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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO
__________
COMMISSION FILE NUMBER 0-27217
SPECTRASITE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-2027322
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
100 REGENCY FOREST DRIVE, SUITE 400 27511
CARY, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
(919) 468-0112
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
Common Stock, $.001 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 amendments to
this Form 10-K. [ ]
As of February 29, 2000, the aggregate market value of the Common Stock held by
non-affiliates of the registrant was $1,251,354,811 based on the closing price
on the Nasdaq National Market on such date.
There were 122,763,494 shares of Common Stock outstanding as of February 29,
2000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III.
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SPECTRASITE HOLDINGS, INC.
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.............................................................................. 1
Item 2. Properties............................................................................ 10
Item 3. Legal Proceedings..................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................... 12
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 12
Item 6. Selected Consolidated Financial Data.................................................. 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................................ 15
Item 7A. Quantitative and Qualitative Disclosures about Market Risk............................ 22
Item 8. Consolidated Financial Statements and Supplementary Data.............................. 23
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure............................................................................ 23
PART III
Item 10. Directors and Executive Officers of the Registrant.................................... 23
Item 11. Executive Compensation................................................................ 24
Item 12. Security Ownership of Certain Beneficial Owners and Management........................ 25
Item 13. Certain Relationships and Related Transactions........................................ 25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 25
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21C of the Securities
Exchange Act of 1934, including statements concerning possible or assumed
future results of operations of SpectraSite and those preceded by, followed by
or that include the words may, will, should, could, expects, plans,
anticipates, believes, estimates, predicts, potential or continue or the
negative of such terms and other comparable terminology. You should understand
that the factors described below, in addition to those discussed elsewhere in
this report, could affect our future results and could cause those results to
differ materially from those expressed in such forward-looking statements.
These factors include:
- material adverse changes in economic conditions in the markets we
serve;
- future regulatory actions and conditions in our operating areas;
- competition from others in the communications tower industry;
- the integration of our operations with those of businesses we have
acquired or may acquire in the future and the realization of the
expected benefits; and
- other risks and uncertainties as may be detailed from time to time
in our public announcements and SEC filings.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are one of the leading providers of outsourced antennae site and network
services to the wireless communications and broadcast industries in the United
States and Canada. Our businesses include the ownership and leasing of antennae
sites on towers, managing rooftop and in-building telecommunications access on
commercial real estate, network planning and deployment and construction of
towers and related wireless facilities. Our customers are leading wireless
communications providers and broadcasters, including Nextel, Sprint PCS, AT&T
Wireless, VoiceStream Communications, Tritel Communications, Teligent, WinStar,
Cox Broadcasting, Clear Channel Communications and Paxson Communications. As of
December 31, 1999, and after giving effect to our acquisition of Apex Site
Management Holdings, Inc., we owned or managed over 15,000 sites, including
2,765 owned towers, in 98 of the top 100 markets in the United States. On
February 17, 2000, we agreed to acquire leasehold or subleasehold interests in
430 communications towers from AirTouch.
The wireless communications industry is growing rapidly and carriers are
making large capital investments to expand their networks. We believe that the
number of wireless communications sites, including towers, is likely to continue
to increase together with the growth in demand for wireless services. This
expected growth in communications sites is the result of several factors,
including:
-- the continuing build-out of higher frequency technologies, such as
personal communications services, which have a reduced cell range and
require a more concentrated network of towers than previous wireless
technologies;
-- the need to expand the capacity of existing networks;
-- the issuance of new wireless network licenses requiring the
construction of new wireless networks; and
-- the emergence of new wireless technologies.
As carriers deploy these networks, they are faced with a proliferation in
both the number and type of competitors. Because of this increasingly
competitive environment, carriers must also focus on satisfying customer demand
for enhanced services, seamless and comprehensive coverage, better call quality,
faster data transmission and lower prices.
We believe that as carriers face the increased challenges of expanding
their networks and improving their services, they must allocate their available
capital and resources in the most efficient manner. In particular, carriers are
increasingly outsourcing tower ownership, as well as network planning deployment
and management to independent tower owners like SpectraSite. This outsourcing
allows our customers to focus on their core competencies and to rely on us for
planning and deploying their networks. Our services are designed to improve our
customers' competitive positions through the efficient planning, deployment and
management of their networks.
GROWTH STRATEGY
Our objective is to be the leading independent provider of outsourced
antennae site and network services to the telecommunications and broadcast
industries. Our growth strategy involves the following key elements:
MAXIMIZING THE UTILIZATION OF OUR TOWERS AND MANAGED SITES
We intend to capitalize on the substantial opportunities for revenue and
cash flow growth by maximizing the number of tenants we have on each of our
towers and managed sites. We believe that our strategy of owning clustered
groups of towers and managed sites in major metropolitan markets and providing
our customers with a full range of products and services allows us to deliver
reliable, scalable network solutions and will result in increased co-location on
our towers and managed sites. Since most tower costs are fixed, leasing
available space on an existing tower results in minimal additional expenses
while generating a larger percentage increase in tower cash flow. In addition,
tenant turnover is low because of the relatively high cost of
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antenna relocation. We generally construct towers to accommodate at least three
broadband tenants and have a dedicated sales force which markets co-location
opportunities to wireless communications providers. Our objective is to use our
national tower presence to enable wireless service providers to more quickly
establish wireless coverage in individual and multiple markets.
EXPANDING OUR TOWER PORTFOLIO
We seek to expand our tower portfolio by building new towers for anchor
tenants and by making selective acquisitions of towers. We believe that Nextel's
agreement to lease space on an additional 1,422 towers we own, acquire or
construct for Nextel or other tenants will substantially increase the number of
towers we own and operate. We also continue to pursue attractive network
development opportunities with other wireless service providers. In addition, we
evaluate other tower development opportunities from time to time which we
believe have higher than average co-location opportunities. We intend to
continue to make selective acquisitions in the highly fragmented tower owner and
operator industry. Our strategy is to acquire towers that have some, or all, of
the following criteria:
-- underutilized with additional co-location potential;
-- favorably located, either individually or in clusters, in large urban
areas and along major transportation corridors; and
-- complementary to our existing coverage areas.
We believe there are tower acquisition opportunities currently available
from both wireless service providers and smaller independent tower operators.
