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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[_] 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
of incorporation or organization) Identification No.)
One Town Center Road 33486
Boca Raton, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 995-7670
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A common
stock $.01 par value
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 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ].
The number of shares outstanding of the Registrant's common stock (as of
March 3, 2000):
Class A Common Stock -- 32,402,490 shares
Class B Common Stock -- 6,566,401 shares
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $1.0 billion as of March 3, 2000.
Documents Incorporated By Reference
Portions of the Registrant's definitive proxy statement for its 2000
annual meeting of shareholders, which proxy statements will be filed no later
than 120 days after the close of the Registrant's fiscal year ended December 31,
1999, are hereby incorporated by reference in Part III of this Annual Report on
Form 10-K.
PART I
ITEM 1. BUSINESS
General
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. We generate revenues from our two primary
businesses--site leasing and site development services. Since our founding in
1989, we have participated in the development of more than 13,000 antenna sites
in 49 of the 51 major wireless markets in the United States. In 1997, we began
aggressively expanding our site leasing business by capitalizing on our
nationally recognized site development experience and strong relationships with
wireless service providers to take advantage of the trend toward colocation and
independent tower ownership. As of December 31, 1999, we owned or controlled
1,163 towers and had letters of intent or definitive agreements to acquire 94
towers. We also had non-binding mandates to build over 335 additional towers for
anchor tenants and had over 700 strategic sites in various phases of
development. In 1998 and 1999 we built, for our own account, 310 and 438 towers.
We believe our history and experience in providing site development services
gives us a competitive advantage in choosing the most attractive locations in
which to build new towers or buy existing towers, as measured by our success in
increasing tower revenues and cash flows. Our same tower revenue growth for 1999
on the 494 towers we owned as of December 31, 1998 was 33% based on tenant
leases executed as of December 31, 1999.
Our primary focus is the leasing of antenna space on our multi-tenant towers
to a variety of wireless service providers under long-term lease contracts. We
lease antenna space on: (1) the towers we construct through build-to-suit
programs; (2) existing sites we acquire; (3) the towers we develop
strategically; and (4) sites we lease, sublease and/or manage for third parties.
Under a build-to-suit program, we build a tower for a wireless service provider.
We retain ownership of the tower and the exclusive right to co-locate additional
tenants on the tower. Many wireless service providers are choosing the build-to-
suit option as an alternative to tower ownership, and we believe that this
outsourcing trend is likely to continue. Our non-binding mandates come from a
variety of wireless carriers, including Alamosa PCS, AT&T Wireless, BellSouth
Mobility DCS, Georgia PCS, Horizon PCS, Southwestern Bell, Sprint PCS and
VoiceStream. We have also grown through selective acquisitions of towers from
smaller independent owners. We also develop towers strategically, for our own
account, by identifying an attractive location and completing all pre-
construction procedures, such as zoning, necessary to secure the site. We then
market the tower site to potential customers.
Our site development business consists of site development consulting and site
development construction. In our site development business, we provide a full
range of end-to-end services which typically occur in five phases: (1) network
pre-design; (2) communication site selection; (3) communication site
acquisition; (4) local zoning and permitting; and (5) site construction, switch
construction and antenna installation. We will continue to use our site
development expertise to complement our site leasing business and secure
additional new tower build opportunities. We have capitalized on our leadership
position in the site development business, our existing national field
organization and our strong relationships with wireless service providers to
develop our build-to-suit and strategic siting programs.
We have a diverse range of customers, including cellular, PCS, wireless data
and Internet services, paging, SMR, and ESMR providers as well as other users of
wireless transmission and reception equipment. Our customers currently comprise
many of the major wireless communications companies, including Airtouch, AT&T
Wireless, Bell Atlantic, BellSouth, Georgia PCS, Horizon PCS, LEAP Wireless,
Metricom, Nextel, Omnipoint, Southwestern Bell, Sprint PCS, Teligent and
VoiceStream.
While we believe that our site development business will grow with the
expected overall growth of wireless and other telecommunications networks, we
believe our revenues and gross profit from the consulting segment of that
business will continue to decline as carriers find new ways to obtain network
development through outsourced tower ownership. We also believe that, over the
longer term, our site leasing revenues will continue to increase due to the same
outsourcing trend and as the number of towers we own or control grows.
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Business Strategy
Our strategy is to lease antenna space to multiple tenants on towers that we
construct or acquire. We plan to enhance our position as a leading owner and
operator of communication sites and provider of site development services. Key
elements of our strategy include:
. Maximizing Use of Tower Capacity. We believe that many of our towers
have or will have significant capacity available for antenna space leasing
and that increased use of our owned towers can be achieved at a low
incremental cost. We generally construct our towers to accommodate multiple
tenants in addition to the anchor tenant, and a substantial majority of our
towers are high capacity lattice or guyed towers. We actively market space
on our own towers through our internal sales force.
. Developing New Towers That We Will Own and Operate. As wireless service
providers increasingly outsource their investment in, and ownership of,
towers, we can meet their outsourcing needs by using our expertise and
relationships in the site development business to construct towers with
anchor tenants through build-to-suit programs. We can also independently
identify attractive locations for new towers and strategically complete
pre-construction procedures necessary to secure tower sites in advance of
customer demand. We believe that we have one of the largest number of non-
binding build-to-suit mandates from wireless service providers in the
industry. As of December 31, 1999, we had non-binding mandates to build
over 335 additional towers under build-to-suit programs for carriers. Under
our build-to-suit programs, we have built towers for many carriers,
including AT&T Wireless, BellSouth Mobility DCS, GTE, LEAP Wireless,
Nextel, Omnipoint, PrimeCo PCS, Southwestern Bell, Sprint PCS, Tritel PCS
and VoiceStream. As of December 31, 1999, we were in varying stages of
development on over 700 additional sites which we believe will be
attractive locations for new tower construction. In 1999, we built 438
towers for our own account.
. Acquiring Existing Towers. We believe that our existing national field
organization gives us a competitive advantage in identifying opportunities
for the acquisition of existing towers. Our strategy is to acquire towers
that can service multiple tenants and are attractive to wireless service
providers based on their location, height and available capacity. While we
generally target smaller acquisitions, we believe that there are many
potential acquisition candidates and that the number of available towers
will grow as large cellular, PCS and other wireless service providers
continue to divest their tower holdings. We have strict valuation criteria
and believe that certain tower properties can be purchased at reasonable
price levels. In 1999, we acquired 231 towers. As of December 31, 1999, we
had letters of intent or definitive agreements to acquire 94 towers in 23
separate transactions for an aggregate purchase price of approximately
$39.2 million.
. Execute on a Local Basis. We believe that substantially all of what we do
is best done locally, given the nature of towers as location specific
communications facilities. We believe that to be successful in tower
building, acquisition and leasing, and site acquisition, zoning and
construction, we must have strong local presences in the markets we serve.
Operationally, we have divided our Company into five regions throughout the
United States, run by regional managers, and have further divided each
region into approximately five to seven geographic territories run by
territory managers. We have separate regional and territory managers for
(i) our site leasing and site development consulting businesses, and (ii)
our site development construction business. Within each territory
manager's geographic area of responsibility he or she is responsible for
all operations, including hiring employees and opening or closing project
offices, and a substantial portion of the sales in such area.
. Building on Strong Relationships with Major Wireless Service Providers.
We are well-positioned to be a preferred partner in build-to-suit programs,
site development projects and tower space leasing because of our strong
relationships with wireless service and other telecommunications providers
and our proven operating experience. In many cases, the personnel awarding
site development projects for wireless
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service providers are the same personnel who make decisions with respect to
build-to-suit programs. We continually market our build-to-suit programs to
our site development service customers.
. Maintaining our Expertise in Site Development Services. We continue to
perform an array of site development services for wireless service and
other telecommunications providers across the United States, including AT&T
Wireless, BellSouth, Georgia PCS, Horizon PCS, IXC Communications, LEAP
Wireless, Media One Group, Metricom, Nextel, Pacific Bell Mobile Services,
Southwestern Bell, Sprint PCS and VoiceStream. We have a broad national
field organization that allows us to identify and participate in site
development projects across the country and that gives us a knowledge of
local markets and strong customer relationships with wireless service and
other telecommunications providers. We believe our site development
experience provides us with a competitive advantage in selecting the best
locations for tower ownership.
. Capitalizing on Management Experience. Our management team has extensive
experience in site leasing and site development services. Management
believes that its industry expertise and strong relationships with wireless
carriers will allow us to continue to build and acquire a high quality
portfolio of towers. Steven E. Bernstein, our President and Chief Executive
Officer, has more than 13 years of experience in the wireless
communications industry and our other executive officers have an average of
approximately five years of experience in this industry. In addition,
management is highly motivated to produce strong operating results based on
their significant equity ownership.
Company Services
We are a leading independent provider of communication sites and services,
offering an array of site leasing and site development services to the
telecommunications industry, primarily to wireless service providers. We offer
our customers the flexibility of choosing between the provision of a full ready-
to-operate site or any of the component services involved in the operation of a
full ready-to-operate site. The site leasing services we provide include owning,
leasing or managing communication sites and leasing antenna space on
communication sites to wireless service providers. The site development services
we provide, directly or through subcontractors, include all activities
associated with the selection, acquisition and construction of communication
sites for wireless service providers and switching facilities for a broader
group of telecommunications providers.
We provide our services on a local basis, through regional offices, territory
offices and project offices, which are opened and closed on a project by project
basis. Through these non-headquarters, or "field" offices, we provide and manage
all of our site development services, source new tower build and acquisition
opportunities, manage our new tower builds, service and maintain our towers, and
engage in certain sales activities. In our Boca Raton, Florida headquarters
office are our executive, corporate development, accounting, finance, human
resources, legal and regulatory, information technology, and site administration
personnel, as well as our network operations center. We also have in our Boca
Raton office certain sales, new tower build support, and tower maintenance
personnel.
Site Leasing Business
The site leasing business consists of:
. the ownership of communication sites pursuant to build-to-suit programs,
strategic builds and acquisitions;
. the leasing or subleasing of antenna space on communication sites to
wireless service providers; and
. the maintenance and management of communication sites.
4
We lease and sublease antenna space on our communication sites to a variety of
wireless service providers. We own or lease the ground under these communication
sites from third parties, and in some cases manage communication sites for third
parties in exchange for a percentage of the revenues or tower cash flow. We
determine tower cash flow by subtracting from gross tenant revenues the direct
expenses associated with operating the communication site, such as ground lease
payments, real estate taxes, utilities, insurance and maintenance. The
substantial majority of our owned or controlled towers are the result of build-
to-suit programs. In our build-to-suit programs, we use some or all of the five
phases of our site development business as we would when providing site
development services to a third party.
After a tower has been constructed, we lease antenna space on the tower. We
generally receive monthly lease payments from customers payable under written
antenna site leases. The majority of our outstanding customer leases, and the
new leases we typically enter into, have original terms of five years (with four
or five renewal periods of five years each) and usually provide for annual or
periodic price increases. Monthly lease pricing varies with the number and type
of antenna installed on a communication site. Broadband customers such as PCS,
cellular or ESMR generally pay substantially more monthly rent than paging or
other narrowband customers. We also provide a lease/sublease service as part of
our site leasing business whereby we lease space on a communication site and
sublease the space to a wireless service provider.
We believe that the site leasing portion of our business has significant
potential for growth, and we intend to expand our site leasing business through
increasing activity from our new tower builds and selective acquisitions. Our
tower portfolio has continued to grow from 51 at year-end 1997 to 494 in 1998 to
1,163 in 1999. In 1999, we added 1,460 tenants on our towers, ending the year
with 2,860 tenants.
5
The following table indicates the number of our acquired and built towers on a
state by state basis as of December 31, 1999:
New
---
Location of Towers Acquired Builds Total % of Total
------------------ -------- ------ ----- ----------
North Carolina............ 2 116 118 10.1%
Tennessee................. 23 87 110 9.5
South Carolina............ 2 107 109 9.4
Georgia................... 9 90 99 8.5
Ohio...................... 55 22 77 6.6
Florida................... 44 21 65 5.6
Texas..................... 32 29 61 5.2
New York.................. 41 17 58 5.0
Pennsylvania.............. 26 21 47 4.0
Wisconsin................. 9 36 45 3.9
Alabama................... 10 25 35 3.0
Oklahoma.................. 12 21 33 2.8
Virginia.................. 3 30 33 2.8
Connecticut............... 2 26 28 2.4
Kentucky.................. 11 13 24 2.1
Michigan.................. 2 22 24 2.1
Missouri.................. 16 5 21 1.8
Minnesota................. 16 4 20 1.7
Illinois.................. 10 5 15 1.3
Massachusetts............. 3 9 12 1.0
Iowa...................... 8 3 11 *
Louisiana................. 11 0 11 *
West Virginia............. 10 1 11 *
Mississippi............... 10 0 10 *
Oregon.................... 0 10 10 *
New Hampshire............. 0 9 9 *
Colorado.................. 7 1 8 *
Delaware.................. 0 8 8 *
Indiana................... 3 3 6 *
Kansas.................... 6 0 6 *
Maryland.................. 0 6 6 *
Nebraska.................. 1 5 6 *
New Mexico................ 6 0 6 *
Arkansas.................. 3 1 4 *
New Jersey................ 1 3 4 *
South Dakota.............. 3 0 3 *
California................ 2 0 2 *
Rhode Island.............. 0 2 2 *
Washington................ 0 2 2 *
Arizona................... 0 1 1 *
Idaho..................... 0 1 1 *
North Dakota.............. 1 0 1 *
Utah...................... 0 1 1 *
--- --- ----- ----
Total................... 400 763 1,163 100%
=== === ===== ====
__________
. Less than 1%.
6
Build-to-Suit Programs
Under our build-to-suit programs, we generally construct towers only after
having signed an antenna site lease agreement with an anchor tenant and having
made the determination that the initial or planned capital investment for those
towers would not exceed a targeted multiple of expected tower cash flow from
those towers after a certain period of time. In selling our build-to-suit
programs, our personnel use their existing relationships in the wireless
communications industry to target wireless service providers interested in
outsourcing their network buildout. We make proposals for build-to-suit towers
in response to competitive bids or specific requests and in circumstances where
we believe the provider would have an interest in build-to-suit towers. Although
the terms vary from proposal to proposal, we typically sign a five-year lease
agreement with an anchor tenant, with four or five additional five-year renewal
periods at the option of the lessee. While the proposed monthly rent also
varies, broadband customers such as PCS, cellular or ESMR generally pay more
than the aggregate monthly rent paid by paging or other narrowband customers. In
addition, anchor tenants will typically pay lower monthly rents than subsequent
tenants of a similar type service. In some cases, an anchor tenant may also
enjoy an introductory lease rate for a period of time.
If a wireless provider accepts the terms of the proposal submitted by us, the
provider will award us a non-binding mandate to pursue specific sites. Based on
the status of the geographic areas we have been given a mandate to pursue, we
will perform due diligence investigations for a designated period during which
time we will analyze the site based on a number of factors, including colocation
opportunities, zoning and permitting issues, economic potential of the site,
difficulty of constructing a multi-tenant tower and remoteness of the site.
These mandates are non-binding agreements and either party may terminate the
mandate at any time.
If, after our due diligence investigation during the mandate, we conclude that
it is economically feasible to construct the towers requested by the wireless
service provider, we will enter into an antenna site lease agreement with the
provider. In certain limited circumstances we are contractually obligated to
build a tower for the carrier regardless of the outcome of our due diligence
investigation. We have negotiated several master build-to-suit agreements,
including antenna site lease terms, with providers in specific markets that we
believe will facilitate our obtaining build-to-suit programs from these
providers in those markets. The antenna site lease agreements typically provide
that all obligations are conditioned on our receiving all necessary zoning
approvals where zoning remains to be obtained. Certain of the antenna site lease
agreements contain penalty or forfeiture provisions in the event the tower is
not completed within specified time periods.
Strategic Siting
Our strategic siting activities focus on developing new towers in locations
chosen by us, instead of by an anchor tenant in a build-to-suit program. As of
December 31, 1999, of our total 763 new builds, 103 were through our strategic
siting programs, and we expect this number to grow in the future. We try to
identify attractive locations for new towers and complete pre-construction
procedures necessary to secure the site in advance of demand from a specific
customer. We may invest in the zoning and permitting of these strategic sites,
and even the construction of the towers, when we have not yet obtained an anchor
tenant if we believe that demand for the site will exist in the near term, or
that a competitor of ours may acquire the site if we wait until an anchor tenant
is secured. We may also build a strategic site without a tenant for competitive
or zoning reasons. However, we generally will not build a tower on a strategic
site until we have signed a lease with a tenant. We are limited under the terms
of our senior credit facility to building towers on strategic sites without
signed tenants to a number not exceeding 7% of our total tower portfolio at any
time.
