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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[_] 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
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SBA COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 65-0716501
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Town Center Road 33486
Boca Raton, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(561) 995-7670
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $761.1 million as of March 15, 2001.
The number of shares outstanding of the Registrant's common stock (as of
March 15, 2001):
Class A Common Stock--41,483,625 shares
Class B Common Stock-- 5,455,595 shares
Documents Incorporated By Reference
Portions of the Registrant's definitive proxy statement for its 2001 annual
meeting of shareholders, which proxy statement will be filed no later than 120
days after the close of the Registrant's fiscal year ended December 31, 2000,
are hereby incorporated by reference in Part III of this Annual Report on
Form 10-K.
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PART I
ITEM I. BUSINESS
General
We are a leading independent owner and operator of wireless communications
towers in the United States. We generate revenues from our two primary
businesses, site leasing and site development. In our site leasing business,
we lease antenna space on towers and other structures that we own or manage
for others. The towers that we own have either been built by us at the request
of a wireless carrier or built or acquired based on our own initiative. As of
December 31, 2000, we owned or controlled 2,390 towers and had agreements to
acquire 677 towers. We also had carrier directives to build approximately 600
additional towers and had, in various phases of development, over 1,000
locations which we had internally identified as a desirable location on which
to build a tower. The following chart shows the number of towers we
constructed for our own account and the number of towers we acquired during
the periods indicated:
Years ended
December 31,
-------------------
2000 1999 1998 1997 Total
---- ---- ---- ---- -----
Towers constructed.............................. 779 438 310 15 1,542
Towers acquired................................. 448 231 133 36 848
In our site development business, we offer wireless service providers
assistance in developing their own networks, including designing a network
with full signal coverage, identifying and acquiring locations to place their
antennas, obtaining zoning approvals, building towers when necessary and
installing their antennas. Since our founding in 1989, we have participated in
the development of more than 15,000 antenna sites in 49 of the 51 major
wireless markets in the United States.
Business Strategy
Our primary strategy is to expand the scope of our position as a leading
owner and operator of wireless communications towers and provider of site
development services. Key elements of our strategy include:
Maximizing Use of Tower Capacity. We believe that many of our towers have
significant capacity available for antenna space leasing and that increased
use of our owned towers can be achieved at a low incremental cost. We
generally construct our towers to accommodate multiple tenants in addition to
the anchor tenant, and a substantial majority of our towers are high capacity
lattice or guyed towers. We actively market space on our own towers through
our internal sales force.
Developing New Towers That We Will Own and Operate. As wireless service
providers increasingly outsource their investment in, and ownership of,
towers, we can meet their outsourcing needs through our build-to-suit
programs. We can also independently identify attractive locations for new
towers and strategically complete pre-construction procedures necessary to
secure tower sites in advance of customer demand. As of December 31, 2000, we
were in varying stages of development on over 1,000 additional sites which we
believe will be attractive locations for strategic new tower construction. In
2000, we built 779 towers for our own account.
Acquiring Existing Towers. We believe that our existing national field
organization gives us a competitive advantage in identifying opportunities for
the acquisition of existing towers. Our strategy is to acquire towers that can
service multiple tenants and are attractive to wireless service providers
based on their location, height and available capacity. While we generally
target smaller acquisitions, we believe that there are many potential
acquisition candidates and that the number of towers available for purchase
will remain substantial over the next three to five years as cellular, PCS and
other wireless service providers continue to divest their tower holdings. We
have strict valuation criteria and believe that certain tower properties can
be purchased at price levels which will allow us to attain our financial
targets. In 2000, we acquired 448 towers. As of December 31, 2000, we had
letters of intent or definitive agreements to acquire 677 towers in 33
separate transactions for an aggregate purchase price of approximately $218.5
million.
2
Capturing Other Revenues That Flow From our Tower Ownership. Tenants who
lease antenna space on our towers need a variety of additional services in
connection with their operations at the tower site. These services include
installation, maintenance and upgrading of radio transmission equipment,
antennas, cabling and other connection equipment, electricity, backhaul,
(which is provided generally by telephone lines or a microwave antenna
network), equipment shelters, data collection and network monitoring. Tenants
often outsource the performance of some or all of these required services to
third parties, including us. Because of our ownership of the tower, our
control of the tower site and our experience and capabilities in providing
these types of services, we believe that we are well positioned, and intend,
to perform more of these services and capture the related revenue.
Executing on a Local Basis. We believe that substantially all of what we do
is best done locally, given the nature of towers as location specific
communications facilities. We believe that to be successful in tower building,
acquisition and leasing, and site acquisition, zoning and construction, we
must have strong local presences in the markets we serve.
Building on Strong Relationships with Major Wireless Service Providers. We
are well-positioned to be a preferred partner in build-to-suit programs, site
development projects and tower space leasing because of our strong
relationships with wireless service and other telecommunications providers and
our proven operating experience. In many cases, the personnel awarding site
development projects for wireless service providers are the same personnel who
make decisions with respect to build-to-suit programs. We continually market
our build-to-suit programs to our site development service customers.
Maintaining our Expertise in Site Development Services. We continue to
perform an array of site development services for wireless service and other
telecommunications providers across the United States. We have a broad
national field organization that allows us to identify and participate in site
development projects across the country and that gives us a knowledge of local
markets and strong customer relationships with wireless service and other
telecommunications providers. We believe our site development experience
provides us with a competitive advantage in selecting the best locations for
tower ownership.
Capitalizing on our Management Experience. Our management team has extensive
experience in site leasing and site development services. Management believes
that its industry expertise and strong relationships with wireless carriers
will allow us to continue to build and acquire a high quality portfolio of
towers. Steven E. Bernstein, our Chief Executive Officer, has more than 13
years of experience in the wireless communications industry and our other
officers have an average of approximately ten years of experience in this
industry. In addition, management is highly motivated to produce strong
operating results based on their significant equity ownership.
Company Services
We provide our services on a local basis, through regional offices,
territory offices and project offices, which are opened and closed on a
project by project basis. Operationally, we are divided into four regions
throughout the United States, run by regional vice presidents. Each region is
divided into two or more sub-regions run by general managers and we have
further divided each sub-region into three to six geographic territories run
by territory managers. Within each territory manager's geographic area of
responsibility he or she is responsible for all operations, including hiring
employees and opening or closing project offices, and a substantial portion of
the sales in such area.
Our executive, corporate development, accounting, finance, human resources,
legal and regulatory, information technology departments, site administration
personnel, and our network operations center are located in our headquarters
in Boca Raton, Florida. We also have in our Boca Raton office certain sales,
new tower build support, and tower maintenance personnel.
3
Site Leasing Business
The primary focus of our site leasing business is the leasing of antenna
space on our multi-tenant towers to a variety of wireless service providers
under long-term lease contracts. We lease antenna space on:
. the towers we construct through carrier directives under build-to-suit
programs;
. existing towers we acquire;
. the towers we construct on locations we have selected which we call
"strategic" new tower builds; and
. towers we lease, sublease and/or manage for third parties.
We lease and sublease antenna space on our towers to a variety of wireless
service providers. We own or lease the ground under these towers from third
parties, and in some cases manage communication sites for third parties in
exchange for a percentage of the revenues or tower cash flow. We determine
tower cash flow by subtracting from gross tenant revenues the direct expenses
associated with operating the tower, such as ground lease payments, real
estate taxes, utilities, insurance and maintenance. The majority of our owned
or controlled towers we built through build-to-suit programs. In our build-to-
suit programs, we use some or all of the five phases of our site development
business as we would when providing site development services to a third
party.
After a tower has been constructed, we lease antenna space on the tower. We
generally receive monthly lease payments from customers payable under written
antenna site leases. The majority of our outstanding customer leases, and the
new leases we typically enter into, have original terms of five years (with
four or five renewal periods of five years each) and usually provide for
annual or periodic price increases. Monthly lease pricing varies with the
number and type of antenna installed on a communication site. We also provide
a lease/sublease service as part of our site leasing business whereby we lease
space on a tower and sublease the space to a wireless service provider.
We believe that the site leasing portion of our business has significant
potential for growth, and we intend to expand our site leasing business
through increasing activity from our new tower builds and selective
acquisitions. Our tower portfolio has continued to grow from 51 at year-end
1997 to 494 in 1998 to 1,163 in 1999 to 2,390 in 2000. As of December 31, 2000
we had 5,548 tenants.
(continued on following page)
4
The following table indicates the number of our acquired and built towers on
a state by state basis as of December 31, 2000:
New
---------------
% of
Builds Acquired Total Total
Location of Towers ------ -------- ----- -----
Georgia......................................... 200 46 246 10.3
Tennessee....................................... 123 58 181 7.6
North Carolina.................................. 168 4 172 7.2
Texas........................................... 38 134 172 7.2
Ohio............................................ 86 61 147 6.2
South Carolina.................................. 117 5 122 5.1
Florida......................................... 44 75 119 5.0
Louisiana....................................... 12 89 101 4.2
Indiana......................................... 85 5 90 3.8
New York........................................ 42 48 90 3.8
Wisconsin....................................... 79 10 89 3.7
Pennsylvania.................................... 45 31 76 3.2
Mississippi..................................... 38 34 72 3.0
Alabama......................................... 29 32 61 2.6
Connecticut..................................... 49 9 58 2.4
Oklahoma........................................ 30 27 57 2.4
Virginia........................................ 52 4 56 2.3
Arizona......................................... 42 1 43 1.8
Missouri........................................ 15 20 35 1.5
Michigan........................................ 32 2 34 1.4
Kansas.......................................... 6 27 33 1.4
New Hampshire................................... 30 2 32 1.3
Massachusetts................................... 23 7 30 1.3
Kentucky........................................ 16 13 29 1.2
Arkansas........................................ 15 12 27 1.1
Oregon.......................................... 22 3 25 1.0
Illinois........................................ 12 11 23 1.0
Minnesota....................................... 6 17 23 1.0
California...................................... 8 10 18 *
Colorado........................................ 7 10 17 *
West Virginia................................... 7 10 17 *
Iowa............................................ 7 8 15 *
Delaware........................................ 14 0 14 *
New Mexico...................................... 4 8 12 *
Washington...................................... 6 3 9 *
Maryland........................................ 7 0 7 *
Nebraska........................................ 6 1 7 *
Wyoming......................................... 6 1 7 *
South Dakota.................................... 2 3 5 *
Utah............................................ 2 3 5 *
Idaho........................................... 3 1 4 *
New Jersey...................................... 3 1 4 *
Maine........................................... 2 0 2 *
Rhode Island.................................... 2 0 2 *
North Dakota.................................... 0 1 1 *
Vermont......................................... 0 1 1 *
----- --- ----- ----
Total......................................... 1,542 848 2,390 100%
===== === ===== ====
- --------
*Less than 1%.
5
Build-to-Suit Programs
Under a build-to-suit program, we build a tower for a wireless service
provider on a location of their direction. We retain ownership of the tower
and the exclusive right to co-locate additional tenants on the tower. Many
wireless service providers are choosing the build-to-suit option as an
alternative to tower ownership, and we believe that this outsourcing trend is
likely to continue. We believe that we have one of the largest number of non-
binding build-to-suit mandates from wireless service providers in the
industry. As of December 31, 2000, we had carrier directives to build
approximately 600 additional towers under build-to-suit programs for carriers.
Under our build-to-suit programs, we have built towers for many carriers,
including Alamosa PCS, AT&T Wireless, Cingular, Georgia PCS, GTE, Horizon PCS,
LEAP Wireless, Nextel, PrimeCo PCS, Sprint PCS, TeleCorp PCS, Tritel PCS and
VoiceStream. In selling our build-to-suit programs, our personnel use their
existing relationships in the wireless communications industry to target
wireless service providers interested in outsourcing their network build-out.
We make proposals for build-to-suit towers in response to competitive bids or
specific requests and in circumstances where we believe the provider would
have an interest in build-to-suit towers. We price build to suit agreements
after having made the determination that the expected tower cash flow from
those towers will produce a targeted return on investment after a certain
period of time. Although the terms vary from proposal to proposal, we
typically sign a five-year lease agreement with the anchor tenant, with four
or five additional five-year renewal periods at the option of the lessee.
While the proposed monthly rent also varies, broadband customers such as PCS,
cellular or ESMR generally pay more than the aggregate monthly rent paid by
paging or other narrowband customers. In addition, anchor tenants will
typically pay lower monthly rents than subsequent tenants of a similar type
service. In some cases, an anchor tenant may also enjoy an introductory lease
rate for a period of time. If a wireless provider accepts the terms of the
proposal submitted by us, the provider will award us a non-binding mandate to
pursue specific sites. Based on the status of the geographic areas we have
been given a mandate to pursue, we will perform due diligence investigations
for a designated period during which time we will analyze the site based on a
number of factors, including co-location opportunities, zoning and permitting
issues, economic potential of the site, difficulty of constructing a multi-
tenant tower and remoteness of the site. These mandates are generally non-
binding agreements and either party may terminate the mandate at any time. If,
after our due diligence investigation during the mandate, we conclude that it
is economically feasible to construct the towers requested by the wireless
service provider, we will enter into an antenna site lease agreement with the
provider. In certain limited circumstances we are contractually obligated to
build a tower for the carrier regardless of the outcome of our due diligence
investigation. We have negotiated several master build-to-suit agreements,
including antenna site lease terms, with providers in specific markets. The
antenna site lease agreements typically provide that all obligations are
conditioned on our receiving all necessary zoning approvals where zoning
remains to be obtained. Certain of the antenna site lease agreements contain
penalty or forfeiture provisions in the event the tower is not completed
within specified time periods.
Strategic Siting
Our strategic siting activities focus on developing new towers in locations
chosen by us, instead of by an anchor tenant in a build-to-suit program. As of
December 31, 2000, of our total 779 new builds, 284 were through our strategic
siting programs, and we expect this number to grow in the future. We try to
identify attractive locations for new towers and complete pre-construction
procedures necessary to secure the site in advance of demand from a specific
customer. We may invest in the zoning and permitting of these strategic sites,
and even the construction of the towers, when we have not yet obtained an
anchor tenant for competitive or zoning reasons. However, we generally will
not build a tower on a strategic site until we have signed a lease with a
tenant.
Acquisitions
We actively pursue acquisitions of towers. Our acquisition strategy, like
our new build strategy, is financially-oriented as opposed to geographically
or customer-oriented. Our goal is to acquire towers that have
6
an initial or planned capital investment not exceeding a targeted multiple of
expected tower cash flow from the acquired towers after a certain period of
time. We determine tower cash flow by subtracting from gross tenant revenues
the direct expenses associated with operating the tower, such as ground lease
payments, real estate taxes, utilities, insurance and maintenance. Our
dedicated mergers and acquisitions personnel direct our acquisition activities
and are responsible for identification, negotiation, documentation and
consummation of acquisition opportunities, as well as the coordination and
management of independent advisors and consultants retained by us from time to
time in connection with acquisitions. In addition to our mergers and
acquisitions personnel, we rely on our national employee base to identify
potential acquisitions. Our field employees identify generally smaller
acquisition prospects, involving one to ten towers. We often have an exclusive
opportunity to structure and consummate a transaction with the potential
seller. We believe that our field employees and knowledge of potential
acquisition candidates gained through our substantial site development
business experience provide us with a competitive advantage. This information
permits us to identify and consummate acquisitions on generally more favorable
terms than would be available to us through competitively-bid or brokered
acquisition prospects. As is the case with our new tower builds, our focus is
to acquire multi-tenant towers with under-used capacity in locations that we
believe will be attractive to wireless service providers that have not yet
built out their service in these locations.
Lease/Sublease
Under our lease/sublease program, we lease antenna space on a tower then
sublease the space to wireless service providers. When these lease/subleases
were first signed, these providers chose the financial benefits associated
with the lease/sublease program, which include reduced capital expenditures,
as compared to paying for site development services on a fee basis. Wireless
paging providers comprise a significant majority of customers who sublease
antenna sites from us. The subleases generally have original terms of five
years, with four or five renewal periods of five years each at the option of
the lessee, and usually provide for annual or periodic price increases.
Related Services
To help maximize the revenue and profit we earn from our capital investment
in the towers we own, we have begun to provide services at our tower locations
beyond the leasing of antenna space. These services which we provide or may
provide in the future include generator provisioning, power provisioning,
antenna installation, equipment installation and backhaul, which is the
transport of the wireless signals transmitted or received by an antenna to a
carrier's network. Some of these services are recurring in nature, and are
contracted for by a wireless carrier or other user in a manner similar to the
way they lease antenna space.
Maintenance and Management
Once acquired or constructed, we maintain and manage our towers through a
combination of in-house personnel and independent contractors. We also manage
towers for third parties. In-house personnel are responsible for oversight and
supervision of all aspects of site maintenance and management, and are
particularly responsible for monitoring security access and lighting, RF
emission and interference issues, signage, structural engineering and tower
capacity, tenant relations and supervision of independent contractors. We hire
independent contractors locally to perform routine maintenance functions such
as landscaping, pest control, snow removal, vehicular access, site access and
equipment installation oversight. We engage independent contractors on a fixed
fee or time and materials basis or, in a few limited circumstances where these
contractors were sellers of towers to us, for a percentage of tower cash flow.
Our network operations center in Boca Raton, Florida centrally monitors
security access and lighting for our towers, as well as other functions. As
the number of towers we own and manage increases, we anticipate incurring
greater expenditures to expand our maintenance infrastructure, including
expenditures for personnel and computer hardware and software. We expect these
expenditures to be marginal compared to the anticipated increased revenues
from site leasing.
7
Site Development Services
Our site development business consists of two segments, site development
consulting and site development construction. Through this business we offer
wireless service providers assistance on each stage of the development of a
wireless network infrastructure, from network pre-design through installation
of antenna and radio equipment.
We deliver our site development services to a diverse range of customers,
including cellular, PCS, wireless data and Internet services, paging, SMR, and
ESMR providers as well as other users of wireless transmission and reception
equipment. Our customers currently comprise many of the major wireless
communications companies and their affiliates, including AT&T Wireless,
Cingular, Nextel, Sprint PCS, Verizon and Voicestream.
Our site development business also provides us expertise and knowledge which
complements our site leasing business. Specifically, our strong relationships
with wireless service providers created and strengthened through our site
development business provide the basis for our build-to-suit programs. In
addition, we are often able to use our site development activities to enhance
our strategic new tower build programs by identifying an area without wireless
signal coverage on which to build a tower for the benefit of a current or
potential customer.
Site Development Consulting
In the consulting segment of our site development business, we offer clients
the following services: (1) network pre-design; (2) identification of
potential locations for towers and antennas; (3) support in buying or leasing
of the location; and (4) assistance in obtaining zoning approvals and permits.