Furthermore, we believe that the number of tower opportunities available in the
future is likely to grow as large wireless communications service providers and
smaller independent tower companies continue to divest their tower holdings. We
regularly evaluate acquisition opportunities, engage in negotiations and submit
bids with respect to acquisitions of individual towers, groups of towers and
entities that own or manage towers and related businesses. In addition to our
acquisition of 2,000 towers from Nextel in April 1999, we continue to seek
partnerships and other strategic arrangements with other major wireless
communications carriers in order to assume ownership of their towers.
EXPANDING THE SUITE OF SERVICES WE OFFER AND PURSUING CROSS-SELLING
OPPORTUNITIES
We believe our ability to provide a package of integrated services, which
have traditionally been offered by multiple subcontractors coordinated by a
carrier's deployment staff, will make us a preferred provider of all outsourced
antennae site and network services. For example, we believe that our leadership
in rooftop and in-building access will give us an advantage across all of our
product offerings as fixed wireless carriers expand their networks and as
wireless telephone and data companies increasingly focus on network deployment
and in-building service. In addition, our leadership in broadcast tower design,
fabrication and construction will give us a competitive advantage as
broadcasters increasingly outsource tower and facilities ownership and
management.
PRODUCTS AND SERVICES
WIRELESS TOWER OWNERSHIP AND LEASING
We are one of the largest independent owners and operators of wireless
communications towers in the United States and Canada. We provide antennae site
leasing services, which primarily involve the leasing of antennae space on our
communications towers to wireless carriers. Each of our towers has an anchor
tenant, and we seek to add several co-location tenants over time. In leasing
antennae space, we generally receive monthly lease payments from customers. Our
customer leases typically have original terms of five years, with four or five
renewal periods of five years each, and usually provide for periodic price
increases. Monthly lease pricing varies with the number and type of antennae
installed on a communications site.
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The following chart shows the locations of our owned towers as of December
31, 1999:
NUMBER
STATE OF TOWERS
- ----- ---------
California........... 408
Florida.............. 186
Michigan............. 168
Ohio................. 166
Texas................ 165
Illinois............. 155
Georgia.............. 154
North Carolina....... 130
Louisiana............ 99
Alabama.............. 94
Washington........... 88
Wisconsin............ 85
Tennessee............ 81
Missouri............. 62
Indiana.............. 55
Mississippi.......... 54
Pennsylvania......... 52
South Carolina....... 52
Arizona.............. 48
Massachusetts........ 44
Oregon............... 43
Oklahoma............. 39
Nevada............... 38
Maryland............. 35
Colorado............. 33
New Mexico........... 30
Minnesota............ 25
Utah................. 23
New Jersey........... 19
Virginia............. 18
Kansas............... 17
New York............. 16
Iowa................. 14
Alberta.............. 13
Other................ 56
-----
Total................ 2,765
=====
In addition to towers we build for Nextel under the master site commitment
agreement and towers we selectively build and acquire, we also expect to expand
our tower portfolio through build-to-suit programs. Under build-to-suit
programs, we utilize our network development capabilities to construct tower
networks after having signed an antenna site lease agreement with an anchor
tenant and having made the determination that the initial or planned capital
investment for that tower network would not exceed a targeted multiple of tower
cash flow after a certain period of time.
In addition to leasing antenna space, we also provide maintenance and
management services at our communication sites. In providing these services to
our customers we use a combination of in-house personnel and independent
contractors. 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, radio frequency emission and
interference issues, signage, structural engineering and tower capacity, tenant
relations and supervision of independent contractors. We hire local independent
contractors to perform routine maintenance functions, such as landscaping, pest
control, snow removal and site access.
WIRELESS ROOFTOP AND IN-BUILDING ACCESS
We are the largest independent provider of rooftop and in-building access
services in the United States. We are the exclusive site manager for
approximately 12,700 diverse real estate properties, with significant access
clusters in New York, Philadelphia, Baltimore/Washington, D.C., Atlanta, New
England, Florida, Western Pennsylvania/Ohio/Indiana, Chicago, Seattle, Southern
California, Texas and St. Louis. A principal attraction of this portion of our
business is the opportunity to develop new sources of revenue and value for
building owners by managing:
-- rooftops for transmitting and receiving installations; and
-- rooftops, risers and internal telecommunications equipment space for
competitive voice, data and Internet services offered to in-building
tenants.
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Wireless communications carriers utilize our managed sites as transmitting
locations, often where there are no existing towers for co-location or where new
towers are difficult to build. Our transmitting tenants encompass a broad array
of wireless communications providers, including personal communications service,
cellular, enhanced specialized mobile radio, specialized mobile radio, wireless
data, two-way radio, microwave, wireless cable and paging companies. As the
largest rooftop and in-building access manager in the United States, we provide
services to the facilities-based (wired and wireless) competitive local exchange
carrier and Internet service provider market. We have executed agreements
allowing these carriers access to over 3,000 properties, including agreements
with national providers such as Adelphia Business Solutions, AT&T Local
Services, Eureka Broadband, NEXTLINK, Site Line, Teligent and WinStar, as well
as numerous regional carriers. These access agreements are, to date,
predominantly for office and industrial properties.
Our managed portfolio contains over 3,300 office and industrial properties
encompassing over 375 million square feet. We are engaged by ten of the top
nineteen office real estate investment trusts, based on market capitalization,
in the United States, according to the National Association of Real Estate
Investment Trusts. In most cases, multiple carriers will access a single
property. Our management contracts are generally for a period of three to five
years, and contain renewal periods unless terminated by either party before
renewal or upon an uncured default. Under these contracts, we are engaged as the
exclusive site manager for rooftop management. In most cases, we are also
engaged as the exclusive manager for riser and telecommunications access
management. As the site manager, we are responsible for marketing the properties
as part of our portfolio of potential telecommunications sites, reviewing
existing license agreements, negotiating new license agreements, managing and
enforcing those agreements, supervising installation of equipment by carriers to
ensure, among other things, non-interference with other users, as well as site
billing, collections and contract administration. For these services, we receive
a percentage of occupancy fees, which is higher for the new carriers we add than
for existing carriers. Upon any termination of a contract, unless due to our
default, we are entitled to continue to receive our percentage with respect to
carriers added during the term of our management agreement for so long as they
remain tenants.