Acquisitions
We actively pursue acquisitions of communication sites. Our acquisition
strategy, like our new build strategy, is financially-oriented as opposed to
geographically or customer-oriented. Our goal is to acquire towers that have an
initial or planned capital investment not exceeding a targeted multiple of
expected tower cash flow from the
7
acquired towers after a certain period of time. We determine tower cash flow by
subtracting from gross tenant revenues the direct expenses associated with
operating the communication site, such as ground lease payments, real estate
taxes, utilities, insurance and maintenance.
Our dedicated mergers and acquisitions personnel direct our acquisition
activities and are responsible for identification, negotiation, documentation
and consummation of acquisition opportunities, as well as the coordination and
management of independent advisors and consultants retained by us from time to
time in connection with acquisitions. In addition to our mergers and
acquisitions personnel, we rely on our national field representatives to
identify potential acquisitions. Our field representatives identify generally
smaller acquisition prospects, involving one to ten towers, and often provide us
with the exclusive opportunity to structure and consummate a transaction with
the potential seller. We believe that our field representatives and knowledge of
potential acquisition candidates gained through our substantial site development
business experience provide us with a competitive advantage. This information
will permit us to identify and consummate acquisitions on more favorable terms
than would be available to us through competitively-bid or brokered acquisition
prospects. As is the case with our new tower builds, our focus is to acquire
multi-tenant communication sites with under-used capacity in locations that we
believe will be attractive to wireless service providers that have not yet built
out their service in these locations.
Lease/Sublease
Under our lease/sublease program, we lease antenna space on a communication
site and then sublease the space to wireless service providers. When these
lease/subleases were first signed, these providers chose the financial benefits
associated with the lease/sublease program, which include reduced capital
expenditures, as compared to paying for site development services on a fee
basis. Wireless paging providers comprise a significant majority of customers
who sublease antenna sites from us. The subleases generally have original terms
of five years, with four or five renewal periods of five years each at the
option of the lessee, and usually provide for annual or periodic price
increases.
Maintenance and Management
Once acquired or constructed, we maintain and manage our communication sites
through a combination of in-house personnel and independent contractors. We also
manage communication sites for third parties. In-house personnel are responsible
for oversight and supervision of all aspects of site maintenance and management,
and are particularly responsible for monitoring security access and lighting, RF
emission and interference issues, signage, structural engineering and tower
capacity, tenant relations and supervision of independent contractors. We hire
independent contractors locally to perform routine maintenance functions such as
landscaping, pest control, snow removal, vehicular access, site access and
equipment installation oversight. We engage independent contractors on a fixed
fee or time and materials basis or, in a few limited circumstances where these
contractors were sellers of towers to us, for a percentage of tower cash flow.
Our network operations center in Boca Raton, Florida centrally monitors
security access and lighting for our towers, as well as other functions. As the
number of communication sites we own and manage increases, we anticipate
incurring greater expenditures to expand our maintenance infrastructure,
including expenditures for personnel and computer hardware and software. We
expect these expenditures to be marginal compared to the anticipated increased
revenues from site leasing.
Site Development Business
We offer various site development services to our customers including network
predesign, site selection, site acquisition, zoning and permitting, and
construction and installation. These services are the same ones we employ for
our own benefit when we build towers for our ownership.
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Once we are awarded a site development project, we dispatch a site development
team to the project site and establish a temporary field office for the duration
of the project. The site development team is typically composed of our permanent
employees and supplemented with local hires employed only for that particular
project. A team leader is assigned to each phase of the site development project
and reports to a project manager who oversees all team leaders. Upon the
completion of a site development project, the project office is typically closed
and all of our permanent employees are either relocated to another project or
directed to return to one of our offices.
We generally set prices for each site development service separately.
Customers are billed for these services on a fixed price or time and materials
basis and we may negotiate fees on individual sites or for groups of sites.
We provide tower construction, antenna installation and terminal switch
construction on a turnkey basis throughout the United States through our
construction subsidiary, Com-Net Construction Services, Inc. We began offering
direct, as opposed to subcontracted, construction services in 1997 with our
acquisition of Communications Site Services, Inc., (later merged into ComNet
Construction Services, Inc.) which provided us with in-house tower construction
and antenna installation capability. We expanded our operations through the
acquisition of Com-Net Construction Services, Inc. in 1999 to include additional
tower construction and antenna installation capability, as well as the ability
to construct terminal switches for competitive local exchange carriers, Internet
service providers and other telecommunications providers.
We currently provide all of our construction services under the name of Com-
Net Construction Services, Inc. Com-Net provides development and construction
services, including clearing sites, laying foundations and electrical and
telecommunications lines, constructing terminal switches, equipment shelters and
towers. We have constructed and expect to continue to construct a portion of our
towers in the future, and provide antenna installation services for tenants on
our towers. In addition to building our own towers, we have designed and built
tower sites for a number of customers, including AT&T Wireless, BellSouth
Cellular Corporation, GTE, Nextel and Sprint PCS. We believe we cost-effectively
and timely complete construction projects, in part, because our site development
personnel are cross-trained in all areas of site development, construction and
antenna installation.
Customers
Since commencing operations, we have performed site leasing and site
development services for many of the largest wireless service providers. The
majority of our contracts have been for PCS broadband, ESMR, cellular and paging
customers. We also serve wireless data and Internet, PCS narrowband, SMR,
multichannel multipoint distribution service, or MMDS, and multipoint
distribution service, or MDS, wireless providers. In both our site development
and site leasing businesses, we work with large national providers and smaller
local, regional or private operators. In 1998, our largest site development
customers were Sprint PCS, BellSouth Mobility DCS and Pacific Bell Mobile
Services, representing 41.3%, 23.8% and 13.5%, respectively. For the year ended
December 31, 1999, Sprint PCS and BellSouth provided 20.8% and 13.9% of our site
development revenues. PageNet represented 33.4% of our site leasing revenue for
1998 and 16.5% for the year ended December 31, 1999. These PageNet revenues
come primarily from our lease/sublease component of our site leasing business.
For the year ended December 31, 1999 our other major site leasing customers were
Nextel, Sprint PCS, and BellSouth Mobility DCS, representing 9.3%, 9.3%, and
8.8%, respectively. No other customer represented more than 10.0% of our
revenues.
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During the past two years, we provided services for a number of customers,
including:
Aerial Communications Pacific Bell Mobile Service
Airtouch PageNet
ALLTEL Powertel
AT&T Wireless Services PrimeCo PCS
Bell Atlantic NYNEX Mobile Systems Southwestern Bell
BellSouth Mobility DCS Sprint PCS
Horizon PCS Telecorp PCS
IXC Communications Teligent
KMC Telecom Tritel PCS
LEAP Wireless Triton PCS
MediaOne Group 360 Communications Company
Metricom US West Communication
Nextel VoiceStream
Omnipoint WinStar
Sales and Marketing
Our sales and marketing goals are:
. to continue to grow our site leasing business;
. to further cultivate existing customers to obtain mandates for
build-to-suit programs as well as to sell site development services;
. to use our contacts and industry knowledge to better identify attractive
locations for new tower builds;
. to use existing relationships and develop new relationships with wireless
service providers to lease antenna space on our owned or managed
communication sites;
. to form affiliations with select communications systems vendors who use
end-to-end services, including those provided by us, which will enable us
to market our services and product offerings through additional channels of
distribution; and
. to sustain a market leadership position in the site development business.
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to position
ourselves for additional site development business. We have leveraged these
attributes to obtain build-to-suit mandates, and we expect to continue to do so
in the future. We also use these attributes to identify attractive locations to
build towers on strategic sites.
We approach sales on a company-wide basis, involving many of our employees.
We have a dedicated sales force which is supplemented by members of our
executive management team. Our dedicated salespeople are based regionally as
well as in the corporate office. We also rely on our regional managers,
territory managers and other operations personnel to sell our services and
cultivate customers. Our strategy is to delegate sales efforts to those
employees of ours who have the best relationships with the wireless service
providers. Most wireless service providers have national corporate headquarters
with regional offices. We believe that most decisions for site development and
site leasing services are made by providers at the regional level with input
from their corporate headquarters. Our sales representatives work with provider
representatives at the local level and at the national level when appropriate.
Our sales staff compensation is heavily weighted to incentive-based goals and
measurements. A substantial number of our operations personnel have sales-based
incentive components in their compensation plans.
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In addition to our marketing and sales staff, we rely upon our executive and
operations personnel on the national and field office levels to identify sales
opportunities within existing customer accounts, as well as acquisition
opportunities.
Our primary marketing and sales support is centralized and directed from our
headquarters office in Boca Raton, Florida and is supplemented by our regional
and territory offices. We have a full-time staff dedicated to our marketing
efforts. The marketing and sales support staff are charged with implementing our
marketing strategies, prospecting and producing sales presentation materials and
proposals.
Competition
We compete for site leasing tenants with:
. wireless service providers that own and operate their own tower footprints
and lease, or may in the future decide to lease, antenna space to other
providers;
. site development companies that acquire antenna space on existing towers
for wireless service providers, manage new tower construction and provide
site development services;
. other large independent tower companies; and
. smaller local independent tower operators.
Wireless service providers that own and operate their own tower networks
generally are substantially larger and have greater financial resources than we
do. We believe that tower location and capacity, price, quality of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting the site leasing business.
We also compete for development and new tower construction opportunities with
wireless service providers, site developers and other independent tower
operating companies and believe that competition for site development will
increase and that additional competitors will enter the tower market, some of
which may have greater financial resources than we do.
The following is a list of our primary competitors for new tower builds and
tower acquisitions: American Tower Corporation, Crown Castle International
Corp., Lodestar Communications, Pinnacle Tower, Spectrum Resources and
SpectraSite Communications.
We believe that the majority of our competitors in the site development
business operate within local market areas exclusively, while some firms appear
to offer their services nationally, including American Tower Corporation,
Bechtel, Black & Veach, Mastec, NLS, Pyramid and SpectraSite Communications. The
market includes participants from a variety of market segments offering
individual, or combinations of, competing services. The field of competitors
includes site development consultants, zoning consultants, real estate firms,
right-of-way consulting firms, construction companies, tower owners/managers,
radio frequency engineering consultants, telecommunications equipment vendors,
which provide end-to-end site development services through multiple
subcontractors, and providers' internal staff. We believe that providers base
their decisions on site development services on a number of criteria, including
a company's experience, track record, local reputation, price and time for
completion of a project. We believe that we compete favorably in these areas.
Employees
As of December 31, 1999, we had 582 employees, none of whom is represented by
a collective bargaining agreement. We consider our employee relations to be
good. Due to the nature of our business, we experience a "run-up" and "run-down"
in the number of employees as site development projects are completed in one
area of the country and are commenced in a different area.
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Regulatory and Environmental Matters
Federal Regulations. Both the FCC and FAA regulate towers used for wireless
communications transmitters and receivers. These regulations control the siting
and marking of towers and may, depending on the characteristics of particular
towers, require prior approval and registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, the FCC, in
conjunction with the FAA, has developed standards to consider proposals for new
or modified antennas. These standards mandate that the FCC and the FAA consider
the height of proposed antennas, the relationship of the structure to existing
natural or man-made obstructions and the proximity of the antennas to runways
and airports. Proposals to construct or to modify existing antennas above
certain heights are reviewed by the FAA to ensure the structure will not present
a hazard to aviation. The FAA may condition its issuance of a no-hazard
determination upon compliance with specified lighting and/or marking
requirements. The FCC will not license the operation of wireless
telecommunications devices on towers unless the tower has been registered with
the FCC or a determination has been made that a registration is not necessary.
The FCC will not register a tower unless it has been cleared by the FAA. The FCC
may also enforce special lighting and painting requirements. Owners of wireless
transmissions towers may have an obligation to maintain painting and lighting to
conform to FCC standards. Tower owners also bear the responsibility of notifying
the FAA of any tower lighting outage. In addition, any applicant for an FCC
antenna structure registration must certify that, consistent with the Anti-Drug
Abuse Act of 1988, neither the applicant nor its principals have been convicted
of a federal drug crime. We generally indemnify our customers against any
failure to comply with applicable regulatory standards. Failure to comply with
the applicable requirements may lead to civil penalties.
The Telecommunications Act of 1996 amended the Communications Act of 1934 by
preserving state and local zoning authorities jurisdiction over the
construction, modification and placement of towers. The new law, however, limits
local zoning authority by prohibiting any action that would (1) discriminate
between different providers of personal wireless services or (2) ban altogether
the construction, modification or placement of radio communication towers.
Finally, the Telecommunications Act of 1996 requires the federal government to
help licensees for wireless communications services gain access to preferred
sites for their facilities. This may require that federal agencies and
departments work directly with licensees to make federal property available for
tower facilities.
Owners and operators of antennas may be subject to, and therefore must comply
with, environmental laws. The FCC's decision to license a proposed tower may be
subject to environmental review pursuant to the National Environmental Policy
Act of 1969, which requires federal agencies to evaluate the environmental
impacts of their decisions under certain circumstances. The FCC has issued
regulations implementing the National Environmental Policy Act. These
regulations place responsibility on each applicant to investigate any potential
environmental effects of operations and to disclose any significant effects on
the environment in an environmental assessment prior to constructing a tower. In
the event the FCC determines the proposed tower would have a significant
environmental impact based on the standards the FCC has developed, the FCC would
be required to prepare an environmental impact statement, which will be subject
to public comment. This process could significantly delay the registration of a
particular tower.
As an owner and operator of real property, we are subject to certain
environmental laws that impose strict, joint and several liability for the
cleanup of on-site or off-site contamination and related personal or property
damages. We are also subject to certain environmental laws that govern tower
placement, including pre-construction environmental studies. Operators of towers
must also take into consideration certain RF emissions regulations that impose a
variety of procedural and operating requirements. The potential connection
between RF emissions and certain negative health effects, including some forms
of cancer, has been the subject of substantial study by the scientific community
in recent years. To date, the results of these studies have been inconclusive.
We believe that we are in substantial compliance with and we have no material
liability under any applicable environmental laws. These costs of compliance
with existing or future environmental laws and liability related thereto may
have a material adverse effect on our prospects, financial condition or results
of operations.
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State and Local Regulations. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, we conduct the site
acquisition portions of our site development services business through licensed
real estate brokers or agents, who may be our employees or hired as independent
contractors. Local regulations include city and other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local zoning authorities generally have been hostile to
construction of new transmission towers in their communities because of the
height and visibility of the towers.
RISK FACTORS
We may not secure as many site leasing tenants as planned.
We may not be successful in growing our site leasing business. Our success
depends to a large extent on our management's expectations and assumptions
concerning future tenant demand for independently-owned communication sites and
numerous other factors, many of which are beyond our control. Any material error
in any of these expectations or assumptions could have a material adverse effect
on our growth rate. Because most of our towers are newly constructed, and
because these towers have little or no positive cash flow at the time of their
construction, the risks of lower tenant demand for tower space are much greater
for us than for a tower company which has grown its portfolio by acquiring
towers with existing cash flow.
We compete for site leasing tenants with: (1) wireless service providers that
own and operate their own tower infrastructure and lease, or may in the future
decide to lease, antenna space to other providers; (2) site development
companies that acquire antenna space on existing towers for wireless service
providers, manage new tower construction and provide site development services;
(3) other large independent tower companies; and (4) smaller local independent
tower operators. Wireless service providers that own and operate their own tower
infrastructure generally are substantially larger and have greater financial
resources than we do. Several of the independent tower companies also have
larger tower infrastructure and greater financial resources than we do. We
believe that tower location and capacity, price, quality of service and density
within a geographic market historically have been and will continue to be the
most significant competitive factors affecting the site leasing business.
The number of towers we build, the number of tenants we add to our towers and
our site development business revenues fluctuate from quarter to quarter.
The number of towers we build, the number of tenants we add to our towers and
the demand for our site development services fluctuate from period to period and
within periods. Numerous factors cause these fluctuations, including:
. the timing of our customers' capital expenditures;
. the number and significance of active customer engagements during a
quarter;
. delays incurred in connection with a project or a tenant installation of
equipment;
. employee hiring;
. the use of consultants; and
. the rate and volume of wireless service providers' tower build-outs.
While the demand for our site development services fluctuates, we incur
significant fixed costs, such as maintaining a staff and office space in
anticipation of future contracts, even when there is no current business. The
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timing of revenues is difficult to forecast as our sales cycle can be relatively
long and may depend on factors such as the size and scope of assignments,
budgetary cycles and pressures and general economic conditions. With respect to
new tenant leases, in some cases revenue commencement trails execution of the
lease due to contractual terms, which are typical in the industry, and which
provide for revenue to commence upon installation of the tenant's equipment on
the tower, which can be 90 days or more after the execution of the lease.
Seasonal factors, such as weather, vacation days and total business days in a
quarter, and the business practices of customers, such as deferring commitments
on new projects until after the end of the calendar year or the customers'
fiscal year, may add to the variability of new tower builds and revenues and
could have a material adverse effect on our growth rate, prospects, financial
condition or results of operations. Consequently, the number of towers we build
and the operating results of our site leasing and development businesses for any
particular period may vary significantly, and should not be considered as
indicative of long-term results.
