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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from _______ to _______
Commission file number 000-30110
SBA COMMUNICATIONS CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0716501
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5900 Broken Sound Parkway NW, Boca Raton,
Florida 33487
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(561) 995-7670
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Number of shares of common stock outstanding at November 8, 2002
Class A Common Stock - 45,562,784 shares
Class B Common Stock - 5,455,595 shares
SBA COMMUNICATIONS CORPORATION
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 3
Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001 4
Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2002 6
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 7
Condensed Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 29
Item 4. Controls and Procedures 31
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 31
SIGNATURES 32
CERTIFICATIONS 33
2
ITEM 1: UNAUDITED FINANCIAL STATEMENTS
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUES)
SEPTEMBER 30, 2002 DECEMBER 31, 2001
------------------ ------------------
ASSETS
Current assets:
Cash and cash equivalents $ 42,349 $ 13,904
Accounts receivable, net of allowance of $4,476 and $4,641 in
2002 and 2001, respectively 45,684 56,796
Prepaid and other current assets 7,367 10,254
Costs and estimated earnings in excess of billings on
uncompleted contracts 16,334 11,333
------------------ ------------------
Total current assets 111,734 92,287
Property and equipment, net 1,154,392 1,198,559
Goodwill, net - 80,592
Other intangible assets, net 4,660 5,588
Deferred financing fees, net 25,673 27,807
Other assets 27,519 24,178
------------------ ------------------
Total assets $ 1,323,978 $ 1,429,011
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 19,863 $ 56,293
Accrued expenses 14,337 13,046
Current portion - long-term debt 2,603 365
Interest payable 10,127 21,815
Billings in excess of costs and estimated earnings
on uncompleted contracts 3,209 6,302
Other current liabilities 28,929 15,880
------------------ ------------------
Total current liabilities 79,068 113,701
------------------ ------------------
Long-term liabilities:
Long-term debt 1,009,024 845,088
Deferred tax liabilities, net 18,475 18,429
Other long-term liabilities 1,832 1,149
------------------ ------------------
Total long-term liabilities 1,029,331 864,666
------------------ ------------------
Commitments and contingencies (see Note 11)
Shareholders' equity:
Common stock-Class A par value $.01 (200,000 and 100,000 shares
authorized, 45,563 and 43,233 shares issued and outstanding in
2002 and 2001, respectively) 456 432
Common stock-Class B par value $.01 (8,100 shares authorized,
5,456 shares issued and outstanding in 2002 and 2001) 55 55
Additional paid-in capital 672,720 664,977
Accumulated deficit (457,652) (214,820)
------------------ ------------------
Total shareholders' equity 215,579 450,644
------------------ ------------------
Total liabilities and shareholders' equity $ 1,323,978 $ 1,429,011
================== ==================
The accompanying Condensed Notes to Consolidated Financial Statements on pages
8 through 16 herein are an integral part of these consolidated financial
statements.
3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Site development $ 31,087 $ 35,359 $ 97,863 $ 100,872
Site leasing 35,961 27,674 102,736 72,872
------------ ------------ ------------ ------------
Total revenues 67,048 63,033 200,599 173,744
------------ ------------ ------------ ------------
Cost of revenues (exclusive of depreciation
and amortization shown below):
Cost of site development 25,885 27,223 79,126 77,455
Cost of site leasing 13,331 9,886 36,282 26,124
------------ ------------ ------------ ------------
Total cost of revenues 39,216 37,109 115,408 103,579
------------ ------------ ------------ ------------
Gross profit 27,832 25,924 85,191 70,165
Operating expenses:
Selling, general and administrative 8,983 10,009 27,356 31,409
Restructuring and other charge 1,225 24,399 76,428 24,399
Depreciation and amortization 26,378 20,145 76,625 53,520
------------ ------------ ------------ ------------
Total operating expenses 36,586 54,553 180,409 109,328
------------ ------------ ------------ ------------
Operating loss (8,754) (28,629) (95,218) (39,163)
Other income (expense):
Interest income 338 1,578 434 6,785
Interest expense, net of amounts capitalized (14,249) (14,099) (41,042) (34,736)
Non-cash amortization of original issue discount
and debt issuance costs (8,461) (7,614) (24,748) (21,870)
Other 11 54 (29) (142)
------------ ------------ ------------ ------------
Total other expense (22,361) (20,081) (65,385) (49,963)
------------ ------------ ------------ ------------
Loss before provision for income taxes,
extraordinary item and cumulative effect
of change in accounting principle (31,115) (48,710) (160,603) (89,126)
Provision for income taxes (558) (408) (1,637) (1,240)
------------ ------------ ------------ ------------
Loss before extraordinary item and cumulative
effect of change in accounting principle (31,673) (49,118) (162,240) (90,366)
Extraordinary item, write-off of deferred financing
fees - - - (5,069)
Cumulative effect of change in accounting principle - - (80,592) -
------------ ------------ ------------ ------------
Net loss $ (31,673) $ (49,118) $ (242,832) $ (95,435)
============ ============ ============ ============
(Continued)
4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------------------- ----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Basic and diluted loss per common share before
extraordinary item and cumulative effect of change
in accounting principle $ (0.62) $ (1.03) $ (3.24) $ (1.91)
Extraordinary item - - - (0.11)
Cumulative effect of change in accounting principle - - (1.61) -
------------ ------------ ------------ ------------
Basic and diluted loss per common share $ (0.62) $ (1.03) $ (4.85) $ (2.02)
============ ============ ============ ============
Basic and diluted weighted average number of
shares of common stock 50,745 47,600 50,055 47,172
============ ============ ============ ============
The accompanying Condensed Notes to Consolidated Financial Statements on
pages 8 through 16 herein are an integral part of these consolidated financial
statements.
5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
(IN THOUSANDS)
Additional
Paid In Accumulated
Common Stock Capital Deficit Total
--------------------------------------------- ------------ ------------ ---------
Class A Class B
--------------------- ---------------------
Number Amount Number Amount
--------- --------- --------- ---------
BALANCE, December 31, 2001 43,233 $ 432 5,456 $ 55 $ 664,977 $ (214,820) $ 450,644
Common stock issued in connection with
acquisitions and earn-outs 1,316 13 - - 5,635 - 5,648
Common stock issued in connection
with employee stock purchase/option/
severance plans 1,014 11 - - 248 - 259
Non-cash compensation - - - - 1,860 - 1,860
Net loss - - - - - (242,832) (242,832)
--------- --------- --------- --------- ------------ ------------ ---------
BALANCE, September 30, 2002 45,563 $ 456 5,456 $ 55 $ 672,720 $ (457,652) $ 215,579
========= ========= ========= ========= ============ ============ =========
The accompanying Condensed Notes to Consolidated Financial Statements
on pages 8 through 16 herein are an integral part of these consolidated
financial statements.
6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
2002 2001
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (242,832) $ (95,435)
Adjustments to reconcile net loss to net cash (used in) provided by operating
activities:
Depreciation and amortization 76,625 53,520
Restructuring and other charge 72,567 24,148
Non-cash compensation expense 1,860 2,533
Provision for doubtful accounts 1,555 1,166
Amortization of original issue discount and debt issuance costs 24,748 21,870
Write-off of deferred financing fees - 5,069
Cumulative effect of change in accounting principle 80,592 -
Changes in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable 9,557 2,631
Prepaid and other current assets 441 (5,340)
Costs and estimated earnings in excess of
billings on uncompleted contracts (5,001) (2,845)
Other assets 3,815 5,751
Accounts payable (36,610) (12,951)
Accrued expenses (1,042) 3,612
Interest payable (11,688) 8,799
Other liabilities 4,777 4,623
Billings in excess of costs and estimated earnings on uncompleted contracts (3,093) (2,310)
------------------ ------------------
Total adjustments 219,103 110,276
------------------ ------------------
Net cash (used in) provided by operating activities (23,729) 14,841
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower acquisitions and other capital expenditures (84,488) (415,170)
------------------ ------------------
Net cash used in investing activities (84,488) (415,170)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from employee stock purchase/option plans 259 2,853
Proceeds from senior notes payable, net of financing fees - 484,261
Borrowings under senior credit facility 138,000 30,000
Proceeds from senior secured credit facility, net of financing fees - 44,320
Repayment of senior credit facility and notes payable (406) (105,638)
Deferred financing fees (1,191) -
------------------ ------------------
Net cash provided by financing activities 136,662 455,796
------------------ ------------------
Net increase in cash and cash equivalents 28,445 55,467
CASH AND CASH EQUIVALENTS:
Beginning of period 13,904 14,980
------------------ ------------------
End of period $ 42,349 $ 70,447
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 57,212 $ 27,897
================== ==================
Taxes $ 1,005 $ 1,992
================== ==================
NON-CASH ACTIVITIES:
Assets acquired in acquisitions $ 14,648 $ 48,943
================== ==================
Liabilities assumed in connection with acquisitions $ (9,000) $ (4,549)
================== ==================
Common stock issued in connection with acquisitions $ (5,648) $ (21,908)
================== ==================
The accompanying Condensed Notes to Consolidated Financial Statements on pages
8 through 16 herein are an integral part of these consolidated financial
statements.
7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements should be read in conjunction
with the 2001 Form 10-K for SBA Communications Corporation. These financial
statements have been prepared in accordance with instructions to Form 10-Q and
Article 10 of Regulation S-X and, therefore, omit or condense certain footnotes
and other information normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) considered necessary for fair financial statement
presentation have been made. Certain amounts in the prior year's consolidated
financial statements have been reclassified to conform to the current year's
presentation. The results of operations for an interim period may not give a
true indication of the results for the year.
During the nine months ended September 30, 2002 and 2001, the Company did not
have any changes in its equity resulting from non-owner sources and,
accordingly, comprehensive income (loss) was equal to the net loss amounts
presented for the respective periods in the accompanying Consolidated Statements
of Operations.
The Company has potential common stock equivalents related to its outstanding
stock options. These potential common stock equivalents were not included in
diluted loss per share because the effect would have been anti-dilutive.
Accordingly, basic and diluted loss per common share and the weighted average
number of shares used in the computation are the same for all periods presented.
There were 1.8 million and 3.7 million options outstanding at September 30, 2002
and 2001, respectively.
2. CURRENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, Business Combinations. SFAS
141 addresses financial accounting and reporting for business combinations and
supercedes Accounting Principles Board Opinion ("APB") No. 16, Business
Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of
Purchased Enterprises. All business combinations in the scope of SFAS 141 are to
be accounted for under the purchase method. SFAS 141 became effective June 30,
2001. The adoption of SFAS 141 did not have an impact on the Company's
Consolidated Financial Statements.