NETWORK DESIGN AND DEPLOYMENT SERVICES
We are a leading provider of design and deployment services for wireless
networks. These services include architectural and engineering design, tower
construction, line and antenna installation and site acquisition services. We
offer these services individually and as an integrated package. We believe that
we have a competitive advantage in our ability to provide comprehensive network
development services by eliminating our customers' need to seek services from
different providers.
In providing these network design and deployment services, we have
developed the capability to effectively manage multiple site acquisition and
tower development projects in various locations at the same time. Where
appropriate, we supplement our in-house expertise with a pre-qualified pool of
local contractors and advisors. In addition, we have developed detailed and
standardized site acquisition and construction specifications and procedures
that allow us to rapidly construct tower networks. Wireless carriers require
aggressive network build-out schedules, and uniform procedures and
specifications allow for reduced employee training time, improved vendor
performance and quicker identification of potential tower sites.
Architectural and Engineering Design. Our architecture and engineering
team manages a complex array of electrical, structural and architectural
elements while interfacing with our clients and construction crews to ensure
that site-specific objectives are reflected in construction documents. Our
structural engineering and design abilities enable us to construct towers that
have maximum antenna site capacity based on the physical features of the land on
which the tower is constructed and the demand in the market in which the tower
is located. We seek to design aesthetically acceptable sites and construct
towers with minimal environmental impact. Our custom structure design abilities
combined with our engineering skills also allow us to build towers in
geographically difficult locations at competitive prices. We believe that this
specialty service will enable us to compete effectively in regions in which
other companies are not able to participate on a cost-efficient basis.
Tower Construction. Our engineering, general contracting, electrical,
structural steel and other specialty licenses allow us to perform services
required to design, develop and construct communications towers. Our ability to
perform civil and electrical engineering as well as tower construction enables
us to expedite and simplify this phase of development by minimizing the need to
subcontract.
During tower construction, a project team of five to seven people is
dispatched to the site. A temporary field office is established at the site. The
project team is typically composed of our permanent employees, but may be
supplemented with local hires.
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We use our information technology abilities to create construction models,
development budgets, critical path schedules and status reports covering
schedules and costs throughout the course of a project. Our civil engineering
capability allows us to prepare the construction site by leveling the land,
removing vegetation and installing access roads as needed. Based on the results
of soil tests that we conduct at each site, we design and build the tower
foundation. After the foundation is in place, we erect the tower. We utilize our
structural engineering capability by constructing a tower designed for maximum
antenna capacity.
Line and Antenna Installation. After erecting the tower and placing the
equipment shelter, we install the antennae and feed lines, including the sweep,
test and orientation. Depending on the project, electricity is installed either
during the erection process to conform with the FAA lighting requirements or
after the tower has been constructed. Our technical crews are regularly trained
in cellular, microwave, fiber optic and direct current power plant system
installation and testing methods. We are also a leader in designing and
implementing in-building wireless systems, as well as a broad range of cellular
and personal communications services repeater systems. Our test equipment and
dedicated radio frequency testing teams allow us to monitor and maintain system
integrity and quality control.
We also offer the ability to construct the switch facility that controls an
antenna's communications with other communications sites. Although switch
construction is not performed at every project site, it is an additional
specialty service we provide.
After constructing the tower, placing the equipment shelter and completing
the antenna work, we install grounding lines and protective fencing around the
site. We then perform final grounding and landscaping as necessary to complete
the project.
Site Acquisition Services. We offer a full range of site acquisition
services, including network pre-design, communication site selection,
communication site acquisition and local zoning and permitting. We offer these
services through local contractors who have knowledge and expertise in the
specific geographic area.
BROADCAST TOWER DEVELOPMENT AND LEASING
We are a leading provider of broadcast tower analysis, design, fabrication,
installation, and technical services. We have over 50 years of experience in the
broadcast tower industry and have worked on the development of more than 700
broadcast towers, which we believe represent approximately 50% of the existing
broadcast tower infrastructure in the United States. Our broadcast tower group
extends our core business of outsourced wireless antenna sites to broadcast
towers. We intend to capitalize on our broadcast tower development expertise to
create tower ownership and leasing opportunities.
In November 1999, Congress passed the Community Broadcasters Protection Act
of 1999, which directs the FCC to offer a new Class A status to qualifying low
power television stations. To qualify, Class A low power television stations,
which were required to notify the FCC of their eligibility by January 28, 2000,
will have to meet certain programming and operational criteria. Under the
statute, Class A low power television stations will not be protected from
interference from digital television stations proposing to maximize their DTV
service, provided the digital television stations notified the FCC of their
intent to maximize facilities no later than December 31, 1999, and the digital
television stations submit a maximization application by May 1, 2000. The FCC
must adopt rules to govern the new service by the end of March 2000, after which
qualifying Class A low power television stations will be required to file a
formal application. As part of a rulemaking which the FCC commenced earlier this
year, the agency will consider specific protection criteria to be applied in
evaluating Class A low power television station operations vis-a-vis full power
and other low power television stations. The standards that are adopted may
affect the ability of applicants for digital television facilities and
proponents of modified analog facilities to change their existing or future
proposals and may affect their current tower utilization plans.
In 1996, the FCC mandated the conversion of analog television signals to
digital. The mandate specifies that by May 1, 2003, each television station in
the United States must complete construction of new digital broadcasting
facilities and, beginning April 21, 2003, must be simulcasting at least 50% of
its programming on
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both its analog and digital facilities. This conversion creates significant
potential demand for co-location on broadcast towers.
Broadcast towers require a high level of technical design and erection
expertise, as they reach heights of up to 2,000 feet. Broadcast towers support
extremely powerful television and FM radio signals over entire metropolitan
areas. The existing domestic broadcast tower infrastructure was generally
developed to accommodate individual broadcast signals. This broadcast tower
infrastructure was built primarily in the 1940's and 1950's. Today, it is
considered to be at capacity and somewhat antiquated. The FCC mandate creates
significant infrastructure deployment requirements and burdens for the broadcast
community in the United States. In addition, the engineering and construction
expertise for broadcast towers is limited to a relatively small number of
fabrication and construction companies that specialize in broadcast towers.