Once we are awarded a site development project, we dispatch a site development
team to the project site and may establish a temporary field office for the
duration of the project. The site development team is typically composed of
our permanent employees and supplemented with local hires employed only for
that particular project. A team leader is assigned to each phase of the site
development project and reports to a project manager who oversees all team
leaders. Upon the completion of a site development project, the project office
is typically closed and all of our permanent employees are either relocated to
another project or directed to return to one of our offices.
We generally set prices for each site development service separately.
Customers are billed for these services on a fixed price or time and materials
basis and we may negotiate fees on individual sites or for groups of sites.
Site Development Construction
In the construction segment of our site development business we provide a
number of services, including the following: (1) tower and related site
construction; (2) switch construction; (3) antenna installation; and (4) radio
equipment installation, optimization and service.
We provide these services on a turnkey basis throughout the United States.
Alternatively, with respect to towers on which carriers are looking to become
tenants, we can install, maintain, and upgrade radio transmission equipment,
antennas, cabling and other equipment. We began offering direct, as opposed to
subcontracted, construction services in 1997 with our acquisition of
Communications Site Services, Inc., which provided us with in-house tower
construction and antenna installation capability. We expanded our operations
through the acquisition of several telecommunications construction companies,
the most notable of which was SBA Network Services, Inc. ("Network Services,"
f/k/a Com-Net Construction Services, Inc.) in 1999, to include additional
tower construction equipment installation and antenna installation capability,
as well as the ability to construct terminal switches for wireless carriers,
competitive local exchange carriers and other telecommunications providers.
We have constructed and expect to continue to construct a portion of our
towers in the future, and provide equipment and antenna installation services
for tenants on our towers. We believe we cost-effectively and timely complete
construction projects, in part, because our site development personnel are
cross-trained in all areas of site development, construction and antenna
installation.
8
While we believe that our site development business will grow with the
expected overall growth of wireless and other telecommunications networks, we
believe our revenues and gross profit from the consulting segment of that
business may continue to decline as carriers find new ways to obtain network
development through outsourced tower ownership. We also believe that, over the
longer term, our site leasing revenues will continue to increase due to the
same outsourcing trend and as the number of towers we own or control grows.
Customers
Since commencing operations, we have performed site leasing and site
development services for many of the largest wireless service providers. The
majority of our contracts have been for PCS broadband, ESMR, cellular largest
wireless service providers. The majority of our contracts have been for PCS
broadband, ESMR, cellular and paging customers. We also serve wireless data
and Internet, PCS narrowband, SMR, multi-channel multi-point distribution
service, or MMDS, and multi-point distribution service, or MDS, wireless
providers. In both our site development and site leasing businesses, we work
with large national providers and smaller local, regional or private
operators. For the year ended December 31, 2000, Sprint PCS and Alamosa
provided 10.8% and 11.0% of our site development revenues. In 1999, our
largest site development customers were Sprint PCS and BellSouth Mobility DCS,
representing 20.8%, and 13.9%, respectively. In 2000, Nextel and Sprint
represented 10.6% and 10.3% of our site leasing revenues, respectively.
PageNet represented 7.3% of our site leasing revenue for 2000 and 16.5% for
the year ended December 31, 1999. These PageNet revenues come primarily from
our lease/sublease component of our site leasing business. No other customer
represented more than 10% of our site leasing or site development revenues.
During the past two years, we provided services for a number of customers,
including:
Aerial Communications
Alamosa PCS PrimeCo PCS
ALLTEL Powertel
AT&T Wireless Services Sprint PCS
Cingular TeleCorp PCS
Horizon PCS Teligent
LEAP Wireless Tritel PCS
MediaOne Group Triton PCS
Metricom 360 Communications Company
Nextel US West Communication
Pacific Bell Mobile Service Verizon
PageNet VoiceStream
WinStar
Sales and Marketing
Our sales and marketing goals are:
. to continue to grow our site leasing business;
. to further cultivate existing customers to obtain mandates for build-
to-suit programs as well as to sell site development services;
. to use our contacts and industry knowledge to better identify
attractive locations for new tower builds;
. to use existing relationships and develop new relationships with
wireless service providers to lease antenna space on and purchase
related services with respect to our owned or managed towers;
. to form affiliations with select communications systems vendors who use
end-to-end services, including those provided by us, which will enable
us to market our services and product offerings through additional
channels of distribution; and
. to continue to grow and sustain a market leadership position in the
site development business.
9
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to position
ourselves for additional site development business. We have leveraged these
attributes to obtain build-to-suit mandates, and we expect to continue to do
so in the future. We also use these attributes to identify attractive
locations to build towers on strategic sites.
We approach sales on a company-wide basis, involving many of our employees.
We have a dedicated sales force which is supplemented by members of our
executive management team. Our dedicated salespeople are based regionally as
well as in the corporate office. We also rely on our regional managers,
territory managers and other operations personnel to sell our services and
cultivate customers. Our strategy is to delegate sales efforts to those
employees of ours who have the best relationships with the wireless service
providers. Most wireless service providers have national corporate
headquarters with regional offices. We believe that most decisions for site
development and site leasing services are made by providers at the regional
level with input from their corporate headquarters. Our sales representatives
work with provider representatives at the local level and at the national
level when appropriate. Our sales staff compensation is heavily weighted to
incentive-based goals and measurements. A substantial number of our operations
personnel have sales-based incentive components in their compensation plans.
In addition to our marketing and sales staff, we rely upon our executive and
operations personnel on the regional and territory office levels to identify
sales opportunities within existing customer accounts, as well as acquisition
opportunities.
Our primary marketing and sales support is centralized and directed from our
headquarters office in Boca Raton, Florida and is supplemented by our regional
and territory offices. We have a full-time staff dedicated to our marketing
efforts. The marketing and sales support staff are charged with implementing
our marketing strategies, prospecting and producing sales presentation
materials and proposals.
Competition
We compete with:
. wireless service providers that own and operate their own tower
footprints and lease, or may in the future decide to lease, antenna
space to other providers;
. site development companies that acquire antenna space on existing
towers for wireless service providers, manage new tower construction
and provide site development services;
. other large independent tower companies; and
. smaller local independent tower operators
for towers to acquire and for sites to construct towers.
Wireless service providers that own and operate their own tower networks
generally are substantially larger and have greater financial resources than
we do. We believe that tower location and capacity, price, quality of service
and density within a geographic market historically have been and will
continue to be the most significant competitive factors affecting the site
leasing business. We also compete for development and new tower construction
opportunities with wireless service providers, site developers and other
independent tower operating companies and believe that competition for site
development will increase and that additional competitors will enter the tower
market, some of which may have greater financial resources than we do.
The following is a list of our primary competitors for new tower builds and
tower acquisitions: American Tower Corporation, Crown Castle International
Corp., Pinnacle Holdings, Inc. and SpectraSite Holdings, Inc.
We believe that the majority of our competitors in the site development
business operate within local market areas exclusively, while some firms
appear to offer their services nationally, including American Tower
Corporation, Bechtel, Black & Veach, General Dynamics, Mastec, Mericom, qServe
and SpectraSite Holdings, Inc. The market includes participants from a variety
of market segments offering individual, or combinations of, competing
services. The field of competitors includes site development consultants,
zoning consultants, real
10
estate firms, right-of-way consulting firms, construction companies, tower
owners/managers, radio frequency engineering consultants, telecommunications
equipment vendors, which provide end-to-end site development services through
multiple subcontractors, and providers' internal staff. We believe that
providers base their decisions on site development services on a number of
criteria, including a company's experience, track record, local reputation,
price and time for completion of a project. We believe that we compete
favorably in these areas.
Employees
As of December 31, 2000, we had approximately 1,000 employees, none of whom
is represented by a collective bargaining agreement. We consider our employee
relations to be good.
Regulatory and Environmental Matters
Federal Regulations. Both the Federal Communications Commission ("FCC") and
the Federal Aviation Administration ("FAA") regulate towers used for wireless
communications transmitters and receivers. These regulations control the
siting and marking of towers and may, depending on the characteristics of
particular towers, require prior approval and registration of tower
facilities. Wireless communications devices operating on towers are separately
regulated and independently licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, the FCC, in
conjunction with the FAA, has developed standards to consider proposals for
new or modified antennas. These standards mandate that the FCC and the FAA
consider the height of proposed antennas, the relationship of the structure to
existing natural or man-made obstructions and the proximity of the antennas to
runways and airports. Proposals to construct or to modify existing antennas
above certain heights must be reviewed by the FAA to ensure the structure will
not present a hazard to aviation. The FAA may condition its issuance of a no-
hazard determination upon compliance with specified lighting and/or marking
requirements. Towers required to be reviewed by the FAA must also be
registered with the FCC. The FCC will not license the operation of wireless
telecommunications devices on towers unless the tower has been registered with
the FCC. The FCC will not register a tower unless it has been cleared by the
FAA. The FCC may also enforce special lighting and painting requirements.
Owners of wireless transmissions towers may have an obligation to maintain
painting and lighting to conform to FCC standards. Tower owners also bear the
responsibility of notifying the FAA of any tower lighting outage. In addition,
any applicant for an FCC antenna structure registration must certify that,
consistent with the Anti-Drug Abuse Act of 1988, neither the applicant nor its
principals have been convicted of a federal drug crime. We generally indemnify
our customers against any failure to comply with applicable regulatory
standards. Failure to comply with the applicable requirements may lead to
civil penalties.
The Telecommunications Act of 1996 amended the Communications Act of 1934 by
preserving state and local zoning authorities jurisdiction over the
construction, modification and placement of towers. The new law, however,
limits local zoning authority by prohibiting any action that would
(1) discriminate between different providers of personal wireless services or
(2) ban altogether the construction, modification or placement of radio
communication towers. Finally, the Telecommunications Act of 1996 requires the
federal government to help licensees for wireless communications services gain
access to preferred sites for their facilities. This may require that federal
agencies and departments work directly with licensees to make federal property
available for tower facilities.
Owners and operators of antennas may be subject to, and therefore must
comply with, environmental laws. The FCC's decision to register a proposed
tower or license radio facilities on a tower may be subject to environmental
review pursuant to the National Environmental Policy Act of 1969, which
requires federal agencies to evaluate the environmental impacts of their
decisions under certain circumstances. The FCC has issued regulations
implementing the National Environmental Policy Act. These regulations place
responsibility on each applicant to investigate any potential environmental
effects of operations and to disclose any potential
11
significant effects on the environment in an environmental assessment prior to
constructing a tower. In the event the FCC determines the proposed tower would
have a significant environmental impact based on the standards the FCC has
developed, the FCC would be required to prepare an environmental impact
statement, which will be subject to public comment. This process could
significantly delay the registration of a particular tower.
As an owner and operator of real property, we are subject to certain
environmental laws that impose strict, joint and several liability for the
cleanup of on-site or off-site contamination and related personal or property
damages. We are also subject to certain environmental laws that govern tower
placement, including pre-construction environmental studies. Operators of
towers must also take into consideration certain RF emissions regulations that
impose a variety of procedural and operating requirements. The potential
connection between RF emissions and certain negative health effects, including
some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies
have been inconclusive. We believe that we are in substantial compliance with
and we have no material liability under any applicable environmental laws.
These costs of compliance with existing or future environmental laws and
liability related thereto may have a material adverse effect on our prospects,
financial condition or results of operations.
State and Local Regulations. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, we conduct the site
acquisition portions of our site development services business through
licensed real estate brokers or agents, who may be our employees or hired as
independent contractors. Local regulations include city and other local
ordinances, zoning restrictions and restrictive covenants imposed by community
developers. These regulations vary greatly, but typically require tower owners
to obtain approval from local officials or community standards organizations
prior to tower construction. Local zoning authorities generally have been
hostile to construction of new transmission towers in their communities
because of the height and visibility of the towers.
Recent Developments
In September 2000, we entered into an agreement to acquire 275 existing
towers from TeleCorp PCS, Inc. in Illinois, Louisiana, Tennessee, Texas,
Mississippi, Missouri, Arkansas and Puerto Rico. The acquisition price of the
towers will be $327,500 per tower. Contingent on the closing of the TeleCorp
tower acquisition, we have agreed to become the exclusive build-to-suit
provider for TeleCorp. Under the build-to-suit agreement, we will construct a
minimum of 200 tower facilities and up to a maximum of 400 tower facilities.
Under the terms of the acquisition, TeleCorp will enter into long-term leases
at a monthly rate of $1,200 per acquired tower and $1,300 per built tower, to
place its wireless network equipment on each tower acquired or built. On
March 16, 2001, we acquired 203 towers of the 275 towers under the agreement
for $66.5 million, and we anticipate completing the acquisition of the
remaining 72 towers in the second quarter of 2001. The remaining tower
acquisitions are subject to our satisfactory completion of our review of the
business, financial and legal aspects of towers that may be acquired. As of
December 31, 2000, the 275 towers which would be purchased if the TeleCorp
transaction was consummated, had an annualized run rate including pending
leases of approximately $6.1 million in revenues and approximately
$3.9 million in cash flow.
In December 2000, we entered into an agreement with Louisiana Unwired, Inc.,
a subsidiary of US Unwired, Inc., to acquire 300 towers in Louisiana, Texas
and Arkansas. Pursuant to the terms of the agreement, we purchased 127 of the
300 towers on December 29, 2000. We have the obligation to purchase the
remaining 173 towers, subject to the receipt of certain consents, by May 1,
2001. Additionally, the agreement granted us the option until December 31,
2001 to purchase the lesser of (1) the number of towers constructed by
Louisiana Unwired during 2001 and (2) 100 towers. Our ability to exercise this
option is contingent upon our (A) securing financing adequate to purchase the
towers and (B) placing in escrow a deposit of $1.67 million prior to April 10,
2001. The acquisition price for each of the towers covered by the agreement is
$313,000 per tower. Under the terms of the acquisition agreement, US Unwired
has agreed to enter into long-term leases, at a monthly rate of $1,500 per
tower, to place its wireless network equipment at each tower that we purchase.
As of
12
December 31, 2000, the 300 towers, including the 173 towers which would be
purchased if the second stage of the US Unwired transaction was consummated,
had an annualized run rate, including pending leases, of approximately $5.8
million in revenues and approximately $3.4 million in cash flow.
While all of the towers acquired from TeleCorp and US Unwired will generate
revenues immediately upon consummation of their respective acquisition, the
towers will not at such time be profitable. We cannot assure you that these
towers will ever be profitable because these towers will be profitable only if
we are able to sign additional leases with third parties for the location of
antennas on these towers.
The acquisition of the remaining 72 TeleCorp towers and the remaining 273 US
Unwired towers are subject to numerous closing conditions. We cannot assure
you if or when either of these transactions will close.
Backlog
Our backlog for site development services was $61.0 million as of December
31, 2000 as compared to $40.0 million as of December 31, 1999. Our backlog for
pending tower acquisitions was 677 towers as of December 31, 2000 as compared
to 94 towers as of December 31, 1999. Our backlog under build-to-suit mandates
was approximately 600 towers as of December 31, 2000 as compared to 335 as of
December 31, 1999. We anticipate that we will fulfill all of these services
and complete the pending tower acquisitions during the current fiscal year.
RISK FACTORS
Our substantial indebtedness could adversely affect our financial health and
prevent us from fulfilling our payment obligations.
As indicated below, we have and will continue to have a significant amount
of indebtedness relative to our equity size.
At December 31, 2000 After Note Offering(a)
-------------------- ----------------------
(in thousands)
Total indebtedness............ $284,273 $709,273
Stockholders' equity.......... $538,160 $533,397
(a) Subsequent to December 31, 2000, we borrowed $30.0 million
under the revolving line of credit. In February 2001, the
Company issued $500.0 million of its 10 1/4% senior notes
due 2009 and used $105.0 million to repay all amounts
outstanding under the senior credit facility. In
connection with the termination of our senior credit
facility, we recorded an extraordinary loss of $4.8
million related to the write-off of deferred financing
fees associated with our existing senior credit facility
in the first quarter of 2001.
Our substantial indebtedness could have important consequences to you. For
example, it could:
. limit our ability to repay the 10 1/4% senior notes and the 12% senior
discount notes;
. limit our ability to fund future working capital, capital expenditures
and research and development costs;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage to our competitors that are less
leveraged; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds. Failing to comply with those covenants could result in an event
of default.
Our ability to service our debt obligations will depend on our future
operating performance. If we are unable to generate sufficient cash flow from
operations to service our indebtedness, we will be forced to adopt an
alternative strategy that may include actions such as reducing, delaying or
eliminating acquisitions of towers or related service companies, delaying
tower construction and other capital expenditures, selling assets,
13
restructuring or refinancing our indebtedness or seeking additional equity
capital. We may not be able to effect any of these alternative strategies on
satisfactory terms, if at all. The implementation of any of these alternative
strategies could have a material adverse effect on our growth strategy.
Our earnings have been insufficient to cover our fixed charges since the
issuance of our 12% senior discount notes, treating the non-cash amortization
of the original issue discount on the 12% senior discount notes as a fixed
charge. This deficiency will increase as a result of the issuance of our
$500.0 million 10 1/4% senior notes completed in February 2001. We expect our
earnings to continue to be insufficient to cover our fixed charges for the
foreseeable future. We may incur substantial additional indebtedness in the
future. If new debt is added to our current debt levels, the related risks
that we face could intensify.
Our debt instruments contain restrictive covenants that could adversely
affect our business by limiting flexibility.
The indentures governing our 10 1/4% senior notes and our 12% senior
discount notes each contain certain restrictive covenants. In addition, we
intend to enter into a new senior credit facility in the future and this new
facility will also likely contain restrictive covenants and require us to
maintain specified financial ratios and meet financial condition tests. Our
ability to comply with these covenants and meet these financial ratios and
tests can be affected by events beyond our control, and we may not be able to
meet these covenants, ratios and tests. A breach of any of these covenants
could result in an event of default under the indentures governing the 10 1/4%
senior notes and our 12% senior discount notes. Upon the occurrence of our
bankruptcy, the outstanding principal, together with all accrued interest,
will automatically become immediately due and payable. If any other event of
default, including a continuing breach of our covenants, should occur the
trustee or a percentage of such noteholders can elect to declare all amounts
of principal outstanding, together with all accrued interest, to be
immediately due and payable.
Our quarterly operating results fluctuate and therefore should not be
considered indicative of our long-term results.
The number of towers we build, the number of tenants we add to our towers
and the demand for our site development services fluctuate from quarter to
quarter and should not be considered as indicative of long-term results.
Numerous factors cause these fluctuations, including:
. the timing and amount of our customers' capital expenditures;
. the business practices of customers, such as deferring commitments on
new projects until after the end of the calendar year or the customers'
fiscal years;
. the number and significance of active customer engagements during a
quarter;
. delays relating to a project or tenant installation of equipment;
. seasonal factors, such as weather, vacation days and total business
days in a quarter;
. employee hiring;
. the use of consultants by our customers; and
. the rate and volume of wireless service providers' network development.