We face zoning and other restrictions on our ability to construct new towers.
Our growth strategy depends on our ability to construct and operate towers in
a timely and cost-effective manner. A number of factors beyond our control can
affect our ability to construct new towers, including:
. zoning and local permitting requirements;
. Federal Aviation Administration considerations;
. availability of tower components and construction equipment;
. skilled construction personnel; and
. bad weather conditions.
In addition, as the concern over tower proliferation has grown in recent years,
certain communities have placed restrictions on new tower construction or have
delayed granting permits required for construction. We cannot assure you (1)
that there will be a significant need for the construction of new towers once
existing wireless service providers complete their tower infrastructure build-
out, (2) of the number of mandates that we will be awarded or the number of
mandates that will result in constructed towers, (3) that we will be able to
overcome regulatory or other barriers to new construction or (4) that the number
of towers planned for construction will be completed in accordance with the
requirements of our customers. Certain of our anchor tenant leases contain
penalty or forfeiture provisions in the event we do not complete the towers
within specified time periods.
We face increasing competition for new tower opportunities and acquisitions of
existing towers.
We compete for new tower opportunities primarily with site developers,
wireless carriers and other independent tower companies. We believe that
competition for new tower opportunities will increase and that additional
competitors will enter the tower market. Some of these additional competitors
have or are expected to have greater financial resources than we do.
Our growth strategy depends on our ability to acquire and operate existing
towers not built by us to augment our existing tower network. Increased
competition for acquisitions may result in fewer acquisition opportunities for
us and higher acquisition prices. We regularly explore acquisition
opportunities, and we are currently actively negotiating to acquire additional
towers. As of December 31, 1999, we had letters of intent or definitive
agreements to acquire 94 towers in 23 separate transactions from an aggregate
purchase price of approximately $39.2 million.
We may not be able to identify, finance and complete future acquisitions of
towers or tower companies on acceptable terms or may not be able to profitably
manage and market available space on any towers that we acquire. We may also
face challenges in integrating newly acquired towers or tower companies and may
face
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difficulties in retaining current lessees on newly acquired towers. The extent
to which we are unable to construct or acquire additional towers, or profitably
manage these tower operations, may have a material adverse effect on our results
of operations.
We are not profitable and expect to continue to incur losses.
We incurred net losses of $19.9 million for the year ended December 31, 1998
and $34.6 million for the year ended December 31, 1999. Our losses are
principally due to significant depreciation, amortization and interest expense.
We have not achieved profitability and expect to continue to incur losses for
the foreseeable future.
Our mandates may not yield binding agreements.
As of December 31, 1999, we had non-binding mandates to build over 335 towers
under build-to-suit programs for wireless service providers. Although we believe
that the majority of these non-binding mandates will result in long-term anchor
leases for specific communication towers, there are a number of steps that need
to occur before any leases are executed. These steps include, in some cases,
finalizing build-out plans by the customers who have awarded the mandates,
completing due diligence by us and our customers and finalizing other definitive
documents between the parties. As a result, we cannot assure you as to the
percentage of current and future non-binding mandates that will ultimately
result in binding anchor tenant leases and constructed towers.
We expect revenues from the consulting segment of our site development business
to continue to decline.
Our growth strategy is primarily focused on expanding our site leasing
business, as opposed to our site development business. However, you should be
aware that a substantial portion of our revenues has historically come from the
consulting segment of our site development business. We believe that wireless
service providers have begun to move away from the traditional build-out formula
where those providers contract for site development services for a fee and
invest the capital necessary to build and own their own network of
communications towers. We believe that the use of build-to-suit programs is
rapidly becoming the preferred method of wireless network expansion. As wireless
service providers have moved away from the traditional build-out formula, our
site development revenues from the consulting segment declined in each of 1997,
1998 and 1999, and we could experience a further decline in 2000. We expect
this trend to continue for the foreseeable future as our customers continue to
move toward build-to-suit programs and other outsourcing alternatives and away
from wireless service provider-funded site development and ownership.
We will need to seek additional financing to fund our business plan.
Our business strategy contemplates substantial capital expenditures in
connection with the expansion of our tower infrastructure by agreeing with
wireless carriers to assume ownership or control of their existing towers, by
pursuing build-to-suit opportunities and by exploring other tower acquisition
opportunities.
Our cash capital expenditures for the year ended December 31, 1999 were $208.9
million. We currently estimate that we will make at least $200.0 million to
$250.0 million of cash capital expenditures in fiscal year 2000 for the
construction and acquisition of communication sites, which will consist
primarily of towers. Based on our current operations and anticipated revenue
growth, we believe that, if our business strategy is successful, cash flow from
operations and available cash, together with available borrowings under our
senior credit facility, will be sufficient to fund our anticipated cash capital
expenditures through the middle of 2001. Thereafter, however, or in the event we
exceed our currently anticipated cash capital expenditures by the middle of
2001, or are unable to fully draw on our senior credit facility, we anticipate
that we will need to seek additional equity or debt financing to fund our
business plan. Additional financing may not be available on commercially
acceptable terms or at all, and additional debt financing may not be permitted
by the terms of our existing indebtedness, including our senior
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discount notes. Prior to March 1, 2003, interest expense on our outstanding
senior discount notes will consist solely of non-cash accretion of original
issue discount and these notes will not require cash interest payments. After
that time, our outstanding senior discount notes will have accreted to $269.0
million and will require annual cash interest payments of approximately $32.3
million. If we are required to issue additional common equity to finance our
capital expenditures, it could be dilutive to our existing shareholders. To the
extent we are unable to finance future capital expenditures, we will be unable
to achieve our currently contemplated business goals.
The expansion of our business may strain our resources.
Expanding our business may impose significant strains on our management,
operating systems and financial resources. In addition, we anticipate that our
operating expenses may increase during the next few years from their 1999 levels
as we construct and acquire additional tower assets. Our failure to manage our
growth or unexpected difficulties encountered during expansion could have a
material adverse effect on our results of operations. The pursuit and
integration of new tower build-outs in addition to future acquisitions,
investments, joint ventures and strategic alliances will require substantial
attention from our senior management, which will limit the amount of time
available to devote to our existing operations.
From January 1, 1995 to December 31, 1999, our work force increased from 82 to
582 employees. This growth has placed, and will likely continue to place, a
substantial strain on our administrative, operational and financial resources.
In addition, as part of our business strategy, we may acquire complementary
businesses or expand into new businesses. We may not be able to manage our
growth successfully and our management, personnel or operational and financial
control systems may not be adequate to support expanded or complementary
operations. Any of these inabilities or inadequacies could have a material
adverse effect on our growth rate, prospects, financial condition or results of
operations.
If demand for wireless communication services decreases, our revenue will be
adversely affected.
Substantially all of our customers to date have been providers of wireless
communications services and, therefore, our success is dependent on their
success. Demand for our services is dependent on demand for communication sites
from wireless service providers, which, in turn, is dependent on the demand for
wireless services. A slowdown in the growth of, or reduction in demand, in a
particular wireless communication segment could adversely affect the demand for
communication sites. Most types of wireless services currently require ground-
based network facilities, including communication sites for transmission and
reception. The extent to which wireless service providers lease these
communication sites depends on a number of factors beyond our control,
including:
. the level of demand for wireless services;
. the financial condition and access to capital of wireless service
providers;
. the strategy of wireless service providers with respect to owning or
leasing communication sites;
. government licensing of broadcast rights; and
. changes in telecommunications regulations and general economic conditions.
In addition, wireless voice service providers frequently enter into roaming
agreements with competitors allowing them to use one another's wireless
communications facilities to accommodate customers who are out of range of their
home provider's services. These roaming agreements may be viewed by wireless
voice service providers as a superior alternative to leasing antenna space on
communications sites owned or controlled by us. The proliferation of these
roaming agreements could have a material adverse effect on our results of
operations.
16
We depend on a relatively small number of customers for most of our revenues.
We derive a significant portion of our revenues from a small number of
customers. For example, during 1997, 1998, and 1999, our five largest customers
accounted for approximately 89.9%, 91.4%, and 48.3% respectively, of our
revenues from site development services. Sprint PCS, our largest customer for
the years ended December 31, 1997, 1998, and 1999, accounted for 53.6%, 41.3%,
and 20.8% respectively, of our revenues from site development services during
those periods. Other large customers include BellSouth Mobility DCS, which
accounted for 23.8% of our revenues from site development services for the year
ended December 31, 1998 and 13.9% for the year ended December 31, 1999. PageNet
represented 33.4% of our site leasing revenue for 1998 and 16.5% for the year
ended December 31, 1999. These PageNet revenues come primarily from our
lease/sublease component of our site leasing business. For the year ended
December 31, 1999, our other major site leasing customers were Nextel, Sprint
PCS, and BellSouth Mobility DCS which accounted for 9.3%, 9.3%, and 8.8% of our
site leasing revenues. Our site development customers engage us on a project-by-
project basis, and a customer can generally terminate an assignment at any time
without penalty. In addition, a customer's need for site development services
can decrease, and we may not be successful in establishing relationships with
new clients. Moreover, our existing customers may not continue to engage us for
additional projects. The substantial majority of our existing non-binding
mandates are from Alamosa PCS, AT&T Wireless, BellSouth Mobility DCS, Horizon
PCS, Georgia PCS and Sprint PCS. The loss of any significant customer could have
a material adverse effect on our growth rate, prospects, financial condition or
results of operations.
Due to the long-term expectations of revenue from tenant leases, the tower
industry is very sensitive to the creditworthiness of its tenants. Wireless
service providers often operate with substantial leverage, and financial
problems for our customers could result in uncollected accounts receivable, in
the loss of customers and the associated lease revenues, or in a reduced ability
of these customers to finance expansion activities.
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our payment obligations.
We have a significant amount of indebtedness. The following chart shows
certain important credit information:
At December 31,
---------------
1999
----
(dollars in thousands)
Total indebtedness............... $320,767
Stockholders' equity............. $ 48,582
Our substantial indebtedness could have important consequences to you.
For example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general corporate
purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage to our competitors that are less
leveraged; and
17
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional funds.
Failing to comply with those covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on our
growth rate, prospects, financial condition or results of operations.
Our ability to service our debt obligations will depend on our future
operating performance, which will be affected by prevailing economic conditions
in the wireless communications industry, and financial, business and other
factors, certain of which are beyond our control. If we are unable to generate
sufficient cash flow from operations to service our indebtedness, we will be
forced to adopt an alternative strategy that may include actions such as
reducing, delaying or eliminating acquisitions of towers or related service
companies, delaying tower construction and other capital expenditures, selling
assets, restructuring or refinancing our indebtedness or seeking additional
equity capital. We may not be able to effect any of these alternative strategies
on satisfactory terms, if at all. The implementation of any of these alternative
strategies could have a material adverse effect on our growth rate.
Our senior credit facility and the indenture governing our senior discount
notes each contains certain restrictive covenants. The senior credit facility
also requires us to maintain specified financial ratios and satisfy certain
financial condition tests. Our ability to meet these financial ratios and tests
can be affected by events beyond our control, and we may not be able to meet
those tests. A breach of any of these covenants could result in a default under
the senior credit facility and the indenture governing our senior discount
notes. Upon the occurrence of certain bankruptcy events, the outstanding
principal, together with all accrued interest, will automatically become
immediately due and payable. If any other event of default should occur under
the senior credit facility, our lenders can elect to declare all amounts of
principal outstanding under the senior credit facility, together with all
accrued interest, to be immediately due and payable. Either of these events
could also result in the triggering of cross-default or cross-acceleration
provisions in other instruments, permitting acceleration of the maturity of
additional indebtedness. If we were unable to repay amounts that become due
under the senior credit facility, our lenders could proceed against the
collateral granted to them to secure that indebtedness. If the indebtedness
under the senior credit facility were to be accelerated, our assets may not be
sufficient to repay in full the indebtedness. Substantially all of our assets
are pledged as security under the senior credit facility.
Our earnings have been insufficient to cover our fixed charges since the
issuance of our senior discount notes, assuming the accretion on the notes as a
fixed charge. We expect our earnings to continue to be insufficient to cover our
fixed charges for the foreseeable future. We may be able to incur substantial
additional indebtedness in the future. If new debt is added to our current debt
levels, the related risks that we face could intensify.
We must comply with a variety of extensive regulations.
We are subject to a variety of regulations, including those at the federal,
state and local level. Both the Federal Communications Commission and the
Federal Aviation Administration regulate towers and other sites used for
wireless communications transmitters and receivers. Such regulations control
siting, lighting and marking of towers and may, depending on the characteristics
of the tower, require prior approval or registration of tower facilities.
Wireless communications devices operating on towers are separately regulated and
independently licensed based upon the regulation of the particular frequency
used. Proposals to construct new communication sites or to modify existing
communication sites are reviewed by both the FCC and the FAA to ensure that a
site will not present a hazard to aviation. Construction or modification of
these structures is also subject to the National Environmental Policy Act, which
requires additional review of any tower that may have a significant effect upon
the quality of the human environment. Owners of towers may have an obligation to
paint the towers or install lighting to conform to FCC and FAA standards and to
maintain such painting or lighting. Tower owners also bear the responsibility
for notifying the FAA of any tower lighting failures. We generally indemnify our
customers against any failure to comply with applicable standards. Failure to
comply with applicable requirements may lead to civil penalties.
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Local regulations include city or other local ordinances, zoning restrictions
and restrictive covenants imposed by community developers. These regulations
vary greatly, but typically require tower owners to obtain approval from local
officials or community standards organizations prior to tower construction.
Local regulations can delay or prevent new tower construction or site upgrade
projects, thereby limiting our ability to respond to customers' demands. In
addition, these regulations may increase the timing and costs associated with
new tower construction. Additional regulations could be adopted which could
increase these delays or result in additional costs to us. These factors could
have a material adverse effect on our growth rate, prospects, financial
condition or results of operations and on our ability to implement and/or
achieve our business objectives in the future. Our customers may also become
subject to new regulations or regulatory policies that adversely affect the
demand for communication sites.
Our operations are also subject to federal, state and local environmental laws
and regulations regarding the use, storage, disposal, emission, release and
remediation of hazardous and nonhazardous substances, materials or wastes. Under
certain of these environmental laws, we could be held strictly liable for the
remediation of hazardous substance contamination at our facilities or at third-
party waste disposal sites, and could also be held liable for any personal or
property damage related to the contamination. Although we believe that we are in
substantial compliance with, and have no material liability under, applicable
environmental laws, the costs of compliance with existing or future
environmental laws and liability related to those laws may have a material
adverse effect on our business.
We and the wireless service providers that use our towers are also subject to
government requirements and other guidelines relating to radio frequency, or RF,
emissions. The potential connection between RF emissions and certain negative
health effects, including some forms of cancer, has been the subject of
substantial studies by the scientific community in recent years. To date, the
results of these studies have been inconclusive. Although we have not been
subject to any claims relating to RF emissions, we may be subject to these
claims in the future.
Our towers are subject to damage from natural disasters.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We maintain insurance to cover the
estimated cost of replacing damaged towers, but these insurance policies are
subject to caps and deductibles. We also maintain third party liability
insurance to protect us in the event of an accident involving a tower. A tower
accident for which we are uninsured or underinsured, or damage to a tower or
group of towers, could have a material adverse effect on our financial
condition.
New technologies may undermine the success of our operations.
The emergence of new technologies could have a negative impact on our
operations. For example, the FCC has granted license applications for several
low-earth orbiting satellite systems that are intended to provide mobile voice
and data services. Although these systems are highly capital intensive and have
only begun to be tested, mobile satellite systems could compete with land-based
wireless communications systems. In addition, products are currently being
developed which may permit multiple wireless carriers to use a single antenna.
These systems and products could reduce the demand for our infrastructure
services or space on our towers. These events could have a material adverse
effect on our growth rate, prospects, financial condition or results of
operations.
Because of our holding company structure, we depend on our subsidiaries for cash
flow. Our access to this cash flow is restricted.
We are a holding company with no business operations of our own. Our only
significant asset is and will be the outstanding capital stock of our
subsidiaries. We conduct, and will conduct, all of our business operations
through our subsidiaries. Accordingly, our only source of cash to pay our
obligations is distributions from our subsidiaries
19
of their net earnings and cash flow. We currently expect that the earnings and
cash flow of our subsidiaries will be retained and used by them in their
operations, including to service their debt obligations. Even if our
subsidiaries determined to make a distribution to us, applicable state law and
contractual restrictions, including the dividend covenants contained in our
senior credit facility, may not permit these dividends or distributions.
Steven E. Bernstein will control the outcome of shareholder votes.