Recognizing this opportunity to capitalize on the broadcast infrastructure
tower development and leasing requirement, we have developed a strategic plan
that is designed to position us as the leading tower resource in the broadcast
sector. We have identified the critical core competencies necessary to fulfill
broadcast industry requirements. We offer broadcast tower engineering,
fabrication and erection services. In addition, we have original tower design
specifications and considerable tower modification historical information on
approximately 50% of the existing broadcast tower infrastructure. We believe
that this intellectual property positions us as one of broadcasters' first
points of contact for any broadcast tower project.
CUSTOMERS
Our primary customer currently is Nextel. On a pro forma basis after giving
effect to the Nextel acquisition, the Westower merger and certain other
transactions, Nextel represented approximately 29% of our revenues for the year
ended December 31, 1999.
Nextel provides a wide array of digital wireless communications services
throughout the United States. Nextel offers a differentiated, integrated package
of digital wireless communications services under the Nextel brand name,
primarily to business users. Nextel's digital mobile network constitutes one of
the largest integrated wireless communications systems utilizing a single
transmission technology in the United States. Nextel has significant specialized
mobile radio spectrum holdings in and around every major business population
center in the country, including all of the top 50 metropolitan statistical
areas in the United States. Nextel files periodic reports and other information
with the SEC. For more information about Nextel, you should read Nextel's SEC
filings. However, we are not incorporating any of Nextel's SEC filings by
reference into this document.
In addition, our customers also include several of the largest wireless
service providers in the United States, including AT&T Wireless and Sprint PCS.
We also have provided services to enhanced specialized mobile radio, specialized
mobile radio and cellular wireless providers. For the year ended December 31,
1997, Powertel, Sprint PCS, GTE Mobility, Intercel and Horizon accounted for
38.9%, 18.8%, 14.7%, 13.0% and 11.2%, respectively, of our revenues. For the
year ended December 31, 1998, Powertel and Tritel accounted for 46.6% and 24.3%,
respectively, of our revenues. For the year ended December 31, 1999, Nextel
accounted for 35.0% of our revenues. During this period, no other customer
accounted for more than 10% of SpectraSite's revenues.
SALES AND MARKETING
We believe that our ability to satisfy a wide range of our customer's
network deployment requirements will make us a preferred provider of all
outsourced antennae site and network services. Our sales and marketing goals are
to:
-- use existing relationships and develop new relationships with
wireless service providers to lease antenna space on our owned and
managed communication sites; and
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-- form affiliations with select communications system vendors who
utilize end-to-end services, including those provided by SpectraSite,
which will enable us to market our services and products through
additional channels of distribution.
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to obtain
build-to-suit projects, and we intend to continue to emphasize our capability in
these areas in selling our broad range of services.
Maintaining and cultivating relationships with wireless service providers
is a main focus of senior management. In addition, we have a dedicated group of
representatives focused on sales efforts and establishing relationships with
wireless service providers. The representatives are assigned specific accounts
based on historical experience with a provider and the quality of the
relationship between the SpectraSite representative and such provider. Most
wireless service providers have national corporate headquarters with regional
offices. We believe that most decisions for site acquisition 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, when appropriate, at the national level.
Our sales staff compensation is heavily weighted to incentive-based goals and
measurements. In addition to our dedicated marketing and sales staff, we rely
upon our executive and operations personnel at the national and field office
levels to identify sales opportunities within existing customer accounts, as
well as acquisition opportunities.
COMPETITION
Our principal competitors include American Tower Corporation, Crown Castle
International Corp., Pinnacle Holdings Inc. and SBA Communications Corporation.
Towers are not the only kind of platform for radio transmitters. The FCC
has authorized numerous entities and is considering applications from many
others to provide fixed and mobile satellite services using various frequency
bands in a manner that may compete with terrestrial service providers. Iridium
LLC, for example, has commenced space-borne provision of mobile satellite
service, although it is currently subject to bankruptcy proceedings. Teledesic
plans to provide high-speed fixed satellite data services through low-earth-
orbit satellites. In 1997, the FCC allocated one gigahertz of spectrum in the 47
GHz band for any use consistent with the spectrum allocation table. The FCC has
decided to auction this spectrum in 200 MHz blocks for the provision of
communications services. It is unclear whether these new technologies will be
commercially feasible, and to what extent they will offer significant
competitive alternatives to terrestrial structures.
EMPLOYEES
As of December 31, 1999, SpectraSite had 1,198 employees, none of whom are
represented by a collective bargaining agreement. We consider our employee
relations to be good. Due to the nature of the site construction business, we
may experience increases and decreases in employees as site construction
contracts are entered into or completed.
INTERNATIONAL
Our primary focus is on operations in the United States and Canada.
However, we evaluate possible international opportunities and may, in the
future, pursue opportunities we consider attractive.
REGULATORY AND ENVIRONMENTAL MATTERS
FEDERAL REGULATIONS
Both the FCC and the FAA regulate towers used for wireless communications
transmitters and receivers. Such regulations control the siting, marking and
lighting of towers and may, depending on the characteristics of particular
towers, require registration of tower facilities. Wireless communications
antennae operating on towers are separately regulated and independently licensed
by the FCC based upon the particular frequency
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being used and the service being provided. In addition to these regulations,
SpectraSite must comply with certain environmental laws and regulations.
Under the requirements of the Communications Act of 1934, as amended, the
FCC, in conjunction with the FAA, has developed standards to consider proposals
for new or modified antennae structures. These standards mandate that the FCC
and the FAA consider the height of the proposed antenna structure, the
relationship of the structure to existing natural or man-made obstructions and
the proximity of the structure to runways and airports. Proposals to construct
or modify existing structures above certain heights or within certain proximity
to airports are reviewed by the FAA to ensure they will not present a hazard to
aviation. The FAA may condition its issuance of no-hazard determinations upon
compliance with specified lighting and marking requirements. The FCC will not
license the operation of wireless telecommunications antennae on towers unless
the tower has been registered with the FCC or a determination has been made that
such registration is not necessary. The FCC will not register a tower unless it
has received all necessary clearances from the FAA. The FCC also enforces
special lighting and painting requirements. Owners of towers on which wireless
communications antennae are located have an obligation to maintain painting and
lighting to conform to FCC standards. Tower owners may also bear the
responsibility of notifying the FAA of any tower lighting failures. SpectraSite
generally indemnifies its customers against any failure to comply with
applicable regulatory standards. Failure to comply with the applicable
requirements may lead to civil penalties and tort liability.