Although the demand for our services fluctuates, we incur significant fixed
costs, such as maintaining a staff and office space in anticipation of future
contracts. The timing of revenues is difficult to forecast because our sales
cycle may be relatively long and may depend on factors such as the size and
scope of assignments, budgetary cycles and pressures and general economic
conditions. In addition, under lease terms typical in the tower industry,
revenue generated by new tenant leases usually commences upon installation of
the tenant's
14
equipment on the tower rather than upon execution of the lease, which can be
90 days or more after the execution of the lease.
We may be adversely affected by an economic slowdown.
Our business may be adversely affected by periods of economic slowdown or
recession. During periods of economic slowdown or recession, wireless carriers
may be unable to raise sufficient capital to expand their networks or may
choose to slow or stop capital expenditures. Any material decline in the
availability of capital for, or in capital expenditures by, our customers
would likely result in a decrease in the demand for tenant space on our towers
and for our site development services.
We may not secure as many site leasing tenants as planned.
If tenant demand for tower space decreases, we may not be able to
successfully grow our site leasing business. This may have a material adverse
effect on our strategy and revenue growth. Our plan for the growth of our site
leasing business largely depends on our management's expectations and
assumptions concerning future tenant demand for independently-owned towers.
Tenant demand includes both the number of tenants and the lease rates they are
willing to pay. We bear a greater risk from lower tenant demand than other
tower companies that have towers with positive cash flow, because the majority
of our towers are newly constructed and have little or no positive cash flow
at the time of construction.
Wireless service providers that own and operate their own towers and several
of the independent tower companies generally are substantially larger and have
greater financial resources than we do. We believe that tower location and
capacity, price, quality of service and density within a geographic market
historically have been and will continue to be the most significant
competitive factors affecting the site leasing business.
We are not profitable and expect to continue to incur losses.
We are not profitable. The following chart shows the net losses we incurred
for the periods indicated:
Years ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------
(in millions)
Net losses................ $28.9 $34.6 $19.9
Our losses are principally due to significant depreciation, amortization and
interest expense. We have not achieved profitability and expect to continue to
incur losses for the foreseeable future.
Increased competition to purchase existing towers and to build new towers
may negatively affect the success of our growth strategy.
Increased competition to purchase existing towers and to build new towers
may negatively affect the success of our growth strategy. We compete for the
opportunity to build new towers primarily with site developers, wireless
carriers and other independent tower companies. We believe that competition
for the opportunity to build new towers will increase and that additional
competitors will enter the tower market. Some of these additional competitors
have or are expected to have greater financial resources than we do.
We compete with:
. wireless service providers that own and operate their own towers;
. site development companies that acquire antenna space on existing
towers for wireless service providers, manage new tower construction
and provide site development services;
. other large independent tower companies; and
. smaller local independent tower operators
for towers to acquire and for sites to construct towers.
15
Our growth strategy depends in part on our ability to acquire and operate
existing towers not built by us to expand our existing tower network.
Increased competition for acquisitions may result in fewer acquisition
opportunities for us and higher acquisition prices. We regularly explore
acquisition opportunities, and we are currently actively negotiating to
acquire additional towers. As of December 31, 2000, we had agreements to
acquire 677 towers in 33 separate transactions for an aggregate purchase price
of $218.5 million, including $90.0 million for all 275 towers from TeleCorp
and $85.5 million for the additoinal 273 towers from US Unwired, or an average
acquisition price of approximately $323,000 per tower. While all of the towers
acquired from TeleCorp and US Unwired will generate revenues immediately upon
consummation of their respective acquisition, the towers will not at such time
be profitable. We cannot assure you that these towers will ever be profitable
because these towers will be profitable only if we are able to sign additional
leases with third parties for the location of antennas on these towers. All of
these acquisitions are subject to a number of conditions and may or may not
close.
We may not be able to identify, finance and complete future acquisitions of
towers or tower companies on acceptable terms or may not be able to profitably
manage and market available space on any towers that we acquire. We may also
face challenges in integrating newly acquired towers or tower companies with
our operations and may face difficulties in retaining current lessees on newly
acquired towers.
If our carrier-directed new tower build projects are unsuccessful in
yielding binding agreements or completed towers, our growth strategy or
business may be negatively affected.
If our carrier-directed new tower build projects are unsuccessful in
yielding binding agreements or completed towers, our growth strategy or
business may be negatively affected. A carrier directive is an indication of
interest from a wireless carrier for us to build a tower which we will own, on
which they will place their antenna. Upon completion of the tower, the
wireless carrier would lease space on the tower. A carrier directive, however,
does not require the wireless carrier to actually lease space on the tower.
That obligation does not arise until a lease is signed. We generally will not
commence construction of a tower on a carrier-directed location until a lease
is signed. As of December 31, 2000, we had carrier directives to build
approximately 600 towers under build-to-suit programs for wireless service
providers. We believe that the majority of these carrier directives will
result in new towers built and owned by us and long-term leases for antenna
space on such towers. However, there are numerous factors that may prevent
carrier directives from resulting in leases, including:
. FAA, FCC or zoning restrictions that may prevent the building of a
communication tower;
. the results of the review of the business, financial and legal aspects
of the transactions conducted by us or our customers;
. the lease price; and
. the ability of the carriers who have awarded a directive to withdraw
the directive.
As a result, we cannot assure you as to the percentage of current and future
carrier directives that will ultimately result in constructed towers and
tenant leases.
We will need to seek additional financing to fund our business plan.
Our business strategy contemplates substantial capital expenditures for the
expansion of our tower portfolio. We intend to increase the number of towers
we own and lease by agreeing with wireless carriers to assume ownership or
control of their existing towers, by pursuing build-to-suit opportunities and
by exploring other tower acquisition opportunities. To the extent we are
unable to finance our future capital expenditures, we will be unable to
achieve our currently contemplated business goals.
Our cash capital expenditures for the year ended December 31, 2000 were
$445.3 million. We currently estimate that we will make at least $400.0
million to $450.0 million of cash capital expenditures during the year ending
December 31, 2001, which will be primarily for the construction and
acquisition of towers, tower companies and/or related businesses. This
estimate includes capital expenditures planned in connection with the
16
TeleCorp and US Unwired transactions. We expect to fund $400.0 million of
these planned capital expenditures from the proceeds from our $500.0 million
10 1/4% senior notes offering completed in February 2001 that resulted in net
proceeds of $484.2 million, cash on hand and cash flow from operations. In
addition, we intend to seek a new senior credit agreement on terms no less
favorable to us than our prior senior credit facility. Thereafter, however, or
in the event we exceed our currently anticipated cash capital expenditures by
December 31, 2001, we anticipate that we will need to seek additional equity
or debt financing to fund our business plan. Additional financing, including a
new senior credit facility, may not be available on commercially acceptable
terms or at all, and additional debt financing may not be permitted by the
terms of our existing indebtedness, including our 10 1/4% senior notes and 12%
senior discount notes. Prior to March 1, 2003, interest expense on our 12%
senior discount notes will consist solely of non-cash accretion of original
issue discount, and will not require cash interest payments. After that time,
our 12% senior discount notes will have increased to $269.0 million and will
require annual cash interest payments of approximately $32.3 million. If we
are required to issue additional common equity to finance our capital
expenditures, it could be dilutive to our existing shareholders
Managing our expansion and integrating acquisitions may strain our resources
and reduce our cash flow.
Expanding our business may impose significant strains on our management,
operating systems and financial resources. The pursuit and integration of
newly constructed towers in addition to future acquisitions, investments,
joint ventures and strategic alliances will require substantial attention from
our senior management, which will limit the amount of time available to devote
to our existing operations.
From January 1, 2000 to December 31, 2000, our work force increased from
approximately 600 to approximately 1,000 employees. This growth has placed,
and will likely continue to place, a substantial strain on our administrative,
operational and financial resources. In addition, as part of our business
strategy, we may acquire complementary businesses such as telecommunications
services companies or expand into new businesses. Acquisitions involve a
number of potential risks, including the potential loss of customers, and the
inability to productively combine disparate company cultures and facilities or
manage operating sites in geographically diverse markets. We may not be able
to manage our growth successfully. Our management, personnel or operational
and financial control systems may not be adequate to support expanded or
complementary operations. Any of these inabilities or inadequacies could cause
a significant increase in our expenses and reduce our cash flow.
We are subject to numerous regulations that may prevent, delay, or increase
the cost of building or operating towers.
Extensive local, state and federal regulations may prevent, delay or
increase the cost of building or operating towers. Before we can build a new
tower, either for a wireless communications carrier or for our own account, we
must receive approval under local regulations. Local regulations include city
or other local ordinances, zoning restrictions and restrictive covenants
imposed by community developers. These regulations vary greatly, but typically
require tower owners to obtain approval from local officials or community
standards organizations prior to tower construction. In addition, as the
concern over tower proliferation has grown in recent years, certain
communities have placed restrictions on new tower construction or have delayed
granting permits required for construction. If we cannot receive local
governmental approvals or if it is expensive or time consuming to obtain these
approvals, then our results of operations will be negatively impacted.
Both the FCC and FAA regulate towers and other sites used for wireless
communications transmitters and receivers. Wireless communications devices
operating on towers are separately regulated and independently licensed based
upon the particular frequency used.
The construction or modification of communication sites is also subject to
the National Environmental Policy Act, which requires additional review of any
tower that may have a significant effect upon the quality of
17
the human environment. In addition, the operation of our towers is subject to
federal, state and local environmental laws and regulations regarding the use,
storage, disposal, emission, release and remediation of hazardous and non-
hazardous substances, materials or wastes. Under certain of these
environmental laws, we could be held strictly liable for the remediation of
hazardous substance contamination at our facilities or at third party waste
disposal sites, and could also be held liable for any personal or property
damage related to the contamination.
Our estimates regarding our growth rate and our anticipated financial
performance include the costs of complying with these regulations, as they
currently exist. If new regulations are introduced or existing regulations are
modified it could increase our cost of operations and decrease our cash flow.
If demand for wireless communication services decreases, our revenue will be
adversely affected.
Substantially all of our customers to date have been providers of wireless
communications services. If demand for wireless communication services
decreases, our revenue growth will be, and our revenue may be, adversely
affected. Demand for both our site leasing and site development services is
dependent on demand for communication sites from wireless service providers,
which, in turn, is dependent on the demand for wireless services. A slowdown
in the growth of, or reduction in demand in, a particular wireless
communication segment could adversely affect the demand for communication
sites. Most types of wireless services currently require ground-based network
facilities, including communication sites for transmission and reception. The
extent to which wireless service providers lease these communication sites
depends on a number of factors beyond our control, including:
. the level of demand for wireless services;
. the financial condition and access to capital of wireless service
providers;
. the strategy of wireless service providers with respect to owning or
leasing communication sites;
. government licensing of broadcast rights; and
. changes in telecommunications regulations and general economic
conditions.
In addition, wireless voice service providers frequently enter into roaming
agreements with competitors allowing them to use another's wireless
communications facilities to accommodate customers who are out of range of
their home provider's services. Wireless voice service providers may view
these roaming agreements as a superior alternative to leasing antenna space on
communications sites owned or controlled by us. The proliferation of these
roaming agreements could have a material adverse effect on our revenue.
We depend on a relatively small number of customers for most of our revenue.
We derive a significant portion of our revenue from a small number of
customers that vary at any given time, particularly in the site development
services side of our business. The loss of any significant customer could have
a material adverse effect on our revenue.
Following is a list of significant customers and the percentage of total
revenues derived from such customers:
For the years ended December 31,
------------------------------------
2000 1999
------------------- ----------------
(% of revenue)
Sprint................................. 10.7 17.3
Cingular............................... less than 10.0 12.5
Our site development customers engage us on a project-by-project basis, and
a customer can generally terminate an assignment at any time without penalty.
In addition, a customer's need for site development services can decrease, and
we may not be successful in establishing relationships with new customers.
Moreover, our existing customers may not continue to engage us for additional
projects.
18
The substantial majority of our existing carrier directives under build-to-
suit programs are from Alamosa PCS, AT&T Wireless, Georgia PCS, Horizon PCS,
and TeleCorp PCS.
Due to the long-term expectations of revenue from tenant leases, the tower
industry is very sensitive to the creditworthiness of its tenants. Wireless
service providers often operate with substantial leverage, and financial
problems for our customers could result in uncollected accounts receivable, in
the loss of customers and the associated lease revenues, or in a reduced
ability of these customers to finance expansion activities. In July 2000,
PageNet, one of our site leasing customers, filed for bankruptcy. For the year
ended December 31, 2000, PageNet constituted less than 5% our total revenues.
PageNet has continued to make all payments due to us under their lease
agreements.
If we commence international operations in the future it could strain our
resources and negatively affect our growth strategy and revenue.
We are currently evaluating international opportunities and we would like to
begin operating internationally if we find an opportunity we believe is
appropriate to pursue. We may commence international operations at any time.
Initiating international operations may strain our resources and negatively
affect our growth strategy and revenue. If we commence international
operations, we will be subject to various political, economic and other
uncertainties, including:
. difficulties and costs of staffing and managing international
operations;
. different technology standards;
. fluctuations in currency exchange rates or the implementation of
currency exchange controls;
. political and economic instability;
. unexpected changes in regulatory requirements; and
. potentially adverse tax consequences.
Any of these factors could delay or preclude our ability to generate revenue
in any international markets that we may enter. Accordingly, we cannot assure
that if we begin international operations our strategies will prove to be
effective or that management's goals will be achieved.
Our towers are subject to damage from natural disasters.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We maintain insurance to cover the
estimated cost of replacing damaged towers, but these insurance policies are
subject to caps and deductibles. We also maintain third party liability
insurance to protect us in the event of an accident involving a tower. A tower
accident for which we are uninsured or underinsured, or damage to a tower or
group of towers could require us to make significant capital expenditures and
may have a material adverse effect on our operations.
New technologies may have a material adverse effect on our growth rate and
results of operations.
The emergence of new technologies could reduce the demand for space on our
towers. This could have a material adverse effect on our growth rate and
results of operations. For example, the FCC has granted license applications
for several low-earth orbiting satellite systems that are intended to provide
mobile voice and data services. Although these systems are highly capital
intensive and have only begun to be tested, mobile satellite systems could
compete with land-based wireless communications systems. In addition, products
are currently being developed which may permit multiple wireless carriers to
use a single antenna, or to increase the range and capacity of an antenna.
19
Steven E. Bernstein controls the outcome of shareholder votes.
Steven E. Bernstein, our Chairman and Chief Executive Officer, controls 100%
of the outstanding shares of Class B common stock. As of March 15, 2001, Mr.
Bernstein controlled approximately 57% of the total voting power of both
classes of our common stock. As a result, Mr. Bernstein has the ability to
control the outcome of all matters determined by a vote of our common
shareholders when voting together as a single class, including the election of
all of our directors.
The loss of the services of certain of our executive officers may negatively
affect our business.
Our success depends to a significant extent upon the continued services of
Steven E. Bernstein, our Chairman and Chief Executive Officer, Jeffrey A.
Stoops, our President, Ronald G. Bizick, II, our Executive Vice President and
Chief Operating Officer-U.S. Site Development, and John Marino, our Senior
Vice President and Chief Financial Officer. The loss of the services of any of
Messrs. Bernstein, Stoops, Bizick or Marino may have a material adverse effect
on our business. Each of Messrs. Bizick and Stoops has an employment
agreement. We do not have an employment agreement with Messrs. Bernstein or
Marino. Mr. Bernstein's compensation and other terms of employment are
determined by the Board of Directors.
If we are unable to attract, retain or manage skilled employees it could
have a material adverse effect on our business.
Our business, particularly site development services, involves the delivery
of professional services and is labor-intensive. The loss of a significant
number of employees, our inability to hire a sufficient number of qualified
employees or adequately develop and motivate the skilled employees we have
hired could have a material adverse effect on our business. We compete with
other wireless communications firms and other enterprises for employees with
the skills required to perform our services. We cannot assure you that we will
be able to attract and retain a sufficient number of highly-skilled employees
in the future or that we will continue to be successful in training, retaining
and motivating employees.
Our dependence on our subsidiaries for cash flow may negatively affect our
business.
We are a holding company with no business operations of our own. Our
dependence on our subsidiaries for cash flow may have a material adverse
effect on our operations. Our only significant asset is and is expected to be
the outstanding capital stock of our subsidiaries. We conduct, and expect to
conduct, all of our business operations through our subsidiaries. Accordingly,
our only source of cash to pay our obligations is distributions from our
subsidiaries of their net earnings and cash flow. We currently expect that the
earnings and cash flow of our subsidiaries will be retained and used by them
in their operations, including servicing their debt obligations, except as
necessary to be distributed to us to cover holding company expenses including
interest payments on our 10 1/4% senior notes. Even if our subsidiaries
determined to make a distribution to us, applicable state law and contractual
restrictions, including any dividend covenants contained in any new senior
credit facility we may obtain in the future, may restrict or prohibit these
dividends or distributions.
Future issuances of our stock may cause dilution.
As part of the consideration for our acquisitions, we sometimes agree to
issue additional shares of Class A common stock if the towers or businesses
that we acquire meet or exceed certain earnings or new tower targets in the 1-
3 years after they have been acquired. As of December 31, 2000, we had the
obligation to issue approximately 300,000 additional shares of Class A common
stock if the earnings targets identified in various acquisition agreements are
met.
ITEM 2. PROPERTIES
We are headquartered in Boca Raton, Florida, where we currently lease
approximately 32,000 square feet of space. In 2000, we entered into a new
agreement to lease 75,000 square feet of space in Boca Raton, Florida. We
expect to terminate our old lease and occupy the new facility in the fourth
quarter of 2001. We have entered into long-term leases for regional and
Network Services office locations where we expect our activities to be
20
longer-term. We open and close project offices from time to time in connection
with our site development business, and offices for new tower build projects
are generally leased for periods not to exceed 18 months. Our interests in
towers are comprised of a variety of fee interests, leasehold interests
created by long-term lease agreements, private easements, easements and
licenses or rights-of-way granted by government entities. Please refer to
"Site Leasing Business" for a listing of the locations of our owned towers.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of business. We are not a party to any
legal proceeding, the adverse outcome of which, individually or taken together
with all other legal proceedings, is expected to have a material adverse
effect on our prospects, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Class A common stock commenced trading under the symbol SBAC on the
Nasdaq National Market System ("Nasdaq") on June 16, 1999. The following table
presents trading information for the Class A common stock for the periods
indicated, since June 16, 1999, on the Nasdaq:
High Low
---- ------
June 16, 1999--June 30, 1999............. $10.25 $ 7.75
Quarter ended September 30, 1999......... $15.38 $ 9.06
Quarter ended December 31, 1999.......... $18.75 $ 9.44
Quarter ended March 31, 2000............. $54.75 $16.50
Quarter ended June 30, 2000.............. $57.00 $31.50
Quarter ended September 30, 2000......... $55.88 $37.00
Quarter ended December 31, 2000.......... $55.25 $30.88
As of March 15, 2001, there were 211 record holders of the Class A common
stock, and two record holders of the Class B common stock.