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets. This standard eliminates the amortization of goodwill and certain
intangible assets against earnings. Instead, goodwill is subject to at least an
annual assessment for impairment by applying a fair-value-based test. Goodwill
and indefinite-lived intangible assets will be written-down against earnings
only in the periods in which the recorded value of the asset is more than its
fair value. SFAS 142 required the Company to complete a transitional goodwill
impairment test within six months from the date of adoption. The Company adopted
the provisions of SFAS 142 effective January 1, 2002 and completed the required
transitional tests prior to June 30, 2002. In addition, the Company performed an
impairment assessment of goodwill as of June 30, 2002. Other intangibles will
continue to be amortized over their estimated useful lives, generally 2 to 10
years. See Note 3 for further discussion regarding the implementation of SFAS
142.
In October 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement
Obligations. This standard requires companies to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, the Company capitalizes a
cost by increasing the carrying amount of the related long-lived asset. Over
time, the liability is accreted to its present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Upon
settlement of the liability, the Company either settles the obligation for its
recorded amount or incurs a gain or loss upon settlement. The standard will be
adopted effective January 1, 2003. Management has not determined the effect
adoption of SFAS 143 will have on the Consolidated Financial Statements, but
believes it may be material given the Company's obligations to restore
leaseholds to their original condition upon termination of ground leases
underlying a majority of the Company's towers.
8
On January 1, 2002, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
Be Disposed of. SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30, Reporting Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business (see Note 8).
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos.
4, 44 and 62, Amendment of SFAS No. 13 and Technical Corrections. For most
companies, SFAS 145 will require gains and losses on extinguishments of debt to
be classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS 4. Extraordinary treatment
will be required for certain extinguishments as provided in APB Opinion No. 30.
The statement also amended SFAS 13 for certain sales-leaseback and sublease
accounting. The Company is required to adopt the provisions of SFAS 145
effective January 1, 2003. Management has not determined the effect adoption of
SFAS No. 145 will have on the Consolidated Financial Statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities and nullified EITF Issue No. 94-3. SFAS 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred, whereas EITF No. 94-3 had recognized
the liability at the commitment date to an exit plan. SFAS No. 146 requires that
the initial measurement of a liability be at fair value. The Company is required
to adopt the provisions of SFAS 146 effective for exit or disposal activities
initiated after December 31, 2002. Management has not determined the effect
adoption of SFAS 146 will have on the Consolidated Financial Statements.
In June 2001, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued an exposure draft of a proposed
Statement of Position ("SOP") entitled Accounting for Certain Costs and
Activities Related to Property, Plant and Equipment. The proposed SOP may limit
the ability of companies to capitalize certain costs as part of property, plant
and equipment ("PP&E"). The proposed SOP would also require that each
significant separately identifiable part of PP&E with a useful life different
from the useful life of the PP&E to which it relates be accounted for separately
and depreciated over the individual component's expected useful life. Management
has not determined the effect this SOP, if issued as proposed, would have on the
Consolidated Financial Statements, but it may be material given the magnitude
and nature of the Company's property, plant and equipment.
3. GOODWILL AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
During the second quarter of 2002, the Company completed the transitional
impairment test of goodwill required under SFAS 142, which was adopted effective
January 1, 2002. As a result of completing the required transitional test, the
Company recorded a charge retroactive to the adoption date for the cumulative
effect of the accounting change in the amount of $80.6 million, representing the
excess of the carrying value of reporting units as compared to their estimated
fair value. Of the total $80.6 million cumulative effect adjustment, $61.6
million related to the site development construction reporting segment and $19.0
million related to the site leasing reporting segment. The charge increased the
first quarter's previously reported net loss of $83.2 million, or ($1.70) per
share to $163.8 million, or ($3.34) per share.
During the first and second quarters of 2002, the Company recorded additional
goodwill totaling approximately $13.4 million resulting from the achievement of
certain earn-out obligations under various construction acquisition agreements
entered into prior to July 1, 2001. In accordance with SFAS 142, in addition to
the transitional test described above, goodwill is subject to an impairment
assessment at least annually, or at any time that indicators of impairment are
present. The Company determined that as of June 30, 2002 indicators of
impairment were present, thereby requiring an impairment analysis be completed.
The indicators of impairment during the quarter ended June 30, 2002 giving rise
to this analysis included significant deterioration of overall Company value,
continued negative trends with respect to carrier capital expenditure plans and
related demand for wireless construction services, and perceived reduction in
value of similar site development construction services businesses. As a result
of this analysis, using a discounted cash flow valuation method for estimating
fair value, $13.4 million of goodwill within the site development construction
reporting segment was determined to be impaired as of June 30, 2002. The $13.4
million goodwill impairment charge is included within restructuring and other
charge in the Consolidated Statement of Operations for the nine months ended
September 30, 2002.
9
The Company is subject to contingent earn-out obligations associated with an
acquisition within its site development construction segment of up to $7.0
million if certain earnings targets are achieved. If future obligations are
incurred under such agreement, any resulting goodwill will be assessed at that
time under the provisions of SFAS 142. The commitment, if earned, is payable
June 30, 2003 and may be settled in cash or Class A common stock.
The following unaudited pro forma summary presents the Company's net loss and
per share information as if the Company had been accounting for its goodwill
under SFAS 142 for all periods presented:
Three months ended Nine months ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
2002 2001 2002 2001
------------- ------------- ------------- -------------
(in thousands)
Reported net loss $ (31,673) $ (49,118) $ (242,832) $ (95,435)
Cumulative effect of change in accounting
principle - - 80,592 -
------------- ------------- ------------- -------------
Loss excluding cumulative effect of change in
accounting principle (31,673) (49,118) (162,240) (95,435)
Add back goodwill amortization - 1,339 - 3,904
------------- ------------- ------------- -------------
Adjusted net loss $ (31,673) $ (47,779) $ (162,240) $ (91,531)
============= ============= ============= =============
Reported basic and diluted loss per share $ (0.62) $ (1.03) $ (4.85) $ (1.91)
Cumulative effect of change in accounting
principle - - 1.61 -
------------- ------------- ------------- -------------
Loss per share excluding cumulative effect of
change in accounting principle (0.62) (1.03) (3.24) (1.91)
Add back goodwill amortization - .03 - .08
------------- ------------- ------------- -------------
Adjusted net loss per share $ (0.62) $ (1.00) $ (3.24) $ (1.83)
============= ============= ============= =============
The Company's other intangible assets at September 30, 2002, consist of
finite-lived covenants not to compete under various acquisition agreements. The
net carrying amount at September 30, 2002 and December 31, 2001 was $4.7 million
and $5.6 million, respectively. The accumulated amortization balance at
September 30, 2002 and December 31, 2001 was $3.0 million and $1.9 million,
respectively.
Amortization expense was $0.3 million and $1.6 million for the three months
ended September 30, 2002 and September 30, 2001, respectively and $1.1 million
and $4.5 million for the nine months ended September 30, 2002 and September 30,
2001, respectively. Estimated amortization expense for the remaining three
months of 2002 and each of the succeeding calendar years is as follows:
Period ending December 31, (in thousands)
-------------------------- --------------
2002 $ 331
2003 1,305
2004 1,276
2005 1,119
2006 417
Thereafter 212
--------------
$ 4,660
==============
10
4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the following:
As of As of
September 30, 2002 December 31, 2001
------------------ ------------------
(in thousands)
Costs incurred on uncompleted contracts $ 67,996 $ 64,400
Estimated earnings 16,977 14,200
Billings to date (71,848) (73,569)
------------------ ------------------
$ 13,125 $ 5,031
================== ==================
As of As of
September 30, 2002 December 31, 2001
------------------ ------------------
(in thousands)
Costs and estimated earnings in excess of billings on
uncompleted contracts $ 16,334 $ 11,333
Billings in excess of costs and estimated earnings on
uncompleted contracts (3,209) (6,302)
------------------ ------------------
$ 13,125 $ 5,031
================== ==================
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
As of As of
September 30, 2002 December 31, 2001
------------------ ------------------
(in thousands)
Towers and related components $ 1,287,960 $ 1,224,891
Construction in process 6,240 48,998
Furniture, equipment and vehicles 40,532 38,148
Land 14,903 12,275
Buildings and improvements 2,687 2,406
------------------ ------------------
1,352,322 1,326,718
Less: Accumulated depreciation and amortization (197,930) (128,159)
------------------ ------------------
Property and equipment, net $ 1,154,392 $ 1,198,559
================== ==================
Construction in process primarily represents costs incurred related to towers
that are under development and will be used in the Company's operations (see
Note 8).
11
6. CURRENT AND LONG-TERM DEBT
As of As of
September 30, 2002 December 31, 2001
------------------ ------------------
(in thousands)
10 1/4% senior notes, unsecured, interest payable semi-annually,
balloon principal payment of $500,000 due at maturity on February
1, 2009, including fair value of interest-rate swap
of $7,156 at September 30, 2002 (see Note 9). $ 507,156 $ 500,000
12% senior discount notes, net of unamortized original issue
discount of $12,691 at September 30, 2002 and $34,115 at December
31, 2001, unsecured, cash interest payable semi-annually in
arrears beginning September 1, 2003, balloon principal payment of
$269,000 due at maturity on March 1, 2008. 256,309 234,885
Senior secured credit facility loans, interest at varying rates
(3.99% to 4.11% at September 30, 2002) quarterly installments
based on reduced availability beginning September 30, 2003,
maturing June 15, 2007. 248,000 110,000
Notes payable, interest at varying rates (2.82% to 11.4% at
September 30, 2002). 162 568
------------------ ------------------
1,011,627 845,453
Less: current maturities (2,603) (365)
------------------ ------------------
Long-term debt $ 1,009,024 $ 845,088
================== ==================
Subsequent to September 30, 2002, the Company borrowed an additional $7.0
million under its revolving credit facility.
7. SHAREHOLDERS' EQUITY
From time to time, restricted shares of Class A common stock or options to
purchase Class A common stock have been granted under the Company's equity
participation plans at prices below market value at the time of grant.
Additionally, in 2002, the Company entered into bonus agreements with certain
executives and employees to issue shares of the Company's Class A common stock
in lieu of cash payments. The Company expects to record approximately $2.3
million of non-cash compensation expense in 2002 and $0.7 million in non-cash
compensation expense in each year from 2003 through 2006. The Company recorded
approximately $1.9 million in non-cash compensation expense in the nine months
ended September 30, 2002.
During the nine months ended September 30, 2002, the Company issued 1.3 million
shares of its Class A common stock as a result of tower acquisitions and towers
or businesses it acquired having met or exceeded certain earnings or new tower
targets identified in the various acquisition agreements.
During January 2002, the Company's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend of one preferred stock purchase right for
each outstanding share of the Company's common stock. Each of these rights,
which are currently not exercisable, will entitle the holder to purchase one
one-thousandth (1/1000) of a share of the Company's newly designated Series E
Junior Participating Preferred Stock. In the event that any person or group
acquires beneficial ownership of 15% or more of the outstanding shares of the
Company's common stock or commences or announces an intention to commence a
tender offer that would result in such person or group owning 15% or more of the
Company's common stock, each holder of a right (other than the acquirer) will be
entitled to receive, upon payment of the exercise price, a number of shares of
common stock having a market value equal to two times the exercise price of the
right. In order to retain flexibility and the ability to maximize stockholder
value in the event of transactions that may arise in the future, the Board
retains the power to redeem the Rights for a set amount. The Rights were
distributed on January 25, 2002 and expire on January 10, 2012, unless earlier
redeemed or exchanged or terminated in accordance with the Rights Agreement.