Steven E. Bernstein, our President and Chief Executive Officer, beneficially
owns 100% of the outstanding shares of Class B common stock. As of March 3,
2000, Mr. Bernstein controlled approximately 69.8% of the total voting power of
both classes of common stock. As a result, Mr. Bernstein will have the ability
to control the outcome of all matters determined by a vote of our common
shareholders when voting together as a single class, including the election of
all of our directors.
We depend on the services of our executive officers.
Our success depends to a significant extent upon the continued services of
Steven E. Bernstein, our President and Chief Executive Officer, Daniel J.
Eldridge, our President--Com-Net Construction Services, Ronald G. Bizick, II,
our Executive Vice President-East, Michael N. Simkin, our Executive Vice
President-West, Jeffrey A. Stoops, our Chief Financial Officer, and Robert M.
Grobstein, our Chief Accounting Officer. Each of Messrs. Bizick, Simkin and
Stoops has an employment agreement. We do not have an employment agreement with
Messrs. Bernstein, Eldridge, or Grobstein. Mr. Bernstein's compensation and
other terms of employment are determined by the Board of Directors. The loss of
the services of any of Messrs. Bernstein, Eldridge, Bizick, Simkin, Stoops,
Grobstein or other key managers or employees, could have a material adverse
effect upon our prospects or results of operations.
We need to attract, retain and manage skilled employees.
Our business involves the delivery of professional services and is labor-
intensive. Our success depends in large part upon our ability to attract,
develop, motivate and retain skilled employees. We compete with other wireless
communications firms and other enterprises for employees with the skills
required to perform our services. We cannot assure you that we will be able to
attract and retain a sufficient number of highly-skilled employees in the future
or that we will continue to be successful in training, retaining and motivating
employees. The loss of a significant number of employees and/or our inability to
hire a sufficient number of qualified employees could have a material adverse
effect on our results of operations or growth rate.
ITEM 2. PROPERTIES
We are headquartered in Boca Raton, Florida, where we currently lease
approximately 32,000 square feet of space. We open and close project offices
from time to time in connection with our site development business, and new
tower build projects which offices are generally leased for periods not to
exceed 18 months. We have entered into longer leases for regional and Com-net
office locations where we expect our activities to be longer-term.
Our interests in communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements, easements and licenses or rights-of-way granted by government
entities. Please refer to "Site Leasing Business" for a listing of the locations
of our owned towers.
20
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of business. We are not a party to any
legal proceeding, the adverse outcome of which, individually or taken together
with all other legal proceedings, is expected to have a material adverse effect
on our prospects, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Class A common stock commenced trading under the symbol SBAC on the
NASDAQ National Market System (NASDAQ NMS) on June 16, 1999. The following table
presents trading information for the Class A common stock for the periods
indicated, since June 16, 1999, on the NADSAQ NMS.
1999 High Low
---- ---- ---
Quarter ended June 30 (commencing June 16) $ 10.25 $ 7.75
Quarter ended September 30 15.375 9.063
Quarter ended December 31 18.75 9.438
As of March 3, 2000, there were 207 record holders of the Class A common
stock, and two record holders of the Class B common stock.
This Company has not paid a dividend on any class of common stock and
anticipates that it will retain future earnings, if any, to fund the development
and growth of its business. We do not anticipate paying cash dividends on any
of our common stock in the foreseeable future. In addition, the Company is
restricted under the Senior 12% discount notes from paying dividends or making
distributions and repurchasing, redeeming or otherwise acquiring any shares of
common stock. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" and Notes to
Consolidated Financial Statements.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data as of and for
the years ended December 31, 1995, 1996, 1997, 1998, and 1999 that has been
derived from, and is qualified by reference to, our audited financial
statements. The financial statements for periods ending on or prior to December
31, 1996 are the combined financial statements of SBA, Inc. and SBA Leasing,
Inc., two predecessor companies that we acquired during the first quarter of
1997. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this report.
21
Years ended December 31,
--------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ----------- ----------- ----------
(dollars in thousands, except per share data)
Operating Data:
Revenues:
Site development revenue....................................... $22,700 $60,276 $ 48,241 $ 46,705 $ 60,570
Site leasing revenue........................................... 2,758 4,530 6,759 12,396 26,423
------- ------- ---------- ---------- -----------
Total revenues................................................. 25,458 64,806 55,000 59,101 86,993
------- ------- ---------- ---------- -----------
Cost of revenues (exclusive of depreciation shown below):
Cost of site development revenue............................... 13,993 39,822 31,470 36,500 46,279
Cost of site leasing revenue................................... 2,121 3,638 5,356 7,281 12,134
------- ------- ---------- ---------- -----------
Total cost of revenues......................................... 16,114 43,460 36,826 43,781 58,413
------- ------- ---------- ---------- -----------
Gross profit................................................... 9,344 21,346 18,174 15,320 28,580
Selling, general and administrative(a)(b)........................ 5,968 17,754 12,033 18,302 19,309
Depreciation and amortizaiton.................................... 73 160 514 5,802 16,557
------- ------- ---------- ---------- -----------
Operating income (loss).......................................... 3,303 3,432 5,627 (8,784) (7,286)
Interest income.................................................. 6 7 644 4,303 881
Interest expense................................................. (11) (139) (407) (1,197) (5,244)
Non cash amortization of original issue discount and
debt issuance costs............................................ - - - (15,710) (22,063)
Other............................................................ - - - (37) 48
------- ------- ---------- ---------- -----------
Income (loss) before income taxes and extraordinary item......... 3,298 3,300 5,863 (21,425) (33,664)
(Provision) benefit for income taxes(d).......................... (1,319) (1,320) (5,596) 1,524 223
------- ------- ---------- ---------- -----------
Net income (loss) before extraordinary item...................... 1,979 1,980 267 (19,901) (33,442)
Extraordinary item............................................... - - - - (1,150)
------- ------- ---------- ---------- -----------
Net income (loss)................................................ 1,979 1,980 267 (19,901) (34,591)
Dividends on preferred stock..................................... - - (983) (2,575) 733
------- ------- ---------- ---------- -----------
Net loss available to common shareholders........................ $ 1,979 $ 1,980 $ (716) $ (22,476) $ (33,858)
======= ======= ========== ========== ===========
Basic and diluted loss per common share before extraordinary
item $(0.09) $(2.64) $(1.71)
Extraordinary item - - (0.06)
---------- ---------- -----------
Basic and diluted loss per common share $(0.09) $(2.64) $(1.77)
========== ========== ===========
Basic and diluted weighted average number of shares of
common stock 8,075,000 8,526,052 19,156,027
========== ========== ===========
OTHER DATA:
Adjusted EBITDA(c)............................................... $ 3,376 $10,603 $ 7,155 $ (2,377) $ 9,582
Net cash provided by (used in) operating activities.............. (533) 1,215 7,829 7,471 23,134
Net cash used in investing activities............................ (660) (145) (17,676) (138,124) (208,870)
Net cash provided by (used in) financing activities.............. 1,298 (1,036) 15,645 151,286 162,124
---------------------------------------------------------
As of December 31,
---------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- ----------- ----------- -----------
(dollars in thousands)
Balance Sheet Data (at end of period):
Total assets..................................................... $ 7,429 $18,060 $ 44,797 $ 214,573 $ 429,823
Total debt....................................................... 1,500 4,921 10,184 182,573 320,767
Redeemable preferred stock....................................... - - 30,983 33,558 -
Common shareholders' equity (deficit) 4,793 102 (4,344) (26,095) 48,582
(a) For the year ended December 31, 1995, selling, general and administrative
expense includes cash compensation expense of $1.3 million representing the
amount of officer compensation in excess of what would have been paid had
the officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1996, selling, general and
administrative expense includes non-cash compensation expense of $7.0
million incurred in connection with the consolidation of the predecessor
companies and cash compensation expense of $4.9 million representing the
amount of officer compensation in excess of what would have been paid had
the officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1997, selling, general and
administrative expenses include non-cash compensation expense of $1.0
million incurred in the consolidation of the predecessor companies. For the
year ended December 31, 1998, selling, general and administrative expenses
include non-cash compensation expense of $0.6 million incurred in connection
with the issuance of stock options and Class A common stock. For the year
ended December 31, 1999, selling, general and administrative expenses
include non-cash compensation expense of $0.3 million incurred in connection
with stock option activity.
(b) Selling, general and administrative expenses include corporate development
expenses associated with our site leasing business that were incurred in
connection with the acquisition or construction of owned towers. These
expenses consist of compensation, overhead costs and site or deal specific
costs that are not directly related to the administration or management of
existing towers. All of these costs are expensed as incurred.
22
(c) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation and amortization. EBITDA is commonly used
in the telecommunications industry to analyze companies on the basis of
operating performance, leverage and liquidity. Adjusted EBITDA excludes the
effect of the non-cash compensation expense referred to in footnote (a)
above. Adjusted EBITDA is not intended to represent cash flows for the
periods presented, nor has it been presented as an alternative to operating
income or as an indicator of operating performance and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
Companies calculate adjusted EBITDA differently and, therefore, Adjusted
EBITDA as presented for us may not be comparable to Adjusted EBITDA reported
by other companies.
(d) Provision for income taxes for the year ended December 31, 1997 includes the
tax effect of our conversion to a C corporation.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. Our strategy is to use our historical
leadership position in the site development business, a project revenue
business, 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 antenna space at or
on communications facilities.
While we intend to continue to offer site development services to wireless
carriers and other telecommunications providers 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
and as wireless service providers choose to outsource ownership of communication
sites in order to conserve capital, our revenues and gross profit from the site
development consulting segment of that business will continue to decline in the
near term. 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 have declined in 1999 from prior periods and net interest expense,
depreciation, amortization and capital expenditures have increased sharply as we
accumulated towers. Our EBITDA, however, has increased to $9.6 million in 1999
as compared to $(2.4) million in 1998. The 1999 EBITDA figure excludes non-cash
compensation expense of $.3 million and the 1998 EBITDA figure excludes non-cash
compensation expense of $.06 million. Additionally, our capital expenditures may
increase even more in 2000 as compared to 1999. We also anticipate that our
operating expenses will remain at or above current 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 that 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 antenna 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.
We have focused our capital deployment on building new towers and "mom and
pop" acquisitions. Of the 1,163 towers we owned at December 31, 1999, 763 were
new builds. In general, we have chosen to build rather than buy the substantial
majority (64%) of our towers due to what we believe are more favorable
economics. To date, our construction cost of a new tower averages approximately
$225,000, while we believe the industry's average acquisition cost of a tower
over the last two years has been approximately $400,000. At December 31, 1999,
we had non-binding mandates from wireless service providers to build over 335
additional towers under build-to-suit programs, the majority of which we expect
will result in binding anchor tenant lease agreements. We
23
believe we have one of the largest numbers of non-binding build-to-suit mandates
from wireless service providers in the industry. At December 31, 1999 we were
pursuing over 700 new strategic builds in locations chosen by us based on our
industry knowledge and experience.
While we have focused primarily on new build towers for growth, we have also
acquired 400 towers as of December 31, 1999. Our acquisition strategy has
focused on small, "mom and pop" acquisition targets, those which we believe
offer better opportunities for value. We seek to acquire towers where we can,
through additional tenant leases, increase cash flow to substantially reduce the
tower cash flow multiple from the multiple paid at acquisition. The 400 tower
acquisitions to date have been completed at an average acquisition price of
approximately $373,000 per tower and a 14.6 times multiple of annualized tower
cash flow to purchase price, or an aggregate purchase price of $149.4 million.
In addition to what we have already acquired, we are currently actively
negotiating to acquire existing towers. At December 31, 1999, we had letters of
intent or definitive agreements to acquire 94 towers in 23 separate transactions
for an aggregate purchase price of approximately $39.2 million, or an average
acquisition price of $417,000 per tower, and a 16.7 times multiple of annualized
tower cash flow to purchase price. 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
provides turnkey construction services of towers and terminal switches primarily
throughout the mid-western, eastern and western United States. We issued 780,000
shares of our Class A common stock to the shareholders of Com-Net. In addition,
as of December 31, 1999, the former shareholders of Com-Net were entitled to
receive $2.5 million in cash and 320,000 additional shares of Class A common
stock as a result of certain 1999 earnings targets being met. The former
shareholders of Com-Net may receive 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. Com-Net Development Group owned 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 for Com-Net 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 year ended December 31, 1999
over the year earlier period, and are expected to continue to increase
significantly in future periods. We believe that our new tower builds will have
a material effect on future operations, which effect will probably be negative
until the time, if ever, that the newly constructed towers attain higher levels
of tenant use.
1999 Compared to 1998
Total revenues increased 47.2% to $87.0 million for 1999 from $59.1 million
for 1998. Total site development revenue increased 29.7% to $60.6 million in
1999 from $46.7 million in 1998 due to an increase in site development
construction revenue, which more than offset a decline in site development
consulting revenue. Site development construction revenue increased 121.3% to
$42.6 million for 1999 from $19.3 million for 1998, due to the acquisition of
Com-Net on April 30,1999 as well as higher levels of activity. Site development
consulting revenue decreased 34.6% to $18.0 million for 1999 from $27.4 million
for 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 where site acquisition and zoning services are provided by the tower
owner. Site leasing revenue increased 113.2% to $26.4
24
million for 1999 from $12.4 million for 1998, due to a substantial number of
revenue producing towers added during the period through new builds and
acquisitions as well as the addition of new tenants on existing towers.
Total cost of revenues increased 33.4% to $58.4 million for 1999 from $43.8
million for 1998. Site development cost of revenue increased 26.8% to $46.3
million in 1999 from $36.5 million in 1998 due to higher site development
revenues. Site development consulting cost of revenue decreased 43.3% to $12.4
million for 1999 from $21.9 million for 1998, reflecting lower site development
consulting revenues. Site development construction cost of revenue increased
131.9% to $33.9 million for 1999 from $14.6 million for 1998, due to higher site
development construction revenues which resulted primarily from the acquisition
of Com-Net. Site leasing cost of revenue increased 66.7% to $12.1 million for
1999 from $7.3 million for 1998, due primarily to the increased volume of towers
owned resulting in an increased amount of lease payments to land owners.
Included in site leasing cost of revenue is an additional expense of
approximately $0.2 million relating to estimated obligations in fiscal year 2000
and beyond in connection with leases that were rejected in 1999 as part of the
bankruptcy litigation of Conxus.
Gross profit increased 86.6% to $28.6 million for 1999 from $15.3 million for
1998, due to the increase in both site development gross profit and site leasing
gross profit. Gross profit for site development construction services increased
87.9% to $8.7 million for 1999 from $4.7 million for 1998 due to higher revenue.
Gross profit for site development consulting services decreased 0.1% to $5.5
million for 1999 from $5.4 million for 1998. The lower gross profit margins
experienced in 1999 on site development consulting services were due to more
work being performed on a fixed fee basis and the completion of a number of
large projects on which we experienced proportionately higher expenses than in
the earlier stages of a project. Gross profit for the site leasing business
increased 179.3% to $14.3 million for 1999 from $5.1 million for 1998 due
primarily to higher revenue but also due to higher gross profit margins earned
on towers owned as opposed to the margins earned on our lease/sublease business
which contributed most of our 1998 site leasing revenue. As a percentage of
total revenues, gross profit increased to 32.9% for 1999 as compared to 25.9%
for 1998 due to a greater percentage of gross profit coming from higher margin
site leasing revenues.
Selling, general and administrative expenses increased 5.5% to $19.3 million
for 1999 from $18.3 million for 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 of our tower
development infrastructure. As a percentage of total revenues, selling, general
and administrative expenses decreased to 22.2% for 1999 from 31.0% in 1998.
Depreciation and amortization increased to $16.6 million for 1999 as compared
to $5.8 million for 1998. This increase was directly related to the increased
amount of fixed assets, primarily towers, we owned in 1999 as compared to 1998.
Operating loss decreased to $(7.3) million for 1999 from $(8.8) million for
1998 as a result of the factors discussed above. Other income (expense)
increased to $(26.4) million for 1999 from $(12.6) million for 1998. This
increase resulted primarily from the full year of interest expense associated
with the senior discount notes and higher average credit facility balances in
1999, and less interest income earned in 1999 on cash balances. Net loss was
$(34.6) million for 1999 as compared to net loss of $(19.9) million for 1998.
1998 Compared to 1997
Total revenues increased 7.5% to $59.1 million for 1998 from $55.0 million for
1997. Total site development revenue decreased 3.2% to $46.7 million in 1998
from $48.2 million in 1997 due to a substantial decline in site development
consulting revenue, which was largely offset by a substantial increase in site
development construction revenue. Site development consulting revenue decreased
41.6% to $27.4 million for 1998 from $47.0 million for 1997, 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,
where site acquisition and zoning services are provided by the tower owner. Site
25
development construction revenue increased to $19.3 million for 1998 from $1.2
million for 1997, due to the acquisition of CSSI in September 1997 and higher
levels of activity. Site leasing revenue increased 83.4% to $12.4 million for
1998 from $6.8 million for 1997, due to a substantial number of revenue
producing towers added during the period through new builds and acquisitions.