This Company has not paid a dividend on any class of common stock and
anticipates that it will retain future earnings, if any, to fund the
development and growth of its business. We do not anticipate paying cash
dividends on any of our common stock in the foreseeable future. In addition,
the Company is restricted under the 12% senior discount notes and the 10 1/4%
senior notes from paying dividends or making distributions and repurchasing,
redeeming or otherwise acquiring any shares of common stock except under
certain circumstances. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
Notes to Consolidated Financial Statements.
21
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical financial data as of and
for the years ended December 31, 2000, 1999, 1998, 1997, and 1996, that has
been derived from, and is qualified by reference to, our audited financial
statements. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes
thereto included elsewhere in this report.
Years ended December 31,
-----------------------------------------------------
2000 1999 1998 1997 1996
---------- ---------- --------- --------- -------
(dollars in thousands, except per share and tower
data)
OPERATING DATA:
Revenues:
Site development....... $ 115,892 $ 60,570 $ 46,705 $ 48,241 $60,276
Site leasing........... 52,014 26,423 12,396 6,759 4,530
---------- ---------- --------- --------- -------
Total revenues....... 167,906 86,993 59,101 55,000 64,806
Cost of revenues
(exclusive of
depreciation shown
below):
Cost of site
development .......... 88,892 45,804 36,500 31,470 39,822
Cost of site leasing
...................... 19,502 12,134 7,281 5,356 3,638
---------- ---------- --------- --------- -------
Total cost of
revenues............ 108,394 57,938 43,781 36,826 43,460
---------- ---------- --------- --------- -------
Gross profit......... 59,512 29,055 15,320 18,174 21,346
Selling, general and
administrative(a)..... 27,799 19,784 18,302 12,033 17,754
Depreciation and
amortization.......... 34,831 16,557 5,802 514 160
---------- ---------- --------- --------- -------
Operating income
(loss)................ (3,118) (7,286) (8,784) 5,627 3,432
Interest and other
(expense) income,
net................... (24,564) (26,378) (12,641) 236 (132)
(Provision) benefit for
income taxes(b)....... (1,233) 223 1,524 (5,596) (1,320)
Extraordinary item..... -- (1,150) -- -- --
---------- ---------- --------- --------- -------
Net income (loss)...... (28,915) (34,591) (19,901) 267 1,980
Dividends on preferred
stock................. -- 733 (2,575) (983) --
---------- ---------- --------- --------- -------
Net (loss) income
available to common
shareholders.......... $ (28,915) $ (33,858) $ (22,476) $ (716) $ 1,980
========== ========== ========= ========= =======
Basic and diluted loss
per common share
before extraordinary
item.................. $ (0.70) $ (1.71) $ (2.64) $ (0.09)
Extraordinary item..... -- (0.06) -- --
---------- ---------- --------- ---------
Basic and diluted loss
per common share...... $ (0.70) $ (1.77) $ (2.64) $ (0.09)
========== ========== ========= =========
Basic and diluted
weighted average
number of shares of
common stock.......... 41,156,312 19,156,027 8,526,052 8,075,000
========== ========== ========= =========
OTHER DATA:
EBITDA(c)............... $ 32,026 $ 9,582 $ (2,377) $ 7,155 $10,603
Annualized tower cash
flow(d)................ 31,056 18,692 8,088 1,946 991
Capital
expenditures(e)........ 494,053 226,570 138,124 17,676 145
Cash provided by (used
in):
Operating activities... 47,516 23,134 7,471 7,829 1,215
Investing activities... (445,280) (208,870) (138,124) (17,676) (145)
Financing activities... 409,613 162,124 151,286 15,645 (1,036)
BALANCE SHEET DATA:
Cash and cash
equivalents .......... $ 14,980 $ 3,131 $ 26,743 $ 6,109 $ 311
Property and equipment,
net .................. 765,815 338,892 150,946 17,829 632
Total assets........... 948,818 429,823 214,573 44,797 18,060
Total debt(f).......... 284,273 320,767 182,573 10,184 4,921
Redeemable preferred
stock................. -- -- 33,558 30,983 --
Common stockholders'
equity (deficit)...... 538,160 48,582 (26,095) (4,344) (102)
22
Years ended December 31,
-------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ----------- ----------- -----------
(dollars in thousands, except per share and tower data)
TOWER DATA:
Towers owned at the beginning of period......... 1,163 494 51 -- --
Towers constructed.............................. 779 438 310 15 --
Towers acquired................................. 448 231 133 36 --
------------ ------------ ---------- ---------- ----------
Towers owned at the end of period............... 2,390 1,163 494 51 --
============ ============ ========== ========== ==========
- --------
(a) For the year ended December 31, 2000, selling, general and administrative
expense included non-cash compensation expense of $0.3 million in
connection with stock option and restricted stock activity. For the year
ended December 31, 1999, selling, general and administrative expenses
included non-cash compensation expense of $0.3 million incurred in
connection with the issuance of stock options and Class A common stock.
For the year ended December 31, 1998, selling, general and administrative
expenses included non-cash compensation expense of $0.6 million incurred
in connection with stock option activity.
(b) Provision for income taxes for the year ended December 31, 1997 included
the tax effect of our conversion to a C corporation. For 1996, the
provision for income tax represents a pro forma calculation (40%) as we
were treated as an S Corporation under Subchapter S of the Internal
Revenue Code of 1986, as amended.
(c) EBITDA represents earnings (loss) before interest income, interest
expense, other income, income taxes, depreciation and amortization and the
non-cash compensation expense referred to in footnote (a) above. EBITDA is
commonly used in the telecommunications industry to analyze companies on
the basis of operating performance, leverage and liquidity. 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. Companies
calculate EBITDA differently and, therefore, EBITDA as presented by us may
not be comparable to EBITDA reported by other companies. See our
Consolidated Statements of Cash Flows in our Consolidated Financial
Statements included in this filing.
(d) We define "tower cash flow" as site leasing revenue less cost of site
leasing revenue (exclusive of depreciation). We believe tower cash flow is
useful because it allows you to compare tower performance before the
effect of expenses (selling, general and administrative) that do not
relate directly to tower performance. We define "annualized tower cash
flow" as tower cash flow for the last calendar quarter attributable to our
site leasing business multiplied by four.
(e) Includes the value of Class A common stock issued in connection with
acquisitions.
(f) For 1996, total debt does not include amounts owed to the shareholder of
$0.1 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
We are a leading independent owner and operator of wireless communications
towers in the United States. We generate revenues from our two primary
businesses, site leasing and site development. In our site leasing business,
we lease antenna space on towers and other structures that we own or manage
for others. The towers that we own have either been built by us at the request
of a carrier or built or acquired based on our own initiative. In our site
development business, we offer wireless service providers assistance in
developing their own networks, including designing a network with full signal
coverage, identifying and acquiring locations to place their antennas,
obtaining zoning approvals, building towers when necessary and installing
their antennas. Since our founding in 1989, we have participated in the
development of more than 15,000 antenna sites in 49 of the 51 major wireless
markets in the United States.
Site Leasing Services
In 1997, we began aggressively expanding our site leasing business by
capitalizing on our nationally recognized site development experience and
strong relationships with wireless service providers to take
23
advantage of the trends toward independent tower ownership and co-location,
which is the placement of multiple antennas on one tower. As of December 31,
2000, we owned or controlled 2,390 towers with 5,548 tenants, or 2.3 tenants
per tower. In addition, we had agreements to acquire 677 towers. We also had
carrier directives to build over 600 additional towers and had, in various
phases of development, over 1,000 locations which we had internally identified
as desirable locations on which to build a tower.
We believe our history and experience in providing site development services
gives us a competitive advantage in choosing the most attractive locations on
which to build new towers or buy existing towers, as measured by our success
in increasing tower revenues and cash flows. Our same tower revenue growth at
December 31, 2000 on the 1,163 towers we owned as of December 31, 1999 was
34%, based on tenant leases signed and revenues annualized as of December 31,
2000. We signed 261 new tenant leases in the quarter ended December 31, 2000
on the 1,950 towers we owned at the beginning of the quarter, at an average
initial monthly rent of $1,567. Our annualized rate of tenants added per
tower, on a broadband equivalent basis, was .55, .64, .59, .56 for each of the
last four quarters. A broadband equivalent basis is calculated by dividing
total lease revenue by $1,500, an industry benchmark for monthly tower rent
per tenant. We believe that our annualized rate of new tenants added per tower
per quarter is among the highest in the industry.
We have focused our capital expenditures on building new towers and
acquiring existing towers. In general, we have chosen to build rather than buy
the substantial majority, 65%, of our towers because we believe the economics
of building are more favorable. To date, our average construction cost of a
new tower is approximately $250,000, while we believe the industry's average
acquisition cost of a new tower over the last two years has been approximately
$400,000.
While we have focused primarily on building new towers for growth, we have
also acquired 848 towers as of December 31, 2000. We seek to acquire towers
where we can increase cash flow to substantially reduce the tower cash flow
multiple paid at acquisition through additional tenant leases. The 848 tower
acquisitions to date were completed at an aggregate purchase price of $323.9
million, which averages to a price of approximately $382,000 per tower. In
addition to what we have already acquired, we are actively negotiating to
acquire existing towers. In September 2000, we entered into an agreement to
acquire 275 existing towers from TeleCorp PCS, Inc. (TeleCorp). The
acquisition price of each tower will be $327,500. The tower acquisition
agreement is subject to our satisfactory completion of our review of the
business, financial and legal aspects of towers that may be acquired, and
other items. On March 16 2001, the Company paid $66.5 million to purchase 203
towers under the TeleCorp agreement. We anticipate that we will close on the
remaining 72 towers in the second quarter of 2001. In December 2000, we
entered into an agreement with US Unwired to purchase a total of 300 towers.
We purchased 127 towers in December 2000, and expect to purchase the remaining
173 towers in the second quarter of 2001, for approximately $54.1 million. As
of December 31, 2000, we had agreements to acquire 677 towers in 33 separate
transactions for an aggregate purchase price of approximately $218.5 million,
including the TeleCorp and US Unwired agreements. These acquisitions are
subject to a number of conditions and may or may not occur.
Site Development Services
Our site development business consists of two segments, site development
consulting and site development construction, through which we provide
wireless service providers a full range of end-to-end services. In the
consulting segment of our site development business, we offer clients the
following services: (1) network pre-design; (2) identification of potential
locations for towers and antennas; (3) support in buying or leasing of the
location; and (4) assistance in obtaining zoning approvals and permits. In the
construction segment of our site development business we provide a number of
services, including the following: (1) tower and related site construction;
(2) switch construction; and (3) antenna installation.
We believe that our total site development business will grow with the
expected overall growth of wireless and other telecommunications networks. We
anticipate that site development construction revenues will continue
24
to exceed site development consulting revenues. We also believe that our site
leasing revenues will grow as wireless service providers continue to lease
antenna space on our towers and the number of towers we own or control grows.
RESULTS OF OPERATIONS
As we continue our transition into site leasing, operating results in prior
periods may not be meaningful predictors of future prospects. You should be
aware of the dramatic changes in the nature and scope of our business when
reviewing the ensuing discussion of comparative historical results. We expect
that the acquisitions consummated to date and any future acquisitions, as well
as our new tower builds, will have a material impact on future revenues,
expenses and net loss. Revenues, cost of revenues, selling, general and
administrative expenses, depreciation and amortization, interest income and
interest expense each increased significantly in the year ended December 31,
2000 as compared to 1999, and some or all of those items may continue to
increase significantly in future periods. We believe that our new tower build
programs may have a material effect on future financial results, which effect
will probably be negative until such time, if ever, as the newly constructed
towers attain higher levels of tenant use.
Year Ended 2000 Compared to Year Ended 1999
Total revenues increased 93.0% to $167.9 million for 2000 from $87.0 million
for 1999. Total site development revenue increased 91.3% to $115.9 million in
2000 from $60.6 million in 1999 due to an increase in both site development
construction revenue and site development consulting revenue. Site development
construction revenue increased 115.1% to $91.6 million for 2000 from $42.6
million for 1999, due to the inclusion of Network Services for an entire year,
as well as higher levels of activity. Site development consulting revenue
increased 35.0% to $24.3 million for 2000 from $18.0 million for 1999, due to
the increased demand for site acquisition and zoning services from wireless
communications carriers. Site leasing revenue increased 96.8% to $52.0 million
for 2000 from $26.4 million for 1999, due to tenants added to our towers and
the substantially greater number of towers in our portfolio during 2000 as
compared to 1999.
Total cost of revenues increased 86.9% to $108.4 million for 2000 from $57.9
million for 1999. Site development cost of revenue increased 93.9% to $88.9
million in 2000 from $45.8 million in 1999 due to higher site development
revenues. Site development consulting cost of revenue increased 25.8% to $15.6
million for 2000 from $12.4 million for 1999, reflecting higher site
development consulting revenues. Site development construction cost of revenue
increased 119.2% to $73.2 million for 2000 from $33.4 million for 1999, due to
higher site development construction revenues which resulted primarily from
the inclusion of Network Services for an entire year. Site leasing cost of
revenue increased 60.7% to $19.5 million for 2000 from $12.1 million for 1999,
due primarily to the increased number of towers owned.
Gross profit increased to $59.5 million for 2000 from $29.1 million for
1999, due to increased site development and site leasing revenues. Gross
profit from site development increased 82.9% to $27.0 million in 2000 from
$14.8 million in 1999 due to higher site development revenues. Gross profit
margins for site development decreased in 2000 to 23.3% from 24.4% in 1999 due
to a greater relative amount of lower margin site development construction
business. Gross profit margin on site development consulting increased to
35.6% for 2000 from 30.9% for 1999. This increase is attributable to a change
in the mix of our business to include more multi-purpose projects producing
both site development revenue and build-to-suit towers. Gross profit margin on
site development construction decreased to 20.1% for 2000 from 21.6% in 1999
due to an increase in the use of subcontractor labor. Gross profit for the
site leasing business increased 127.5% in 2000 from 54.1% in 1999. The
increased gross profit was due to the substantially greater number of towers
owned and the greater average revenue per tower in the 2000 period. The
increase in gross margin was due to additional tenants added to our towers and
the resulting 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 35.4% of total revenues in 2000 from 33.4% in 1999 due
primarily to increased levels of higher margin site leasing gross profit.
25
Selling, general and administrative expenses increased 40.5% to $27.8
million for 2000 from $19.8 million for 1999. The increase in selling, general
and administrative expenses represents the addition of offices, personnel and
other infrastructure necessary to support our continued growth, as well as
increased developmental expenses associated with our higher levels of new
tower builds and acquisition activities. As a percentage of total revenue,
selling, general and administrative expenses decreased to 16.6% for 2000 from
22.7% in 1999.
Depreciation and amortization increased to $34.8 million for 2000 as
compared to $16.6 million for 1999. This increase was directly related to the
increased amount of fixed assets, primarily towers, we owned in 2000 as
compared to 1999.
Operating loss decreased to $(3.1) million for the year ended 2000 from
$(7.3) million in 1999 as a result of the increased gross profit in 2000.
Other expense, net, decreased to $(24.6) million for the year ended 2000 from
$(26.4) million for the year ended 1999. The decrease is attributable to
higher interest income on increased cash balances which more than offset an
increase in interest expense. The increase in interest expense is due to
increased interest associated with the senior credit facility, amortization of
deferred financing charges and original issue discount, partially offset by
increased interest capitalization as a result of increased construction
activity. The extraordinary item in 1999 of $(1.1) million relates to the
write-off of deferred financing fees associated with a prior bank credit
agreement. Net loss was $(28.9) million for the year ended 2000 as compared to
net loss of $(33.9) million for the year ended 1999.
Earnings (loss) before interest income, interest expense, other income,
income taxes, depreciation and amortization and non-cash compensation expense
("EBITDA") increased 234.2% to $32.0 million for the year ended 2000 from $9.6
million for the year ended 1999. The following table provides a reconciliation
of EBITDA to net loss to common shareholders:
Years ended December 31,
--------------------------
2000 1999
------------ ------------
(in thousands)
EBITDA........................................ $ 32,026 $ 9,582
Interest expense, net of amount capitalized... (30,885) (27,307)
Interest income............................... 6,253 881
(Provision) benefit for income taxes.......... (1,233) 223
Depreciation and amortization................. (34,831) (16,557)
Other income.................................. 68 48
Non-cash compensation expense................. (313) (311)
Extraordinary item............................ -- (1,150)
Preferred stock dividend reversal............. -- 733
------------ ------------
Net loss to common shareholders............... $ (28,915) $ (33,858)
============ ============
Year Ended 1999 Compared to Year Ended 1998
Total revenues increased 47.2% to $87.0 million for 1999 from $59.1 million
for 1998. Total site development revenue increased 29.7% to $60.6 million in
1999 from $46.7 million in 1998 due to an increase in site development
construction revenue, which more than offset a decline in site development
consulting revenue. Site development construction revenue increased 121.3% to
$42.6 million for 1999 from $19.3 million for 1998, due to the acquisition of
Network Services on April 30, 1999 as well as higher levels of activity. Site
development consulting revenue decreased 34.6% to $18.0 million for 1999 from
$27.4 million for 1998, due primarily to the decreased demand for site
acquisition and zoning services from PCS licensees, as well as the increasing
acceptance by wireless carriers of outsourced communication site
infrastructure through build-to-suit programs where site acquisition and
zoning services are provided by the tower owner. Site leasing revenue
increased 113.2% to $26.4 million for 1999 from $12.4 million for 1998, due to
a substantial number of revenue producing towers added during the period
through new builds and acquisitions as well as the addition of new tenants on
existing towers.
26
Total cost of revenues increased 32.2% to $57.9 million for 1999 from $43.8
million for 1998. Site development cost of revenue increased 25.5% to $45.8
million in 1999 from $36.5 million in 1998 due to higher site development
revenues. Site development consulting cost of revenue decreased 43.3% to $12.4
million for 1999 from $21.9 million for 1998, reflecting lower site
development consulting revenues. Site development construction cost of revenue
increased 128.8% to $33.4 million for 1999 from $14.6 million for 1998, due to
higher site development construction revenues which resulted primarily from
the acquisition of Network Services. Site leasing cost of revenue increased
66.7% to $12.1 million for 1999 from $7.3 million for 1998, due primarily to
the increased number of towers owned. Included in site leasing cost of revenue
is an additional expense of approximately $0.2 million relating to estimated
obligations in fiscal year 2000 and beyond in connection with leases that were
rejected in 1999 as part of the bankruptcy litigation of Conxus.