12
On May 16, 2002, the shareholders of the Company approved a proposal, permitting
the Company to offer employees a one-time opportunity to exchange any or all of
their outstanding options with an exercise price in excess of $8.00 per share,
for new options, with an exercise price equal to the greater of: (1) $8.00, or
(2) the fair market value of the Company's Class A common stock on the grant
date. Employees will receive two new options for every three existing options
surrendered. The Company launched a tender offer on May 20, 2002. In connection
with this tender offer the Company received and cancelled 1.9 million options.
The new options are to be granted at least six months and one day from the
cancellation of the surrendered options, which occurred on June 18, 2002. As of
September 30, 2002, the Company had an obligation to issue approximately 1.2
million new options, subject to the terms of the exchange offer.
8. RESTRUCTURING AND OTHER CHARGE
In August 2001, the Company implemented a plan of restructuring primarily
associated with the downsizing of its new tower build construction activities.
The plan included the abandonment of certain acquisition and new tower build
sites resulting in a charge of approximately $24.1 million. The plan also
included the elimination of 102 employee positions and closing and/or
consolidation of selected offices. Payments made related to employee separation
and office closings were approximately $0.3 million.
In February 2002, under a plan approved by the Company's Board of Directors, the
Company announced that it was further reducing its capital expenditures for new
tower development and acquisition activities in 2002, suspending any material
new investment for additional towers, reducing its workforce and closing or
consolidating offices. Under current capital market conditions, the Company does
not anticipate building or buying a material number of new towers beyond those
it is currently contractually obligated to build or buy, thereby resulting in
the abandonment of a majority of its existing new tower build and acquisition
work in process during 2002. In connection with this restructuring, a portion of
the Company's workforce has been reduced and certain offices have been closed,
substantially all of which were primarily dedicated to new tower development
activities. In addition, during the first quarter of 2002, certain tower assets
held and used in operations were determined to be impaired and written down to
their fair value. As a result of the implementation of its plans, the Company
recorded a restructuring charge of $63.0 million in accordance with SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets and Emerging
Issues Task Force 94-3, Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity, including Certain Costs Incurred
in a Restructuring. The Company recorded $54.1 million, $7.7 million and $1.2
million of restructuring expense in the first, second, and third quarters of
2002, respectively. No additional material restructuring costs related to the
February 2002 plan are expected.
Of the $63.0 million restructuring charge recorded in the nine months ended
September 30, 2002, approximately $39.8 million relates to the abandonment of
new tower build and acquisition work in process and related construction
materials on approximately 764 sites and approximately $16.4 million relates to
the impairment of approximately 144 tower sites held and used in operations. The
abandonment of new tower build and acquisition work in process resulted in the
write-off of all costs incurred to date. The impairment of operating tower
assets resulted primarily from the Company's evaluation of the fair value of its
operating tower portfolio through a discounted cash flow analysis. Towers
determined to be impaired were primarily towers with no current tenants and
little or no prospects for future lease-up. The remaining $6.8 million of
restructuring expense relates primarily to the costs of employee separation for
approximately 470 employees and exit costs associated with the closing and
consolidation of approximately 40 offices. Exit costs associated with the
closing and consolidation of offices primarily represent the Company's estimate
of future lease obligations after considering sublease opportunities.
Approximately $2.2 million remains in accrued liabilities at September 30, 2002,
representing primarily future lease obligations related to closed offices and
future ground lease obligations on canceled sites. A summary of the
restructuring charge for the nine months ended September 30, 2002 is as follows:
13
Total for the nine Deductions Accrued as of
months ended ----------------------------- September 30,
September 30, 2002 Cash Non-Cash 2002
-------------------- ------------- ------------- -------------
(in thousands)
Abandonment of new tower build and acquisition work
in process and related construction materials $ 39,780 $ - $ 39,780 $ -
Impairment of tower assets held and used in
operations 16,381 - 16,381 -
Employee separation and exit costs 6,849 3,861 836 2,152
-------------------- ------------- ------------- -------------
$ 63,010 $ 3,861 $ 56,997 $ 2,152
==================== ============= ============= =============
In connection with the Company's implementation of SFAS 142, goodwill of $13.4
million recorded during the first and second quarters of 2002 resulting from the
achievement of certain earn-out obligations under various construction
acquisition agreements was subject to an impairment evaluation as of June 30,
2002. As a result of this analysis, the entire $13.4 million of goodwill within
the site development construction segment was determined to be impaired (see
Note 3). The $13.4 goodwill impairment charge is included within the
restructuring and other charge in the Consolidated Statement of Operations for
the nine months ended September 30, 2002.
9. DERIVATIVE FINANCIAL INSTRUMENT
Effective January 2002, the Company entered into an interest rate swap agreement
to manage its exposure to interest rate movements by effectively converting a
portion of its $500 million senior notes from interest rate fixed to variable
rates. The Company accounts for the swap in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, and its
corresponding amendments under SFAS 138, Accounting for Derivative Instruments
and Hedging Activities, an amendment of FASB Statement No. 133. SFAS 133
established accounting and reporting standards for derivative instruments,
hedging activities, and exposure definition and requires the Company to record
the fair value of the swap on the balance sheet. Generally, derivatives that are
not hedges must be adjusted to fair value through income (loss). If the
derivative is a hedge, depending on the nature of the hedge, changes in fair
value will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or recognized in
other comprehensive income until the hedged item is recognized in earnings. The
Company's swap is accounted for as a fair value hedge under SFAS 133. The swap
qualifies for the shortcut method of recognition and, therefore, no portion of
the swap is treated as ineffective. Accordingly, the entire change in fair value
of the swap is offset against the change in fair value of the related senior
notes.
The notional principal amount of the swap is $100.0 million and the maturity
date and payment provisions match that of the underlying senior notes. The swap
matures in seven years and provides for the exchange of fixed rate payments for
variable rate payments without the exchange of the underlying notional amount.
The variable rates are based on six-month EURO plus 4.47% and are reset on a
semi-annual basis. The differential between fixed and variable rates to be paid
or received is accrued as interest rates change in accordance with the agreement
and recognized as an adjustment to interest expense. The Company recorded a
reduction of approximately $1.0 and $2.9 million to interest expense for the
three and nine months ended September 30, 2002 as a result of the differential
between fixed and variable rates.
The Company formally documented the relationship between the swap and the
portion of senior notes hedged, as well as its risk-management objective and
strategy for entering into the swap transaction. The Company also formally
assesses, both at the inception of the swap and on an ongoing basis, whether the
swap is highly effective in offsetting changes in fair value of the hedged item.
If it is determined that the swap ceases to be a highly effective hedge, the
Company will discontinue hedge accounting prospectively. The Company does not
use derivative financial instruments for speculative or trading purposes.
As of September 30, 2002, the Company recorded an asset of approximately $7.2
million, representing the fair value of the swap at September 30, 2002, which is
reflected in other assets on the consolidated balance sheet.
Subsequent to September 30, 2002, the counter-party to the interest rate swap
agreement elected to terminate the swap agreement effective October 15, 2002. In
connection with this termination, the counter-party was required to pay the
Company $6.2 million which includes approximately $.8 million in accrued
interest. The remaining approximately $5.4 million received will be deferred and
recognized as a reduction to interest expense over the remaining term of the
senior notes using the effective interest method.
14
10. INCOME TAXES
The components of the provision for income taxes are as follows:
For the nine months ended
----------------------------------------
September 30, 2002 September 30, 2001
------------------ ------------------
(in thousands)
Federal income tax $ 81,972 $ 32,026
State income tax (1,637) (1,231)
Foreign tax - (9)
Change in valuation allowance (81,972) (32,026)
------------------ ------------------
$ (1,637) $ (1,240)
================== ==================
The Company has taxable losses in the nine months ended September 30, 2002 and
2001, and as a result net operating loss carry-forwards have been generated.
These net operating loss carry-forwards are fully reserved as management
believes it is not "more likely than not" that the Company will generate
sufficient taxable income in future periods to recognize the assets.
11. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising in
the ordinary course of business. While there are uncertainties inherent in the
ultimate outcome of such matters and it is impossible to presently determine the
ultimate costs that may be incurred, management believes the resolution of such
uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
As part of the consideration for its acquisitions, the Company sometimes agrees
to pay additional consideration if the towers or businesses that are acquired
meet or exceed certain earnings or new tower targets in the 1-3 years after they
have been acquired. As of September 30, 2002, the Company had an obligation to
pay up to an additional $22.4 million in consideration if the earnings targets
identified in various acquisition agreements are met. This obligation consisted
of approximately $16.0 million associated with acquisitions within the Company's
site development construction segment and approximately $6.4 million associated
with acquisitions within the Company's site leasing segment. At the Company's
option, a majority of the additional consideration may be paid in cash or Class
A common stock. The Company records such obligations when it becomes probable
that the earnings targets will be met. As of September 30, 2002, certain
earnings targets associated with acquisitions within the site development
construction segment were achieved, therefore, the Company accrued approximately
$9.0 million, within Other Current Liabilities on the Consolidated Balance
Sheet, of which $7.0 million was paid in cash in October 2002 and $2.0 million
is expected to be paid in the first quarter of 2003. Remaining potential
earn-out obligations are $13.4 million.
As of September 30, 2002, the Company has letters of credit totaling $16.1
million issued on its behalf under its senior secured credit facility. These
letters of credit will serve as collateral to secure certain obligations of the
Company and certain of its subsidiaries in the ordinary course of business.
12. 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.
These business units are managed separately based on the fundamental differences
in their operations.
Revenues, gross profit, capital expenditures (including assets acquired through
the issuance of the Company's Class A common stock) and identifiable assets
pertaining to the segments in which the Company operates are presented below.