In 1995, the FCC adopted regulations making the owners of towers, rather
than communications licensees, primarily responsible for compliance with antenna
structure painting and lighting requirements. These rule changes are based on
statutory amendments adopted by Congress in 1992 extending regulatory
jurisdiction to tower owners. Communications licensees are now secondarily
responsible for tower maintenance if the tower owners are unwilling or unable to
perform those duties. Currently, these requirements apply to antenna structures
that are more than 200 feet in height, or that may interfere with the approach
or departure space of a nearby airport runway.
The regulatory requirements adopted in 1995 required tower owners, like
SpectraSite, to register existing structures by state, in accordance with filing
windows, over a two-year period between July 1, 1996 and June 30, 1998.
Historically, tower locations were determined using area maps. The FCC has
recognized that, with the proliferation of inexpensive, satellite-based locating
devices, such as Global Positioning System receivers, structures can now be
easily located with a higher degree of accuracy. Accordingly, the FCC has told
owners who determined that tower registration information conflicted with
previously issued licenses for antennae on their towers to register their
structures using the new data and to seek new FAA determinations of no hazard as
necessary under the FAA's rules. The FCC also has instructed licensees or
permittees who discovered that the coordinates on their authorizations differed
from those determined by more accurate means to submit corrective construction
permit applications. In February 1999, the FCC's Wireless Telecommunications
Bureau announced a new policy under which defective applications for wireless
authorizations and antenna structure registrations will be summarily dismissed,
without giving the applicants an opportunity to amend but requiring them to
correct and retender their applications. As part of the new policy, the Bureau
said that effective May 1, 1999, it will return and not process tower
registration applications including data that do not agree with information
listed on previously issued FAA determinations. The FCC also announced that
applications for FCC communications authorizations would be dismissed if a tower
registration number is not listed on the FCC application. Although the FCC
initially said the rule affecting communications applications would apply
beginning May 1, 1999, for applicants proposing antennae on existing structures,
and July 1, 1999, for applicants proposing to utilize new towers, the FCC in
late April 1999 extended these deadlines. For services, such as cellular,
paging, and personal communications services, which have already had their
records converted to the FCC's new Uniform Licensing System database, the new
tougher dismissal rule applied effective July 1, 1999. For other communications
services that have not yet been converted to the Uniform Licensing System, the
FCC said the new processing rules would go into effect six months after each
service's incorporation into the Uniform Licensing System. This new policy means
that for towers to be of use to FCC applicants, it will be necessary for tower
owners to notify the FAA and obtain FCC tower registrations well in advance of
the date tenants will be filing FCC applications.
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In December 1998, the FCC announced that a recent audit of existing antenna
structures revealed that over one quarter of the audited structures had not been
registered as required by the FCC's rules. In light of this finding and several
reported near misses of towers by aircraft, the FCC in January 1999 announced a
no-tolerance policy, requiring all owners of existing unregistered structures to
register them immediately or face monetary forfeitures or civil fines.
SpectraSite has been working to review the registration of the towers it has
acquired and to confirm the accuracy of the information submitted to the FAA and
the FCC by the prior owners.
The Telecommunications Act of 1996 amended the Communications Act of 1934
by limiting state and local zoning authorities' jurisdiction over the
construction, modification and placement of wireless communications towers. The
new law preserves local zoning authority but prohibits any action that would
discriminate between different providers of wireless services or ban altogether
the construction, modification or placement of communications towers. The 1996
Telecom Act also 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.
STATE AND LOCAL REGULATIONS
Most states regulate certain aspects of real estate acquisition and leasing
activities. Where required, SpectraSite conducts the site acquisition portions
of its site acquisition services business through licensed real estate brokers
or agents, who may be employees of SpectraSite 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. Companies owning or seeking to build towers
have encountered an array of obstacles arising from state and local regulation
of tower site construction, including environmental assessments, fall radius
assessments, marketing/lighting requirements, and concerns with interference to
other electronic devices. The delays resulting from the administration of such
restrictions can last for several months, and when appeals are involved, can
take several years.
ENVIRONMENTAL REGULATIONS
Owners and operators of communications towers are subject to, and,
therefore, must comply with environmental laws. The FCC's decision to register a
proposed tower may be subject to environmental review under the National
Environmental Policy Act of 1969, which requires federal agencies to evaluate
the environmental impacts of their decisions under certain circumstances. The
FCC has issued regulations implementing the National Environmental Policy Act.
These regulations place responsibility on each applicant to investigate any
potential environmental effects of operations and to disclose any significant
effects on the environment in an environmental assessment prior to constructing
a tower. In the event the FCC determines the proposed tower would have a
significant environmental impact based on the standards the FCC has developed,
the FCC would be required to prepare an environmental impact statement. This
process could significantly delay the registration of a particular tower. In
addition, we are subject to environmental laws which may require investigation
and clean-up of any contamination at facilities we own or operate or at third-
party waste disposal sites. These laws could impose liability even if we did not
know of, or were not responsible for, the contamination. Although we believe
that we currently have no material liability under applicable environmental
laws, the costs of complying with existing or future environmental laws,
investigating and remediating any contaminated real property and resolving any
related liability could have a material adverse effect on our business,
financial condition or results of operations.
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ITEM 2. PROPERTIES
SpectraSite is headquartered in Cary, North Carolina, where it currently
leases 62,136 square feet of space. We have established regional offices in the
Atlanta, Chicago and San Francisco areas. We open and close project offices from
time to time in connection with our network design and development services,
which offices are generally leased for periods not exceeding 18 months.