Gross profit increased 90.2% to $29.1 million for 1999 from $15.3 million
for 1998, due to the increase in both site development gross profit and site
leasing gross profit. Gross profit for site development construction services
increased 95.7% to $9.2 million for 1999 from $4.7 million for 1998 due to
higher revenue. Gross profit for site development consulting services
decreased 0.1% to $5.5 million for 1999 from $5.4 million for 1998. The lower
gross profit margins experienced in 1999 on site development consulting
services were due to more work being performed on a fixed fee basis and the
completion of a number of large projects on which we experienced
proportionately higher expenses than in the earlier stages of a project. Gross
profit for the site leasing business increased 179.3% to $14.3 million for
1999 from $5.1 million for 1998 due primarily to higher revenue but also due
to higher gross profit margins earned on towers owned as opposed to the
margins earned on our lease/sublease business which contributed most of our
1998 site leasing revenue. As a percentage of total revenues, gross profit
increased to 32.9% for 1999 as compared to 25.9% for 1998 due to a greater
percentage of gross profit coming from higher margin site leasing revenues.
Selling, general and administrative expenses increased 8.2% to $19.8 million
for 1999 from $18.3 million for 1998 primarily due to the addition of
personnel, the expansion of office space and overall increases in operating
expenses attributable to the growth in the organization and building of our
tower development infrastructure. As a percentage of total revenues, selling,
general and administrative expenses decreased to 22.7% for 1999 from 31.0% in
1998.
Depreciation and amortization increased to $16.6 million for 1999 as
compared to $5.8 million for 1998. This increase was directly related to the
increased amount of fixed assets, primarily towers, we owned in 1999 as
compared to 1998.
Operating loss decreased to $(7.3) million for 1999 from $(8.8) million for
1998 as a result of the factors discussed above. Other income (expense)
increased to $(26.4) million for 1999 from $(12.6) million for 1998. This
increase resulted primarily from the full year of interest expense associated
with the 12% senior discount notes and higher average credit facility balances
in 1999, and less interest income earned in 1999 on cash balances. Net loss
was $(33.9) million for 1999, as compared to net loss of $(22.5) million for
1998.
27
EBITDA increased to $9.6 million for the year ended 1999 from $(2.4) million
for the year ended 1998. The following tables provides a reconciliation of
EBITDA to net loss to common shareholders:
Years ended December 31,
--------------------------
1999 1998
------------ ------------
(in thousands)
EBITDA........................................ $ 9,582 $ (2,377)
Interest expense, net of amount capitalized... (27,307) (16,907)
Interest income............................... 881 4,303
Benefit for income taxes...................... 223 1,524
Depreciation and amortization................. (16,557) (5,802)
Other income (expense)........................ 48 (38)
Non-cash compensation expense................. (311) (604)
Extraordinary item............................ (1,150) --
Preferred stock dividend (accrual) reversal... 733 (2,575)
------------ ------------
Net loss to common shareholders............... $ (33,858) $ (22,476)
============ ============
LIQUIDITY AND CAPITAL RESOURCES
SBA Communications Corporation is a holding company with no business
operations of its own. Our only significant asset is the outstanding capital
stock of our subsidiaries. We conduct all of 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 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, distribute
funds, pay interest or principal on the 10 1/4% senior notes entered into in
2001, or the 12% senior discount notes or that we will be permitted to pay any
dividends under the terms of any new debt facility.
Net cash provided by operations during the year ended December 31, 2000 was
$47.5 million as compared to $23.1 million in 1999. This increase was
primarily attributable to the increase in revenues. Net cash used in investing
activities for year ended December 31, 2000 was $445.3 million compared to
$208.9 million for the year ended December 31, 1999. This increase was
primarily attributable to a higher level of tower acquisitions and new build
activity in 2000 versus 1999. Net cash provided by financing activities for
the year ended December 31, 2000 was $409.6 million compared to $162.1 million
for the year ended December 31, 1999. The increase in net cash provided by
financing activities in 2000 was attributable to our equity offerings of Class
A common stock which closed in February and August 2000, and borrowings under
our revolving credit facility.
Our balance sheet reflected negative working capital of $(27.5) million as
of December 31, 2000 and negative working capital of $(20.9) million as of
December 31, 1999. This is primarily due to the timing of certain accrued
expenses related to our business operations and our use of a revolving credit
facility to satisfy short term liquidity needs as opposed to carrying large
cash balances.
In February 2000, we completed an offering of 9.0 million shares of our
Class A common stock. We raised gross proceeds of $243.0 million, which
produced net proceeds of approximately $229.5 million, after deduction of the
underwriting discount and offering expenses. We used $70.5 million of these
net proceeds to repay all revolving credit loans under the senior credit
facility. Remaining proceeds were used for the construction and acquisition of
towers and for general working capital purposes. Additionally, in February
2000 the managing underwriters of the offering exercised and closed on their
over-allotment option to purchase an additional 1.4 million shares of our
Class A common stock from certain shareholders. We did not receive any
proceeds as a result of this exercise.
28
In July 2000, we filed a universal shelf registration statement on Form S-3
registering the sale of up to $500.0 million of any combination of the
following securities: Class A common stock, preferred stock, debt securities,
depositary shares, or warrants. In August 2000, we completed an offering under
this universal shelf of 5.8 million shares of our Class A common stock,
including shares issued upon the exercise of the over-allotment option. We
raised gross proceeds of $247.3 million, which produced net proceeds of
approximately $236.0 million, after deduction of the underwriting discount and
offering expenses. We used $25.0 million of these net proceeds to repay a
portion of the term loans under the senior credit facility. Remaining proceeds
were used for the construction and acquisition of towers and general working
capital purposes. As of the date of this report, we may issue any combination
of the registered securities with an aggregate offering price of up to $252.7
million under this universal shelf registration statement.
In February 2001, the Company closed on $500.0 million 10 1/4% senior notes
due 2009, which produced net proceeds of approximately $484.2 million after
deducting offering expenses. The Company used $105.0 million of these proceeds
to repay all borrowings under the senior credit facility and terminated the
senior credit agreement. On March 16, 2001, the Company used $66.5 million of
the remaining proceeds to purchase 203 towers under the TeleCorp agreement. We
intend to use approximately $23.6 million of the remaining proceeds to
purchase the remaining 72 towers under the TeleCorp agreement and
approximately $54.1 million to purchase 173 towers from US Unwired. Remaining
proceeds will be used to finance the construction and acquisition of
additional towers and related businesses and for general working capital
purposes. Interest on these notes is payable on February 1 and August 1 of
each year, beginning August 1, 2001. The 10 1/4% senior notes are unsecured
and are pari passu in right of payment with the Company's other existing and
future senior indebtedness. The 10 1/4% senior notes place certain
restrictions on, among other things, the incurrance 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.
Our cash capital expenditures for the year ended December 31, 2000 were
$445.3 million, and for the year ended December 31, 1999, were $208.9 million.
We currently plan to make total cash capital expenditures during the year
ending December 31, 2001 of at least $400.0 million to $450.0 million,
including up to $175.0 million for the acquisition of up to 548 towers we may
acquire from TeleCorp and US Unwired. Substantially all of these planned
capital expenditures are expected to be funded by the proceeds of our $500.0
million 10 1/4% senior note offering completed in February 2001, cash on hand
and cash flow from operations. The exact amount of our future capital
expenditures will depend on a number of factors including acquisition
opportunities that become available during the period, the needs of our build-
to-suit customers and the availability to us of additional debt or equity
capital on acceptable terms. In the event that we do not have sufficient
liquidity when an acquisition or construction opportunity arises, we would be
required to seek additional debt or equity financing. Failure to obtain any
such financing could require us to significantly reduce our planned capital
expenditures and scale back the scope of our tower construction activities or
acquisitions, either of which could have a material adverse effect on our
projected financial condition or results of operations. In addition we may
need to refinance all or a portion of our indebtedness (including our 10 1/4%
senior notes and our 12% senior discount notes) on, or prior to, scheduled
maturity. Our ability to make scheduled payments of principal, or to pay
interest on, our debt obligations, and our ability to refinance any such debt
obligations (including the 10 1/4% senior notes or the 12% senior discount
notes), or to fund planned capital expenditures, will depend on our future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
We have on file with the Securities and Exchange Commission shelf
registration statements on Form S-4 registering up to a total of 3,000,000
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 year ended
December 31, 2000, we issued 723,246 shares of Class A common
29
stock under these registration statements in connection with ten acquisitions.
As of December 31, 2000, we had 2,276,754 shares of Class A common stock
remaining on these shelf registration statements.
In addition to the issuance under the shelf registration statements, on
September 30, 2000, we issued 400,000 restricted shares of Class A common
stock to the former shareholders of Network Services, in accordance with the
terms of the acquisition agreement.
At December 31, 2000, our senior credit facility, as amended, consisted of a
$50.0 million term loan and a $225.0 million revolving line of credit.
Availability under the senior credit facility was determined by a number of
factors, including the number of towers built by us with anchor tenants on the
date of completion, the financial performance of our towers, the financial
performance of our site development segment, as well as by other financial
covenants, financial ratios and other conditions. At December 31, 2000, we had
the $50.0 million term loan outstanding under the senior credit facility at a
10.06% variable rate and $25.0 million outstanding under the revolving credit
facility at a 10.75% variable rate. In the first quarter of 2001, we used
proceeds from the issuance of the 10 1/4% senior notes to repay all amounts
outstanding under the senior credit facility, and terminated the facility.
Accordingly, the Company wrote off deferred financing fees related to the
senior credit facility and will record a $4.8 million extraordinary loss in
the first quarter of 2001 in connection with the termination of this facility.
At December 31, 2000, we had $209.0 million outstanding on our 12% senior
discount notes, net of unamortized original issue discount of $60.0 million.
The 12% senior discount notes mature on March 1, 2008.
INFLATION
The impact of inflation on our operations has not been significant to date.
However, we cannot assure you that a high rate of inflation in the future will
not adversely affect our operating results.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments. These instruments arise from transactions entered into in the
normal course of business, and in some cases relate to our acquisition of
related businesses. During the year ended December 31, 2000 we were subject to
interest rate risk on our senior credit facility. At December 31, 2000 our
fixed rate debt consisted primarily of the accreted balance of the 12% senior
discount notes. In the future, we may be subject to increased rate risk on any
senior credit facility we may enter into and any other further financings.
The following table presents the future principal payment obligations and
weighted average interest rates associated with our existing long-term debt
instruments, assuming our actual level of long-term indebtedness:
2001 2002 2003 2004 2005 Thereafter
---------- ---------- ---------- ----------- ------------ ------------
Long-term debt:
Fixed rate (12.0%)..... -- -- -- -- -- $269,000,000
Term loan, $50.0
million, variable rate
(10.06%
at December 31, 2000).. -- $ 500,000 $ 500,000 $ 500,000 $ 48,500,000 --
Revolving loan,
variable rate (10.75%
at December 31,
2000)................. $2,500,000 $5,000,000 $7,500,000 $10,000,000 -- --
Notes Payable, variable
rates (2.9% to 8.8675%
at December 31,
2000)................. $ 106,222 $ 50,176 $ 5550,176 $ 25,088 -- --
30
Our primary market risk exposure relates to (1) the interest rate risk on
long-term and short-term borrowings, (2) our ability to refinance our 12%
senior discount notes at maturity at market rates, (3) the impact of interest
rate movements on our ability to meet interest expense requirements and exceed
financial covenants and (4) the impact of interest rate movements on our
ability to obtain adequate financing to fund future acquisitions. We manage
the interest rate risk on our outstanding long-term and short-term debt
through our use of fixed and variable rate debt. While we cannot predict or
manage our ability to refinance existing debt or the impact interest rate
movements will have on our existing debt, we continue to evaluate our
financial position on an ongoing basis.
In February 2001 the Company closed $500.0 million of its 10 1/4% senior
notes due 2009, and used a portion of the proceeds to repay all amounts
outstanding under the senior credit facility and terminated the facility.
Senior Discount Note Disclosure Requirements
The indenture governing 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 indenture, for the most recent fiscal quarter and Adjusted Consolidated
Cash Flow, as defined in the indenture, for the most recently completed four-
quarter period. As of December 31, 2000 we had no unrestricted subsidiaries.
Tower cash flow, as defined in the indenture, for the quarter ended December
31, 2000 was $7.8 million. Adjusted Consolidated Cash Flow for the year ended
December 31, 2000 was $39.1 million.
Special Note Regarding Forward Looking Statements
This annual report contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act.
Discussions containing forward-looking statements may be found in the material
set forth in this section and under "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Industry Overview" and
"Business," as well as in the annual report generally.
These statements concern expectations, beliefs, projections, future plans
and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts. Specifically, this annual
report contains forward-looking statements regarding:
. our strategy to transition the primary focus of our business from site
development services toward the site leasing business, including our
intent to make strategic acquisitions of towers and tower companies;
. anticipated trends in the site development industry and its effect on
our revenues and profits;
. our estimates regarding the future development of the site leasing
industry and its effect on our site leasing revenues;
. our plan to continue to construct and acquire tower assets and the
resulting effect on our revenues, capital expenditures, expenses and net
income;
. our ability to successfully consummate letters of intent or definitive
agreements for newly built towers or acquisitions of existing towers and
the resulting effect on our financial operations;
. our estimate of the amount of capital expenditures for twelve months
ending December 31, 2001 that will be required for the construction or
acquisition of towers; and
. our intention to fund capital expenditures for the twelve months ending
December 31, 2001 from the net proceeds from our February 2001, 10 1/4%
senior note offering, cash on hand and cash flow from operations.
31
These forward-looking statements reflect our current views about future
events and are subject to risks, uncertainties and assumptions. We wish to
caution readers that certain important factors may have affected and could in
the future affect our actual results and could cause actual results to differ
significantly from those expressed in any forward-looking statement. The most
important factors that could prevent us from achieving our goals, and cause
the assumptions underlying forward-looking statements and the actual results
to differ materially from those expressed in or implied by those forward-
looking statements include, but are not limited to, the following:
. our ability to secure as many site leasing tenants as planned;
. our ability to maintain and expand our site leasing business and our
site development business;
. our ability to complete construction of new towers on a timely and cost-
efficient basis, including our ability to successfully address zoning
issues, carrier design changes, changing local market conditions and the
impact of adverse weather conditions;
. our ability to identify and acquire new towers, the ability to obtain
third party consents, and the satisfactory resolution of any due
diligence review of potential acquisitions;
. our ability to retain current lessees on newly acquired towers;
. our ability to realize economies of scale for newly acquired towers;
. the continued dependence on towers by the wireless communications
industry;
. our ability to compete effectively for new tower opportunities and site
development services in light of increased competition; and
. our ability to enter into a new senior credit facility and raise
substantial additional financing to expand our tower holdings.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data for the Company are on pages F-1
through F-21.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The items required by Part III, Item 10, are incorporated herein by reference
from the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be filed on or before April 30, 2001.
ITEM 11. EXECUTIVE COMPENSATION
The items required by Part III, Item 11 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be filed on or before April 30, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The items required by Part III, Item 12 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be filed on or before April 30, 2001.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The items required by Part III, Item 13 are incorporated herein by reference
from the Registrant's Proxy Statement for its 2001 Annual Meeting of
Shareholders to be filed on or before April 30, 2001.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data" for Financial
Statements included with this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Report of Independent Certified Public Accountants on Schedule
Schedule II--Valuation and Qualifying Accounts
See "Item 8. Financial Statements and Supplementary Data" for Financial
Statements Schedules included with this Annual Report on Form 10-K.
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
(3) Exhibits
33
Exhibit
No. Description of Exhibits
------- -----------------------
3.4 -- Fourth Amended and Restated Articles of Incorporation of SBA
Communications Corporation.(2)
3.5 -- Amended and Revised By-Laws of SBA Communications Corporation.(2)
4.1 -- Indenture, dated as of March 2, 1998, between SBA Communications
Corporation and State Street Bank and Trust Company, as trustee,
relating to $269,000,000 in aggregate principal amount at maturity
of 12% Senior Discount Notes due 2008.(1)
4.3 -- Specimen Certificate of 12% Senior Discount Note due 2008
(included in Exhibit 4.1)
10.1 -- SBA Communications Corporation Registration Rights Agreement dated
as of March 5, 1997, among the Company, Steven E. Bernstein,
Ronald G. Bizick, II and Robert Grobstein.(1)
10.1 -- SBA Communications Corporation Registration Rights Agreement dated
as of March 6 1997, among the Company and the Preferred
Shareholders, as defined therein.(1)
10.8 -- Agreement and Plan of Merger, dated as of March 31, 1999, between
the Company, Com-Net Construction Services, Inc., Daniel J.
Eldridge and Eldridge Family Limited Partnership.(2)
10.81 -- First Amendment to Agreement and Plan of Merger, dated as of April
30, 1999 between the Company, Com-Net Construction Services Inc.,
Daniel J. Eldridge and Eldridge Family Limited Partnership.(2)
10.9 -- Purchase Agreement dated as of March 31, 1999, between the
Company, Com-Net Development Group, LLC., Daniel J. Eldridge and
Tammy W. Eldridge.(2)
10.91 -- First Amendment to Purchase Agreement, dated as of April 30, 1999,
between the Company, Com-Net Development Group, LLC., Daniel J.
Eldridge and Tammy W. Eldridge.(2)
10.10 -- Employment Agreement dated as of January 1, 1997, between the
Company and Ronald G. Bizick, II.(1)
10.12 -- Employment Agreement dated as of March 14, 1997, between the
Company and Jeffrey A. Stoops.(1)
10.15 -- Employment Agreement dated as of June 15, 1998, between the
Company and Michael N. Simkin.(1)
10.22 -- Agreement to Build to Suit and to Lease, dated as of October 30,
1998, by and among BellSouth Personal Communications, Inc., for
itself and as general partner of BellSouth Carolinas PCS, L.P.,
SBA Towers, Inc. and SBA, Inc.(2)
10.23 -- 1996 Stock Option Plan.(2)
10.24 -- 1999 Equity Participation Plan.(2)
-- 1999 Stock Purchase Plan.(2)
10.26 -- Second Amended and Restated Credit Agreement dated as of December
16, 1999, by and among SBA Communications Corporation, SBA
Telecommunications, Inc., the several banks and financial
institutions or entities from time to time parties thereto, Lehman
Brothers, Inc., General Electric Capital Corporation, Toronto
Dominion (Texas), Inc., Barclays Bank PLC, and Lehman Commercial
Paper, Inc.(3)
10.27 -- Incentive Stock Option Agreement, dated as of September 5, 2000,
between SBA Communications Corporation and Thomas P. Hunt.
10.28 -- Restricted Stock Agreement, dated as of September 5, 2000, between
SBA Communications Corporation and Thomas P. Hunt.
34
Exhibit
No. Description of Exhibits
------- -----------------------
10.29 -- Employment Agreement dated as of September 5, 2000, between the
Company and Thomas P. Hunt.