15
For the three months ended For the nine months ended
September 30, September 30,
-------------------------- -------------------------
2002 2001 2002 2001
------------ ----------- ----------- -----------
(in thousands) (in thousands)
Revenues:
Site development - consulting $ 6,654 $ 4,977 $ 21,968 $ 18,867
Site development - construction 24,433 30,382 75,895 82,005
Site leasing 35,961 27,674 102,736 72,872
----------- ----------- ----------- -----------
$ 67,048 $ 63,033 $ 200,599 $ 173,744
=========== =========== =========== ===========
Gross profit:
Site development - consulting $ 1,549 $ 1,550 $ 5,412 $ 6,037
Site development - construction 3,653 6,586 13,325 17,380
Site leasing 22,630 17,788 66,454 46,748
----------- ----------- ----------- -----------
$ 27,832 $ 25,924 $ 85,191 $ 70,165
=========== =========== =========== ===========
Capital expenditures:
Site development - consulting $ - $ 144 $ 197 $ 1,062
Site development - construction 26 1,590 5,165 31,491
Site leasing 13,168 89,025 83,074 402,237
Amounts not identified by segment 313 512 1,700 2,288
----------- ----------- ----------- -----------
$ 13,507 $ 91,271 $ 90,136 $ 437,078
=========== =========== =========== ===========
As of As of
September 30, 2002 December 31, 2001
------------------ -----------------
(in thousands)
Assets:
Site development - consulting $ 19,111 $ 14,963
Site development - construction 59,275 142,267
Site leasing 1,182,349 1,242,993
Assets not identified by segment 63,243 28,788
------------------ ------------------
------------------ ------------------
$ 1,323,978 $ 1,429,011
================== ==================
During the nine months ended September 30, 2002, the Company had certain
customer concentrations of revenues in two of its three reporting segments. Site
development consulting revenue for the nine months ended September 30, 2002
consists of three customers with over 10% of total site development consulting
revenues. Those three customers combined represented approximately 54.6% of the
aggregate site development consulting revenues for the nine months ended
September 30, 2002. In addition, site development construction revenue for the
nine months ended September 30, 2002 consists of two customers with over 10% of
total site development construction revenues. Those two customers combined
represented approximately 35.3% of the aggregate site development construction
revenue for the nine months ended September 30, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are a leading independent owner and operator of 3,875 wireless
communications towers in the continental United States, Puerto Rico and the U.S.
Virgin Islands. We generate revenues from our two primary businesses, site
leasing and site development. In our site leasing business, we lease antenna
space to wireless service providers on towers and other structures that we own
or manage for or lease from others. The towers that we own have either been
constructed by us at the request of a carrier, built or constructed based on our
own initiative or acquired. In our site development business, we offer wireless
service providers assistance in developing and maintaining their own wireless
service networks.
We are continuing to shift our revenue stream from project driven revenues
more to recurring revenues through the leasing of antenna space at or on
communications towers. We intend to emphasize our site leasing business through
the leasing and management of tower sites and we believe we have well positioned
ourselves to perform many of the other types of services that wireless service
providers need in connection with the operation and maintenance of wireless
telecommunications networks. Those services include installation, maintenance
and upgrading of radio transmission equipment, antennas, cabling and other
connection equipment, backhaul, equipment shelters, data collection and network
monitoring.
16
SITE LEASING SERVICES
Site leasing revenues are received primarily from wireless communications
companies. Revenues from these clients are derived from numerous different site
leasing contracts. Each site leasing contract relates to the lease or use of
space at an individual tower site and is generally for an initial term of 5
years with five 5-year renewable options. Almost all of our site leasing
contracts generally contain specified rent escalators, which average 3 - 4% per
year, including the renewal option periods. Site leasing contracts are generally
paid on a monthly basis and revenue from site leasing is recorded monthly on a
straight-line basis over the term of the related lease agreements. Rental
amounts received in advance are recorded in other liabilities (current and
long-term).
Cost of site leasing revenue consists of:
. payments for rental on ground and other underlying property;
. repairs and maintenance (exclusive of employee related costs);
. utilities;
. insurance; and
. property taxes.
For any given tower, such costs are relatively fixed over a monthly or an
annual time period. As such, operating costs for owned towers do not generally
increase significantly as a result of adding additional customers to the tower.
During the third quarter of 2002, we experienced a higher than anticipated
increase in the cost of site leasing revenue. This increase was attributable (i)
to increased operating costs associated with supplying power to our sites in
Puerto Rico (ii) increased property taxes and (iii) an overall increase in the
level of repairs and maintenance occurring at our sites. While we do not expect
the operating costs for our Puerto Rico towers to remain at third quarter
levels, we do expect the increased property taxes and a portion of the repairs
and maintenance expenses to continue.
As of September 30, 2002, we had remaining obligations to build 23 towers.
We expect to complete construction on 14 - 18 of these towers in the fourth
quarter of 2002 and the remaining towers in the first quarter of 2003. While we
have focused primarily on building new towers for growth, we have also acquired
1,578 towers from inception through September 30, 2002. Our acquisition strategy
has focused on smaller acquisition opportunities from non-carriers and small
carrier transactions. We acquired towers where we believed we could increase
cash flow to substantially reduce the tower cash flow multiple paid at
acquisition through additional tenant lease up. During the nine months ended
September 30, 2002, we acquired 53 towers. The 53 tower acquisitions were
completed during the first quarter of 2002 at an aggregate purchase price of
$16.8 million (exclusive of acquisition costs), an average price of
approximately $317,000 per tower. No towers were acquired in the second or third
quarters of 2002 and, as of September 30, 2002, we did not have any backlog of
pending tower acquisitions.
Nine months ended Year ended
September 30, 2002 December 31, 2001
------------------ -----------------
Towers constructed 133 667
Towers acquired 53 677
At September 30, 2002, our same tower revenue growth on the 3,464 towers
we owned as of September 30, 2001 was 17% and our same tower cash flow growth on
these 3,464 towers was 23%, based on site leasing contracts signed and
annualized lease amounts in effect as of September 30, 2002 and 2001.
SITE DEVELOPMENT SERVICES
Site development services revenues are also received primarily from
wireless communications companies or companies providing development or project
management services to wireless communications companies. 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. Site development projects
in which we perform consulting services include contracts on a time and
materials basis or a fixed price or milestone basis. Time and materials based
contracts are billed at contractual rates as the services are rendered. For
those site development contracts in which we perform work on a fixed price
basis, we bill the client, and recognize revenue, based on the completion of
agreed upon phases or milestones of the project on a per site basis. Upon the
completion of each phase on a per site basis, we recognize the revenue related
to that phase. The majority of our site development services are billed on a
fixed price basis. Our site development projects generally take from 3 to 12
months to complete. Our revenue from construction projects is
17
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.
Revenue from our site development business may fluctuate from period to period
depending on construction activities, which are a function of the timing and
amount of our clients' capital expenditures, the number and significance of
active customer engagements during a period, weather and other factors.
Cost of site development project revenue and construction revenue include
all material costs, salaries and labor costs, including payroll taxes,
subcontract labor, vehicle expense and other costs directly and indirectly
related to the projects. All costs related to site development projects and
construction projects are recognized as incurred.
In February 2002, under a plan approved by our Board of Directors, we
announced that we were reducing our capital expenditures for new tower
development and acquisition activities in 2002, suspending any material new
investment for additional towers, reducing our workforce and closing or
consolidating offices. Under current capital market conditions, we do not
anticipate building or buying a material number of new towers beyond those we
are currently contractually obligated to build or buy, thereby resulting in the
abandonment of a majority of our existing new tower build and acquisition work
in process during 2002. In connection with this restructuring, a portion of our
workforce has been reduced and certain offices have been closed, substantially
all of which were primarily dedicated to new tower development activities. In
addition, during the first quarter of 2002, certain tower assets held and used
in operations were determined to be impaired and written down to their fair
value. As a result of the implementation of our plans, we recorded a
restructuring charge of $63.0 million in accordance with SFAS 144, Accounting
for the Impairment or Disposal of Long-Lived Assets and Emerging Issues Task
Force 94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity, including Certain Costs Incurred in a
Restructuring. We recorded $54.1 million, $7.7 million and $1.2 million of
restructuring expense in the first, second, and third quarters of 2002,
respectively. No additional material restructuring costs related to the February
2002 plan are expected.
Of the $63.0 million charge recorded in the nine months ended September
30, 2002, approximately $39.8 million relates to the abandonment of new tower
build and acquisition work in process and related construction materials on
approximately 764 sites and $16.4 million relates to the impairment of
approximately 144 tower sites held and used in operations. The abandonment of
new tower build and acquisition work in process resulted in the write-off of all
costs incurred to date. The impairment of operating tower assets results
primarily from our evaluation of the fair value of our operating tower portfolio
through a discounted cash flow analysis. Towers determined to be impaired were
primarily towers with no current tenants and little or no prospects for future
lease-up. The remaining $6.8 million relates primarily to the costs of employee
separation for approximately 470 employees and exit costs associated with the
closing and consolidation of approximately 40 offices. Exit costs associated
with the closing and consolidation of offices primarily represented our estimate
of future lease obligations after considering sublease opportunities.
On January 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS 142, goodwill is no longer amortized but reviewed for
impairment on an annual basis, or more frequently if indicators of impairment in
value are present. Under the transitional provisions of SFAS 142, we recorded a
non-cash impairment charge of $80.6 million as of the effective date of
adoption, January 1, 2002. The impairment charge has been recorded as a
cumulative effect of change in accounting principle on the accompanying
Consolidated Statement of Operations for the nine months ended September 30,
2002. Two of our three operating segments were identified as reporting units in
which we recognized an impairment loss. Of the total $80.6 million cumulative
effect adjustment, $61.6 million related to the site development construction
segment and $19.0 million related to our site leasing segment.
During the first and second quarters of 2002, we recorded additional
goodwill totaling approximately $13.4 million resulting from the achievement of
certain earn-out obligations under various construction acquisition agreements
entered into prior to July 1, 2001. In accordance with SFAS 142, in addition to
the transitional test described above, goodwill is subject to an impairment
assessment at least annually, or at any time that indicators of impairment are
present. We determined that as of June 30, 2002 indicators of impairment were
present, thereby requiring an impairment analysis be completed. The indicators
of impairment during the quarter ended June 30, 2002 giving rise to this
analysis included significant deterioration of overall Company value, continued
negative trends with respect to carrier capital expenditure plans and related
demand for wireless construction services and perceived reduction in value of
similar site development construction services businesses. As a result of this
analysis, using a discounted cash flow valuation method for estimating fair
value, $13.4 million of goodwill within
18
the site development construction reporting unit was determined to be impaired
as of June 30, 2002 and was written off in the second quarter of 2002. The $13.4
million goodwill impairment charge is included within restructuring and other
charge in the nine months ended September 30, 2002 Consolidated Statement of
Operations.
Since the beginning of this year, we believe that the environment for
continued expenditures by wireless service providers has deteriorated. Declining
subscriber growth and prospects for positive cash flow by wireless service
providers have adversely affected the access to and cost of capital for wireless
service provides as evidenced by declines in the market value of both their debt
and equity securities. We believe that if the capital markets conditions remain
difficult for the telecommunications industry, wireless service providers will
choose to conserve capital and may not spend as much as originally anticipated.
If wireless carrier capital expenditures and their ability to access capital
remains weak or deteriorates further, we believe our revenues and gross profit
from the site development consulting and construction segments of our business,
potentially the collectibility of our accounts receivable, and the valuation of
certain of our long-lived assets may be negatively impacted. Short term,
variable capital markets conditions may adversely impact carrier demand for our
tower space, and consequently our site leasing revenue and the credit quality of
our customers. We believe that, over the longer term however, site leasing
revenues will continue to increase as carriers continue to deploy new antenna
sites to address issues of network capacity and quality.