Total cost of revenues increased 18.9% to $43.8 million for 1998 from $36.8
million for 1997. Site development cost of revenue increased 16.0% to $36.5
million in 1998 from $31.5 million in 1997 due to a substantial increase in site
development construction cost of revenue, which was partially offset by a
decrease in site development consulting cost of revenue. Site development
consulting cost of revenue decreased 28.5% to $21.9 million for 1998 from $30.6
million for 1997, due to a decreased level of activity. Site development
construction cost of revenue increased to $14.6 million for 1998 from $0.8
million for 1997, due again to the inclusion of the construction subsidiary for
a full twelve months in 1998 versus three months in 1997. Site leasing cost of
revenue increased 35.9% to $7.3 million for 1998 from $5.4 million for 1997, due
primarily to the increased volume of towers owned resulting in an increased
amount of lease payments to land owners.
Gross profit decreased 15.7% to $15.3 million for 1998 from $18.2 million for
1997, due to the decrease in site development consulting revenue and lower
margins earned on such revenue, which more than offset gross profits from
increased site development construction and site leasing. Gross profit for site
development consulting services decreased 66.1% to $5.6 million for 1998 from
$16.4 million for 1997. The lower gross profit margins experienced in 1998 were
due to more work being performed on a fixed fee basis and the completion of a
number of large projects on which we experienced proportionately higher expenses
than in the earlier stages of a project. Gross profit for site development
construction services increased to $4.7 million for 1998 from $0.4 million for
1997 due to higher revenue. Gross profit for the site leasing business increased
264.6% to $5.1 million for 1998 from $1.4 million for 1997 due primarily to
higher revenue but also due to higher gross profit margins earned on towers
owned as opposed to the margins earned on our lease/sublease business which
contributed most of our 1997 site leasing revenue. As a percentage of total
revenues, gross profit decreased to 25.9% for 1998 as compared to 33.0% for 1997
due to significantly lower site development consulting gross profit.
Selling, general and administrative expenses increased 52.1% to $18.3 million
for 1998 from $12.0 million for 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 of our tower
development infrastructure. As a percentage of total revenues, selling, general
and administrative expenses increased to 31.0% for 1998 from 21.9% in 1997.
Depreciation and amortization increased to $5.8 million for 1998 as compared
to $0.5 million for 1997. This increase was directly related to the increased
amount of fixed assets, primarily towers, we owned in 1998 as compared to 1997.
Operating income (loss) decreased to $(8.8) million for 1998 from $5.6 million
for 1997 as a result of the factors discussed above. Other income (expense)
decreased to $(12.6) million for 1998 from $0.2 million for 1997. This decrease
resulted primarily from the interest expense associated with the senior discount
notes offset by interest income that was earned on cash balances. Net income
(loss) was $(19.9) million for 1998 as compared to net income of $0.3 million
for 1997.
Liquidity and Capital Resources
SBA Communications Corporation is a holding company with no business
operations of its own. Our only significant asset is the outstanding capital
stock of our subsidiaries. We conduct all our business operations through our
subsidiaries. Accordingly, our only source of cash to pay our obligations is
distributions with respect to our ownership interest in our subsidiaries from
the net earnings and cash flow generated by these subsidiaries. We cannot assure
you that our subsidiaries will generate sufficient cash flow to pay a dividend
or distribute funds or that we will be permitted to pay any dividends under the
terms of the senior credit facility.
26
Net cash provided by operations during the twelve months ended December 31,
1999 was $23.1 million compared to $7.5 million in 1998. Net cash used in
investing activities for 1999 was $208.9 million compared to $138.1 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 $162.1 million compared to $151.3 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 $(20.9) million as of
December 31, 1999, as compared to positive working capital of $8.1 million as of
December 31, 1998. This change is primarily attributable to the reduction of
cash balances, the increase in accounts receivable and increases in accounts
payable.
During February 1999, we entered into a senior credit facility, through our
Telecommunications subsidiary, with a group of lenders, which was amended and
restated on December 16, 1999 to increase the amount of the facility and to make
certain other amendments, including changes to the financial covenants. Our
senior credit facility, as amended, consists of two term loans in an aggregate
amount of $75.0 million and a $225.0 million revolving line of credit.
Availability under the senior credit facility is determined by a number of
factors, including the 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 revolving line of credit and the
$25.0 million term loan mature on December 31, 2004 and reduced availability of
the revolving credit commitments and amortization of the term loan begins on
March 31, 2001. The $50.0 million term loan matures on December 31, 2005 and
amortization of this term loan begins on March 31, 2002. Borrowings under the
senior credit facility bear interest at the eurodollar rate plus a margin
ranging from 2.25% to 3.50% (determined by a leverage ratio) or a "base rate"
(as defined in the senior credit facility) plus a margin ranging from 1.25% to
2.50% (determined by a leverage ratio). The senior credit facility is secured by
substantially all of the assets of Telecommunications and its direct and
indirect subsidiaries and 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
and expanding the senior credit facility were approximately $6.8 million. To
permit us to increase the amount of our senior credit facility we solicited and
received consents from the holders of our senior discount notes and paid to
these holders $5.3 million in connection with these consents. As of December 31,
1999, we had $132.0 million of borrowings outstanding under the Senior Credit
Facility.
In June 1999, we completed an initial public offering of 11.3 million shares
of Class A common stock. We raised $101.7 million, which produced net proceeds
of approximately $93.7 million, after deduction of the underwriting discount and
offering expenses. We used approximately $32.8 million of these net proceeds to
pay all outstanding dividends on all outstanding shares of our Series A
preferred stock and to redeem all shares of our Series B preferred stock. We
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 February 2000, we completed a follow-on offering of 9.0 million shares of
our Class A common stock. We raised gross proceeds of $243.0 million, which
produced net proceeds of approximately $229.3 million, after deduction of the
underwriting discount and offering expenses. We used $68.0 million of these net
proceeds to repay all revolving credit loans under the Senior Credit Facility.
Remaining proceeds have and will be used for the construction and acquisition of
towers and for general working capital purposes. Additionally, in February, 2000
the managing underwriters of the follow-on offering exercised and closed on
their over-allotment option to purchase an additional 1,350,000 shares of our
Class A common stock. We, along with certain shareholders, had granted this
option to the underwriters in connection with the follow-on offering. These
certain shareholders satisfied from their shareholdings the exercise of the
over-allotment option in full, resulting in no proceeds to us as a result of
this exercise.
27
In the event that the business acquired in the Com-Net acquisition achieves
certain earnings targets in 2000, we will be obligated to issue up to 400,000
additional shares of Class A common stock.
We currently anticipate building a significant number of towers for which we
have non-binding mandates pursuant to our build-to-suit program or pursuant to
our strategic site initiatives. We also intend to continue to explore
opportunities to acquire additional towers, tower companies and/or related
businesses. The exact amount of our future capital expenditures will depend on a
number of factors. Our future capital expenditures will depend in part upon
acquisition opportunities that become available during the period, the needs of
our build-to-suit customers and the availability to us of additional debt or
equity capital on acceptable terms. Our cash capital expenditures for the year
ended December 31, 1999 were $208.9 million. We currently plan to make cash
capital expenditures in 2000 of at least $200.0 million to $250.0 million.
Substantially all of these planned capital expenditures are expected to be
funded by proceeds from our follow-on offering, borrowings under our senior
credit facility and cash flow from operations. In the event that there is not
sufficient availability under the senior credit facility when an acquisition or
construction opportunity arises, we would be required to seek additional debt or
equity financing. We cannot assure you that any required 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. In
addition, we have on file with the Commission a shelf registration on Form S-4
registering up to 1,000,000 shares of Class A common stock which we may issue in
connection with the acquisition of towers or related businesses. As of the date
of this report, 912,062 shares remain reserved for future issuance. On March 17,
2000, the Company issued 87,938 shares of Class A common stock in connection
with an acquisition of six towers and related assets.
Our ability to make scheduled payments of principal of, or to pay interest on,
our debt obligations, and our ability to refinance any of our 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 from
the follow-on offering and available borrowings under the senior credit facility
will be sufficient to fund all anticipated cash capital expenditures through the
middle of 2001. Thereafter, however, or in the event we exceed our currently
anticipated capital expenditures, we anticipate that we will need to seek
additional equity or debt financing to fund our business plan. Failure to obtain
any new required 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
financial condition or results of operations. In addition, we may need to
refinance all or a portion of our indebtedness, including the senior discount
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 our senior discount notes, on commercially
reasonable terms or at all.
Inflation
The impact of inflation on our operations has not been significant to date.
However, we cannot assure you that a high rate of inflation in the future will
not adversely affect our operating results.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business, and in some cases relate to our acquisition of
related businesses. We are subject to interest rate risk on our Senior Credit
Facility and any future financing requirements. Our fixed rate debt consists
primarily of the accreted balance of the Senior Discount Notes.
28
These and other risks and uncertainties affecting us are discussed in
greater detail in the "Risk Factors" section of this annual report and in our
other filings with the Commission. All subsequent written and oral forward-
looking statements attributable to us or persons acting on our behalf are
expressly qualified in their entirety by the cautionary statements included in
this document. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The following table presents the future principal payment obligations and
weighted average interest rates associated with our existing long-term debt
instruments assuming our actual level of long-term debt indebtedness:
2000 2001 2002 2003 2004 Thereafter
------- ---------- ----------- ----------- ----------- ------------
Long-term debt:
Fixed rate (12.0%) -- -- -- -- -- $269,000,000
Term loan ($25.0 million)
variable rate (9.7025% at
December 31, 1999) -- $2,500,000 $ 2,500,000 $ 7,500,000 $12,500,000 --
Term loan ($50.0 million)
variable rate (9.96% at
December 31, 1999) -- -- $ 500,000 $ 500,000 $ 500,000 $ 48,500,000
Revolving loan (variable
rates (9.62% to 11.0% at
December 31, 1999) -- $5,700,000 $11,400,000 $17,100,000 $22,800,000 --
Note Payable
variable rate (7.9638% at
December 31, 1999) $50,176 $ 50,176 $ 50,176 $ 50,176 $ 25,088 --
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.
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 December 31, 1999 we had no unrestricted
subsidiaries. Tower cash flow, as defined in the indenture, for the quarter
ended December 31, 1999 was $3.1 million. Adjusted Consolidated Cash Flow for
the year ended December 31, 1999 was $14.1 million.
Cautionary Information Regarding Forward-Looking Statements
This annual report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Discussions containing forward-looking statements may be found in the material
set forth in this section and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry Overview" and
"Business," as well as in the annual report generally. These statements concern
expectations, beliefs, projections, future plans and strategies, anticipated
events or trends and similar expressions concerning matters that are not
historical facts. Specifically, this annual report contains forward-looking
statements regarding:
29
. our business strategy to transition our business from site development
services toward the site leasing business, including our intent to make
strategic acquisitions of towers and tower companies;
. anticipated trends in the maturation of the site development industry and
its effect on our revenues and profits;
. our estimates regarding the future development of the site leasing industry
and its effect on our site leasing revenues;
. our plan to continue to construct and acquire tower assets and the
resulting effect on our revenues, capital expenditures, expenses and net
income;
. our ability to successfully conclude letters of intent or definitive
agreements for newly built towers or acquisitions of existing towers and
the resulting effect on our financial operations;
. our estimate of the amount of capital expenditures for fiscal year 2000
that will be required for the construction or acquisition of communications
sites and the contingent share issuance related to the acquisition of Com-
Net; and
. our intention to fund capital expenditures for fiscal year 2000 from cash
from the follow-on offering, operations, and borrowings under our Senior
Credit Facility.
These forward-looking statements reflect our current views about future
events and are subject to risks, uncertainties and assumptions. We wish to
caution readers that certain important factors may have affected and could in
the future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most
important factors that could prevent us from achieving our goals, and cause the
assumptions underlying forward-looking statements and the actual results to
differ materially from those expressed in or implied by those forward-looking
statements include, but are not limited to, the following:
. our ability to secure as many site leasing tenants as planned;
. our ability to expand our site leasing business and our site development
business;
. our ability to complete construction of new towers on a timely and cost-
efficient basis, including our ability to successfully address zoning
issues, carrier design changes, changing local market conditions and the
impact of adverse weather conditions;
. our ability to identify and acquire new towers, including our capability to
timely complete due diligence and obtain third party consents;
. our ability to retain current lessees on newly acquired towers;
. our ability to realize economies of scale for newly acquired towers;
. the continued dependence on towers by the wireless communications industry;
. our ability to compete effectively for new tower opportunities in light of
increased competition; and
. our ability to raise substantial additional financing to expand our tower
holdings.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data for the Company are on pages F-1
through F-19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The items required by Part III, Item 10, are incorporated herein by reference
from the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed on or before April 29, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The items required by Part III, Item 11 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed on or before April 29, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The items required by Part III, Item 12 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed on or before April 29, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The items required by Part III, Item 13 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be filed on or before April 29, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents filed as part of this report:
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements included with this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements Schedules included with this Annual Report on
Form 10-K.
31
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
(3) Exhibits
EXHIBIT
No. Description of Exhibits
--- -----------------------
3.4/(2)/ --Fourth Amended and Restated Articles of Incorporation of SBA
Communications Corporation.
3.5/(2)/ --Amended and Revised By-Laws of SBA Communications Corporation.
4.1/(1)/ --Indenture, dated as of March 2, 1998, between SBA Communications
Corporation and State Street Bank and Trust Company, as trustee,
relating to $269,000,000 in aggregate principal amount at maturity
of 12% Senior Discount Notes due 2008.
10.1/(1)/ --SBA Communications Corporation Registration Rights Agreement dated
as of March 5, 1997, among the Company, Steven E. Bernstein,
Ronald G. Bizick, II and Robert Mr. Grobstein.
10.2/(1)/ --SBA Communications Corporation Registration Rights Agreement dated
as of March 6, 1997, among the Company and the Preferred
Shareholders, as defined therein.
10.6/(1)/ --Warrant to Purchase 402,500 Shares of Class A common stock of SBA
Communications Corporation dated March 6, 1997.
10.8/(2)/ --Agreement and Plan of Merger, dated as of March 31, 1999, between
the Company, Com-Net Construction Services, Inc., Daniel J.
Eldridge and Eldridge Family Limited Partnership.
10.81/(2)/ --First Amendment to Agreement and Plan of Merger, dated as of April
30, 1999 between the Company, Com-Net Construction Services Inc.,
Daniel J. Eldridge and Eldridge Family Limited Partnership.
10.9/(2)/ --Purchase Agreement dated as of March 31, 1999 between the Company,
Com-Net Development Group, LLC., Daniel J. Eldridge and Tammy W.
Eldridge.
10.91/(2)/ --First Amendment to Purchase Agreement, dated as of April 30, 1999,
between the Company, Com-Net Development Group, LLC., Daniel J.
Eldridge and Tammy W. Eldridge.
10.10/(1)/ --Employment Agreement dated as of January 1, 1997, between the
Company and Ronald G. Bizick, II.
10.11/(1)/ --Employment Agreement dated as of January 1, 1997, between the
Company and Robert M. Grobstein.
10.12/(1)/ --Employment Agreement dated as of March 14, 1997, between the
Company and Jeffrey A. Stoops.
10.13/(2)/ --Stock Option Agreement - Revised dated March 14, 1997 by and
between Steven E. Bernstein and Jeffrey A. Stoops.
10.14/(2)/ --Pledge and Security Agreement - Revised dated March 14, 1997 by
and between Steven E. Bernstein and Jeffrey A. Stoops.
10.15/(1)/ --Employment Agreement dated as of June 15, 1998, between the
Company and Michael N. Simkin.
10.17/(1)/ --Stock Option Agreement dated as of March 5, 1997, between the
Company and Robert M. Grobstein.
10.18/(1)/ --Incentive Stock Option Agreement dated as of June 15, 1998 between
the Company and Michael N. Simkin.
10.19/(1)/ --Stock Option Agreement - Revised dated March 14, 1997, between the
Company and Jeffrey A. Stoops.
10.22/(2)/ --Agreement to Build to Suit and to Lease, dated as of October 30,
1998, by and among BellSouth Personal Communications, Inc., for
itself and as general partner of BellSouth Carolinas PCS, L.P.,
SBA Towers, Inc. and SBA , Inc.
10.23/(2)/ --1996 Stock Option Plan.
10.24/(2)/ --1999 Equity Participation Plan.
10.25/(2)/ --1999 Stock Purchase Plan.
10.26/(3)/ --Second Amended and Restated Credit Agreement dated as of December
16, 1999, by and among SBA Communications Corporation, SBA
Telecommunications, Inc., the several banks and financial
institutions or entities from time to time parties thereto, Lehman
Brothers, Inc., General Electric Capital Corporation, Toronto
Dominion (Texas), Inc., Barclays Bank PLC, and Lehman Commercial
Paper, Inc.
