.
Our antennae site leases are typically long-term agreements with renewal
periods. Leases are generally paid on a monthly basis. Because of the low
variable operating costs of the site leasing business, additional tenants on a
tower generate disproportionately larger increases in tower cash flow.
15
We are in the process of acquiring and constructing towers to be owned by us
and leased to wireless service providers. We intend to continue to make
strategic acquisitions in the fragmented and rapidly consolidating tower owner
and operator industry. Of the 770 towers we owned as of June 30, 1999, 505
were new builds. At that date we had non-binding mandates to build over 350
additional towers under build-to-suit programs (the majority of which we
expect will result in binding anchor tenant lease agreements). We believe we
have one of the largest number of non-binding build-to-suit mandates from
wireless service providers in the industry. In addition, we are currently
actively negotiating to acquire additional towers. At June 30, 1999, we had
letters of intent or definitive agreements to acquire 80 additional towers in
a number of separate transactions for an aggregate purchase price of
approximately $22.1 million. We cannot assure you that we will be able to
close these transactions, or identify towers or tower companies to acquire in
the future.
On April 30, 1999, we acquired Com-Net Construction Services, Inc. ("Com-
Net"). Com-Net provides turnkey construction services of towers and terminal
switches primarily throughout the mid-western, eastern and western United
States and for the year ended December 31, 1998 had construction revenues of
over $20 million. We issued 780,000 shares of our Class A common stock to the
shareholders of Com-Net, of which 480,000 shares have been pledged back to us
and are subject to forfeiture if certain 1999 earnings targets are not
achieved by the acquired company. In addition, the shareholders of Com-Net may
receive up to $2.5 million in cash and 320,000 additional shares of Class A
common stock if certain 1999 earnings targets are met by the acquired company,
and up to an additional 400,000 shares of Class A common stock if certain 2000
earnings targets are met.
On the same date we acquired an affiliate of Com-Net, Com-Net Development
Group, LLC ("Development Group"). Development Group owns 18 completed or
substantially completed towers in Texas, Ohio and Tennessee and over 30 sites
in various stages of development under build-to-suit programs. We paid $1.0
million in cash and assumed debt of approximately $2.5 million dollars for
Development Group.
Results of Operations
As we continue our transition into site leasing, operating results in prior
periods may not be meaningful predictors of future prospects. You should be
aware of the dramatic changes in the nature and scope of our business when
reviewing the ensuing discussion of comparative historical results. We expect
that the acquisitions consummated to date and any future acquisitions, as well
as our new tower builds, will have a material impact on future revenues,
expenses and net income. In particular depreciation and amortization and net
interest expense increased significantly in the period ended June 30, 1999
over the year earlier period, and are expected to continue to increase
significantly in future periods. We believe that our 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 tenant use.
Second Quarter of 1999 Compared to Second Quarter of 1998
Total revenues increased 40.9% to $19.4 million for the second quarter of
1999 from $13.8 million for the second quarter of 1998. We derive our revenues
from two businesses-site development and site leasing. Our site development
business consists of site development consulting and site development
construction. Site development revenue increased 22.6% to $13.6 million in the
second quarter of 1999 from $11.1 million in the second quarter of 1998 due to
an increase in site development construction revenue, which more than offset a
decrease in site development consulting revenue. Site development consulting
revenue decreased 47.8% to $4.1 million for the second quarter of 1999 from
$7.9 million for the second quarter of 1998, due primarily to the decreased
demand for site acquisition and zoning services from PCS licensees, as well as
the continued acceptance by wireless carriers of outsourced communication site
infrastructure through build-to-suit programs. Site development construction
revenue increased 196.7% to $9.5 million for the second quarter of 1999 from
$3.2 million for the second quarter of 1998, due primarily to the acquisition
of Com-Net on April 30, 1999, as well as the expanded activities of our CSSI
construction company subsidiary. Site leasing revenue increased 117.6% to $5.8
million for the second quarter of 1999 from $2.6 million for the second
quarter of 1998, due to the substantially greater number of towers in our
portfolio during the second quarter of 1999 compared to the second quarter of
1998 and new tenant leases added to our towers.