We own a broadcast tower manufacturing facility located in Pine Forge,
Pennsylvania. We also own five acres of land in Surrey, British Columbia,
Canada, on which a 10,000 square foot wireless tower fabrication, assembly and
storage facility and a 5,000 square foot office building are located; four acres
of land near Montreal, Quebec, Canada, on which a 7,000 square foot facility is
located; a one acre lot in Houston, Texas, on which approximately 2,500 square
feet of office space and 5,000 square feet of warehouse space are located; 8.6
acres of land in Visalia, California, on which a 57,000 square foot broadcast
tower manufacturing facility is located; and 0.4 acres of land in Tucson,
Arizona, on which a 6,250 square foot office building is located. We also lease
office space in the following locations:
-- Phoenix and Tucson, Arizona;
-- Little Rock, Arkansas;
-- Burbank, Los Angeles, Newport Beach, Sacramento and San Jose,
California;
-- Ft. Lauderdale, Palm Beach Gardens, Tampa and Orlando, Florida;
-- Ridgeland, Mississippi;
-- Las Vegas, Nevada;
-- Syracuse, New York;
-- Charlotte and Greensboro, North Carolina;
-- Columbus, Ohio;
-- Portland and Roseburg, Oregon;
-- Conshohocken, Forty Fort and Upper Gwynedd Township, Pennsylvania;
-- Austin, Dallas and Houston, Texas;
-- Redmond and Seattle, Washington; and
-- Alberta, Nova Scotia and Ontario, Canada.
Our interests in communications sites are comprised of a variety of fee
interests, leasehold interests created by long-term lease agreements, private
easements, easements and licenses or rights-of-way granted by government
entities. In rural areas, a communications site typically consists of a
three-to-five acre tract which supports towers, equipment shelters and guy wires
to stabilize the structure. Less than 2,500 square feet are required for a
self-supporting tower structure of the kind typically used in metropolitan
areas. Land leases generally have an initial term of five years, with five
additional five-year renewal periods. You should read "--Products and
Services--Wireless Tower Ownership and Leasing" for a list of the locations of
our owned towers.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, SpectraSite is involved in various legal proceedings
relating to claims arising in the ordinary course of business. We are not
currently a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on our business, financial condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET PRICES
Prior to our acquisition of Westower Corporation in a merger transaction,
our common stock was privately held with no public trading market. On September
1, 1999, our common stock was approved for trading on the Nasdaq National
Market under the symbol "SITE", and public trading commenced on September 3,
1999. The following table sets forth on a per share basis the high and low
sales prices for consolidated trading in our common stock as reported on the
Nasdaq National Market for the period from September 3, 1999 through September
30, 1999 and the fourth quarter of 1999.
COMMON STOCK
--------------
HIGH LOW
------ -----
1999
Third quarter (beginning September 3)................................ $14 7/8 $ 11
Fourth quarter....................................................... 12 1/8 7 3/8
2000
As of February 29, 2000, there were approximately 239 holders of record of
our common stock.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we intend to retain any earnings to finance the
development and expansion of our business, and we do not anticipate paying any
cash dividends on our common stock. In addition, our credit facility and the
indentures governing our senior discount notes restrict our ability to pay
dividends. Any future determination to pay dividends will be at the discretion
of our board of directors and will be dependent upon then existing conditions,
including our financial condition and results of operations, capital
requirements, contractual restrictions, business prospects and other factors
that the board of directors consider relevant. Furthermore, because SpectraSite
Holdings is a holding company, it depends on the cash flow of its subsidiaries,
and SpectraSite Communications' credit facility imposes restrictions on
Holdings' subsidiaries ability to distribute cash to Holdings.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth summary historical financial data derived
from our consolidated financial statements, as of and for:
-- the year ended December 31, 1996;
-- the period from January 1, 1997 to May 12, 1997;
-- the period from SpectraSite's inception on April 25, 1997 to
December 31, 1997;
-- the year ended December 31, 1998; and
-- the year ended December 31, 1999.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes.
TELESITE (PREDECESSOR) SPECTRASITE SPECTRASITE
------------------------- ------------ ---------------------
JANUARY 1, APRIL 25, TELESITE & YEAR ENDED
YEAR ENDED 1997- 1997- SPECTRASITE DECEMBER 31,
DECEMBER 31, MAY 12, DECEMBER 31, COMBINED ---------------------
1996 1997 1997 1997 1998 1999
------------ ---------- ------------ ----------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Site leasing............................. $ -- $ -- $ -- $ -- $ 656 $ 46,515
Network services......................... 8,841 1,926 5,002 6,928 8,142 53,570
------ ------ ------- ------- -------- ----------
Total revenues............................. 8,841 1,926 5,002 6,928 8,798 100,085
------ ------ ------- ------- -------- ----------
Operating expenses:
Costs of operations (excluding
depreciation and amortization expense):
Site leasing........................... -- -- -- -- 299 17,825
Network services....................... 2,255 595 1,120 1,715 2,492 36,489
Selling, general and administrative
expenses............................... 4,256 1,742 7,390 9,132 9,690 38,182
Depreciation and amortization expense.... 91 56 489 545 1,268 37,976
Restructuring and non-recurring
charges................................ -- -- -- -- -- 7,727
------ ------ ------- ------- -------- ----------
Total operating expenses................... 6,602 2,393 8,999 11,392 13,749 138,199
------ ------ ------- ------- -------- ----------
Operating income (loss).................... $2,239 $ (467) $(3,997) $(4,464) $ (4,951) $ (38,114)
====== ====== ======= ======= ======== ==========
Net income(loss)........................... $2,289 $ (503) $(3,890) $(4,393) $ (9,079) $ (97,668)
Net income (loss) applicable to common
shareholders............................. 2,289 (503) (4,390) (4,893) (11,235) (98,428)
Net loss per share (basic
and diluted)............................. $ (5.21) $ (11.98) $ (12.48)
Weighted average common shares
outstanding (basic and diluted).......... 842 938 7.886
OTHER DATA:
Net cash provided by (used in) operating
activities............................... $1,109 $ (71) $ 223 $ 152 $ (2,347) $ 17,555
Net cash provided by (used in) investing
activities............................... (853) (322) (7,178) (7,500) (45,002) (813,225)
Net cash provided by (used in) financing
activities............................... (266) 390 9,189 9,579 144,663 733,900
EBITDA(a).................................. 2,330 (411) (3,508) (3,919) (3,683) 7,589
Capital expenditures(b).................... 498 64 850 914 26,598 644,778
SELECTED OPERATING DATA (AT END OF PERIOD):
Number of owned towers............................................................... 5 106 2,765
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and short term investments.................................... $ 2,234 $114,962 $ 37,778
Total assets......................................................................... 13,642 161,946 1,219,953
Total long-term debt................................................................. 2,331 132,913 718,778
Total shareholders' (deficiency) equity.............................................. (1,898) (14,067) 457,756
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- ---------------
(a) EBITDA consists of operating income (loss) before depreciation and
amortization expense and restructuring and non-recurring charges. EBITDA is
provided because it is a measure commonly used in the communications site
industry as a measure of a company's operating performance. EBITDA is not a
measurement of financial performance under generally accepted accounting
principles and should not be considered an alternative to net income as a
measure of performance or to cash flow as a measure of liquidity. EBITDA is
not necessarily comparable with similarly titled measures for other
companies. SpectraSite believes that EBITDA can assist in comparing company
performance on a consistent basis without regard to depreciation and
amortization expense, which may vary significantly depending on accounting
methods where acquisitions are involved or non-operating factors such as
historical cost bases. EBITDA presented in the table is consistent with
EBITDA calculated under the indentures governing SpectraSite's 2008 notes
and its 2009 notes.