RESULTS OF OPERATIONS
As we continue to shift our revenue mix more towards site leasing,
operating results in prior periods may not be meaningful predictors of future
results. 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, as well as our new
tower builds, will have a material impact on future revenues, expenses and net
loss. Revenues, cost of revenues, depreciation and amortization, and interest
expense each increased significantly in the three and nine months ended
September 30, 2002, as compared to the respective periods in the prior year, and
some or all of those items may continue to increase significantly in future
periods.
THIRD QUARTER 2002 COMPARED TO THE THIRD QUARTER 2001
Total revenues increased 6.4% to $67.0 million for the third quarter of
2002 from $63.0 million for the third quarter of 2001. Site development revenues
decreased 12.1% to $31.1 million in the third quarter of 2002 from $35.4 million
in the third quarter of 2001 due to a decrease in site development construction
revenue. Site development consulting revenues increased 33.7% to $6.7 million
for the third quarter 2002 from $5.0 million for the third quarter of 2001, due
to several new contracts for site acquisition and zoning services from wireless
communications carriers. Site development construction revenues decreased 19.6%
to $24.4 million for the third quarter of 2002 from $30.4 million for the third
quarter of 2001, due primarily to a weaker environment for wireless carrier
capital expenditures on or around cell sites and increased price competition. We
believe that wireless carriers will continue to conserve capital in the fourth
quarter which may continue to adversely affect site development revenues. Site
leasing revenues increased 29.9% to $36.0 million for the third quarter of 2002,
from $27.7 million for the third quarter of 2001, due to the increased number of
tenants added to our towers, higher average rents received and the increase in
the number of towers added in our portfolio. While we expect continued growth in
leasing revenue and tower cash flow growth throughout 2002 and into 2003, the
level of such growth may be adversely affected by lower wireless carrier capital
expenditures.
Total cost of revenues increased 5.7% to $39.2 million for the third
quarter of 2002 from $37.1 million for the third quarter of 2001. Site
development cost of revenues decreased 4.9% to $25.9 million for the third
quarter of 2002 from $27.2 million in the third quarter of 2001 resulting from a
decrease in cost of site development construction revenue which exceeded the
increase in cost of site development consulting revenues. Site development
consulting cost of revenues increased 49.0% to $5.1 million for the third
quarter of 2002 from $3.4 million for the third quarter of 2001 due primarily to
higher levels of activity and increased personnel costs. Site development
construction cost of revenues decreased 12.7% to $20.8 million for the third
quarter of 2002 from $23.8 million in the third quarter of 2001 due primarily to
lower levels of activity. Site leasing cost of revenues increased 34.8% to $13.3
million for the third quarter of 2002 from $9.9 million for the third quarter of
2001, due to the increased number of towers owned resulting in an increased
amount of lease payments to site owners and related site costs as well as
increases in operating costs of sites in Puerto Rico, maintenance and property
taxes.
Gross profit increased 7.4% to $27.8 million for the third quarter of 2002 from
$25.9 million for the third quarter of 2001, due to increased site leasing gross
profit offset by a decrease in site development gross profit. Gross profit from
site development decreased 36.1% to $5.2 million in the third quarter of 2002
from $8.1 million in the third
19
quarter of 2001 due to lower revenue and lower pricing without a commensurate
reduction in cost. Gross profit margin on site development consulting decreased
to 23.3% for the third quarter of 2002 from 31.1% for the third quarter of 2001,
reflecting different stages of project completions and more competitive pricing
for our services. Gross profit margin on site development construction decreased
to 15.0% for the third quarter of 2002 from 21.7% for the third quarter of 2001
resulting from lower pricing due to increased competition. We expect this
pricing competition to continue and gross profit margin on site development
construction to remain in the mid-to-high teen percentage range in the
foreseeable future. Gross profit for the site leasing business increased 27.2%
to $22.6 million in the third quarter of 2002 from $17.8 million in the third
quarter of 2001, and site leasing gross profit margin decreased to 62.9% in the
third quarter of 2002 from 64.3% in the third quarter of 2001. The increased
gross profit was due to the substantially greater number of towers owned, the
increase in the number of tenants and greater average revenue per tower in the
2002 period. The decrease in gross profit margin was due to the percentage
increase in site leasing cost of revenue exceeding the percentage increase in
site leasing revenues as a result of the factors previously discussed above. We
believe that tower cash flow margins will resume their sequential growth in the
fourth quarter and continue for the foreseeable future. As a percentage of total
revenues, gross profit increased slightly to 41.5% of total revenues for the
third quarter of 2002 from 41.1% for the third quarter of 2001 due primarily to
increased levels of higher margin site leasing gross profit.
Selling, general and administrative expenses decreased 10.3% to $9.0
million for the third quarter of 2002 from $10.0 million for the third quarter
of 2001. Selling, general and administrative expenses, net of non-cash
compensation expense, as a percentage of total revenue has also decreased to
12.3% for the third quarter of 2002 as compared to 14.5% for the third quarter
of 2001. The decrease in selling, general and administrative expenses primarily
resulted from the reduction of offices, elimination of personnel and elimination
of other infrastructure that had previously been necessary to support our prior
level of new asset growth but is no longer required as a result of the
restructuring previously discussed. Depreciation and amortization increased to
$26.4 million for the third quarter of 2002 as compared to $20.1 million for the
third quarter of 2001. This increase is directly related to the increased amount
of fixed assets (primarily towers) we owned in 2002 as compared to 2001, offset
by a decrease in amortization resulting from the write-off of goodwill which was
made in connection with the implementation of SFAS No. 142, discussed
previously.
In the third quarter of 2002, we recorded an additional $1.2 million in
restructuring expense relating to a continued reduction in the scale of our new
tower construction activities. Of the $1.2 million charge, approximately $.6
million relates primarily to the abandonment of new tower build construction in
process on 6 sites. The abandonment of new tower build construction in process
resulted in the full write off of all costs incurred to date. The remaining $.6
million relates primarily to the costs of additional employee separations for
approximately 50 employees and exit costs associated with the closing and
consolidation of approximately 8 additional offices.
Operating loss was $(8.8) million for the third quarter 2002, as compared
to an operating loss of $(28.6) million for the third quarter of 2001. This
decrease in operating loss primarily is a result of a $24.4 million
restructuring and other charge being recorded in the third quarter of 2001
versus $1.2 million in the third quarter of 2002. Total other expenses increased
to $(22.4) million for the third quarter of 2002, as compared to $(20.1) million
for the third quarter of 2001, primarily as a result of increased non-cash
amortization of original issue discount and debt issuance costs and a reduction
in interest income. The increase in non-cash amortization in 2002 is primarily
due to higher accretion on the 12% senior discount notes. The decrease in
interest income in 2002 is attributable to lower cash balances in 2002 as
compared to 2001. Net cash interest expense remained fairly consistent between
the third quarter of 2002 and 2001. Although the aggregate principal amount of
total debt increased from the prior year, the resulting increase in interest
expense associated with the higher principal in the third quarter of 2002 was
offset by the interest rate reduction arising from the Company's interest rate
swap agreement. As the interest rate swap agreement was terminated subsequent to
September 30, 2002, we expect an increase in interest expense in future periods,
which is somewhat dependent on market interest rates.
Net loss was $(31.7) million for the third quarter of 2002 as compared to
net loss of $(49.1) million for the third quarter of 2001. The decrease in net
loss primarily is a result of the significant decrease in the restructuring and
other charge previously discussed, lower selling, general and administrative
expenses, and higher gross profit partially offset by higher depreciation and
amortization and higher net interest expense.
Earnings (loss) before interest, taxes, depreciation, amortization,
non-cash charges and unusual or non-recurring expenses ("EBITDA") increased
16.9% to $19.6 million for the third quarter of 2002 from $16.8 million in the
third quarter of 2001. The following table provides a reconciliation of EBITDA
to net loss:
20
Three months ended September 30,
2002 2001
---------------- ----------------
(in thousands)
EBITDA/(1)/ $ 19,597 $ 16,769
Interest expense, net of amounts capitalized (14,249) (14,099)
Amortization of original issue discount
and debt issuance costs (8,461) (7,614)
Interest income 338 1,578
Provision for income taxes (558) (408)
Depreciation and amortization (26,378) (20,145)
Other 11 54
Non-cash compensation expense (748) (854)
Restructuring and other charge (1,225) (24,399)
---------------- ----------------
Net loss $ (31,673) $ (49,118)
================ ================
/(1)/ 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
accounting principles generally accepted in the United States.
NINE MONTHS ENDED 2002 COMPARED TO THE NINE MONTHS ENDED 2001
Total revenues increased 15.5% to $200.6 million for the first nine months
of 2002 from $173.7 million for the first nine months of 2001. Site development
revenues decreased 3.0% to $97.9 million in the first nine months of 2002 from
$100.9 million in the first nine months of 2001 due to decreases in site
development construction revenues. Site development consulting revenues
increased 16.4% to $22.0 million for the first nine months of 2002 from $18.9
million for the first nine months of 2001, due to the increased demand for site
acquisition and zoning services from wireless communications carriers. Site
development construction revenues for the first nine months of 2002 decreased
7.5% to $75.9 million for the first nine months of 2002 from $82.0 million for
the first nine months of 2001. This decrease is due to a weaker environment for
wireless carrier capital expenditures. We believe that wireless carriers will
continue to conserve capital in the fourth quarter which will continue to
adversely affect site development revenues. Revenues of $10.6 million and $6.4
million were contributed in the nine months ended September 30, 2002 and 2001,
respectively by a company acquired in June 2001. Site leasing revenues increased
41.0% to $102.7 million for the first nine months of 2002, from $72.9 million
for the first nine months of 2001, due to the increased number of tenants added
to our towers, higher average rents received and the increase in the number of
towers added to our portfolio.
Total cost of revenues increased 11.4% to $115.4 million for the first
nine months of 2002 from $103.6 million for the first nine months of 2001. Site
development cost of revenues increased 2.2% to $79.1 million for the first nine
months of 2002 from $77.5 million in the first nine months of 2001 due to the
increased volume in site development consulting revenues. Site development
consulting cost of revenues increased 29.0% to $16.6 million for the first nine
months of 2002 from $12.8 million for the first nine months of 2001 due
primarily to higher levels of activity and increased personnel costs. Site
development construction cost of revenues decreased 3.2% to $62.6 million for
the first nine months of 2002 from $64.6 million in the first nine months of
2001 due primarily to reduced revenues and higher costs. Site leasing cost of
revenues increased 38.9% to $36.3 million for the first nine months of 2002 from
$26.1 million for the first nine months of 2001, due primarily to the increased
number of towers owned resulting in an increased amount of lease payments to
site owners and related site costs as well as increased costs for operating
costs for sites in Puerto Rico, maintenance, and property taxes.