16
Total cost of revenue increased 20.7% to $12.8 million for the second
quarter of 1999 from $10.6 million for the second quarter of 1998. Site
development cost of revenue increased 11.4% to $10.0 million in the second
quarter of 1999 from $9.0 million in the second quarter of 1998 due to the
decrease in the cost of site development consulting revenue, which was offset
by an increase in the cost of site development construction revenue. Site
development consulting cost of revenue decreased 62.1% to $2.6 million for
second quarter 1999 from $6.8 million for second quarter 1998 due primarily to
lower revenue. Site development construction cost of revenue increased to $7.4
million for second quarter 1999 from $2.2 million for the second quarter of
1998, due primarily to increased revenues which were attributable to the
acquisition of Com-Net. Site leasing cost of revenue increased 72.2% to $2.8
million for the second quarter of 1999 from $1.6 million for the second
quarter of 1998, due primarily to the increased number of towers owned
resulting in an increased amount of lease payments to site owners.
Gross profit increased 108.2% to $6.6 million for the second quarter of 1999
from $3.2 million for the second quarter of 1998, due to increased site
leasing and site development gross profits. Gross profit from site development
increased 69.5% to $3.6 million in the second quarter of 1999 from $2.1
million in the second quarter of 1998 due to increases in both site
development consulting gross profit and site development construction gross
profit. Site development consulting gross profit increased primarily due to
increased profit margins in the second quarter of 1999, which more than offset
the decline in revenues. Gross profit from site development construction
increased to $2.1 million in the second quarter of 1999 from $1.0 million in
the second quarter of 1998. Gross profit margin on site development
construction dropped in second quarter 1999 to 22% from 31% in the second
quarter of 1998, reflecting the integration of Com-Net, which has historically
had gross profit margins in the 15% to 20% range, and the use by CSSI of more
subcontract labor required by greater levels of activity. Gross profit for the
site leasing business increased 188.6% to $3.0 million in the second quarter
of 1999 from $1.0 million in the second quarter of 1998, and site leasing
gross profit margin improved to 52% in the second quarter of 1999 from 39% in
the second quarter of 1998. The increased gross profit and improved margin
were both due to the substantially greater number of towers owned in the
second quarter 1999 period and the lease-up of our towers with additional
tenants. As a percentage of total revenues, gross profit increased to 34% of
total revenues in the second quarter of 1999 from 23% in the second quarter of
1998 due to higher margins in site development and site leasing gross profit.
Selling, general and administrative expenses remained constant at $4.9
million for the second quarter of 1999 and the second quarter of 1998. As a
percentage of total revenues, selling, general and administrative expenses
decreased to 25% for the second quarter of 1999 from 35% in the second quarter
of 1998.
Depreciation and amortization increased to $3.5 million for the second
quarter of 1999 as compared to $1.0 million for the second quarter of 1998.
This increase is directly related to the increased amount of fixed assets
(primarily towers) we owned in the second quarter of 1999 as compared to the
second quarter of 1998.
Operating loss decreased to $1.8 million for the second quarter of 1999 from
$2.7 million for the second quarter of 1998 as a result of the increased
revenue and gross profit margins in the second quarter of 1999. Other income
(expense) increased to ($6.7) million for second quarter 1999 from ($2.9)
million for second quarter of 1998. This increase resulted primarily from much
greater interest income earned from the proceeds of the Senior Discount Notes
in the 1998 quarter. Net loss was ($8.7) million for the second quarter of
1999 as compared to net loss of $6.1 million for the second quarter of 1998.
Basic and diluted loss per common share decreased to ($.64) for the second
quarter of 1999 from ($.82) for the second quarter of 1998. This decrease was
attributable to an increased weighted average number of shares as well as the
effect of the preferred stock redemption on dividends for the quarter.
First Half of 1999 Compared to First Half of 1998
Total revenues increased 16.4% to $33.1 million for the first half of 1999
from $28.5 million for the first half of 1998. Site development revenue
decreased 6.1% to $22.2 million in the first half of 1999 from $23.7
17
million in the first half of 1998 due to a decline in site development
consulting revenue, which was partially offset by an increase in site
development construction revenue. Site development consulting revenue
decreased 54.3% to $8.1 million for the first half of 1999 from $17.7 million
for the first half of 1998, due primarily to the decreased demand for site
acquisition and zoning services from PCS licensees, as well as the increasing
acceptance by wireless carriers of outsourced communication site
infrastructure through build-to-suit programs. Site development construction
revenue increased 135.9% to $14.2 million for the first half of 1999 from $6.0
million for 1998, due primarily to the acquisition of Com-Net on April 30,
1999 as well as the expanded activities of our CSSI construction company
subsidiary. Site leasing revenue increased 126.9% to $10.9 million for the
first half of 1999 from $4.8 million for the first half of 1998, due primarily
to the substantially greater number of towers in our portfolio during the
first half of 1999 compared to the first half of 1998.