(b) Capital expenditures for Telesite have been reduced for the periods ended
December 31, 1996 and May 12, 1997 by $340 and $258, respectively. These
expenditures were for land and construction in progress which were sold
prior to the closing of the acquisition of Telesite.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
SpectraSite's primary focus is on the ownership of multi-tenant towers and
leasing of antenna space on such towers. As of December 31, 1999, we had 2,765
towers in service, as compared to 106 towers at December 31, 1998. As a result
of our limited operating history and primary focus on tower ownership and
leasing, management believes that our results of operations for the period ended
December 31, 1997 and for the years ended December 31, 1998 and 1999 are not
indicative of our results of operations in the future. We previously operated in
one business segment. As a result of the Nextel tower acquisition and the
Westower merger, we now operate in two business segments, site leasing and
network services. For further details about our business segments, refer to Note
11 to our consolidated financial statements.
Historically, we have derived most of our revenues from network services
activities. As a result of recent acquisitions, principally the Nextel and
Westower transactions, we expect that network services and antenna site leasing
will generate most of our revenues. On a pro forma basis, after giving effect to
the Nextel tower acquisition, the Westower merger and certain other
transactions, site leasing and network services would have represented 36% and
64% of our revenues, respectively, for the year ended December 31, 1999. We
believe that our site leasing business will continue to represent a substantial
portion of our revenues and will continue to grow as we increase our network of
towers.
Our two largest expense line items have been depreciation and amortization
and selling, general and administrative expense. Depreciation expense primarily
relates to our towers, which we depreciate over 15 years. In 1999, amortization
expense is primarily due to goodwill associated with the Westower merger. On a
pro forma basis, after giving effect to the Nextel tower acquisition, the
Westower merger and certain other transactions, depreciation and amortization
expense would have represented 35% of revenues for the year ended December 31,
1999. We experienced a significant increase in selling, general and
administrative expense in 1999 as we integrated Westower's operations and
increased our employee base to market and manage the 2,000 Nextel towers and
build towers for Nextel under the master site commitment agreement.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
Consolidated revenues for the year ended December 31, 1999 were $100.1
million, an increase of $91.3 million from the year ended December 31, 1998.
Revenues from site leasing increased to $46.5 million for the year ended
December 31, 1999 from $0.7 million for the year ended December 31, 1998,
primarily as a result of revenues derived from 2,000 communications towers which
we acquired from Nextel in April 1999. We owned 2,765 communications towers at
December 31, 1999 compared to 106 communications towers at December 31, 1998.
Revenues from network services increased to $53.6 million for the year
ended December 31, 1999 compared to $8.1 million for the year ended December 31,
1998, primarily as a result of the acquisition of Westower in September 1999. In
September 1999, we announced that we would no longer directly provide site
acquisition services. Revenues from site acquisition activities were $7.2
million and $8.1 million in the years ended December 31, 1999 and 1998,
respectively.
Costs of operations increased to $54.3 million for the year ended December
31, 1999 from $2.8 million for the year ended December 31, 1998. The increase in
costs was attributable to operating costs of the 2,000 communications towers
purchased from Nextel in April 1999 and the acquisition of Westower in September
1999. Costs of operations for site leasing as a percentage of site leasing
revenues decreased to 38.3% for the year ended December 31, 1999 from 45.6% for
the year ended December 31, 1998 primarily due to revenues generated from the
acquisition of towers from Nextel and co-location revenues on those towers. As
our site leasing operations mature, additional tenants on a tower will generate
decreases in costs of operations for site leasing as a percentage of site
leasing revenues and increases in cash flow because a significant
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proportion of tower operating costs are fixed and do not increase with
additional tenants. Costs of operations for network services as a percentage of
network services revenues increased to 68.1% for the year ended December 31,
1999 from 30.6% for the year ended December 31, 1998. This increase is due to
construction activities associated with Westower's operations which have higher
levels of direct costs than our historical site acquisition activities.
Selling, general and administrative expenses increased to $38.2 million for
the year ended December 31, 1999 from $9.7 million for the year ended December
31, 1998. The increase is a result of expenses related to additional corporate
overhead and field operations implemented to manage and operate the growth in
the ongoing activities of SpectraSite and the acquisition of Westower.
Depreciation and amortization expense increased to $38.0 million for the
year ended December 31, 1999 from $1.3 million for the year ended December 31,
1998, primarily as a result of the increased depreciation from the towers we
acquired or constructed and amortization of goodwill related to the Westower
acquisition.
For the year ended December 31, 1999, we recorded restructuring and
non-recurring charges of $7.7 million. In September 1999, we announced that we
would no longer directly provide site acquisition services. As a result, we
recorded restructuring charges of $7.1 million, of which $6.2 million related to
the write-off of goodwill associated with the purchase of Telesite Services, LLC
and $0.9 million related to costs of employee severance. In March 1999,
SpectraSite announced that it would relocate its marketing and administrative
operations from Little Rock, Arkansas and Birmingham, Alabama to its corporate
headquarters in Cary, North Carolina. As a result, we recorded a non-recurring
charge of $0.6 million for employee termination and other costs related to the
relocation of these activities.
As a result of the factors discussed above, our loss from operations was
$38.1 million for the year ended December 31, 1999 compared to $5.0 million for
the year ended December 31, 1998.