10 --Computation of net loss per common share.
32
23.1 --Consent of Arthur Andersen LLP.
23.2 --Consent of Peter C. Cosmas Co., CPA.
23.3 --Consent of John A. Criscuola, CPA.
23.4 --Consent of Turbes Drealan Kvilhaug & Co., P.A., CPA.
27 --Financial Data Schedule.
/(1)/ Incorporated by reference to the Registration Statement on Form S-4
previously filed by the Registrant (Registration no. 333-50219).
/(2)/ Incorporated by reference to the Registration Statement on Form S-1
previously filed by the Registrant (Registration no. 333-76547).
/(3)/ Incorporated by reference to the Registration Statement on Form S-3
previously filed by the Registrant (Registration no. 333-94175).
(b) Reports on Form 8-K:
(1) The Company filed a report on Form 8-K on October 14, 1999. In this
report, the Company reported, under Item 5, the commencement of a
consent solicitation from the holders of its $269.0 million 12% Senior
Discount Note due 2008. Under Item 7, the Company included the related
press release.
The Company filed a report on Form 8-K on October 14, 1999. In this
report, the Company reported under Item 5, that in the third quarter
it increased its tower portfolio by 186 towers, or 24%, to 956 towers.
Under Item 7, the Company included the related press release.
The Company filed a report on Form 8-K on November 1, 1999. In the
report, the Company reported under Item 5, that it has extended its
consent solicitation of the holders of its $269.0 million 12% Senior
Discount Notes due 2008. Under Item 7, the Company included the
related press release.
The Company filed a report on Form 8-K on November 1, 1999. In the
report, the Company reported under Item 5, it had announced a revision
to its consent solicitation relating to its $269.0 million 12% Senior
Discount Notes due 2008. Under Item 7, the Company included the
related press release.
The Company filed a report on Form 8-K on November 5, 1999. In the
report, the Company reported under Item 5, that it had received the
requisite consent from the holders of it's 12% Senior Discount Notes
to increase certain categories of permitted indebtedness from $175.0
million to $300.0 million. The Company also announced that it had
received firm commitments from certain lenders to amend and expand its
existing $175.0 million Senior Credit Facility to $300.0. Under Item
7, the Company included the related press release.
The Company filed a report on Form 8-K on December 17, 1999. In this
report, the Company reported under Item 5, that it had entered into an
agreement to provide site acquisition, development, collocation,
build-to-suit and equipment installation services for Georgia PCS
Management, LLC. Under Item 7, the Company included the related press
release.
(c) Item 60l Exhibits:
The exhibits required by Item 601 of Regulation S-K are set forth in (a)(3)
above.
(d) Financial Statement Schedules:
The financial statement schedules required by Regulation S-K are set forth
in (a)(2) above.
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Boca
Raton, State of Florida on March 29, 2000.
SBA COMMUNICATIONS CORPORATION
By: /s/ Steven E. Bernstein
Steven E. Bernstein
Chairman of the Board of Directors,
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints each of Jeffrey A. Stoops and Robert Grobstein, or any
of them, each acting alone, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, for such person and in his name,
place and stead, in any and all capacities, in connection with the Registrant's
report on Form 10-K under the Securities Exchange Act of 1934, including to sign
the report in the name and on behalf of the Registrant or on behalf of the
undersigned as a director or officer of the Registrant, and any and all
amendments or supplements to the report, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any applicable securities exchange or securities self-
regulatory body, granting unto said attorneys-in-fact and agents, each acting
alone, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
34
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons in the capacities
indicated on this 29 day of March, 2000.
Signature Title Date
- --------- ----- ----
/s/ Steven E. Bernstein Chairman of the Board of Directors, March 29, 2000
- ---------------------------
Steven E. Bernstein President and Chief Executive
Officer (Principal Executive Officer)
/s/ Jeffrey A. Stoops Chief Financial Officer and Director March 29, 2000
- ---------------------------
Jeffrey A. Stoops (Principal Financial Officer)
/s/ Robert M. Grobstein Chief Accounting Officer March 29, 2000
- ---------------------------
Robert M. Grobstein (Principal Accounting Officer)
/s/ Donald B. Hebb, Jr. Director March 29. 2000
- ---------------------------
Donald B. Hebb, Jr.
/s/ C. Kevin Landry Director March 29, 2000
- ---------------------------
C. Kevin Landry
/s/ Robert S. Picow Director March 29, 2000
- ---------------------------
Robert S. Picow
/s/ Richard W. Miller Director March 29, 2000
- ---------------------------
Richard W. Miller
35
SBA Communications Corporation and Subsidiaries
Consolidated Financial Statements
Table of Contents
Report of Independent Certified Public Accountants............................................ F- 1
Consolidated Balance Sheets as of December 31, 1998 and 1999................................... F- 2
Statements of Operations for the years ended December 1997, 1998, and 1999..................... F- 3
Statements of Cash Flows for the years ended December 31, 1997, 1998, and 1999................. F- 4
Statements of Stockholders' Deficit for the years ended December 31, 1997, 1998, and 1999...... F- 6
Notes to Consolidated Financial Statements..................................................... F- 7
Report of Independent Certified Public Accountants on Schedule................................. F-18
Valuation and Qualifying Accounts.............................................................. F-19
36
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To SBA Communications Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SBA
Communications Corporation (a Florida corporation) and subsidiaries as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SBA Communications Corporation
and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
West Palm Beach, Florida,
February 14, 2000 (except with respect to the matter in Note 18 as to which
the date is March 17, 2000).
F-1
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
December 31, 1998 December 31, 1999
-------------------------- --------------------------
ASSETS
Current assets:
Cash and cash equivalents, includes interest bearing amounts
of $26,227,973 and $2,399,115 in 1998 and 1999 $ 26,743,270 $ 3,130,912
Accounts receivable, net of allowances of $436,671
and $785,299 in 1998 and 1999 12,512,574 22,644,777
Prepaid and other current assets 5,981,134 4,946,561
Costs and estimated earnings in excess of billings on
uncompleted contracts 598,971 2,888,963
------------ ------------
Total current assets 45,835,949 33,611,213
Property and equipment, net 150,946,480 338,891,513
Note receivable-shareholder 3,784,768 -
Intangible assets, net 6,932,486 34,387,262
Other assets 7,073,643 22,933,238
------------ ------------
Total assets $214,573,326 $429,823,226
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 14,447,384 $ 40,655,950
Accrued expenses 4,088,674 6,094,669
Notes payable 17,001,000 50,176
Due to shareholder - 2,500,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 166,526 1,600,981
Other current liabilities 2,049,058 3,654,584
------------ ------------
Total current liabilities 37,752,642 54,556,360
------------ ------------
Other liabilities:
Deferred tax liabilities 3,370,439 7,950,454
Senior discount notes payable 165,572,133 186,041,542
Notes payable - 132,175,616
Other long-term liabilities 415,201 517,007
------------ ------------
Total long-term liabilities 169,357,773 326,684,619
------------ ------------
Commitments and contingencies (see Note 13)
Redeemable preferred stock (30,000,000 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 par value $.01 (100,000,000 shares
authorized), 880,922 and 21,546,737 shares issued and
outstanding in 1998, and 1999, respectively 8,809 215,467
Class B par value $.01 (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 716,131 109,049,538
Accumulated deficit (26,901,112) (60,759,201)
------------ ------------
Total shareholders' equity (deficit) (26,095,422) 48,582,247
------------ ------------
Total liabilities and shareholders' equity (deficit) $214,573,326 $429,823,226
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
For the years ended December 31,
-----------------------------------------------------------
1997 1998 1999
------------------- ------------------ ------------------
Revenues:
Site development revenue $48,240,443 $ 46,704,641 $ 60,569,614
Site leasing revenue 6,759,362 12,396,268 26,423,121
----------- ------------ ------------
Total revenues 54,999,805 59,100,909 86,992,735
----------- ------------ ------------
Cost of revenues (exclusive of depreciation shown below):
Cost of site development revenue 31,470,203 36,499,980 46,279,066
Cost of site leasing revenue 5,356,160 7,280,786 12,133,678
----------- ------------ ------------
Total cost of revenues 36,826,363 43,780,766 58,412,744
----------- ------------ ------------
Gross profit 18,173,442 15,320,143 28,579,991
Operating expenses:
Selling, general and administrative 12,032,915 18,302,226 19,309,034
Depreciation and amortization 513,949 5,802,090 16,556,533
----------- ------------ ------------
Total operating expenses 12,546,864 24,104,316 35,865,567
----------- ------------ ------------
Operating income (loss) 5,626,578 (8,784,173) (7,285,576)
Other income (expense):
Interest income 643,851 4,303,277 881,338
Interest expense (406,934) (1,196,544) (5,244,373)
Non cash amortization of original issue discount and
debt issuance costs - (15,710,370) (22,063,495)
Other - (37,591) 47,912
----------- ------------ ------------
Total other income (expense) 236,917 (12,641,228) (26,378,618)
----------- ------------ ------------
Income (loss) before provision for income taxes
and extraordinary item 5,863,495 (21,425,401) (33,664,194)
(Provision) benefit for income taxes (5,595,998) 1,524,306 222,656
----------- ----------- -----------
Net income (loss) before extraordinary item 267,497 (19,901,095) (33,441,538)
Extraordinary item, write-off of deferred financing fees - - (1,149,954)
----------- ----------- -----------
Net income (loss) 267,497 (19,901,095) (34,591,492)
Dividends on preferred stock (983,333) (2,575,000) 733,403
----------- ------------ ------------
Net loss available common shareholders $ (715,836) $(22,476,095) $(33,858,089)
=========== ============ ============
Basic and diluted loss per common share before
extraordinary item $(0.09) $(2.64) $(1.71)
Extraordinary item - - (0.06)
----------- ----------- -----------
Basic and diluted loss per common share $(0.09) $(2.64) $(1.77)
=========== ============ ============
Basic and diluted weighted average number of shares
of common stock 8,075,000 8,526,052 19,156,027
=========== ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
For the years ended December 31,
----------------------------------------------
1997 1998 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 267,497 $ (19,901,095) $ (34,591.492)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 562,653 5,921,180 16,556,533
Provision for doubtful accounts 163,416 282,463 492,101
Provision for deferred taxes (635,748) (141,061) -
Amortization of original issue discount and debt issuance costs - 15,710,370 22,063,495
Non cash compensation expense 934,419 174,810 311,265
Interest on shareholder notes (61,306) (223,462) (91,858)
Write off of deferred financing charges - - 1,149,954
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable 4,999,525 (1,863,999) (3,623,719)
Prepaid and other current assets (98,328) (4,998,412) 1,531,234
Costs and estimated earnings in excess of
billings on uncompleted contracts (118,235) (480,736) (1,422,186)
Intangible assets (2,152,866) (5,612,272) -
Other assets (12,858) (357,986) (4,169,648)
Increase (decrease) in-
Accounts payable 979,474 12,264,937 22,314,456
Accrued expenses 1,575,252 1,439,836 1,237,401
Deferred tax liability - 4,147,248 (36,728)
Other current liabilities 464,787 1,518,096 603,745
Other long-term liabilities 4,676 381,567 -
Billings in excess of costs and estimated earnings on
uncompleted contracts 956,688 (790,162) 809,136
------------ ------------- -------------
Total adjustments 7,561,549 27,372,417 57,725,181
------------ ------------- -------------
Net cash provided by operating activities 7,829,046 7,471,322 23,133,689
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Com-Net, net of cash received - - (7,914,634)
Tower acquisitions and other capital expenditures (17,675,818) (138,123,784) (200,955,391)
------------ ------------- -------------
Net cash used in investing activities (17,675,818) (138,123,784) (208,870,025)
------------ ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of public offering, net of issuance costs - - 93,632,852
Proceeds from notes payable 23,875,872 28,500,000 188,000,000
Repayment on notes payable (18,613,168) (21,593,054) (73,026,087)
Net proceeds from senior discount notes payable - 150,236,500 -
Deferred financing fees (787,197) (6,407,261) (14,426,124)
Issuance of common stock - 505,054 279,210
Proceeds for exercise of options - 45,075 489,057
Repayment of stockholder loans (10,665,788) - -
Advances to stockholder (3,500,000) - -
Proceeds from Series A redeemable preferred stock offering 30,000,000 - -
Redemption of Series A redeemable preferred stock - - (32,824,930)
Stock option redemption (2,236,782) - -
Costs incurred for Series A redeemable preferred stock offering (2,427,683) - -
------------ ------------- -------------
Net cash provided by financing activities 15,645,254 151,286,314 162,123,978
------------ ------------- -------------
Net increase (decrease) in cash and cash equivalents 5,798,482 20,633,852 (23,612,358)
CASH AND CASH EQUIVALENTS:
Beginning of year 310,936 6,109,418 26,743,270
------------ ------------- -------------
End of year $ 6,109,418 $ 26,743,270 $ 3,130,912
============ ============= =============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
For the years ended December 31,
----------------------------------------------
1997 1998 1999
-------- -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:
Cash paid during the year for:
Interest $ 193,269 $ 423,302 $ 5,940,096
========== ========== ============
Taxes $6,070,423 $2,378,510 $ 665,622
========== ========== ============
NON-CASH ACTIVITIES:
Dividends on preferred stock $ 983,333 $2,575,000 $ (733,403)
========== ========== ============
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 $ - $ - $ 32,281,360
Liabilities assumed in Com-Net acquisition - - (6,666,726)
Stock issued for Com-Net acquisition - - (17,700,000)
---------- ---------- ------------
$ - $ - $ 7,914,634
========== ========== ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
---------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
----------------------------------------------------
Additional
Common Stock Paid In
---------------------------------------------- Capital
Class A Class B
------- -------
Number Amount Number Amount
------ ------ ------ ------
BALANCE, December 31, 1996 1,615 $ 1,615 - $ - $ -
Corporate reorganization (1,615) (1,615) 8,075,000 80,750 -
Costs incurred for Series A Redeemable
Preferred stock offering - - - - -
Non-cash compensation adjustment - - - - -
Stock option redemption - - - - -
Net income - - - - -
Preferred stock dividends - - - - -
--------------------------------------------------------------
BALANCE, December 31, 1997 - - 8,075,000 80,750 -
Exercise of stock options 775,961 7,760 - - 37,316
Issuance of common stock as executive compensation 104,961 1,049 - - 504,005
Non-cash compensation adjustment - - - - 174,810
Net loss - - - - -
Preferred stock dividends - - - - -
--------------------------------------------------------------
BALANCE, December 31, 1998 880,922 8,809 8,075,000 80,750 716,131
Initial public offering of common stock, net of
issuance costs 11,300,000 113,000 - - 93,519,852
Non-cash compensation adjustment - - - - 311,265
Preferred stock dividends - - - - -
Preferred stock conversion/redemption 8,050,000 80,500 - - (80,500)
Shares received for repayment of shareholder loan - - (430,736) (4,307) (3,872,319)
Common stock issued in connection with
acquisition of Com-Net 1,100,000 11,000 - - 17,689,000
Exercise of employee stock options 185,953 1,859 - - 487,198
Common stock issued in connection with Employee
Stock Purchase Plan 29,862 299 - - 278,911
Net loss - - - - -
--------------------------------------------------------------
BALANCE, December 31, 1999 21,546,737 $215,467 7,644,264 $76,443 $109,049,538
==============================================================
Accumulated
Earnings
(Deficit) Total
---------------------------
BALANCE, December 31, 1996 $ 100,000 $ 101,615
Corporate reorganization (79,135) -
Costs incurred for Series A Redeemable
Preferred stock offering (2,427,683) (2,427,683)
Non-cash compensation adjustment 934,419 934,419
Stock option redemption (2,236,782) (2,236,782)
Net income 267,497 267,497
Preferred stock dividends (983,333) (983,333)
---------------------------
BALANCE, December 31, 1997 (4,425,017) (4,344,267)
Exercise of stock options - 45,076
Issuance of common stock as executive compensation - 505,054
Non-cash compensation adjustment - 174,810
Net loss (19,901,095) (19,901,095)
Preferred stock dividends (2,575,000) (2,575,000)
---------------------------
BALANCE, December 31, 1998 (26,901,112) (26,095,422)
Initial public offering of common stock, net of
issuance costs - 93,632,852
Non-cash compensation adjustment - 311,265
Preferred stock dividends (1,345,500) (1,345,500)
Preferred stock conversion/redemption 2,078,903 2,078,903
Shares received for repayment of shareholder loan - (3,876,626)
Common stock issued in connection with
acquisition of Com-Net - 17,700,000
Exercise of employee stock options - 489,057
Common stock issued in connection with Employee
Stock Purchase Plan - 279,210
Net loss (34,591,492) (34,591,492)
---------------------------
BALANCE, December 31, 1999 (60,759,201) $ 48,582,247
===========================
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
-------
SBA Communications Corporation (the "Company") was incorporated in the State of
Florida in March, 1997. The Company holds all of the outstanding capital stock
of SBA Telecommunications, Inc. ("Telecommunications"). Telecommunications holds
all of the capital stock of SBA Towers, Inc. ("Towers"), SBA, Inc. ("SBA"), SBA
Leasing, Inc. ("Leasing"), Communication Site Services, Inc ("CSSI") and Com-Net
Construction Services, Inc. ("Com-Net").