10.30 -- Purchase Agreement, dated as of September 15, 2000, by and among
TeleCorp Realty, LLC, TeleCorp Puerto Rico Realty, Inc., TeleCorp
Communications, Inc., SBA Towers, Inc. and SBA Telecommunications,
Inc.
10.31 -- Asset Purchase Agreement, dated as of December 18, 2000, by and
between Louisiana Unwired L.L.C. and SBA Properties, Inc.
21 -- Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
- --------
(1) Incorporated by reference to the Registration Statement on Form S-4
previously filed by the Registrant (Registration no. 333-50219).
(2) Incorporated by reference to the Registration Statement on Form S-1
previously filed by the Registrant (Registration no. 333-76547).
(3) Incorporated by reference to the Registration Statement on Form S-3
previously filed by the Registrant (Registration no. 333-94175).
(b) Reports on Form 8-K:
(1) The Company filed a report on Form 8-K on October 17, 2000. In this
report, the Company reported, under Item 5, certain operational results. Under
Item 7, the Company included the related press release.
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boca Raton, State of Florida on March 30, 2001.
SBA COMMUNICATIONS CORPORATION
/s/ Steven E. Bernstein
By: _________________________________
Steven E. Bernstein
Chairman of the Board of
Directors Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Steven E. Bernstein Chairman of the Board of March 30, 2001
_________________________________ Directors,
Steven E. Bernstein Chief Executive Officer
(Principal Executive
Officer)
/s/ Jeffrey A. Stoops President and Director March 30, 2001
_________________________________ (Principal Executive
Jeffrey A. Stoops Officer)
/s/ John Marino Chief Financial Officer March 30, 2001
_________________________________ (Principal Financial
John Marino Officer)
/s/ Pamela J. Kline Chief Accounting Officer March 30, 2001
_________________________________ (Principal Accounting
Pamela J. Kline Officer)
/s/ Donald B. Hebb, Jr. Director March 30, 2001
_________________________________
Donald B. Hebb, Jr.
/s/ C. Kevin Landry Director March 30, 2001
_________________________________
C. Kevin Landry
/s/ Robert S. Picow Director March 30, 2001
_________________________________
Robert S. Picow
/s/ Richard W. Miller Director March 30, 2001
_________________________________
Richard W. Miller
36
COMPANY NAME
NOTES TO FINANCIAL STATEMENTS--(Continued)
Month 00, 1989
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents
Report of Independent Certified Public Accountants....................... F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999............. F-2
Consolidated Statements of Operations for the years ended December 31,
2000, 1999, and 1998.................................................... F-3
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1998, 1999, and 2000................................. F-4
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998.................................................... F-5
Notes to Consolidated Financial Statements............................... F-7
Report of Independent Certified Public Accountants on Schedule........... F-20
Valuation and Qualifying Accounts........................................ F-21
37
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To SBA Communications Corporation:
We have audited the accompanying consolidated balance sheets of SBA
Communications Corporation (a Florida corporation) and subsidiaries as of
December 31, 2000 and 1999, and the related consolidated statements of
operations, shareholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 2000. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SBA
Communications Corporation and subsidiaries as of December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States.
Arthur Andersen LLP
West Palm Beach, Florida,
February 20, 2001 (except with
respect to the matters
discussed in Note 16, as to
which the date is March 16,
2001).
F-1
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2000 December 31, 1999
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents................ $ 14,980,046 $ 3,130,912
Accounts receivable, net of allowances of
$2,117,344 and $785,299
in 2000 and 1999, respectively.......... 47,704,256 22,644,777
Prepaid and other current assets......... 5,968,475 4,946,561
Costs and estimated earnings in excess of
billings on uncompleted contracts....... 13,583,513 2,888,963
------------ ------------
Total current assets.................. 82,236,290 33,611,213
Property and equipment, net................ 765,814,824 338,891,513
Intangible assets, net..................... 83,386,959 53,616,887
Other assets............................... 17,380,027 3,703,613
------------ ------------
Total assets.......................... $948,818,100 $429,823,226
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................... $ 76,944,232 $ 40,655,950
Accrued expenses......................... 13,503,843 6,094,669
Current portion--notes payable........... 2,606,222 50,176
Due to shareholder....................... -- 2,500,000
Billings in excess of costs and estimated
earnings on uncompleted contracts....... 5,942,241 1,600,981
Other current liabilities................ 10,714,397 3,654,584
------------ ------------
Total current liabilities............. 109,710,935 54,556,360
------------ ------------
Long-term liabilities:
Deferred tax liabilities, net............ 18,444,566 7,950,454
Senior discount notes payable............ 209,041,552 186,041,542
Notes payable............................ 72,625,440 132,175,616
Other long-term liabilities.............. 835,276 517,007
------------ ------------
Total long-term liabilities........... 300,946,834 326,684,619
============ ============
Commitments and contingencies (see Note 13)
Shareholders' equity:
Common stock-Class A par value $.01
(100,000,000 shares authorized),
40,989,044 and 21,546,737 shares issued
and outstanding in 2000 and 1999,
respectively............................ 409,890 215,467
Common stock-Class B par value $.01
(8,100,000 shares authorized), 5,455,595
and 7,644,264 shares issued and
outstanding in 2000 and 1999,
respectively............................ 54,556 76,443
Additional paid-in capital............... 627,370,391 109,049,538
Accumulated deficit...................... (89,674,506) (60,759,201)
------------ ------------
Total shareholders' equity............ 538,160,331 48,582,247
============ ============
Total liabilities and shareholders'
equity............................... $948,818,100 $429,823,226
============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
F-2
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Site development.................... $115,892,303 $ 60,569,614 $ 46,704,641
Site leasing........................ 52,013,366 26,423,121 12,396,268
------------ ------------ ------------
Total revenues.................... 167,905,669 86,992,735 59,100,909
------------ ------------ ------------
Cost of revenues (exclusive of
depreciation and amortization shown
below):
Cost of site development............ 88,892,376 45,804,553 36,499,980
Cost of site leasing................ 19,501,959 12,133,678 7,280,786
------------ ------------ ------------
Total cost of revenues............ 108,394,335 57,938,231 43,780,766
------------ ------------ ------------
Gross profit...................... 59,511,334 29,054,504 15,320,143
Operating expenses:
Selling, general and
administrative..................... 27,798,589 19,783,547 18,302,226
Depreciation and amortization....... 34,831,394 16,556,533 5,802,090
------------ ------------ ------------
Total operating expenses.......... 62,629,983 36,340,080 24,104,316
------------ ------------ ------------
Operating loss.................... (3,118,649) (7,285,576) (8,784,173)
Other income (expense):
Interest income..................... 6,253,015 881,338 4,303,277
Interest expense, net of capitalized
interest........................... (4,878,327) (5,244,373) (1,196,544)
Non-cash amortization of original
issue discount and debt issuance
costs.............................. (26,006,270) (22,063,495) (15,710,370)
Other............................... 68,191 47,912 (37,591)
------------ ------------ ------------
Total other expense............... (24,563,391) (26,378,618) (12,641,228)
------------ ------------ ------------
Loss before (provision) benefit
for income taxes and
extraordinary item............... (27,682,040) (33,664,194) (21,425,401)
(Provision) benefit for income
taxes............................... (1,233,265) 222,656 1,524,306
------------ ------------ ------------
Net loss before extraordinary
item............................. (28,915,305) (33,441,538) (19,901,095)
Extraordinary item, write-off of
deferred financing fees............. -- (1,149,954) --
------------ ------------ ------------
Net loss.......................... (28,915,305) (34,591,492) (19,901,095)
Dividends on preferred stock......... -- 733,403 (2,575,000)
------------ ------------ ------------
Net loss to common shareholders... $(28,915,305) $(33,858,089) $(22,476,095)
============ ============ ============
Basic and diluted loss per common
share before
extraordinary item.................. $ (0.70) $ (1.71) $ (2.64)
Extraordinary item................... -- (0.06) --
------------ ------------ ------------
Basic and diluted loss per common
share............................... $ (0.70) $ (1.77) $ (2.64)
============ ============ ============
Basic and diluted weighted average
number of shares of common stock.... 41,156,312 19,156,027 8,526,052
============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-3
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
Common Stock
---------------------------------------
Class A Class B Additional
------------------- ------------------- Paid-In Accumulated
Number Amount Number Amount Capital Deficit Total
---------- -------- ---------- ------- ------------ ------------ ------------
BALANCE , December
31,1997................ -- $ -- 8,075,000 $80,750 $ -- $ (4,425,017) $ (4,344,267)
Exercise of stock
options................ 775,961 7,760 -- -- 37,316 -- 45,076
Issuance of common stock
as executive
compensation........... 104,961 1,049 -- -- 504,005 -- 505,054
Non-cash compensation
adjustment............. -- -- -- -- 174,810 -- 174,810
Net loss................ -- -- -- -- -- (19,901,095) (19,901,095)
Preferred stock
dividends.............. -- -- -- -- -- (2,575,000) (2,575,000)
---------- -------- ---------- ------- ------------ ------------ ------------
BALANCE, December 31,
1998................... 880,922 8,809 8,075,000 80,750 716,131 (26,901,112) (26,095,422)
Initial public offering
of common stock, net of
issuance costs......... 11,300,000 113,000 -- -- 93,519,852 -- 93,632,852
Non-cash compensation
adjustment............. -- -- -- -- 311,265 -- 311,265
Preferred stock
dividends.............. -- -- -- -- -- (1,345,500) (1,345,500)
Preferred stock
conversion/redemption.. 8,050,000 80,500 -- -- (80,500) 2,078,903 2,078,903
Shares received for
repayment of
shareholder loan....... -- -- (430,736) (4,307) (3,872,319) -- (3,876,626)
Common stock issued in
connection with
acquisitions........... 1,100,000 11,000 -- -- 17,689,000 -- 17,700,000
Exercise of employee
stock options/common
stock issued in
connection with
employee stock purchase
plan................... 215,815 2,158 -- -- 766,109 -- 768,267
Net loss................ -- -- -- -- -- (34,591,492) (34,591,492)
---------- -------- ---------- ------- ------------ ------------ ------------
BALANCE, December 31,
1999................... 21,546,737 215,467 7,644,264 76,443 109,049,538 (60,759,201) 48,582,247
Offering of common
stock, net of issuance
costs.................. 14,750,000 147,500 -- -- 464,896,249 -- 465,043,749
Common stock issued in
connection with
acquisitions........... 1,123,246 11,232 -- -- 48,761,658 -- 48,772,890
Non-cash compensation
adjustment............. -- -- -- -- 312,788 -- 312,788
Exercise of employee
stock options/common
stock issued in
connection with
employee stock purchase
plan................... 1,003,005 10,030 -- -- 4,353,932 -- 4,363,962
Issuance of restricted
stock.................. 20,000 200 -- -- (200) -- --
Conversion of Class B to
Class A................ 2,188,669 21,887 (2,188,669) (21,887) -- -- --
Exercise of warrants.... 357,387 3,574 -- -- (3,574) -- --
Net loss................ -- -- -- -- -- (28,915,305) (28,915,305)
---------- -------- ---------- ------- ------------ ------------ ------------
BALANCE, December 31,
2000................... 40,989,044 $409,890 5,455,595 $54,556 $627,370,391 $(89,674,506) $538,160,331
========== ======== ========== ======= ============ ============ ============
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-4
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
-----------------------------------------
2000 1999 1998
------------- ------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss........................... $( 28,915,305) $(34,591,492) $(19,901,095)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization...... 34,831,394 16,556,533 5,802,090
Provision for doubtful accounts.... 1,663,174 492,101 282,463
Provision for deferred taxes....... -- -- (141,061)
Non-cash amortization of original
issue discount and debt issuance
costs............................. 26,006,270 22,063,495 15,829,460
Non-cash compensation expense...... 312,788 311,265 174,810
Interest on shareholder notes...... -- (91,858) (223,462)
Write-off of deferred financing
fees.............................. -- 1,149,954 --
Changes in operating assets and
liabilities:
(Increase) decrease in-
Accounts receivable.............. (25,193,131) (3,623,719) (1,863,999)
Prepaid and other current
assets.......................... (929,465) 1,531,234 (4,998,412)
Costs and estimated earnings in
excess of billings on
uncompleted contracts........... (10,029,079) (1,422,186) (480,736)
Other assets..................... (14,478,524) (4,169,648) (5,970,258)
Increase (decrease) in:
Accounts payable................. 35,341,548 22,314,456 12,264,937
Accrued expenses................. 7,054,520 1,237,401 1,439,836
Deferred tax liabilities......... 10,494,112 (36,728) 4,147,248
Other current liabilities........ 7,378,082 603,745 1,518,096
Other long-term liabilities...... -- -- 381,567
Billings in excess of costs and
estimated earnings on
uncompleted contracts........... 3,979,951 809,136 (790,162)
------------- ------------ ------------
Total adjustments................ 76,431,640 57,725,181 27,372,417
------------- ------------ ------------
Net cash provided by operating
activities...................... 47,516,335 23,133,689 7,471,322
------------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Tower acquisitions, net of cash
received and other capital
expenditures...................... (445,280,127) (208,870,025) (138,123,784)
------------- ------------ ------------
Net cash used in investing
activities...................... (445,280,127) (208,870,025) (138,123,784)
------------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds of common stock offerings,
net of issuance costs............. 465,043,749 93,632,852 --
Proceeds from notes payable, net of
financing fees.................... 11,000,000 173,573,876 28,500,000
Repayment on notes payable......... (70,794,785) (73,026,087) (21,593,054)
Proceeds from senior discount notes
payable, net of
financing fees.................... -- -- 143,829,239
Issuance of common stock........... -- -- 505,054
Proceeds from exercise of stock
options and employee stock
purchase plan..................... 4,363,962 768,267 45,075
Redemption of Series A redeemable
preferred stock................... -- (32,824,930) --
------------- ------------ ------------
Net cash provided by financing
activities........................ 409,612,926 162,123,978 151,286,314
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. 11,849,134 (23,612,358) 20,633,852
(continued)
F-5
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the years ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ -----------
CASH AND CASH EQUIVALENTS:
Beginning of year................... 3,130,912 26,743,270 6,109,418
------------ ------------ -----------
End of year......................... $ 14,980,046 $ 3,130,912 $26,743,270
============ ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest, including amounts
capitalized........................ $ 8,411,348 $ 5,940,096 $ 423,302
============ ============ ===========
Taxes............................... $ 1,995,863 $ 665,622 $ 2,378,510
============ ============ ===========
NON-CASH ACTIVITIES:
Accrual (reversal) of dividends on
Series A redeemable
preferred stock.................... $ -- $ (733,403) $2,575,000
============ ============ ===========
Note receivable--shareholder........ $ -- $ 3,876,626 $ --
============ ============ ===========
Exchange of Series B preferred stock
for common stock................... $ -- $ 80,500 $ --
============ ============ ===========
ACQUISITION SUMMARY:
Assets acquired..................... $ 63,049,041 $ 32,281,360 $ --
Liabilities assumed................. $ (2,197,157) $ (6,666,726) $ --
Common stock issued................. $(48,772,890) $(17,700,000) $ --
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-6
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
SBA Communications Corporation (the "Company" or "SBA") was incorporated in
the State of Florida in March, 1997. The Company holds all of the outstanding
capital stock of SBA Telecommunications, Inc. ("Telecommunications").
Telecommunications holds all of the capital stock of SBA Towers, Inc.
("Towers"), SBA, Inc., SBA Leasing, Inc., and SBA Network Services, Inc.
("Network Services" f/k/a Com-Net Construction Services, Inc.). These
companies own all of the outstanding capital stock of certain other tower and
construction companies.
Towers and its subsidiaries own and operate transmission towers in various
parts of the United States. Space on these towers is leased primarily to
wireless communications carriers.
SBA, Inc. provides comprehensive turnkey services for the telecommunications
industry in the areas of site development services for wireless carriers. Site
development services provided by SBA, Inc. include site identification and
acquisition, contract and title administration, zoning and land use
permitting, construction management and microwave relocation.
SBA Leasing, Inc. ("Leasing") leases antenna tower sites from owners and
then subleases such sites to wireless telecommunications providers.
Network Services and its subsidiaries are engaged in the construction and
repair of transmission towers, including hanging of antennae, cabling and
associated tower components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the preparation
of the accompanying consolidated financial statements is as follows:
a. Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
b. Use of Estimates
The preparation of the consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. The more significant estimates made
by management include the allowance for doubtful accounts receivable, the
costs and revenue relating to the Company's site development and construction
contracts, valuation allowance on deferred tax assets, and the economic useful
lives of towers. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
The Company classifies as cash and cash equivalents all interest-bearing
deposits or investments with original maturities of three months or less, and
highly liquid short-term commercial paper.
d. Property and Equipment
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. Maintenance and
repair items are expensed as incurred.
F-7
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Interest is capitalized in connection with the construction of towers. The
capitalized interest is recorded as part of the asset to which it relates and
is amortized over the asset's estimated useful life. Approximately $3.5
million and $1.6 million of interest cost was capitalized in 2000 and 1999,
respectively.
e. Intangible Assets
Intangible assets are comprised of costs paid in excess of the fair value of
assets acquired ("Goodwill") and amounts paid related to covenants not to
compete, deferred financing fees and deferred lease costs. Goodwill is being
amortized over periods which range from 7 to 40 years. The covenants not to
compete are being amortized over the terms of the contracts, which range from
1 to 10 years. Amortization expense was $3.6 million, $1.1 million and $0.3
million for the years ended December 31, 2000, 1999 and 1998, respectively.
Accumulated amortization totaled approximately $5.0 million and $1.4 million
at December 31, 2000 and 1999.
f. Deferred Financing Fees
Financing fees related to the issuance of long-term debt and the 12% senior
discount notes, and the related original issue discount on the 12% senior
discount notes, have been deferred and are being amortized using a method that
approximates the effective interest rate method over the length of
indebtedness to which they relate.
g. Deferred Lease Costs
The Company defers certain initial direct costs associated with new leases
and amortizes these costs over the initial lease term, generally five years.
Total costs deferred were approximately $1.1 million in both 2000 and 1999.
h. Impairment of Long-Lived Assets
Statement of Financial Accounting Standards No. 121 ("SFAS 121") Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of requires that long-lived assets, including certain identifiable
intangibles, and the goodwill related to those assets, be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset in question may not be recoverable. Management
has reviewed the Company's long-lived assets and has determined that there are
no events requiring impairment loss recognition.