Total cost of revenue increased 3.3% to $21.8 million for the first half of
1999 from $21.1 million for the first half of 1998. Site development cost of
revenue decreased 7.4% to $16.6 million in the first half of 1999 from $18.0
million in the first half of 1998 due to the decrease in the cost of site
development consulting revenue, which was partially offset by an increase in
the cost of site development construction revenue. Site development consulting
cost of revenue decreased 60.0% to $5.6 million for the first half of 1999
from $14.0 million for the first half of 1998 due primarily to lower revenue.
Site development construction cost of revenue increased to $11.0 million for
the first half of 1999 from $4.0 million for the first half of 1998, due
primarily to the acquisition of Com-Net as well as increased revenues from
CSSI. Site leasing cost of revenue increased 65.2% to $5.2 million for the
first half of 1999 from $3.1 million for the first half of 1998, due primarily
to the increased number of towers owned resulting in an increased amount of
lease payments to site owners.
Gross profit increased 53.7% to $11.3 million for the first half of 1999
from $7.4 million for the first half of 1998, due to increased site leasing
revenue and higher margins associated with the site leasing revenue which was
offset by a decrease in gross profit in site development. Gross profit from
site development decreased 1.7% to $5.6 million in the first half of 1999 from
$5.7 million in the first half of 1998 due to lower site development
consulting gross profit which more than offset increased site development
construction gross profit. Site development consulting gross profit declined
primarily due to decreased revenue. Gross profit margin on site development
consulting increased in the first half of 1999 to 30.5% from 20.6% in the
first half of the 1998 period. Gross profit margin on site development
construction dropped in the first half of 1999 to 22.1% from 34.1% in the
first half of 1998, reflecting the integration of Com-Net which has
historically had gross profit margins in the 15%-20% range and the use by CSSI
of more subcontract labor required by greater levels of activity. Gross profit
for the site leasing business increased 241.0% to $5.7 million in the first
half of 1999 from $1.7 million in the first half of the 1998 period, and site
leasing gross profit margin improved to 52.7% in the first half of 1999 from
35.1% in the first half of 1998. The increased gross profit and improved
margin were both due to the substantially greater number of towers owned in
the first half of the 1999 period and the lease-up of our towers with
additional tenants. As a percentage of total revenues, gross profit increased
to 34.2% of total revenues in first half of 1999 from 25.9% in the first half
of 1998 due primarily to increased levels of higher margin site leasing gross
profit.
Selling, general and administrative expenses remained relatively constant at
$8.9 million for the first half of 1999 and $8.8 million for the first half of
1998. As a percentage of total revenues, selling, general and administrative
expenses decreased to 27.0% for the first half of 1999 from 30.9% in the first
half of 1998.
Depreciation and amortization increased to $6.7 million for the first half
of 1999 as compared to $1.5 million for the first half of 1998. This increase
is directly related to the increased amount of fixed assets (primarily towers)
we owned in the first half of 1999 as compared to the first half of 1998.
Operating loss increased to $(4.3) million for the first half in 1999 from
$(2.9) million for the first half of 1998 as a result of the increased
depreciation and amortization expenses in the first half of 1999, which offset
higher gross profit. Other income (expense) increased to $(12.2) million for
the first half of 1999 from $(4.0) million for the first half of 1998. This
increase resulted primarily from the non-cash amortization of original issue
18
discount associated with the Senior Discount Notes. Net loss was $(17.1)
million for the first half of 1999 as compared to net loss of $(7.5) million
for the first half of 1998.
Basic and diluted loss per common share increased to ($1.60) for the first
half of 1999 from (1.06) for the first half of 1998. This increase was
attributable to increased net interest expense, non-cash amortization of
original issue discount on the Senior Discount Notes, and extraordinary item
offset by a benefit for income taxes. The weighted average number of shares
also increased in the first half of 1999 as compared to the first half of
1998. On a pro forma basis, basic and diluted loss per common share increased
to ($.54) for the first half of 1999 from ($.28) for the first half of 1998.
Liquidity and Capital Resources
SBA Communications Corporation is a holding company with no business
operations of its own. It's only significant asset is the outstanding capital
stock of its subsidiaries. It conducts all its business operations through its
subsidiaries. Accordingly, it's only source of cash to pay its obligations is
distributions with respect to its ownership interest in its subsidiaries from
the net earnings and cash flow generated by such subsidiaries. Even if we
decided to pay a dividend on or make a distribution in respect of the capital
stock of its subsidiaries, there can be no assurance that our subsidiaries
will generate sufficient cash flow to pay such a dividend or distribute such
funds.
Net cash provided by operations during 1999 was $8.1 million compared to
$5.8 million in 1998. Net cash used in investing activities for 1999 was $91.6
million compared to $61.5 million for 1998. This increase is attributable to a
higher level of tower acquisition and new build activity in 1999 versus 1998.