Towers and its subsidiaries own and operate transmission towers in various parts
of the country. Space on these towers is leased primarily to wireless
communications carriers.
SBA provides comprehensive turnkey services for the telecommunications industry
in the areas of site development services for wireless carriers. Site
development services provided by SBA includes site identification and
acquisition, contract and title administration, zoning and land use permitting,
construction management and microwave relocation.
Leasing leases antenna tower sites from owners and then subleases such sites to
wireless telecommunications providers.
CSSI and Com-Net are engaged in the erection and repair of, and construction
associated with, transmission towers, including hanging of antennae, cabling and
associated tower components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements is as follows:
a. Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
b. Use of Estimates
----------------
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure for contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The more significant estimates made by management include
the allowance for doubtful accounts receivable, the costs and revenue relating
to the Company's site development and construction contracts, and the economic
useful lives of towers. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
-------------------------
The Company classifies as cash and cash equivalents all interest-bearing
deposits or investments with original maturities of three months or less.
d. Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over the estimated useful lives. Leasehold improvements
are amortized on a straight-line basis over the shorter of the useful life of
the improvement or the term of the lease. Maintenance and repair items are
expensed as incurred.
Interest is capitalized in connection with the construction of towers. The
capitalized interest is recorded as part of the asset to which it relates and is
amortized over the asset's estimated useful life. Approximately $1.2 million
and $1.6 million of interest cost were capitalized in 1998 and 1999,
respectively.
F-7
e. Intangible Assets
-----------------
Intangible assets are comprised of costs paid in excess of the fair value of
assets acquired ("Goodwill") and amounts paid related to covenants not to
compete. Goodwill is being amortized over periods which range from 7 - 15 years.
The covenants not to compete are being amortized over the terms of the
contracts, which range from 7 to 10 years. Accumulated amortization totaled
approximately $0.3 million and $1.4 million at December 31, 1998 and 1999,
respectively.
f. Impairment of Long-Lived Assets
-------------------------------
Statement of Financial Accounting Standards No. 121 ("SFAS 121") Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
requires that long-lived assets, including certain identifiable intangibles, and
the goodwill related to those assets, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management has reviewed the Company's long-
lived assets and has determined that there are no events requiring impairment
loss recognition.
g. Fair Value of Financial Instruments
-----------------------------------
The carrying value of the Company's financial instruments, which includes cash
and cash equivalents, accounts receivable, prepaid expenses, notes receivable,
accounts payable, accrued expenses and notes payable, approximates fair value
due to the short maturity of those instruments. The Company's senior 12%
discount notes are publicly traded and were trading based on a 13.65% yield at
December 31, 1999, indicating a fair value of the notes of approximately $166.8
million. The carrying value of the discount notes is approximately $186.0
million at December 31, 1999.
h. Deferred Financing Fees
-----------------------
Financing fees related to the issuance of long-term debt and senior 12% discount
notes have been deferred and are being amortized using the straight-line method
over the length of indebtedness to which they relate. This method approximates
the effective interest rate method.
i. Revenue Recognition
-------------------
Revenue from tower leasing services is recorded monthly on a straight-line basis
over the life of the related lease agreements. Revenue for Leasing is recorded
on a monthly basis from subleases entered into for periods of time equivalent to
the Company's original lease obligation. Rental amounts received in advance are
recorded in other liabilities.
Site development projects in which the Company performs consulting services
include contracts on a time and materials basis or a fixed price basis. Time and
materials based contracts are billed as the services are rendered. For those
site development contracts in which the Company performs work on a fixed price
basis, site development billing (and revenue recognition) is based on the
completion of agreed upon phases of the project on a per site basis. Upon the
completion of each phase on a per site basis, the Company recognizes the revenue
related to that phase. Revenue related to services performed on uncompleted
phases of site development projects was not recorded by the Company at the end
of the reporting periods presented as it was not material to the Company's
results of operations. Any losses on a particular phase of completion are
recognized in the period in which the loss becomes evident. Site development
projects generally take from 3 to 12 months to complete.
Revenue from construction projects is recognized on the percentage-of-completion
method of accounting, determined by the percentage of cost incurred to date
compared to management's estimated total anticipated cost for each contract.
This method is used because management considers total cost to be the best
available measure of progress on the contracts. These amounts are based on
estimates, and the uncertainty inherent in the estimates initially is reduced as
work on the contracts nears completion. The asset "Costs and estimated earnings
in excess of billings on uncompleted contracts" represents revenues recognized
in excess of amounts billed. The liability, "Billings in excess of costs and
estimated earnings on completed contracts" represents billings in excess of
revenues recognized.
Costs of site development project revenue and construction revenue include all
direct material costs, salaries and labor costs, including payroll taxes,
subcontract labor, vehicle expense and other costs directly related to the
projects. All costs related to site development projects and construction
projects are recognized as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are determined
to be probable.
j. Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative costs represents those costs incurred which
are related to the administration or management of the Company. Also included
in this category are corporate development expenses which represent costs
incurred in connection with acquisitions, construction activities and expansion
of the customer base. These expenses consist of compensation, overhead costs
and
F-8
site or deal specific costs that are not directly related to the administration
or management of existing towers. The above costs are expensed as incurred.
k. Income Taxes
------------
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes
("SFAS No. 109"). SFAS No. 109 requires the Company to recognize deferred tax
liabilities and assets for the expected future income tax consequences of events
that have been recognized in the Company's consolidated financial statements.
Deferred tax liabilities and assets are determined based on the temporary
differences between the consolidated financial statements carrying amounts and
the tax bases of assets and liabilities, using enacted tax rates in the years in
which the temporary differences are expected to reverse.
l. Reclassifications
-----------------
Certain reclassifications have been made to the 1997 and 1998 consolidated
financial statements to conform to the 1999 presentation.
m. Loss Per Share
--------------
Basic and diluted loss per share are calculated in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share." The Company has
potential common stock equivalents related to its outstanding exercisable stock
options and warrants. These potential common stock equivalents were not included
in diluted loss per share because the effect would have been antidilutive.
Accordingly, basic and diluted loss per common share are the same for all
periods presented.
3. CURRENT ACCOUNTING PRONOUNCEMENTS
---------------------------------
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" which established 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 year ended December 31, 1997, 1998, and 1999, 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.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement established 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. 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 fiscal years
beginning after June 15, 2000. Management believes the impact of adopting this
statement will not have a material impact upon the Company's results of
operations or financial position.
4. ACQUISITIONS
------------
During 1997, the Company consummated the acquisition of CSSI and certain related
tower assets of Segars Communications Group, Inc. ("SCGI," and together with the
acquisition of CSSI, the "CSSI Acquisition"). The CSSI Acquisition provided the
Company with 21 towers and gave the Company the in-house capability to construct
towers in the southeastern United States. The Company paid $7.0 million at
closing and an additional $2.6 million as a contingent payment to the sellers,
which was based on certain tenant leasing goals being realized. The excess of
the purchase price over the estimated fair value of the net assets acquired, or
approximately $2.1 million, was recorded as goodwill which is being amortized on
a straight-line basis over a period of 15 years. Additionally, in 1997, the
Company completed five acquisitions consisting of 30 towers and related assets
from various sellers, all of which were individually insignificant to the
Company. The aggregate purchase price for these acquisitions for the year ended
December 31, 1997 was $5.9 million, which was paid from cash on hand.
During 1998, the Company completed 39 acquisitions consisting of 135 towers and
related assets from various sellers, all of which were individually
insignificant to the Company. The aggregate purchase price for these
acquisitions for the year ended December 31, 1998 was $55.3 million, which was
paid from cash on hand.
F-9
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. In addition, as of December 31, 1999, the former shareholders of Com-
Net were entitled to receive $2.5 million in cash and the Company issued 320,000
additional shares of Class A common stock as a result of certain 1999 earnings
targets being met. The former shareholders of Com-Net may receive up to an
additional 400,000 shares of Class A common stock if certain 2000 earnings
targets are met. The excess of the purchase price over the estimated fair value
of the net assets acquired, or approximately $9.4 million was recorded as
goodwill which is being amortized on a straight-line basis over a period of 15
years.
Additionally, during 1999, the Company completed 40 acquisitions consisting of
231 towers and related assets from various sellers, all of which were
individually insignificant to the Company. The aggregate purchase price for
these acquisitions for the year ended December 31, 1999 was $80.9 million, which
was paid from cash on hand.
The Company accounted for the above acquisitions using the purchase method of
accounting. The results of operations of the acquired assets are included with
those of the Company from the dates of the respective acquisitions. The pro-
forma results of operations listed below reflect purchase accounting and pro-
forma adjustments as if the transactions occurred as of the beginning of the
periods presented.
The unaudited pro-forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill. The pro-forma results do not purport to be indicative of
results that would have occurred had the combination been in effect for the
periods presented, nor do they purport to be indicative of the results that will
be obtained in the future.
For the years ended December 31,
--------------------------------
1998 1999
------------ ------------
Unaudited Pro Forma Revenues $ 87,972,999 $100,556,580
============ ============
Unaudited Pro Forma Net Loss $(20,178,702) $(34,671,567)
============ ============
Unaudited Pro Forma Basic and
Diluted loss per Common Share $(2.67) $(1.77)
============ ============
5. CONCENTRATION OF CREDIT RISK
----------------------------
The Company's credit risks consist primarily of accounts receivable with federal
and state government agencies and national and local wireless communications
providers. The Company performs periodic credit evaluations of its customers'
financial condition and provides allowances for doubtful accounts as required
based upon factors surrounding the credit risk of specific customers, historical
trends and other information. Following is a list of significant customers and
the percentage of total revenue derived from such customers:
For the years ended December 31,
--------------------------------
1997 1998 1999
----------- --------- --------
(% of Revenue)
Sprint 47.0 34.0 17.3
Bell South 6.6 19.3 12.3
Pacific Bell Mobile Systems 12.3 10.7 0.9
6. PROPERTY AND EQUIPMENT
----------------------
Property and equipment, net consists of the following:
Estimated
useful lives As of December 31,
------------ -----------------
(years) 1998 1999
------ ---- ----
Towers 15 $141,755,358 $329,046,558
Construction in process 7,736,769 18,648,109
Furniture and equipment 2 - 7 1,708,132 6,880,071
Vehicles 2 - 5 442,496 667,756
Buildings and improvements 5 - 26 506,120 596,676
Land 5,307,754 6,664,178
------------ ------------
157,456,629 362,503,348
Less: Depreciation and
amortization (6,510,149) (23,611,835)
------------ ------------
Property and equipment, net $150,946,480 $338,891,513
============ ============
Construction in process represents costs incurred related to towers which are
under development and will be used in the Company's operations. As part of its
construction costs, the Company capitalizes certain overhead costs directly
related to the oversight of its construction projects.
F-10
7. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
-----------------------------------------------------
Costs and estimated earnings on uncompleted contracts consist of the following:
As of December 31,
---------------------------------
1998 1999
----------- -----------
Costs incurred on uncompleted contracts $ 4,633,768 $ 11,259,511
Estimated earnings 1,357,134 2,830,072
Billings to date (5,558,457) (12,801,601)
----------- ------------
$ 432,445 $ 1,287,982
=========== ============
This amount is included in the accompanying balance sheet under the following
captions:
As of December 31,
--------------------------------
1998 1999
----------- ------------
Costs and estimated earnings in excess of billing $ 598,971 $ 2,888,963
Billings in excess of costs and estimated earnings (166,526) (1,600,981)
--------- -----------
$ 432,445 $ 1,287,982
========= ===========
8. CURRENT AND LONG TERM DEBT
--------------------------
Current and long-term debt consists of the following:
As of December 31,
-----------------------------
1998 1999
------------ -----------
Senior Credit Facility term loans, variable interest at variable
rates (9.7025% to 9.96% at December 31, 1999) quarterly
installments based on reduced availability beginning March 31,
2001, maturing December 31, 2004 and December 31, 2005. $ - $ 75,000,000
Senior Credit Facility revolving loan, interest at variable rates
(9.62% to 11.0% at December 31, 1999) quarterly installments
based on reduced availability beginning March 31, 2001,
maturing December 31, 2004. - 57,000,000
Senior 12% discount notes, net of unamortized original issue
discount of $82,958,458 at December 31, 1999, unsecured, cash
interest payable semi-annually in arrears beginning September 1,
2003, balloon principal payment of $269,000,000 due at maturity
on March 1, 2008. 165,572,133 186,041,542
Note Payable, monthly principal installments of $4,181 plus interest
at 90 day LIBOR plus 2.25% (7.9638% at December 31, 1999),
maturing June 30, 2004. Secured by vehicles. - 225,792
Bank Credit Agreement, repaid during 1999 17,001,000 -
----------- -----------
182,573,133 318,267,334
Less: current maturities (17,001,000) (50,176)
------------ ------------
Long-term debt $165,572,133 $318,217,158
============ ============
Senior Credit Facility
On February 5, 1999, the Company, through its Telecommunications subsidiary,
entered into a new credit facility (the "Senior Credit Facility") with a
syndicate of lenders which replaced and superceded in its entirety the Credit
Agreement described below. The Senior Credit Facility originally consisted of a
$25.0 million term loan, which was fully funded at closing, and a $100.0 million
revolving line of credit. The revolving line of credit was increased to $150.0
million on March 8, 1999 after receiving the requisite consents from the holders
of the Senior 12% Discount Notes (the "Notes"). The Company amended the
indenture governing the Notes to increase one of
-F-11-
the categories of permitted indebtedness from $125.0 million to $175.0 million.
The Senior Credit Facility also provides for letter of credit availability. On
December 16, 1999, after receiving the requisite consents from the holders of
the Notes, the Company amended the indenture governing the Notes to increase one
of the categories of indebtedness from $175.0 million to $300.0 million.
Simultaneously, Telecommunications amended and restated its existing Senior
Credit Facility and received commitments to expand total amounts available under
the Facility to $300.0 million. The term loan portion of the Senior Credit
Facility was increased to $75.0 million and was fully funded at closing. The
revolving loan portion of the Senior Credit Facility was increased to $225.0
million.
Availability under the Senior Credit Facility is determined by a number of
factors, including number of towers built by the Company with anchor tenants on
the date of completion, the financial performance of the Company's towers, site
development and construction segments, as well as by other financial covenants,
financial ratios and other conditions. The initial term loan of $25.0 million
and the $225.0 million revolving loan mature December 31, 2004 with amortization
pursuant to a schedule and reduced availability beginning March 31, 2001. The
additional term loan of $50.0 million matures December 31, 2005 with
amortization pursuant to a schedule and reduced availability beginning March 31,
2001. Borrowings under the Senior Credit Facility will bear interest at the EURO
rate plus a margin ranging from 2.25% to 3.50% (determined by a leverage ratio)
or "base rate" (as defined in the Senior Credit Facility) plus a margin ranging
from 1.25% to 2.50% (determined by a leverage ratio). The Senior 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 restrictions on, among other things, the
incurrence of debt and liens, dispositions of assets, transactions with
affiliates and certain investments. Refer to Note 18 (a) for further discussion
related to this Senior Credit Facility.
Senior 12% Discount Notes
On March 2, 1998, the Company closed on $269.0 million Senior 12% Discount Notes
(the "Notes") due March 1, 2008. The issuance of the Notes netted approximately
$150.2 million in proceeds to the Company. The Notes will accrete in value until
March 1, 2003 at which time they will have an aggregate principal amount of
$269.0 million. Thereafter, interest will accrue on the Notes and will be
payable in cash semi-annually in arrears on March 1 and September 1, commencing
September 1, 2003. Proceeds from the Notes were used to acquire and construct
telecommunications towers as well as for general working capital purposes.
The Notes and Senior Credit Facility 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. The ability of the Company to comply with the
covenants and other terms of the Notes and Senior Credit Facility 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 Notes or Senior Credit Facility it would be in
default thereunder, and in any such case, the maturity of a portion or all of
its long-term indebtedness could be accelerated.
Bank Credit Agreement
On June 29, 1998, the Company amended and restated its Credit Agreement with a
syndicate of banks (the Credit Agreement.) The amended Credit Agreement
provided for revolving credit loans of $55.0 million. Availability was limited
based on a minimum number of owned, leased or managed towers and at all times by
certain financial conditions and covenants and ratios, and other conditions. The
Credit Agreement was scheduled to mature on June 29, 2005. This Credit Agreement
was replaced and superceded in its entity by the Senior Credit Facility in
February, 1999. Accordingly, deferred financing fees of approximately $1.1
million were written off and are included in the Statement of Operations as an
extraordinary item.