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be
evaluated for possible impairment. The Company uses an estimate of the related
undiscounted cash flows over the remaining life of the intangible assets in
assessing whether an impairment occurred. The Company measures impairment loss
as the amount by which the carrying amount of the asset exceeds the fair value
of the assets.
i. Fair Value of Financial Instruments
The carrying value of the Company's financial instruments, which includes
cash and cash equivalents, accounts receivable, prepaid expenses, notes
receivable, accounts payable, accrued expenses and notes payable, approximates
fair value due to the short maturity of those instruments. The Company's 12%
senior discount notes are publicly traded and were trading based on an 11.81%
yield at December 31, 2000, indicating a fair value of the notes of
approximately $211.2 million. The carrying value of the discount notes is
approximately $209.0 million at December 31, 2000.
j. Revenue Recognition
Revenue from tower leasing is recorded monthly on a straight-line basis over
the life of the related lease agreements. Revenue for Leasing is recorded on a
monthly basis at billed contractual amounts. Rental amounts received in
advance are recorded in other liabilities.
F-8
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Site development projects in which the Company performs consulting services
include contracts on a time and materials basis or a fixed price basis. Time
and materials based contracts are billed at contractual rates as the services
are rendered. For those site development contracts in which the Company
performs work on a fixed price basis, site development billing (and revenue
recognition) is based on the completion of agreed upon phases of the project
on a per site basis. Upon the completion of each phase on a per site basis,
the Company recognizes the revenue related to that phase. Revenue related to
services performed on uncompleted phases of site development projects was not
recorded by the Company at the end of the reporting periods presented as it
was not material to the Company's results of operations. Any 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company's revenue
recognition policy is in accordance with the provisions of SAB 101. Adoption
of the provisions of SAB 101 did not have a material impact on the Company's
consolidated financial position.
Costs of site development project revenue and construction revenue include
all direct material costs, salaries and labor costs, including payroll taxes,
subcontract labor, vehicle expense and other costs directly related to the
projects. All costs related to site development projects and construction
projects are recognized as incurred. Costs 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.
k. Selling, General and Administrative Expenses
Selling, general and administrative expenses represent those costs incurred
which are related to the administration or management of the Company. Also
included in this category are corporate development expenses which represent
costs incurred in connection with proposed acquisitions, and new build
activities where a capital asset is not produced, and expansion of the
customer base. The above costs are expensed as incurred.
l. Income Taxes
The Company accounts for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes ("SFAS No. 109"). SFAS No. 109 requires the Company to recognize
deferred tax liabilities and assets for the expected future income tax
consequences of events that have been recognized in the Company's consolidated
financial statements. Deferred tax liabilities and assets are determined based
on the temporary differences between the consolidated financial statements
carrying amounts and the tax base of assets and liabilities, using enacted tax
rates in the years in which the temporary
F-9
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
differences are expected to reverse. In assessing the likelihood of
utilization of existing deferred tax assets, management has considered
historical results of operations and the current operating environment.
m. Reclassifications
Certain reclassifications have been made to the 1999 and 1998 consolidated
financial statements to conform to the 2000 presentation.
n. Loss Per Share
Basic and diluted loss per share are calculated in accordance with Statement
of Financial Accounting Standards No. 128, Earnings per Share. The Company has
potential common stock equivalents related to its outstanding 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 computations are the same for all periods presented. There were 3.1
million, 3.2 million and 1.7 million options outstanding at December 31, 2000,
1999 and 1998, respectively. The computation of basic and fully diluted loss
per share is as follows:
For the years ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Net loss before extraordinary
item............................ $(28,915,305) $(33,441,538) $(19,901,095)
Preferred stock dividend......... -- 733,403 (2,575,000)
------------ ------------ ------------
Loss to common stockholders...... (28,915,305) (32,708,135) (22,476,095)
Weighted average number of shares
outstanding..................... 41,156,312 19,156,027 8,526,052
Loss per share................... $ (0.70) $ (1.71) $ (2.64)
o. Comprehensive Income
During the years ended December 31, 2000, 1999 and 1998, the Company did not
have any changes in its equity resulting from non-owner sources and
accordingly, comprehensive income was equal to the net loss amounts presented
for the respective periods in the accompanying Consolidated Statements of
Operations.
3. CURRENT ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an amendment of SFAS 133. SFAS 133 established accounting and
reporting standards for derivative instruments including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS 138
addresses a limited number of issues causing implementation difficulties for
numerous entities that apply SFAS 133 and amends the accounting and reporting
standards of SFAS 133 for certain derivative instruments and certain hedging
activities. The Company has elected to defer the adoption of both SFAS 133 and
SFAS 137, "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of SFAS No. 133," until fiscal 2001. The
Company adopted SFAS 138 on January 1, 2001 and there was not a significant
impact from the adoption.
In February 2001, the FASB issued a revised Exposure Draft entitled
"Business Combinations and Intangibles Assets -- Accounting for Goodwill."
This Exposure Draft, if adopted as proposed, would eliminate the amortization
of goodwill against earnings. Instead, it would be written down against
earnings only in the periods in which the recorded value of the goodwill is
more than its fair value. The FASB is expected to issue a final statement on
business combinations and intangible assets in 2001. The adoption of this
statement, if issued as proposed, would not have a material impact on our
consolidated results of operations.
F-10
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44"), "Accounting
for Certain Transactions involving Stock Compensation," an interpretation of
Accounting Principles Board Opinion No. 25 ("Opinion 25"). FIN 44 clarifies
(a) the definition of "employee" for purposes of applying Opinion 25, (b) the
criteria for determining whether a plan qualifies as a non-compensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 was generally
effective July 1, 2000, and the effects of applying FIN 44 are recognized on a
prospective basis from that date. In fiscal year 2000, FIN 44 did not have a
material impact on our consolidated financial position, results of operations
or cash flow.
4. ACQUISITIONS
On April 30, 1999, the Company acquired all of the issued and outstanding
stock of Network Services and issued 780,000 shares of its Class A common
stock to the former shareholders of Network Services. The former shareholders
of Network Services received $2.5 million in cash and 320,000 additional
shares of the Company's Class A common stock in 1999 and an additional 400,000
shares of the Company's Class A common stock in 2000, as certain targets were
met. The excess of the purchase price over the estimated fair value of the net
assets acquired was recorded as goodwill and is being amortized on a straight-
line basis over a period of 15 years.
During 2000, the Company acquired 448 towers and related assets from various
sellers, all of which were individually insignificant to the Company. The
aggregate purchase price for these acquisitions for the year ended December
31, 2000 was $174.5 million, which was paid from proceeds from borrowings,
equity offerings, cash provided from operations and cash on hand. The
historical results of operations of the assets acquired are not material in
relation to the Company's consolidated financial statements; accordingly, pro
forma financial information has not been presented for 2000.
During 1999, the Company completed 40 acquisitions consisting of 231 towers
and related assets from various sellers, all of which were individually
insignificant to the Company. The aggregate purchase price for these
acquisitions for the year ended December 31, 1999 was $80.9 million, which was
paid from cash on hand.
All acquisitions occurring in 2000 and 1999 were accounted for using the
purchase method of accounting. The results of operations of the acquired
assets are included with those of the Company from the dates of the respective
acquisitions.
The unaudited pro-forma results for 1999 have been prepared for comparative
purposes only and include certain pro-forma adjustments, such as additional
amortization expense as a result of goodwill as if the transactions occurred
at the beginning of 1999. The pro-forma results do not purport to be
indicative of results that would have occurred had the combination been in
effect for the periods presented, nor do they purport to be indicative of the
results that will be obtained in the future.
For the year ended
December 31, 1999
------------------
Unaudited pro forma revenues............................ $100,556,580
============
Unaudited pro forma net loss............................ $(34,671,567)
============
Unaudited pro forma basic and diluted loss per common
share.................................................. $ (1.77)
============
F-11
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. CONCENTRATION OF CREDIT RISK
The Company's credit risks consist primarily of accounts receivable with
national and local wireless communications providers and federal and state
government agencies. The Company performs periodic credit evaluations of its
customers' financial condition and provides allowances for doubtful accounts
as required based upon factors surrounding the credit risk of specific
customers, historical trends and other information. Following is a list of
significant customers and the percentage of total revenue derived from such
customers:
For the years ended December 31,
------------------------------------
2000 1999 1998
----------------- ------------------
(% of revenue)
Sprint .................................... 10.7 17.3 34.0
Bell South................................. less than 10.0 12.3 19.3
Pacific Bell Mobile Systems................ less than 10.0 0.9 10.7
Our site development consulting, site development construction and site
leasing segments derive revenue from these customers.
6. PROPERTY AND EQUIPMENT
Property and equipment, consists of the following:
Estimated
useful lives As of December 31,
------------ --------------------------
2000 1999
(Years) ------------ -----------------
Towers........................ 15 $721,360,967 $329,046,558
Construction in process....... 69,012,222 18,648,109
Furniture, equipment and
vehicles..................... 2- 7 19,497,128 7,547,827
Buildings and improvements.... 5-26 624,659 596,676
Land.......................... 10,013,526 6,664,178
------------ ------------
820,508,502 362,503,348
Less: accumulated depreciation
and amortization............. (54,693,678) (23,611,835)
------------ ------------
Property and equipment, net... $765,814,824 $338,891,513
============ ============
Construction in process represents costs incurred related to towers which
are under development and will be used in the Company's operations.
7. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted contracts consist of the
following:
As of December 31,
------------------------
2000 1999
----------- -----------
Costs incurred on uncompleted contracts............ $48,060,291 $11,259,511
Estimated earnings................................. 9,940,359 2,830,072
Billings to date................................... (50,359,378) (12,801,601)
----------- -----------
$ 7,641,272 $ 1,287,982
=========== ===========
F-12
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
These amounts are included in the accompanying consolidated balance sheet
under the following captions:
As of December 31,
-----------------------
2000 1999
----------- ----------
Costs and estimated earnings in excess of billings
on uncompleted contracts......................... $13,583,513 $2,888,963
Billings in excess of costs and estimated
earnings......................................... (5,942,241) (1,600,981)
----------- ----------
$ 7,641,272 $1,287,982
=========== ==========
8. CURRENT AND LONG-TERM DEBT
Current and long-term debt consists of the following:
As of December 31,
--------------------------
2000 1999
------------ ------------
Senior credit facility term loans, interest at
variable rates (10.06% at December 31, 2000),
quarterly installments basedon reduced
availability beginning March 31, 2002,
maturing December 31, 2005.................... $ 50,000,000 $ 75,000,000
Senior credit facility revolving loan, interest
at a variable rate (10.75% at December 31,
2000), quarterly installments based on reduced
availability beginning March 31, 2001,
maturing December 31, 2004.................... 25,000,000 57,000,000
12% senior discount notes, net of unamortized
original issue discount of $59,958,448 at
December 31, 2000, and $82,958,458 at December
31, 1999, unsecured, cash interest payable
semi-annually in arrears beginning September
1, 2003, balloon principal payment of
$269,000,000 due on March 1, 2008............. 209,041,552 186,041,542
Notes payable, varying rates (2.9% to 8.8675%
at December 31, 2000) ........................ 231,662 225,792
------------ ------------
284,273,214 318,267,334
Less: current maturities....................... (2,606,222) (50,176)
------------ ------------
Long-term debt................................. $281,666,992 $318,217,158
============ ============
Senior Credit Facility
On February 5, 1999, the Company, through Telecommunications, entered into a
new credit facility (the "senior credit facility") with a syndicate of lenders
which replaced and superceded in its entirety the Credit Agreement described
below. The senior credit facility originally consisted of a $25.0 million term
loan, which was fully funded at closing, and a $100.0 million revolving line
of credit. The revolving line of credit was increased to $150.0 million on
March 8, 1999 after receiving the requisite consents from the holders of the
12% senior discount notes (the "Notes"). The Company amended the indenture
governing the Notes to increase one of the categories of permitted
indebtedness from $125.0 million to $175.0 million. The senior credit facility
also provides for letter of credit availability. On December 16, 1999, after
receiving the requisite consents from the
F-13
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
holders of the Notes, the Company amended the indenture governing the Notes to
increase one of the categories of indebtedness from $175.0 million to $300.0
million. Simultaneously, Telecommunications amended and restated its existing
senior credit facility and received commitments to expand total amounts
available under the senior credit facility to $300.0 million. The term loan
portion of the senior credit facility was increased to $75.0 million and was
fully funded at closing. The revolving loan portion of the senior credit
facility was increased to $225.0 million.
Availability under the senior credit facility was determined by a number of
factors, including number of towers built by the Company with anchor tenants
on the date of completion, the financial performance of the Company's towers,
site development and construction segments, as well as by other financial
covenants, financial ratios and other conditions. The initial term loan of
$25.0 million and the $225.0 million revolving loan were to mature December
31, 2004 with amortization pursuant to a schedule and reduced availability
beginning March 31, 2001. The additional term loan of $50.0 million was to
mature December 31, 2005 with amortization pursuant to a schedule and reduced
availability beginning March 31, 2002. Borrowings under the senior credit
facility were to bear interest at the EURO rate plus a margin ranging from
2.25% to 3.50% (determined by a leverage ratio) or "base rate" (as defined in
the senior credit facility) plus a margin ranging from 1.25% to 2.50%
(determined by a leverage ratio). The senior credit facility was secured by
substantially all of the assets of Telecommunications and its direct and
indirect subsidiaries, required Telecommunications to maintain certain
financial covenants, and placed restrictions on, among other things, the
incurrence of debt and liens, dispositions of assets, transactions with
affiliates and certain investments.
Subsequent to December 31, 2000 the Company borrowed an additional $30.0
million under the senior credit facility. In addition, subsequent to December
31, 2000 the Company used proceeds from our $500.0 million 10% senior note
offering (see Note 16) completed in February 2001, to repay all amounts
outstanding under the senior credit facility, and terminated the facility.
Accordingly, the Company wrote off deferred financing fees related to the
senior credit facility and will record a $4.8 million extraordinary loss in
connection with the termination of this facility in the first quarter of 2001.
12% Senior Discount Notes
In March, 1998, the Company closed on $269.0 million 12% senior discount
notes due March 1, 2008. The issuance of the Notes netted approximately $150.2
million in proceeds to the Company. The Notes will accrete in value until
March 1, 2003 at which time they will have an aggregate principal amount of
$269.0 million. Thereafter, interest will accrue on the Notes and will be
payable in cash semi-annually in arrears on March 1 and September 1,
commencing September 1, 2003. Proceeds from the Notes were used to acquire and
construct telecommunications towers as well as for general working capital
purposes.
The 12% senior discount notes contain numerous restrictive covenants,
including but not limited to covenants that restrict the Company's ability to
incur indebtedness, pay dividends, create liens, sell assets and engage in
certain mergers and acquisitions. The ability of the Company to comply with
the covenants and other terms of the 12% senior discount notes and to satisfy
its respective debt obligations will depend on the future operating
performance of the Company. In the event the Company fails to comply with the
various covenants contained in the 12% senior discount notes it would be in
default thereunder, and in any such case, the maturity of a portion or all of
its long-term indebtedness could be accelerated.
Bank Credit Agreement
On June 29, 1998, the Company amended and restated its Credit Agreement with
a syndicate of banks (the "Credit Agreement"). The amended Credit Agreement
provided for revolving credit loans of $55.0 million. Availability was limited
based on a minimum number of owned, leased or managed towers and at all times
by
F-14
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
certain financial conditions and covenants and ratios, and other conditions.
The Credit Agreement was scheduled to mature on June 29, 2005. This Credit
Agreement was replaced and superceded in its entity by the senior credit
facility in February, 1999. Accordingly, deferred financing fees of
approximately $1.1 million were written off and are included in the
Consolidated Statement of Operations as an extraordinary item.
The Company's long-term debt at December 31, 2000 matures as follows:
2001.......................................................... $ 2,606,222
2002.......................................................... 5,550,176
2003.......................................................... 8,050,176
2004.......................................................... 10,525,088
2005.......................................................... 48,500,000
Thereafter.................................................... 209,041,552
------------
Total........................................................ $284,273,214
============
9. RELATED PARTY TRANSACTIONS
The $2,500,000 due to shareholder at December 31, 1999 represents the amount
owed to the former shareholders of Network Services as a result of certain
earnings targets for 1999 having been met. The amount was paid in full in
March 2000.
10. SHAREHOLDERS' EQUITY
a. Redeemable Preferred Stock
In 1997, the Company sold 8,050,000 shares of 4% Series A preferred stock,
convertible initially into one share of the Company's Class A common stock and
one share of the Company's 4% Series B redeemable preferred stock, to a
syndicate of institutional investors. The Series A preferred stock had a
conversion price of $3.73 and net proceeds received by the Company from the
sale of the shares was approximately $27.0 million (net of approximately $2.4
million of issuance costs charged to retained earnings).
Each holder of Series A preferred stock had the right to convert his or her
shares at any time into one share of Class A common stock, subject to certain
anti-dilution protection provisions, and one share of Series B preferred
stock. The Series A preferred stock automatically converted into Class A
common stock and Series B preferred stock upon initial public offering.
The holders of outstanding shares of Series A preferred stock were entitled,
in preference to the holders of any and all other classes of capital stock of
the Company, to receive, out of funds legally available therefore, cumulative
dividends on the Series A preferred stock in cash, at a rate per annum of 4%
of the Series A subject to pro-ration for partial years. The liquidation
amount equals the sum of $3.73 and any accumulated and unpaid dividends on the
Series A preferred stock. Accrued but unpaid dividends on the Series A
preferred stock were paid upon the conversion of the Series A preferred stock
into Class A common stock and Series B preferred stock. On June 21, 1999, the
date of the conversion, accrued dividends of approximately $2.8 million were
paid to the holders of the Series A preferred stock. The Company had accrued
the preferred stock dividends on the effective interest method over the period
from issuance until the scheduled redemption. As a result, in 1999 the Company
recorded a reduction in the amount of dividends payable of $0.7 million as a
result of the early conversion and redemption prior to the originally
scheduled redemption date.
F-15
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
b. Initial Public Offering
On June 21, 1999, the Company completed an initial public offering of 10.0
million shares of its Class A common stock. The Company raised gross proceeds
of $90.0 million which produced net proceeds, after deduction of the
underwriting discount and offering expenses, of $82.8 million. The Company
used approximately $32.8 million of these net proceeds to pay all outstanding
dividends on all outstanding shares of the Company's Series A preferred stock
and to redeem all shares of the Company's Series B preferred stock. The
Company also used $46.0 million to repay all revolving credit loans under the
senior credit facility. Remaining proceeds were used for the construction and
acquisition of towers and for general working capital purposes.
On July 19, 1999, the managing underwriters of the Company's initial public
offering exercised and closed on their over-allotment option to purchase 1.3
million shares of Class A common stock. The Company received net proceeds of
approximately $10.9 million from the sales of shares, which were sold at the
initial public offering price of $9.00 per share. These net proceeds were also
used for the construction and acquisition of towers and for general working
capital purposes.
c. Offering of Common Stock
In February 2000, the Company completed an equity offering of 9.0 million
shares of its Class A common stock. The Company raised gross proceeds of
$243.0 million, which produced net proceeds of approximately $229.5 million,
after deduction of the underwriting discount and offering expenses. The
Company used $70.5 million of these net proceeds to repay all revolving credit
loans under the senior credit facility. Remaining proceeds were used for the
construction and acquisition of towers and for general working capital
purposes.