Net cash provided from financing activities for 1999 was $61.7 million
compared to $134.2 million for 1998. The 1999 amount includes the proceeds
from our initial public offering of Class A common stock, while the 1998
amount includes the proceeds of the Senior Discount Notes.
Our balance sheet reflected negative working capital of $(3.4) million as of
June 30, 1999, as compared to positive working capital of $8.1 million as of
December 31, 1998.
In February 1999, we entered into a new Senior Credit Facility through our
Telecommunications subsidiary with a group of lenders. This new $175 million
credit facility, which replaced our prior $55 million credit facility,
consists of a $25 million term loan and a $150 million revolving line of
credit. The term loan was fully funded at closing. Availability under the new
facility is determined by a number of factors including number of towers built
by us with anchor tenants on the date of completion, the financial performance
of our other towers, site development and construction segments, as well as by
other financial covenants, financial ratios and other conditions. The new
credit facility, pursuant to a schedule, matures December 31, 2004 and
amortization and reduced availability begins March 31, 2001. Borrowings under
the new facility will bear interest at the EURO rate plus a margin ranging
from 2.25% to 3.50% (determined by a leverage ratio) or a "base rate" (as
defined in the New Facility) plus a margin ranging from 1.25% to 2.50%
(determined by a leverage ratio). The new credit facility is secured by
substantially all of the assets of Telecommunications and its direct and
indirect subsidiaries, requires Telecommunications to maintain certain
financial covenants and places restriction on, among other things, the
incurrence of debt and liens, disposition of assets, transactions with
affiliates and certain investments. Deferred financing fees related to
obtaining the new Senior Credit Facility were approximately $3.9 million.
Additionally, on March 8, 1999, after receiving the requisite consents from
the holders of our Senior Discount Notes (the "Notes"), we amended the
indenture governing the Notes to increase one of the categories of
indebtedness from $125 million to $175 million. In connection therewith, we
paid $2.1 million to the holders of the Notes. The amount is also reflected in
deferred financing fees. As of June 30, 1999 we had approximately $101 million
of total availability under the Senior Credit Facility, of which $35 million
had been borrowed.
On June 21, 1999 the Company completed an initial public offering of 10.0
million shares of Class A common stock, which number was later increased to
11.3 million by the exercise of an over allotment granted
19
by the Company to the underwriters. The Company originally raised $90 million,
which produced net proceeds after deduction of the underwriting discount and
estimated offering expenses of $82.7 million. The exercise of the over-
allotment raised an additional $11.7 million and produced net proceeds after
deduction of the underwriting discount of $10.9 million. The Company used
approximately $32.8 million of these net proceeds to pay all outstanding
dividends on all outstanding shares of the Company's Series A preferred stock
and to redeem all shares of the Company's Series B preferred stock. The
Company also used $46.0 million to repay all revolving credit loans under the
Senior Credit Facility. Remaining proceeds were used for the construction and
acquisition of towers, and for general working capital purposes. As a result
of our initial public offering, all 8,050,000 shares of Series A preferred
stock were converted into 8,050,000 shares of Class A common stock and we no
longer have any shares of preferred stock outstanding.
In the event that the business acquired in the Com-Net acquisition achieves
certain EBITDA targets in 1999 and 2000, we may be obligated to issue up to
720,000 additional shares of Class A common stock and to pay up to $2.5
million to the former shareholder of Com-Net.