9. RELATED PARTY TRANSACTIONS
--------------------------
a. Note Receivable - Shareholder
-----------------------------
The amount due from shareholder as of December 31, 1998, represented a
promissory note issued in March, 1997 to one of the shareholders in the amount
of $3.5 million plus accrued interest. This loan was scheduled to mature at the
earlier of three years or upon consummation of an initial public offering of the
Company. On June 21, 1999, the shareholder surrendered 430,736 shares of Class B
common stock to fully repay the principal and accrued interest on the note. The
shares surrendered have been retired by the Company.
b. Due to Shareholder
------------------
The amount due to shareholder at December 31, 1999 represents the amount owed to
the former shareholders of Com-Net as a result of certain earnings targets for
1999 having been met. The amount was paid in full in March 2000.
-F-12-
10. REDEEMABLE PREFERRED STOCK
--------------------------
In 1997, the Company sold 8,050,000 shares of 4% Series A preferred stock,
convertible initially into one share of the Company's Class A common stock and
one share of the Company's 4% Series B redeemable preferred stock, to a
syndicate of institutional investors (the "Private Investors"). The Series A
preferred stock had a conversion price of $3.73 and net proceeds received by the
Company from the sale of the shares was approximately $27.0 million (net of
approximately $2.4 million of issuance costs charged to retained earnings).
Each holder of Series A preferred stock had the right to convert his or her
shares at any time into one share of Class A common stock, subject to certain
anti-dilution protection provisions, and one share of Series B preferred stock.
The Series A preferred stock automatically converted into Class A common stock
and Series B preferred stock upon initial public offering.
The holders of outstanding shares of Series A preferred stock were entitled, in
preference to the holders of any and all other classes of capital stock of the
Company, to receive, out of funds legally available therefore, cumulative
dividends on the Series A preferred stock in cash, at a rate per annum of 4% of
the Series A subject to pro-ration for partial years. The liquidation amount
equals the sum of $3.73 and any accumulated and unpaid dividends on the Series A
preferred stock. Accrued but unpaid dividends on the Series A preferred stock
were paid upon the conversion of the Series A preferred stock into Class A
common stock and Series B preferred stock. On June 21, 1999, the date of the
conversion, accrued dividends of approximately $2.8 million were paid to the
holders of the Series A preferred stock. The Company had accrued the preferred
stock dividends on the effective interest method over the period from issuance
until the scheduled redemption. As a result, the Company recorded a reduction
in the amount of dividends payable of $0.7 million as a result of the early
conversion and redemption prior to the originally scheduled redemption date.
11. INITIAL PUBLIC OFFERING
-----------------------
On June 21, 1999, the Company completed an initial public offering of 10.0
million shares of its Class A common stock. The Company raised gross proceeds
of $90.0 million which produced net proceeds after deduction of the underwriting
discount and estimated offering expense of $82.8 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.
On July 19, 1999, the managing underwriters of the Company's initial public
offering exercised and closed on their over-allotment option to purchase 1.3
million shares of 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. These net proceeds were also
used for the construction and acquisition of towers and for general working
capital purposes.
12. INCOME TAXES
------------
The provision for income taxes in the consolidated statements of operations
consists of the following components:
For the years ended December 31,
-----------------------------------------------------------
1997 1998 1999
------------------ ------------------ -------------------
Federal income taxes
Current $4,628,286 $(1,729,384) $(1,255,510)
Deferred (556,280) (123,429) -
Foreign 405,047 65,731 231,462
---------- ----------- -----------
4,477,053 (1,787,082) (1,024,048)
---------- ----------- -----------
State income taxes
Current 1,198,413 280,408 801,392
Deferred (79,468) (17,632) -
---------- ----------- -----------
1,118,945 262,776 801,392
---------- ----------- -----------
Total $5,595,998 $(1,524,306) $ (222,656)
========== =========== ===========
-F-13-
A reconciliation of the statutory U.S. Federal tax rate (34%) and the effective
income tax rate is as follows:
For the years ended December 31,
----------------------------------------------------------
1997 1998 1999
----------------- ------------------ -------------------
Statutory Federal expense
(benefit) $1,993,588 $(7,284,636) $(11,836,810)
State income tax 224,311 (784,569) (525,654)
Corporate reorganization 3,248,649 - -
Foreign tax (40,120) 540,744
Other 129,450 261,824 540,478
Valuation allowance - 6,323,195 11,058,586
---------- ----------- ------------
$5,595,998 $(1,524,306) $ (222,656)
========== =========== ============
The components of the net deferred income tax asset (liability) accounts are as
follows:
As of December 31,
------------------------------
1998 1999
--------- -----------
Allowance for doubtful accounts $ 174,668 $ 314,120
Deferred revenue 340,464 1,175,516
Other 120,201 288,057
Valuation allowance (635,333) (1,777,693)
---------- ------------
Current deferred tax liabilities $ - $ -
========== ============
Original issue discount $ 5,552,286 $ 13,580,162
Net operating loss - 3,819,561
Employee stock compensation 1,864,841 1,772,652
Book vs. tax depreciation (5,193,422) (11,651,792)
Other 93,718 201,383
Valuation allowance (5,687,862) (15,672,420)
----------- ------------
Non-current deferred tax assets (liabilities) $(3,370,439) $ (7,950,454)
=========== ============
In connection with the acquisition of certain towers during 1998 and 1999, the
Company recorded deferred tax liabilities and goodwill of $4.2 million and $4.6
million, respectively, related to the book/tax basis differences in the acquired
towers.
The Company has recorded a valuation allowance for deferred tax assets as
management believes that it is not "more likely than not" that the Company will
be able to generate sufficient taxable income in future periods to recognize the
assets.
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
a. Operating Leases
----------------
The Company is obligated under several non-cancelable operating leases for
office space, vehicles and equipment, and site leases that expire at various
times through September, 2093. The annual minimum lease payments under non-
cancelable operating leases as of December 31, 1999 are as follows:
2000 $ 7,955,734
2001 8,212,948
2002 8,675,907
2003 7,268,492
2004 3,653,592
Thereafter 8,548,145
-----------
Total $44,314,818
===========
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above.
Rent expense for operating leases was $6,134,045, $10,834,234, and $12,778,099
for the years ended December 31, 1997, 1998 and 1999, respectively.
-F-14-
b. Tenant Leases
-------------
The annual minimum tower space income to be received for tower space and antenna
rental under non-cancelable operating leases as of December 31, 1999 are as
follows:
2000 $ 31,858,710
2001 30,484,988
2002 28,498,128
2003 24,026,438
2004 13,195,118
Thereafter 32,550,632
------------
Total $160,614,014
============
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above. The
Company defers certain initial direct costs associated with new leases and
amortizes these costs over the initial lease term, generally five years. Total
costs deferred were approximately $1.1 million in 1999. Related amortization
expense was approximately $0.1 million in 1999.
c. Employment Agreements
---------------------
The Company has employment agreements with certain officers of the Company which
grant these employees the right to receive their base salary and continuation of
certain benefits in the event of a termination (as defined by the agreement of
such employees).
d. Litigation
----------
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 will not have a material adverse
effect on the Company's consolidated financial position or results of
operations.
14. HEALTH AND RETIREMENT PLANS
---------------------------
The Company has a defined contribution profit sharing plan under Section 401 (k)
of the Internal Revenue Code that provides for voluntary employee contributions
of 1% to 14% of compensation for substantially all employees. The Company makes
a matching contribution of 50% of an employee's first $2,000 of contributions.
Company contributions and other expenses associated with the plan were $126,101,
$123,981, and $175,534 for the years ended December 31, 1997, 1998, and 1999
respectively.
15. EMPLOYEE STOCK PURCHASE PLAN
----------------------------
In 1999, the Board of Directors of the Company adopted the 1999 Stock Purchase
Plan (the "Purchase Plan".) A total of 500,000 shares of Class A common stock
are reserved for purchase under the Purchase Plan. The Purchase Plan permits
eligible employee participants to purchase Class A common stock at a price per
share which is equal to the lesser of eighty-five (85%) of the fair market value
of the Class A common stock on the first or the last day of an offering period.
As of December 31, 1999, 29,862 shares had been purchased by employees under
the Purchase Plan.
16. STOCK OPTIONS AND WARRANTS
--------------------------
In 1996, certain of the Company's senior executives terminated existing
employment, incentive and option agreements in exchange for new employment
agreements and immediately exercisable options to purchase 1,425,000 shares of
Class A Common Stock. All of the options are exercisable at $.05 per share.
During March 1997, options to purchase 264,708 shares of Class A common stock
were redeemed by the Company for $8.50 per share. Accordingly, the Company
recognized compensation expense of $0.9 million which represented the difference
between the redemption value and the fair value of the common stock at the date
of the redemption. In July 1998, one of the senior executives exercised 773,528
options. As of December 31, 1999, 386,764 of the initial options remain
outstanding.
The Company has two stock option plans (the 1996 Stock Option Plan and the 1999
Equity Participation Plan), whereby options (both non-qualified and incentive
stock options), stock appreciation rights and restricted stock may be granted to
directors, employees and consultants. A total of 4,300,000 shares of Class A
Common Stock were initially reserved for issuance under these plans. These
options generally vest over three-year periods from the date of grant. The
Company accounts for these plans under APB Opinion No. 25, under which
compensation cost is not recognized on those issuances where the exercise price
equals or exceeds the market price of the underlying stock on the grant date.
-F-15-
During 1998, 208,419 options to purchase Class A common stock were granted
under the 1996 Stock Option Plan at exercise prices which the Company believed
were below market value. Also during 1998, the Company granted 104,961 shares
of Class A Common Stock to two executives and recorded non-cash compensation
expense which represented the fair value of the shares on the date of grant.
During 1999, 881,157 options to purchase Class A common stock were granted under
the 1999 Equity Participation Plan (the "1999 Plan") which the Company believed
were below market value at the time of grant. All other option grants were at
or above market value at the time of grant. The Company recorded non-cash
compensation expense of $934,419, $678,815 and $311,265 for the years ended
December 31, 1997, 1998 and 1999, respectively.
As required by FASB Statement No. 123 ("FASB 123"), for those options which the
Company granted at or above fair market value, the Company has determined the
pro-forma effect of the options granted had the Company accounted for stock
options granted under the fair value method of FASB 123. The Black-Scholes
option pricing model was used with the following assumptions for 1997, 1998 and
1999, for options granted prior to the initial public offering; risk free
interest rate of 12%, dividend yield of 0%; expected volatility of .001% and
expected lives of 3 years. For options granted subsequent to the initial public
offering, the following assumptions were used, risk free interest rate of 12%,
dividend yield of 0%, volatility of 85%, and expected lives of three years. Had
compensation cost for the stock option plan been determined based on fair value
at the date of grant in accordance with FASB 123, the Company's pro-forma net
income (loss) would have totaled $162,111, $(20,156,126) and $(40,198,079) for
the years ended December 31, 1997, 1998 and 1999, respectively. The effect of
applying FASB 123 in this pro-forma disclosure is not necessarily indicative of
future results.
A summary of the status of the Company's stock option plans including their
weighted average exercise price is as follows:
1997 1998 1999
-------------------- ------------------ -------------------
Shares Price Shares Price Shares Price
-------- -------- -------- ------- -------- --------
Outstanding at beginning of year 1, 425,000 $0.05 1,797,292 $0.96 1,660,016 $ 2.12
Granted 810,500 2.63 799,019 2.81 1,740,935 11.12
Exercised/redeemed (264,708) 0.05 (775,961) 0.05 (183,520) 2.63
Forfeited / canceled (173,500) 2.63 (160,334) 2.63 (40,237) 3.90
---------- ----- --------- ----- --------- ------
Outstanding at end of year 1,797,292 $0.96 1,660,016 $2.12 3,177,194 $ 7.11
========== ===== ========= ===== ========= ======
Options exercisable at end of year 1,193,625 $ .12 723,883 $1.45 1,211,829 $ 3.24
========== ===== ========= ===== ========= ======
Weighted average fair value of options
granted during the year $0.96 $1.81 $11.12
===== ===== ======
Option groups outstanding at December 31, 1999 and related weighted average
exercise price and life information are as follows:
Wtd. Avg Remaining
Exercise Price Outstanding Contractual Life (Years) Exercisable
------------------- ----------------------- ------------------------- --------------------
$ .05 386,764 6.0 386,764
$ 2.63 949,574 7.3 428,966
$ 4.00 105,719 9.0 105,719
$ 8.00 882,257 9.3 275,380
$ 9.00 100,000 9.5 -
$ 9.69 - 9.75 2,900 9.7 -
$10.00 - 10.94 22,600 9.7 15,000
$11.13 - 11.88 7,400 9.9 -
$15.25 719,980 10.0 -
--------- ---------
3,177,194 1,211,829
========= =========
In connection with the issuance of the redeemable preferred stock the Company
issued a five year warrant enabling the holder to purchase up to 402,500 shares
of Class A common stock with an exercise price of $3.73 per share. Accordingly,
402,500 shares of Class A common stock are reserved. The fair value of the
warrants at issuance was not material.
17. 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, capital expenditures
and depreciation and amortization pertaining to the segments in which the
Company operates are presented below:
-F-16-
For the years ended December 31,
------------------------------------------------------------
Revenue: 1997 1998 1999
------------------ ------------------ --------------------
Site development - consulting $47,032,197 $27,448,910 $17,964,006
Site development - construction 1,208,246 19,255,731 42,605,608
Site leasing 6,759,362 12,396,268 26,423,121
----------- ----------- -----------
$54,999,805 $59,100,909 $86,992,735
=========== =========== ===========
Gross profit:
Site development - consulting $16,386,901 $ 5,552,140 $ 5,546,475
Site development - construction 383,339 4,652,521 8,744,073
Site leasing 1,403,202 5,115,482 14,289,443
----------- ----------- -----------
$18,173,442 $15,320,143 $28,579,991
=========== =========== ===========
Capital expenditures:
Site development - consulting $ 58,474 $ 21,565 $ 6,971,008
Site development - construction 863,863 119,285 10,485,007
Site leasing 16,425,061 137,274,109 189,778,740
Assets not identified by segment 328,420 708,825 1,635,270
------------ ------------ ------------
$ 17,675,818 $138,123,784 $208,870,025
============ ============ ============
As of December 31,
--------------------------------
Assets: 1998 1999
------------ ------------
Site development - consulting $ 14,516,752 $ 22,418,344
Site development - construction 9,690,197 48,519,024
Site leasing 173,075,271 338,722,978
Assets not identified by segment 17,290,885 20,162,880
------------ ------------
$214,573,105 $429,823,226
============ ============
18. SUBSEQUENT EVENTS
-----------------
a. Secondary Offering
------------------
On February 2, 2000, the Company completed a follow-on offering of 9.0 million
shares of its Class A common stock. The Company raised gross proceeds of $243.0
million, which produced net proceeds of approximately $229.3 million, after
deduction of the underwriting discount and estimated offering expenses. The
Company used $68.0 million of these net proceeds to repay all revolving credit
loans under the Senior Credit Facility. Remaining proceeds have and will be
used for the construction and acquisition of towers and for general working
capital purposes.
On February 3, 2000 the managing underwriters of the follow-on offering
exercised and closed on their over-allotment option to purchase an additional
1,350,000 shares of the Company's Class A common stock. Certain shareholders
along with the Company had granted this option to the underwriters in connection
with the follow-on offering. These certain shareholders satisfied from their
shareholdings the exercise of the over-allotment option in full, resulting in no
proceeds to the Company as a result of this exercise.
b. Registration of Additional Shares
---------------------------------
In January 2000, the Company filed a registration statement with the Securities
and Exchange Commission registering 1.0 million shares of its Class A common
stock. These shares are currently reserved for issuance in connection with
acquisitions of wireless communication towers or companies that provide related
services at various locations in the United States from time to time. As of the
date of this report, 912,062 shares remain reserved for future issuance. On
March 17, 2000, the Company issued 87,938 shares of Class A common stock in
connection with an acquisition of six towers and related assets.
c. Exercise of Warrants
--------------------
In February 2000, the holders of the warrants discussed in Note 16 have
exercised their right to exchange the warrants for Class A common stock. The
fair market value of the common stock was $33.25 per share at the time of
exercise. In lieu of remitting cash to the Company for the exercise, warrants
to acquire 45,113 shares were surrendered to the Company.
-F-17-
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS ON SCHEDULE
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
West Palm Beach, Florida.
February 14, 2000
-F-18-
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Deduction
Beginning at Costs and From Balance at
Period Expenses Reserves End of Period
------------ ------------ ------------- ---------------
Allowance for Doubtful Accounts:
December 31, 1997 $1,024,100 $ 163,416 $679,248 $508,268
December 31, 1998 $ 508,268 $ 282,463 $354,060 $436,671
December 31, 1999 $ 436,671 $ 492,101 $139,473 $785,299
-F-19-