Gross profit increased 21.4% to $85.2 million for the first nine months of
2002 from $70.2 million for the first nine months of 2001, primarily due to
increased site leasing revenues. Gross profit from site development decreased
20% to $18.7 million in the first nine months of 2002 from $23.4 million in the
first nine months of 2001 due to lower site development consulting and
construction margins. Gross profit margin on site development consulting
decreased to 24.6% for the first nine months of 2002 from 32.0% for the first
nine months of 2001, reflecting different stages of project completions and more
competitive pricing for our services. Gross profit margin on site development
construction decreased to 17.6% during the first nine months of 2002 from 21.2%
during the first nine
21
months of 2001. The decrease is due to increased price competition which we are
currently experiencing in the market place. We expect this pricing competition
to continue and gross profit margins on site development construction to be in
the mid to high teen percentage range for the foreseeable future. Gross profit
for the site leasing business increased 42.2% to $66.5 million in the first nine
months of 2002 from $46.7 million in the first nine months of 2001, and site
leasing gross profit margin improved slightly to 64.7% in the first nine months
of 2002 from 64.2% in the first nine months of 2001. The increased gross profit
was due to the substantially greater number of towers owned, the increase in the
number of tenants and the greater average revenue per tower in the 2002 period.
The increase in gross margin was due to the increase in average revenue per
tower, which was greater than the increase in average expenses. As a percentage
of total revenues, gross profit increased to 42.5% of total revenues for the
first nine months of 2002 from 40.4% for the first nine months of 2001 due
primarily to increased levels of higher margin site leasing gross profit.
Selling, general and administrative expenses decreased 12.9% to $27.4
million for the first nine months of 2002 from $31.4 million for the first nine
months of 2001. Selling, general and administrative expenses, net of non-cash
compensation expense, as a percentage of total revenue has also decreased to
12.7% for the first nine months of 2002 as compared to 16.6% for the first nine
months of 2001. The decrease in selling, general and administrative expenses
primarily resulted from a decrease in developmental expenses as well as the
reduction of offices, elimination of personnel and elimination of other
infrastructure that had previously been necessary to support our prior level of
new asset growth but is no longer required as a result of the restructuring
previously discussed. Included within selling, general and administrative
expenses is a provision for doubtful accounts. The provision for doubtful
accounts increased to $1.6 million for the first nine months of 2002 from $1.2
million for the first nine months of 2001, reflecting our assessment of a more
challenging financial environment for our customers in 2002. Depreciation and
amortization increased to $76.6 million for the first nine months of 2002 as
compared to $53.5 million for the first nine months of 2001. This increase is
directly related to the increased amount of fixed assets (primarily towers) we
owned in 2002 as compared to 2001, offset by a decrease in amortization
resulting from the write-off of goodwill which was made in connection with the
implementation of SFAS No. 142 previously discussed.
In the first nine months of 2002, we recorded a $63.0 million
restructuring and other charge relating to a reduction in the scale of our new
tower construction activities and the impairment of certain tower assets held
and used in operations. Of the $63.0 million charge, approximately $39.8 million
relates to the abandonment of new tower build and acquisition work in process
and related construction materials on approximately 764 sites and $16.4 million
relates to the impairment of approximately 144 tower sites held and used in
operations. The abandonment of new tower build and acquisition work in process
resulted in the full write off of all costs incurred to date. The impairment of
operational tower assets resulted primarily from our evaluation of the fair
value of our operating tower portfolio through a discounted cash flow analysis.
Towers determined to be impaired were primarily towers with no current tenants
and little or no prospects for future lease-up. The remaining $6.8 million of
restructuring expense relates primarily to the costs of employee separation for
approximately 470 employees and exit costs associated with the closing and
consolidation of approximately 40 offices. Exit costs associated with the
closing and consolidation of offices primarily represented our estimate of
future lease obligations after considering sublease opportunities.
Operating loss was $(95.2) million for the first nine months 2002, as
compared to an operating loss of $(39.2) million for the first nine months of
2001. This increase in operating loss is a result of $76.4 million of
restructuring and other charge being recorded in the nine months ended September
30, 2002 versus $24.4 in the nine months ended September 30, 2001. Total other
expenses increased to $(65.4) million for the first nine months of 2002, as
compared to $(50.0) million for the first nine months of 2001, primarily as a
result of increased cash interest expense, increased non-cash amortization of
original issue discount and debt issuance costs, and a reduction in interest
income. The increase in interest expense is primarily due to a full quarter of
interest expense on our $500.0 million 10 1/4 % senior notes in the first
quarter of 2002 compared to a partial quarter of interest expense on these
senior notes in the first quarter of 2001 and to higher principal amounts
outstanding under the senior credit facility in 2002 as compared to 2001.
Although the aggregate principal amount of total debt increased from the prior
year, the resulting increase in interest expense associated with the higher
principal in 2002 was offset by the interest rate reduction arising from the
Company's interest rate swap agreement. As the interest rate swap agreement was
terminated subsequent to September 30, 2002, we expect an increase in interest
expense in future periods, which is somewhat dependent on market interest rates.
The increase in non-cash amortization is primarily due to higher accretion on
the 12% senior discount notes. The decrease in interest income is due to the
Company having lower cash balances to invest during 2002.
During the period ended June 30, 2002, we completed the transitional
impairment test of goodwill required under SFAS 142, which was adopted effective
January 1, 2002. As a result of completing the required transitional test, the
Company recorded a charge retroactive to the adoption date for the cumulative
effect of the accounting
22
change in the amount of $80.6 million, representing the excess of the carrying
value of reporting units as compared to estimated fair value. Of the total $80.6
million cumulative effect adjustment, $61.6 million related to the site
development construction reporting segment and $19.0 million related to the site
leasing reporting segment. The change modifies the first quarter's previously
reported net loss of $83.2 million, or ($1.70) per share, to $163.8 million, or
($3.34) per share.
During the first and second quarters of 2002, we recorded additional
goodwill totaling approximately $13.4 million resulting from the achievement of
certain earn-out obligations under various construction acquisition agreements
entered into prior to July 1, 2001. In accordance with SFAS 142, in addition to
the transitional test described above, goodwill is subject to an impairment
assessment at least annually, or at any time that indicators of impairment are
present. We determined, that as of June 30, 2002, indicators of impairment were
present, thereby requiring an impairment analysis be completed. The indicators
of impairment during the quarter ended June 30, 2002 giving rise to this
analysis included significant deterioration of overall Company market value,
continued negative trends with respect to carrier capital expenditure plans,
related demand for wireless construction and perceived reduction in value of
similar site development construction services business. As a result of this
analysis, using a discounted cash flow valuation method for estimating fair
value, $13.4 million of goodwill within the site development construction
reporting unit was determined to be impaired as of June 30, 2002. The $13.4
million goodwill impairment charge is included within restructuring and other
charge in the Consolidated Statement of Operations for the nine months ended
September 30, 2002.
Net loss was $(242.8) million for the first nine months of 2002 as
compared to net loss of $(95.4) million for the first nine months of 2001. This
increase in net loss is primarily a result of higher depreciation and
amortization expense, higher net interest expense, the $76.4 million
restructuring and other charge previously discussed and the $80.6 million
cumulative effect of change in accounting principle previously discussed offset
by higher gross profit and lower selling, general and administrative expenses.
Earnings (loss) before interest, taxes, depreciation, amortization,
non-cash charges and unusual or non-recurring expenses ("EBITDA") increased
44.6% to $59.7 million for the first nine months of 2002 from $41.3 million in
the first nine months of 2001. The following table provides a reconciliation of
EBITDA to net loss:
Nine months ended September 30,
2002 2001
---------------- ----------------
(in thousands)
EBITDA/(1)/ $ 59,695 $ 41,289
Interest expense, net of amounts capitalized (41,042) (34,736)
Amortization of original issue discount
and debt issuance costs (24,748) (21,870)
Interest income 434 6,785
Provision for income taxes (1,637) (1,240)
Depreciation and amortization (76,625) (53,520)
Other (29) (142)
Non-cash compensation expense (1,860) (2,533)
Restructuring and other charge (76,428) (24,399)
Cumulative effect of change in accounting
Principle (80,592) -
Extraordinary item - (5,069)
---------------- ----------------
Net loss $ (242,832) $ (95,435)
================ ================
/(1)/ 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
accounting principles generally accepted in the United States.
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 SBA Telecommunications, Inc., which owns, directly or indirectly, the
capital stock of our subsidiaries. We conduct all our business operations
through our subsidiaries. Accordingly, our only source of cash to pay our
obligations, other than financings, is distributions with respect to our
ownership interest in our subsidiaries from the net earnings and cash flow
generated by these subsidiaries. Even if
23
we decided to pay a dividend on or make a distribution of the capital stock of
our subsidiaries, we cannot assure you that our subsidiaries will generate
sufficient cash flow to pay a dividend. Our ability to pay cash or stock
dividends is restricted under the terms of our senior credit facility and the
indentures related to our 10 1/4% senior notes and 12% senior discount notes.
Net cash used in operations during the nine months ended September 30,
2002 was $(23.7) million as compared to net cash provided by operations of $14.8
million during the nine months ended September 30, 2001. This decrease is
primarily attributable to the cash interest payments made in February and August
2002 related to the 10 1/4% senior notes. Net cash used in investing activities
for the nine months ended September 30, 2002 was $(84.5) million as compared to
$(415.2) million for the nine months ended September 30, 2001. This decrease is
primarily attributable to a significantly lower level of tower acquisition and
new build activity in 2002 versus 2001. Net cash provided by financing
activities for the nine months ended September 30, 2002 was $136.7 million
compared to $455.8 million for the nine months ended September 30, 2001. The
decrease in net cash provided by financing activities is primarily due to the
issuance of our $500.0 million 10 1/4% senior notes completed in February 2001.
Our cash capital expenditures for the nine months ended September 30, 2002
were $84.5 million, and for the nine months ended September 30, 2001 were $415.2
million. This decrease is a result of lower investment in new tower assets. We
currently plan to make total cash capital expenditures during the year ending
December 31, 2002 of $92.0 million to $100.0 million. All of these planned
capital expenditures are expected to be funded by cash on hand, cash flow from
operations and borrowings under our senior credit facility. The exact amount of
our future capital expenditures will depend on a number of factors including
amounts necessary to support our tower portfolio and complete pending build to
suit obligations.
Our balance sheet reflected positive working capital of $32.7 million as
of September 30, 2002 compared to negative working capital of $(21.4) million as
of December 31, 2001. This change is primarily attributable to the timing of
borrowings under our credit facility, receipts for accounts receivable, payment
of accounts payable, accrued expenses and interest payable related to our
business operations.