In February 2000, the managing underwriters of the equity offering exercised
and closed on their over-allotment option to purchase an additional 1.4
million shares of the Company's Class A common stock. Certain shareholders
along with the Company had granted this option to the underwriters in
connection with the equity offering. These certain shareholders satisfied from
their shareholdings the exercise of the over-allotment option in full,
resulting in no proceeds to the Company as a result of this exercise.
In July 2000, the Company filed a universal shelf registration statement on
Form S-3 with the Securities and Exchange Commission registering the sale of
up to $500.0 million of any combination of the following securities: Class A
common stock, preferred stock, debt securities, depositary shares, or
warrants. InAugust 2000, the Company drew down $247.3 million under this
universal shelf in connection with an offering of 5.8 million shares of its
Class A common stock, including 750,000 shares issued upon the exercise of the
managing underwriter's over-allotment option. From this offering, the Company
raised gross proceeds of $247.3 million, which produced net proceeds of
approximately $236.0 million, after deduction of the underwriting discount and
offering expenses. The Company used $25.0 million of these net proceeds to
repay a portion of the term loans under the senior credit facility. Remaining
proceeds were used for the construction and acquisition of towers and general
working capital purposes. As of December 31, 2000, the Company may issue under
this universal shelf registration statement, any combination of the registered
securities, with an aggregate offering price of up to $252.7 million.
d. Registration of Additional Shares in the Year Ended 2000
During 2000, the Company filed two shelf registration statements on Form S-4
with the Securities and Exchange Commission registering an aggregate 3.0
million shares of its Class A common stock. These shares may be issued in
connection with acquisitions of wireless communication towers or companies
that provide related services at various locations in the United States.
During the year ended December 31, 2000, the Company issued 723,246 shares of
its Class A common stock pursuant to these registration statements in
F-16
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
connection with ten acquisitions. Subsequent to December 31, 2000, the Company
issued 277,202 shares under these registration statements for one acquisition.
As of the date of this report, the Company may issue up to 1,999,552
additional shares under these registration statements.
e. Exercise of Warrants
In February 2000, the holders of warrants exercised, pursuant to a cashless
option, warrants issued in 1997 to purchase 402,500 shares of SBA's Class A
common stock at an exercise price of $3.73 per share. Pursuant to the cashless
exercise option, the Company issued 357,387 shares of Class A common stock and
the holders surrendered warrants to purchase 45,113 additional shares as
consideration.
f. Issuance of Common Stock
On September 30, 2000, the Company issued 400,000 restricted shares of Class
A common stock to the former shareholders of Network Services in accordance
with the terms of the acquisition.
g. Issuance of Restricted Stock
In September 2000, the Company granted 20,000 shares of Class A common stock
pursuant to the Company's 1999 Equity Participation Plan. These restricted
shares have a three year vesting period. Deferred compensation representing
the fair value of the shares on the date of grant was recorded as an
adjustment to additional paid in capital and compensation expense is being
recognized over the vesting period.
h. Employee Stock Purchase Plan
In 1999, the Board of Directors of the Company adopted the 1999 Stock
Purchase Plan (the "Purchase Plan"). A total of 500,000 shares of Class A
common stock are reserved for purchase under the Purchase Plan. The Purchase
Plan permits eligible employee participants to purchase Class A common stock
at a price per share which is equal to the lesser of 85% of the fair market
value of the Class A common stock on the first or the last day of an offering
period. As of December 31, 2000, 59,369 shares had been purchased by employees
under the Purchase Plan.
11. STOCK OPTIONS AND WARRANTS
In 1996, certain of the Company's senior executives terminated existing
employment, incentive and option agreements in exchange for new employment
agreements and immediately exercisable options to purchase 1,425,000 shares of
Class A common stock. All of the options are exercisable at $.05 per share. As
of December 31, 2000, 248,764 of the initial options remain outstanding.
The Company has two stock option plans (the 1996 Stock Option Plan and the
1999 Equity Participation Plan), whereby options (both non-qualified and
incentive stock options), stock appreciation rights and restricted stock may
be granted to directors, employees and consultants. A total of 6,300,000
shares of Class A common stock were initially reserved for issuance under
these plans. At December 31, 2000, 1,856,135 shares remained for future
issuance. These options generally vest over three or four year periods from
the date of grant. The Company accounts for these plans under APB Opinion No.
25, under which compensation cost is not recognized on those issuances where
the exercise price equals or exceeds the market price of the underlying stock
on the grant date.
During 1998, 208,419 options to purchase Class A common stock were granted
under the 1996 Stock Option Plan at exercise prices which the Company believed
were below market value. Also during 1998, the Company granted 104,961 shares
of Class A common stock to two executives and recorded non-cash compensation
expense which represented the fair value of the shares on the date of grant.
F-17
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During 1999, 881,157 options to purchase Class A common stock were granted
under the 1999 Equity Participation Plan which the Company believed were below
market value at the time of grant. All other option grants were at or above
market value at the time of grant. The Company recorded non-cash compensation
expense of $312,788, $311,265 and $678,815 for the years ended December 31,
2000, 1999 and 1998, respectively.
As required by FASB Statement No. 123 ("SFAS 123"), for those options which
the Company granted at or above fair market value, the Company has determined
the pro-forma effect of the options granted had the Company accounted for
stock options granted under the fair value method of SFAS 123. The Black-
Scholes option pricing model was used with the following assumptions for 1999
and 1998; risk free interest rate of 12%, dividend yield of 0%; expected
volatility of .001% and expected lives of three years. For 2000 the following
assumptions were used; risk free interest rate of 10%, dividend yield of 0%,
volatility of 86%, and expected lives of three years. Had compensation cost
for the stock option plan been determined based on fair value at the date of
grant in accordance with SFAS 123, the Company's pro-forma net loss would have
totaled $(38,277,115), $(40,198,079) and $(20,156,126) and pro-forma loss per
share would have been $(0.93), $(2.10) and $(2.36) for the years ended
December 31, 2000, 1999 and 1998, respectively. The effect of applying SFAS
123 in this pro-forma disclosure is not necessarily indicative of future
results.
A summary of the status of the Company's stock option plans including their
weighted average exercise price is as follows:
2000 1999 1998
----------------- ----------------- ----------------
Shares Price Shares Price Shares Price
--------- ------ --------- ------ --------- -----
Outstanding at beginning
of year.................. 3,177,194 $ 7.11 1,660,016 $ 2.12 1,797,292 $0.96
Granted................... 1,001,493 36.87 1,740,935 11.12 799,019 2.81
Exercised/redeemed........ (973,569) 3.95 (183,520) 2.63 (775,961) 0.05
Forfeited/canceled........ (115,462) 24.99 (40,237) 3.90 (160,334) 2.63
--------- --------- ---------
Outstanding at end of
year..................... 3,089,656 $16.97 3,177,194 $ 7.11 1,660,016 $2.12
========= ====== ========= ====== ========= =====
Options exercisable at end
of year.................. 1,172,564 $ 6.29 1,211,829 $ 3.24 723,883 $1.45
========= ====== ========= ====== ========= =====
Weighted average fair
value of options
granted during the year.. $36.91 $11.12 $1.81
====== ====== =====
F-18
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Option groups outstanding at December 31, 2000 and related weighted average
exercise price and remaining life, in years, information are as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------ --------------------------
Weighted
Average Weighted Weighted
Range of Contractual Average Average
Exercise Price Outstanding Life Exercise Price Exercisable Exercise Price
- -------------- ----------- ----------- -------------- ----------- --------------
$ 0.00--
$ 0.05 248,764 5.0 $ 0.05 248,764 $ 0.05
$ 2.63--
$ 4.00 484,687 7.2 $ 2.66 335,661 $ 2.67
$ 8.00--
$ 9.75 718,269 3.9 $ 8.14 352,655 $ 8.06
$10.88--
$15.25 704,747 8.9 $15.19 232,284 $15.21
$18.75 5,200 8.7 $18.75 0 $ --
$27.00--
$30.88 250,282 8.5 $27.08 3,000 $27.00
$32.38--
$36.38 61,500 9.2 $35.52 0 $ --
$37.06--
$41.94 497,907 9.4 $40.40 200 $37.25
$43.00--
$46.88 91,600 9.4 $44.18 0 $ --
$50.06--
$51.94 26,700 9.4 $50.54 0 $ --
--------- ---------
3,089,656 7.2 $16.97 1,172,564 $ 6.29
========= =========
12. INCOME TAXES
The provision (benefit) for income taxes in the consolidated statements of
operations consists of the following components:
For the years ended December 31,
------------------------------------
2000 1999 1998
---------- ----------- -----------
Current provision (benefit) for
taxes:
Federal income tax................ $ -- $(1,255,510) $(1,729,384)
Foreign income tax................ -- 231,462 65,731
State income tax.................. 1,233,265 801,392 280,408
---------- ----------- -----------
Total............................. $1,233,265 $ (222,656) $(1,383,245)
Deferred provision (benefit) for
taxes:
Federal income tax................ (8,156,398) (9,460,748) (123,429)
State income tax.................. (1,173,180) (1,597,838) (17,632)
Increase in valuation allowance... 9,329,578 11,058,586 --
---------- ----------- -----------
Total............................. $1,233,265 $ (222,656) $(1,524,306)
========== =========== ===========
A reconciliation of the provision (benefit) for income taxes at the
statutory U.S. Federal tax rate (34%) and the effective income tax rate is as
follows:
For the years ended December 31,
--------------------------------------
2000 1999 1998
----------- ------------ -----------
Statutory Federal expense
(benefit)......................... $(9,401,014) $(11,836,810) $(7,284,636)
State income tax................... 39,656 (525,654) (784,569)
Foreign tax........................ -- 540,744 (40,120)
Other.............................. 235,611 540,478 261,824
Goodwill amortization.............. 1,029,434 -- --
Valuation allowance................ 9,329,578 11,058,586 6,323,195
----------- ------------ -----------
$1,233,265 $(222,656) $(1,524,306)
=========== ============ ===========
F-19
SBC COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the net deferred income tax asset (liability) accounts are
as follows:
As of December 31,
--------------------------
2000 1999
------------ ------------
Allowance for doubtful accounts................ $ 868,421 $ 314,120
Deferred revenue............................... 2,958,100 1,175,516
Other.......................................... 208,261 288,057
Valuation allowance............................ (4,034,782) (1,777,693)
------------ ------------
Current deferred tax liabilities............... $ -- $ --
============ ============
Original issue discount........................ $ 22,596,166 $ 13,580,162
Net operating loss............................. 15,938,424 3,819,561
Employee stock compensation.................... -- 1,772,652
Book vs. tax depreciation...................... (26,869,448) (11,651,792)
Other.......................................... 1,057,995 201,383
Valuation allowance............................ (31,167,703) (15,672,420)
------------ ------------
Non-current deferred tax liabilities........... $(18,444,566) $( 7,950,454)
============ ============
In connection with the acquisition of certain towers during 2000 and 1999,
the Company recorded deferred tax liabilities and goodwill of $10.5 million
and $4.6 million, respectively, related to the book/tax basis differences in
the acquired towers.
The Company has recorded a valuation allowance for deferred tax assets as
management believes that it is not "more likely than not" that the Company
will be able to generate sufficient taxable income in future periods to
recognize the assets.
13. COMMITMENTS AND CONTINGENCIES
a. Operating Leases
The Company is obligated under various non-cancelable operating leases for
land, office space, vehicles and equipment, and site leases that expire at
various times through September, 2093. The annual minimum lease payments under
non-cancelable operating leases as of December 31, 2000 are as follows:
2001........................................ $ 25,702,727
2002........................................ 24,982,348
2003........................................ 24,480,554
2004........................................ 21,007,715
2005........................................ 13,858,393
Thereafter.................................. 62,316,527
------------
Total...................................... $172,348,264
============
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above.
Rent expense for operating leases was $16,993,303, $12,778,099, and
$10,834,234 for the years ended December 31, 2000, 1999 and 1998,
respectively.
F-20
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
b. Tenant Leases
The annual minimum tower space income to be received for tower space and
antenna rental under non-cancelable operating leases as of December 31, 2000
are as follows:
2001........................................ $ 72,128,373
2002........................................ 72,087,503
2003........................................ 68,117,939
2004........................................ 58,183,932
2005........................................ 33,268,968
Thereafter.................................. 55,158,316
------------
Total...................................... $358,945,031
============
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above.
c. Employment Agreements
The Company has employment agreements with certain officers of the Company
which grant these employees the right to receive their base salary and
continuation of certain benefits in the event of a termination (as defined by
the agreement of such employees).
d. Litigation
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the
resolution of such uncertainties and the incurrence of such costs will not
have a material adverse effect on the Company's consolidated financial
position or results of operations.
F-21
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SEGMENT DATA
The Company operates principally in three business segments: site
development consulting, site development construction, and site leasing. The
Company's reportable segments are strategic business units that offer
different services. They are managed separately based on the fundamental
differences in their operations. 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:
For the years ended December 31,
--------------------------------------
2000 1999 1998
------------ ------------ ------------
Revenues:
Site development--consulting............ $ 24,250,982 $ 17,964,006 $ 27,448,910
Site development--construction.......... 91,641,321 42,605,608 19,255,731
Site leasing............................ 52,013,366 26,423,121 12,396,268
------------ ------------ ------------
$167,905,669 $ 86,992,735 $ 59,100,909
============ ============ ============
Gross profit:
Site development--consulting............ $ 8,624,855 $ 5,546,475 $ 5,552,140
Site development--construction.......... 18,375,072 9,218,586 4,652,521
Site leasing............................ 32,511,407 14,289,443 5,115,482
------------ ------------ ------------
$ 59,511,334 $ 29,054,504 $ 15,320,143
============ ============ ============
Capital expenditures:
Site development--consulting............ $ 1,488,937 $ 6,971,008 $ 21,565
Site development--construction.......... 25,569,547 28,185,007 119,285
Site leasing............................ 465,399,827 189,778,740 137,274,109
Assets not identified by segment........ 1,594,706 1,635,270 708,825
------------ ------------ ------------
$494,053,017 $226,570,025 $138,123,784
============ ============ ============
As of December 31,
-------------------------
2000 1999
------------ ------------
Assets:
Site development--consulting............ $ 14,248,205 $ 22,418,344
Site development--construction.......... 99,961,668 48,519,024
Site leasing............................ 815,659,797 338,722,978
Assets not identified by segment........ 19,341,481 20,162,880
------------ ------------
$949,211,151 $429,823,226
============ ============
15. QUARTERLY FINANCIAL DATA (unaudited)
Quarters Ended
-----------------------------------------------------
Dec. 31, Sept. 30, June 30,
2000 2000 2000 March 31, 2000
----------- ----------- ----------- --------------
Revenues................ $53,578,755 $45,395,003 $38,502,886 $30,429,025
Gross profit............ 18,562,646 16,560,155 13,394,499 10,994,034
Net loss................ (5,378,933) (5,905,328) (7,907,627) (9,723,417)
Basic and diluted loss
per common share....... $ (0.12) $ (0.28) $ (0.20) $ (0.27)
F-22
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Quarters Ended
-----------------------------------------------------
Dec. 31, Sept. 30, June 30,
1999 1999 1999 March 31, 1999
----------- ----------- ----------- --------------
Revenues................ $29,260,169 $24,610,993 $19,405,272 $13,716,301
Gross profit............ 9,758,139 7,922,608 6,658,157 4,715,600
Loss before
extraordinary item
and preferred stock
dividends.............. (9,514,500) (7,985,681) (8,734,089) (7,207,268)
Net loss................ (9,514,500) (7,985,681) (7,288,186) (9,069,722)
Basic and diluted loss
per common share
before extraordinary
item................... $ (0.33) $ (0.14) $ (0.64) $ (0.88)
Basic and diluted loss
per common share....... $ (0.33) $ (0.14) $ (0.64) $ (1.01)
16. SUBSEQUENT EVENTS
a. Issuance of 10 1/4% Senior Notes
Subsequent to December 31, 2000 the Company borrowed an additional $30.0
million under the senior credit facility revolver. In February 2001, the
Company issued $500.0 million of its 10 1/4% senior notes due 2009, which
produced net proceeds of approximately $484.2 million after deducting offering
expenses. The Company used $105.0 million of these proceeds to repay all
borrowings under the senior credit facility, and terminated the senior credit
agreement. The Company wrote off the deferred financing fees relating to the
senior credit facility and will record a $4.8 million extraordinary loss in
the first quarter of 2001 in connection with the termination of this facility.
On March 16, 2001, the Company used $66.5 million of the remaining proceeds to
purchase 203 towers under our agreement with TeleCorp PCS, Inc. The Company
intends to use approximately $23.6 million of the remaining proceeds to
purchase the remaining 72 towers under our agreement with TeleCorp PCS, Inc.
and approximately $54.1 million to purchase 173 towers from Louisiana Unwired,
Inc., a subsidiary of US Unwired, Inc. The remaining proceeds will be used to
finance the construction and acquisition of additional towers and related
businesses and for general working capital purposes.
b. Issuance of Options
In January 2001, the Company entered into bonus agreements with certain
executives and employees to issue up to 592,500 shares, or options to acquire
shares, of the Company's Class A common stock. Accordingly, the Company
expects to record approximately $3.2 million of non-cash compensation expense
in 2001, and $1.2 million in non-cash compensation expense in each year from
2002 through 2006.
F-23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of SBA Communications
Corporation, and have issued our reports thereon dated February 20, 2001. Our
audits were made for the purpose of forming an opinion on those consolidated
financial statements taken as a whole. The schedule listed in the index of
consolidated financial statements is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic consolidated
financial statements taken as a whole.
Arthur Andersen LLP
West Palm Beach, Florida
February 20, 2001 (except with
respect to the matters
discussed in Note 16, as to
which the date is March 16,
2001).
F-24
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
Additions
Balance at Charged to Deduction Balance at
Beginning Costs and From End of
at Period Expenses(1) Reserves(2) Period
----------- ----------- ----------- -----------
Allowance for Doubtful
Accounts For the Years Ended:
December 31, 2000............. $ 785,299 $ 1,663,174 $331,129 $ 2,117,344
December 31, 1999............. $ 436,671 $ 492,101 $143,473 $ 785,299
December 31, 1998............. $ 508,268 $ 282,463 $354,060 $ 436,671
Tax Valuation Account For the
Years Ended:
December 31, 2000............. $17,450,113 $17,752,372 $ -- $35,202,485
December 31, 1999............. $ 6,323,195 $11,126,918 $ -- $17,450,113
December 31, 1998............. $ -- $ 6,323,195 $ -- $ 6,323,195
- --------
(1) For tax valuation account, amounts include adjustments for stock option
compensation.
(2) Represents accounts written off.
F-25