We currently estimate that we will make at least $90 million of capital
expenditures during the remainder of 1999 for the construction and acquisition
of communication sites, primarily towers, and the contingent purchase price
payment related to the acquisition of Com-Net. We expect to use cash from
operations together with proceeds from the initial public offering and
availability under our Senior Credit Facility to fund these capital
expenditures. However, the exact amount of our future capital expenditures
will depend on a number of factors. In 1999, we currently anticipate building
a significant number of towers for which we have non-binding mandates pursuant
to our build-to-suit program. We also intend to continue to explore
opportunities to acquire additional towers, tower companies and/or related
businesses. Our capital expenditures in 1999 will depend in part upon
acquisition opportunities that become available during the period, the needs
of our primary build-to-suit customers and the availability to us of
additional debt or equity capital on acceptable terms. We currently plan for
capital expenditures at the same or higher levels in 2000. These planned
capital expenditures will exhaust our availability under our Senior Credit
Facility sometime in the first six months of 2000 and perhaps sooner,
depending on our level of cash capital expenditures over the twelve months
ended June 30, 2000. In the event that the borrowings under the Senior Credit
Facility have otherwise been used when an acquisition or construction
opportunity arises, we would be required to seek additional debt or equity
financing. We cannot assure you that any such financing will be available on
commercially reasonable terms or at all or that any additional debt financing
would be permitted by the terms of our existing indebtedness.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, 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 in connection with our planned tower build-out and
acquisitions. Based on our current operations and anticipated revenue growth,
we believe that, if our business strategy is successful, cash flow from
operations, the proceeds of the initial public offering, and available
borrowings under the Senior Credit Facility will be sufficient to fund the our
anticipated capital expenditures in fiscal 1999. Thereafter, however, or in
the event we exceed our currently anticipated capital expenditures for 1999,
we anticipate that we will need to seek additional equity or debt financing to
fund our business plan. Failure to obtain any such financing could require us
to significantly reduce our planned capital expenditures and scale back the
scope of our tower build-out or acquisitions, either of which could have a
material adverse effect on our projected financial condition or results of
operations. In addition we may need to refinance all or a portion of our
indebtedness (including the Notes and/or the senior credit facility) on or
prior to its scheduled maturity. We cannot assure you that we will generate
sufficient cash flow from operations in the future, that anticipated revenue
growth will be realized or that future borrowings or equity contributions will
be available in amounts sufficient to service our indebtedness and make
anticipated capital expenditures. In addition, we cannot assure you that we
will be able to effect any required refinancing of our indebtedness (including
the Notes) on commercially reasonable terms or at all.
20
Year 2000
During 1999, we continued our 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 our 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. We are 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.
We have begun implementation of a new financial system. The system is
certified as Year 2000 compliant. In conjunction with this implementation, we
have undertaken the renovation of our operational systems. The testing and
implementation of these systems is scheduled for completion in 1999. Although
we have 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 we share a
material relationship, such as banks and vendors used by us is being reviewed
by management. At this time, we are unaware of any third party Year 2000
issues that would materially effect these relationships or our financial
condition.
We expect to by Year 2000 compliant in 1999 for all major systems. We are
assessing our risks and the full impact on operations if the worst case Year
2000 scenario were to occur. In conjunction with this, we are developing a
contingency plan and expect to complete the development of this plan in 1999.
Inflation
The impact of inflation on our operations has not been significant to date.
However, we cannot assure you that a high rate of inflation in the future will
not adversely affect our operating results.
Senior Discount Note Disclosure Requirements
The indenture governing our 12% Senior Discount Notes due 2008 require
certain financial disclosures for restricted subsidiaries separate from
unrestricted subsidiaries and the disclosure to be made of Tower Cash Flow, as
defined in the indenture, for the most recent fiscal quarter and Adjusted
Consolidated Cash Flow, as defined in the indenture, for the most recently
completed four-quarter period. As of June 30, 1999, we had no unrestricted
subsidiaries. Tower Cash Flow, as defined in the indenture, for the quarter
ended June 30, 1999 was $1.6 million. Adjusted Consolidated Cash Flow for the
year ended June 30, 1999 was $4.5 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business, and in some cases, relate to our acquisition of
related businesses. We are subject to interest rate risk on our credit
facility and any future financing requirements. Our fixed rate debt consists
primarily of the accreted balance of the Senior Discount Notes.
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The following table presents the future principle payment obligations and
weighted average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term debt indebtedness:
1999 2000 2001 2002 2003 Thereafter
---- ------ --------- --------- --------- -----------
Liabilities:
Long-term debt
$269,000,000 Fixed rate
(12.0%)................ -- -- -- -- -- 175,508,675
Term Loan
Variable rate (8.705%
at June 30, 1999)...... -- -- 2,500,000 2,500,000 7,500,000 12,500,000
Revolving Loan
Variable rate (8.6563%
at June 30, 1999)...... -- -- 1,000,000 2,000,000 3,000,000 4,000,000
Note Payable
Variable rate (7.605%
at June 30, 1999)...... -- 25,088 50,176 50,176 50,176 25,087
Our primary market risk exposure relates to (1) the interest rate risk on
long-term and short-term borrowings, (2) our ability to refinance our Senior
Discount Notes at maturity at market rates, (3) the impact of interest rate
movements on our ability to meet interest expense requirements and exceed
financial covenants and (4) the impact of interest rate movements on our
ability to obtain adequate financing to fund future acquisitions. We manage
the interest rate risk on our outstanding long-term and short-term debt
through our use of fixed and variable rate debt. While we cannot predict or
manage our ability to refinance existing debt or the impact interest rate
movements will have on our existing debt, we continue to evaluate our
financial position on an ongoing basis.
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