At September 30, 2002 we had $500.0 million outstanding on our 10 1/4%
senior notes. The 10 1/4% senior notes mature February 1, 2009. Interest on
these notes is payable on February 1 and August 1 of each year, and began on
August 1, 2001. Additionally, at September 30, 2002, we had $256.3 million
outstanding on our 12% senior discount notes, net of unamortized original issue
discount of $12.7 million. The 12% senior discount notes mature on March 1,
2008. The 12% senior discount notes accrete in value until March 1, 2003.
Thereafter interest will accrue and will be payable on March 1 and September 1
of each year, commencing on September 1, 2003. Each of the 10 1/4% senior notes
and the 12% senior discount notes are unsecured and are pari passu in right of
payment with our other existing and future senior indebtedness. The 10 1/4%
senior notes and the 12% senior discount notes place certain restrictions on,
among other things, the incurrence of debt and liens, issuance of preferred
stock, payment of dividends or other distributions, sale of assets, transactions
with affiliates, sale and leaseback transactions, certain investments and our
ability to merge or consolidate with other entities.
In June 2001, SBA Telecommunications, Inc., our principal subsidiary,
entered into a $300.0 million senior secured credit facility. This facility was
amended in January 2002 and further amended in August 2002. The senior credit
facility as amended, provides for a $100.0 million term loan and a $200.0
million revolving loan, the availability of which is based on compliance with
certain covenants. As of September 30, 2002, SBA Telecommunications, Inc., had
$248.0 million in loans outstanding under this facility, $100.0 million of the
term loan and $148.0 million of the revolver. In addition, as of September 30,
2002, $16.1 million of letters of credit were issued and outstanding, under the
senior credit facility. The term loan and the revolving loan mature June 15,
2007 and repayment of the term loan begins in September 2003 ($2.5 million is
due for repayment on September 30, 2003). Borrowings under the senior credit
facility accrue interest at the Euro dollar rate plus a margin or a base rate
plus a margin, as defined in the agreement. At September 30, 2002, we had the
$100.0 million term loan outstanding under the senior credit facility at
variable rates of 3.99% to 4.05% and $148.0 million outstanding under the
revolving credit facility at variable rates of 4.03% to 4.11%. The senior credit
facility requires us to maintain specified financial ratios, including ratios
regarding our consolidated debt coverage, debt service, cash interest expense
and fixed charges for each quarter and satisfy certain financial condition tests
including maintaining minimum consolidated EBITDA. The senior credit facility
also places certain restrictions on, among other things, the incurrence of debt
and liens, the sale of assets, capital expenditures, transactions with
affiliates, sale and lease-back transactions and the number of towers that can
be built without anchor tenants. The August 2002 amendment adjusted certain
covenants and financial covenants, but did not change the amount or repayment
terms of the facility. Specifically, the August 2002 amendment (1) amended
certain financial covenants to (a) decrease the required ratios for cash
interest expense coverage, fixed charges coverage and debt service coverage in
2003 to 2005 and (b) reduce
24
the permitted senior leverage and debt per tower ratios and (2) increased the
interest margin over the Euro dollar rate as specified in the original agreement
by 25 basis points. Availability under the senior credit facility is determined
by various financial covenants, financial ratios and other conditions. As of
September 30, 2002 we were in full compliance with the covenants contained in
the senior credit facility, however, our ability to continue to comply with the
covenants and access the available funds under the credit facility will depend
on our future financial performance. As of September 30, 2002, we had $52.0
million available under the revolver, less $16.1 million of letters of credit
currently issued and outstanding on our behalf. Subsequent to September 30, 2002
the Company borrowed $7.0 million under its revolving credit facility, the
proceeds of which were used to satisfy an earn-out obligation associated with
its site development construction segment. The senior credit facility is secured
by substantially all of the assets of SBA Telecommunications, Inc. and its
subsidiaries.
We define free cash flow/(1)/ as EBITDA less net cash interest, cash
capital expenditures and cash taxes. The attainment of sustained positive free
cash flow is a goal of the Company. If carrier activity levels remain at third
quarter 2002 levels, we project we will be free cash flow break-even in the
first quarter of 2003, falling back to negative free cash flow in the second
quarter of 2003 and remaining there through 2003 as our 12% discount notes go
cash pay. Assuming carrier activity levels remain the same as third quarter
2002, we project sustained positive free cash flow in 2004.
/(1)/Free cash flow is not intended to represent cash flows for the
periods presented, nor has it been presented as an alternative to cash flows
from operations 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 accounting principles generally accepted in the United
States.
We are focused on maintaining sufficient liquidity until we reach our goal
of sustained positive free cash flow. We believe our cash on hand, remaining
credit facility availability, anticipated increased EBITDA for 2003 as compared
to 2002 and dramatically reduced capital expenditures provide us with sufficient
liquidity until we reach our goal. However, if carrier activity levels remain at
third quarter 2002 levels, we may not comply with one or more of our financial
covenants under our senior credit facility as early as the second quarter of
2003. The failure to maintain compliance with financial covenants may result in
a default under the senior credit facility which could result in the senior
credit facility lenders exercising their remedies, unless we are able to secure
a waiver or amendment from such lenders. That could, without such waiver or
amendment, in turn, lead to a default under the 10 1/4% senior notes indenture
and/or the 12% senior discount notes indenture and lead to the trustees under
such indentures exercising available remedies.
We have significant levels of indebtedness under the senior credit
facility, the 10 1/4% senior notes and the 12% senior discount notes. In order
to manage these significant levels of indebtedness, we are exploring a number of
alternatives, including selling assets, issuing equity, repurchasing,
restructuring or refinancing or exchanging for equity some or all of our debt,
or pursuing other financial alternatives, and may from time to time implement
one or more of these alternatives. One or more of the alternatives may include
the possibility of issuing additional shares of common stock or securities
convertible into shares of common stock or converting our existing indebtedness
into shares of common stock or securities convertible into shares of common
stock, any of which would dilute our existing stockholders. No assurances can be
given that any particular transaction will be completed nor can any prediction
or assurance be made regarding the possible impact of future transactions on our
business, results or capitalization. Our ability to make interest or principal
payments on our indebtedness, comply with the financial covenants in our
indebtedness documents, or effectively implement any of these alternatives to
reduce our levels of indebtedness is dependent on many factors, including,
principally, our future financial performance, some of which factors are subject
to risks beyond our control. These risks include the general economic conditions
of the wireless communications industry, and specifically the wireless carriers'
ability to access and/or their willingness to expend capital to fund capital
expenditures.
We have on file with the Securities and Exchange Commission ("SEC") shelf
registration statements on Form S-4 registering up to a total of 8.0 million
shares of Class A common stock that we may issue in connection with the
acquisition of wireless communication towers or companies that provide related
services at various locations in the United States. During the nine months ended
September 30, 2002, we issued 1.3 million shares of Class A common stock under
these registration statements in connection with one acquisition and certain
earn-outs. As of September 30, 2002, we had 4.4 million shares of Class A common
stock remaining available under these shelf registration statements.
25
We have on file with the SEC a universal shelf registration statement
registering the sale of up to $252.7 million of any combination of the following
securities: Class A common stock, preferred stock, debt securities, depository
shares or warrants.
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.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. This standard requires companies to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. When the liability is initially recorded, the Company
capitalizes a cost by increasing the carrying amount of the related long-lived
asset. Over time, the liability is accreted to its present value each period,
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, the Company either settles the
obligation for its recorded amount or incurs a gain or loss upon settlement. The
standard is effective for fiscal years beginning after June 15, 2002, with
earlier application encouraged. We have not determined the effect adoption of
SFAS 143 will have on the consolidated financial statements, but believe it may
be material given our obligations to restore leaseholds to their original
condition upon termination of ground leases underlying a majority of our towers.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
Nos. 4, 44 and 62, Amendment of SFAS No. 13 and Technical Corrections. For most
companies, SFAS 145 will require gains and losses on extinguishments of debt to
be classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS 4. Extraordinary treatment
will be required for certain extinguishments as provided in APB Opinion No. 30.
The statement also amended SFAS 13 for certain sales-leaseback and sublease
accounting. We are required to adopt the provisions of SFAS 145 effective
January 1, 2003. We have not determined the effect adoption of SFAS No. 145 will
have on the Consolidated Financial Statements.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities and nullified EITF Issue No. 94-3.
SFAS 146 requires that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred, whereas EITF No.
94-3 had recognized the liability at the commitment date to an exit plan. We are
required to adopt the provisions of SFAS 146 effective for exit or disposal
activities initiated after December 31, 2002. We have not determined the effect
adoption of SFAS 146 will have on the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The listing is
not intended to be a comprehensive list of all of our accounting policies. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by accounting principles generally accepted in the United States, with
no need for management's judgment in their application. In other cases,
management does exercise judgment in the application of accounting principles
with respect to particular transactions. The impact and any associated risks
related to these policies on our business operations is discussed throughout
Management's Discussion and Analysis of Financial Condition and Results of
Operations where such policies affect our reported and expected financial
results. For a detailed discussion on the application of these and other
accounting policies, see Note 2 in the Notes to Consolidated Financial
Statements in Item 8 of Form 10-K for the year ended December 31, 2001, filed
with the Securities and Exchange Commission. Note that our preparation of this
quarterly report on Form 10-Q requires us to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent
assets and liabilities at the date of our financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results will not differ from those estimates.
REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE
Revenue from site leasing is recorded monthly on a straight-line basis
over the term of the related lease agreements. Rental amounts received in
advance are recorded in other liabilities.
26
Site development projects in which we perform consulting services include
contracts on a time and materials basis or a fixed price basis. Time and
materials based contracts are billed at contractual rates as the services are
rendered. For those site development contracts in which we perform 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, we recognize the revenue
related to that phase. Revenue related to services performed on uncompleted
phases of site development projects was not recorded by us at the end of the
reporting periods presented as it was not material to our results of operations.
Any estimated 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
expenses incurred and revenues recognized in excess of amounts billed. The
liability "Billings in excess of costs and estimated earnings on uncompleted
contracts" represents billings in excess of revenues recognized.
Cost of site development project revenue and construction revenue include
all 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. Cost of site leasing revenue include rent,
maintenance and other tower expenses. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are determined
to be probable.
We perform periodic credit evaluations of our customers. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that we have in the past. If the capital markets and the ability of
wireless carriers to access capital remains weak or further deteriorates, we
believe the collectibility of our accounts receivable may be negatively
impacted. Our accounts receivable balance was $45.7 million, which is net of an
allowance for doubtful accounts of $4.5 million as of September 30, 2002.
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. We perform ongoing
evaluations of the estimated useful lives of our property and equipment for
depreciation purposes. The estimated useful lives are determined and continually
evaluated based on the period over which services are expected to be rendered by
the asset, industry practice and asset maintenance policies. Maintenance and
repair items are expensed as incurred.
Asset classes and related estimated useful lives are as follows:
Towers and related components 2 - 15 years
Furniture, equipment and vehicles 2 - 7 years
Buildings and improvements 5 - 26 years
Capitalized costs incurred subsequent to when an asset is originally
placed in service are depreciated over the remaining estimated useful life of
the respective asset. Changes in an asset's estimated useful life are accounted
for prospectively, with the book value of the asset at the time of the change
being depreciated over the revised remaining useful life term. The restructuring
charge of $63.0 million recorded in the first nine months of 2002 includes a
$16.4 million asset impairment charge. The asset impairment charge was
determined through a fair value evaluation of our tower asset portfolio as of
March 31, 2002 using a discounted cash flow analysis. The tower assets
determined to be impaired were primarily those with no current tenants and
little or no lease-up potential. Long-lived assets are subject to an impairment
assessment any time that indicators of impairment are present. If wireless
carrier capital expenditures and their ability to access capital remain weak or
deteriorate further, we believe the valuation of certain of our long-lived
assets may be negatively impacted.
27
In October 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. SFAS 144 supercedes SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to
Be Disposed of. SFAS 144 applies to all long-lived assets (including
discontinued operations) and consequently amends Accounting Principles Board
Opinion No. 30, Reporting Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001. We adopted
SFAS 144 on January 1, 2002.
GOODWILL
During the period ended June 30, 2002, we completed the transitional
impairment test of goodwill required under SFAS 142, which was adopted effective
January 1, 2002. As a result of completing the required transitional test, we
recorded a charge retroactive to the adoption date for the cumulative effect of
the accounting change in the amount of $80.6 million, representing the excess of
the carrying value of reporting units as compared to their estimated fair value.
Of the total $80.6 million cumulative effect adjustment, $61.6 million related
to the site development construction reporting segment and $19.0 million related
to the site leasing reporting segment. The change modifies the first quarter's
previously reported net loss of $82.3 million, or ($1.70) per share to $163.8
million, or ($3.34) per share.
During the first and second quarter of 2002, we recorded additional
goodwill totaling approximately $13.4 million resulting from the achievement of
certain earn-out obligations under various construction acquisition agreements
entered into prior to July 1, 2001. In accordance with SFAS 142, in addition to
the transitional test described above, goodwill is subject to an impairment
assessment at least annually, or at any time that indicators of impairment are
present. We determined that as of June 30, 2002 indicators of impairment were
present, thereby requiring an impairment analysis be completed. The indicators
of impairment during the quarter ended June 30, 2002 giving rise to this
analysis included significant further deterioration of Company value, the
Company's further activities under its restructuring plan, and market conditions
related to demand for wireless construction services. As a result of this
analysis, using a discounted cash flow valuation method for estimating fair
value, $13.4 million of goodwill within the site development construction
segment was determined to be impaired as of June 30, 2002. The $13.4 million
goodwill impairment charge is included within restructuring and other charge in
the Consolidated Statement of Operations for the nine months ended September 30,
2002. The Company is subject to contingent earn-out obligations associated with
an acquisition within its site development construction segment of up to $7.0
million if certain earnings targets are achieved. If future obligations are
incurred under such agreement, resulting goodwill will be assessed at that time
under the provisions of SFAS 142.
ACCOUNTING FOR INCOME TAXES
As part of the process of preparing our consolidated financial statements
we are required to estimate our income taxes in each of the jurisdictions in
which we operate. This process involves us estimating our actual current tax
exposure together with assessing temporary differences resulting from differing
treatment of items, for tax and accounting purposes. These differences result in
deferred tax assets and liabilities, which are included within our consolidated
balance sheet. We must then assess the likelihood that our deferred tax assets
will be recovered from future taxable income and to the extent we believe that
recovery is not likely, we must establish a valuation allowance. To the extent
we establish a valuation allowance or increase this allowance in a period, we
must include an expense within the tax provision in the statement of operations.
Significant management judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of $154.0 million as of September 30, 2002, due to
uncertainties related to our ability to utilize some of our deferred tax assets,
primarily consisting of net operating losses carried forward before they expire.
The valuation allowance is based on our estimates of taxable income and the
period over which our deferred tax assets will be recoverable. In the event that
actual results differ from these estimates or we adjust these estimates in
future periods we may need to establish an additional valuation allowance which
could impact our financial position and results of operations. The net deferred
tax liability as of September 30, 2002 was $18.5 million.
28
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks that 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. Substantially all of our
indebtedness currently consists of fixed rate debt.
The following table presents the future principal payment obligations and
weighted average interest rates associated with our long-term debt instruments
assuming our actual level of long-term debt indebtedness as of September 30,
2002:
Expected Maturity Date
(in thousands)
-------------------------------------------------------------------------------------
2002 2003 2004 2005 2006 Thereafter Fair Value
----- -------- ---------- ---------- ---------- ------------ -----------
LIABILITIES
Long-term debt:
Fixed rate (12.0%) -- -- -- -- -- $ 269,000 $ 147,950
Fixed rate (10 1/4%) -- -- -- -- -- $ 500,000 $ 275,000
Term loan, $100.0 million
variable rates (3.99% to
4.05% at September 30, 2002) -- $ 5,000 $ 15,000 $ 25,000 $ 25,000 $ 30,000 $ 100,000
Revolving loan, variable rate,
(4.03% to 4.11% at
September 30, 2002) -- -- -- -- -- $ 148,000 $ 148,000
Notes payable, variable rates
(2.82% to 11.4% at
September 30, 2002) $ 37 $ 125 -- -- -- -- $ 162
INTEREST RATE DERIVATIVES
Interest rate swap:
Fixed to variable -- -- -- -- -- $ 100,000 $ 7,156
Average pay rate -- -- -- -- -- 6.45% --
Average receive rate -- -- -- -- -- 10.25% --
In January 2002, we entered into an interest rate swap agreement to manage
our exposure to interest rate movements and to take advantage of a favorable
interest rate environment by effectively converting a portion of our debt from
fixed to variable rates. The notional principal amount of the interest rate swap
is $100.0 million. The maturity date of the interest rate swap matches the
principal maturity date of the 10 1/4% senior notes, the underlying debt
(February 2009). This swap involves the exchange of fixed rate payments for
variable rate payments without the exchange of the underlying principal amount.
The variable rates are based on six-month EURO rate plus 4.47% and are reset on
a semi-annual basis. Subsequent to September 30, 2002, the counter-party to the
interest rate swap agreement elected to terminate the swap agreement effective
October 15, 2002. In connection with this termination, the counter-party paid
the Company $6.2 million, which includes approximately $0.8 million in accrued
interest. The remaining $5.4 million received will be deferred and recognized as
a reduction to interest expense over the remaining term of the senior notes
using the effective interest method.
Our primary market risk exposure relates to (1) the interest rate risk on
variable-rate long-term and short-term borrowings, (2) our ability to refinance
our 10 1/4% senior notes and our 12% senior discount notes, at maturity at
market rates, and (3) the impact of interest rate movements on our ability to
meet financial covenants. 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 NOTE DISCLOSURE REQUIREMENTS
The indentures governing our 10 1/4% senior notes and our 12% senior
discount notes 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 indentures, for the most recent fiscal quarter and
Adjusted Consolidated Cash Flow, as defined in the indentures, for the most
recently completed four-quarter period. As of September 30, 2002 we had no
29
unrestricted subsidiaries. Tower Cash Flow, as defined in the indentures, for
the three months ended September 30, 2002 was $18.2 million. Adjusted
Consolidated Cash Flow for the twelve months ended September 30, 2002 was $82.4
million.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This quarterly report contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act. Discussions containing forward-looking statements may
be found in the material set forth in the section "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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 quarterly report
contains forward-looking statements regarding:
. our estimates regarding our liquidity and our ability to continue to
access availability under our senior credit facility and comply with the
covenants contained in our senior credit facility;
. our expectation on the level of wireless carrier cell-site expenditures
and the resulting impact on our estimate that our operations will be
positive free cash flow break even by early 2003, negative in the latter
part of 2003, and sustained positive by 2004;
. the impact of the restructuring plan on our future financial performance,
long-term growth rates, liquidity and free cash flow position;
. our expectation that no additional material restructuring costs related
to the February 2002 plan are expected;
. our strategy to transition the primary focus of our business from site
development services toward the site leasing business, and the
consequent shift in our revenue stream from project driven revenues to
recurring revenues;
. anticipated trends in the site development industry, including
expectations regarding pricing competition and that carriers will
continue to conserve capital during the fourth quarter and the impact of
these trends on our revenue, gross margin, and profits, the
collectibility of our accounts receivable and the valuation of our
long-lived assets;
. anticipated trends in the site leasing industry, including the impact of
the capital markets on carrier demand, and its effect on our site leasing
revenues;
. our expectation regarding continued growth in our leasing revenue and
tower cash flow throughout 2002 and into 2003 and our expectation for
tower cash flow margin;
. our belief regarding the financial impact of certain accounting
pronouncements; and
. our estimate of non-cash compensation expense in each year from 2002
through 2006.
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 inability to sufficiently increase our revenues and maintain or
decrease expenses and cash capital expenditures sufficiently to permit us
to meet our free cash flow expectations;
. the inability of our clients to access sufficient capital or their
unwillingness to expend capital to fund network expansion or
enhancements;
. our ability to continue to comply with covenants and the terms of our
senior credit facility and to access sufficient capital to fund our
operations;
. our ability to secure as many site leasing tenants as planned;
. our ability to expand our site leasing business and maintain or expand
our site development business;
30
. 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 retain current lessees on our towers;
. our ability to realize economies of scale for our tower portfolio; and
. the continued use of towers and dependence on outsourced site development
services by the wireless communications industry.
We assume no responsibility for updating forward-looking statements in
this quarterly report.
ITEM 4: CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, we evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date
(the "Evaluation Date") within 90 days prior to the filing date of this report.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that, as of the Evaluation Date, our disclosure controls and
procedures were effective in timely alerting them to the material information
relating to us (and our consolidated subsidiaries) required to be included in
our periodic SEC filings.
There were no significant changes made in our internal controls during the
period covered by this report or, to our knowledge, in other factors that could
significantly affect these controls subsequent to the Evaluation Date.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer pursuant to Section 906
of Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on August 20, 2002. In the
report, the Company reported under Item 9, that it recently issued an
Investor News Report dated August 2002.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November 14, 2002 /s/ John Marino
-------------------------
John Marino
Chief Financial Officer
(Duly Authorized Officer)
November 14, 2002 /s/ John F. Fiedor
------------------------------
John F. Fiedor
Chief Accounting Officer
(Principal Accounting Officer)
32
CERTIFICATION
I, Jeffrey A. Stoops, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SBA
Communications Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 /s/ Jeffrey A. Stoops
-----------------------
Jeffrey A. Stoops
Chief Executive Officer
33
CERTIFICATION
I, John Marino, certify that:
1. I have reviewed this quarterly report on Form 10-Q of SBA
Communications Corporation.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosures
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: November 14, 2002 /s/ John Marino
-----------------------
John Marino
Chief Financial Officer
34