Net interest expense increased to $58.6 million during the year ended
December 31, 1999 from $4.6 million for the year ended December 31, 1998,
reflecting additional interest expense due to the issuance of our 12% senior
discount notes due 2008 in June 1998 and our 11 1/4% senior discount notes due
2009 in April 1999, as well as borrowings under our credit facility in April
1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE COMBINED RESULTS FOR THE YEAR
ENDED DECEMBER 31, 1997
The following is a discussion of the financial condition and results of
operations of SpectraSite for the year ended December 31, 1998 and the year
ended December 31, 1997, which consists of the period from April 25, 1997
through December 31, 1997 and Telesite's results of operations for the period
from January 1, 1997 through May 12, 1997.
Revenues increased to $8.8 million for the year ended December 31, 1998
from $6.9 million for the year ended December 31, 1997 due to the initiation of
site leasing activity and an increase in the number and size of site development
services projects.
Selling, general and administrative expenses, including depreciation
expense, increased to $11.0 million for the year ended December 31, 1998 from
$9.7 million for the year ended December 31, 1997. The increase is a result of
expenses related to additional corporate overhead to manage and operate the
ongoing activities of SpectraSite. Marketing expenses related to tower
development activities as well as the site acquisition operations also
contributed to the increase in expenses. Telesite did not actively market its
services, relying primarily on its reputation in the industry and customer
referrals to generate revenues. To support our entry into tower development and
leasing, we have established a dedicated marketing effort which promotes tower
development and leasing as well as site acquisition services. Amortization of
goodwill increased to approximately $0.6 million in the year ended December 31,
1998 compared to approximately $0.3 million in the year ended December 31, 1997
as a result of acquisitions.
As a result of the factors discussed above, our operating loss was $5.0
million for the year ended December 31, 1998, compared to $4.5 million for the
year ended December 31, 1997.
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Other income, which consists primarily of gain on sales of assets and
equity in earnings of affiliates, increased to approximately $0.5 million for
the year ended December 31, 1998 from approximately $0.1 million for the year
ended December 31, 1997. The increase is a result of a gain on the sale of
assets in connection with the disposal of Metrosite during the first quarter of
1998 of approximately $0.5 million. During the year ended December 31, 1997, we
recognized approximately $0.2 million as equity earnings of Communication
Management Specialists. We disposed of our interest in Communication Management
Specialists during the second quarter of 1998 and did not recognize any equity
in the earnings of this affiliate during 1998.
COMBINED RESULTS FOR THE YEAR ENDED DECEMBER 31, 1997 COMPARED TO
TELESITE'S RESULTS FOR THE YEAR ENDED DECEMBER 31, 1996
The following is a discussion of the financial condition and results of
operations of SpectraSite for the year ended December 31, 1997, which consists
of and for the period from April 25, 1997 through December 31, 1997 and
Telesite's results of operations for the period from January 1, 1997 through May
12, 1997, and of Telesite for the year ended December 31, 1996.
Total revenues decreased to $6.9 million for the year ended December 31,
1997 from $8.8 million for the year ended December 31, 1996 due primarily to the
decreased demand for site development services from more established personal
communications services licensees as a result of their completing the first
phase of construction in their initial markets and not yet commencing secondary
build-outs in such markets or in additional markets, and the fact that holders
of certain more recently issued licenses had not yet commenced construction of
tower networks in their respective markets.
Selling, general and administrative expenses increased to $9.1 million for
the year ended December 31, 1997 from $4.3 million for the year ended December
31, 1996. The increase is a result of the expenses related to management of the
ongoing activities of SpectraSite, expenses related to the implementation of
tower development and marketing activities, one-time non-cash charges of
approximately $2.6 million as a result of the formation of SpectraSite,
amortization of goodwill of approximately $0.3 million in connection with our
acquisition of Telesite and expenses incurred in connection with the operations
of Metrosite. We sold our interest in Metrosite during early 1998. We anticipate
that in the future costs related to tower development activities will be
capitalized as part of the cost of the towers.
Operating loss was $4.5 million for the year ended December 31, 1997
compared to $2.2 million of operating income for the year ended December 31,
1996. The change is primarily a result of the decline in revenues and the
increase in selling, general and administrative expenses attributable to the
commencement of operations of SpectraSite.
Other income, which consists primarily of equity in earnings of affiliates,
was approximately $0.1 million for the year ended December 31, 1997 and for the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
SpectraSite Holdings is a holding company whose only significant asset is
the outstanding capital stock of its subsidiary, SpectraSite Communications. Our
only source of cash to pay interest on and principal of our indebtedness is
distributions from SpectraSite Communications. Prior to July 15, 2003, interest
expense on the 2008 notes will consist solely of non-cash accretion of original
issue discount and the 2008 notes will not require annual cash interest
payments. After such time, the 2008 notes will have accreted to approximately
$225.2 million and will require semi-annual cash interest payments of $13.5
million. The 2008 notes mature on July 15, 2008. Similarly, prior to October 15,
2004, interest expense on the 2009 notes will consist solely of non-cash
accretion of original issue discount and the 2009 notes will not require annual
cash interest payments. After such time, the 2009 notes will have accreted to
approximately $586.8 million and will require semi-annual cash interest payments
of $33.0 million. The 2009 notes mature on April 15, 2009. Furthermore, our
credit facility provides for periodic principal and interest payments.
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Our ability to fund capital expenditures, make scheduled payments of
principal of, or pay interest on, our debt obligations, and our ability to
refinance any such debt obligations, including the 2008 notes and the 2009
notes, will depend on our future performance, which, to a certain extent is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control. Our business strategy contemplates
substantial capital expenditures, including an expected approximate amount of
$200 million during the first half of 2000, primarily to fund the construction
and acquisition of additional communications towers. Management believes that
cash flow from operations, available cash as of December 31, 1999, net proceeds
received from our public offering of common stock in February 2000 and
anticipated available borrowings under the credit facility will be sufficient to
fund our capital expenditures for the foreseeable future. However, if
acquisitions or other opportunities present themselves more rapidly than we
currently anticipate or if our estimates prove inaccurate, we may seek
additional sources of debt or equity capital prior to the end of 2000 or reduce
the scope of tower construction and acquisition activity. We cannot assure you
that we will generate sufficient cash flow from operations or that future
borrowings or equity or debt financings will be available on terms acceptable to
us, in amounts sufficient to service our indebtedness and make anticipated
capital expenditures.
CASH FLOWS
For the year ended December 31, 1999, cash flows provided by operating
activities were $17.6 million as compared to $2.3 million used in operating
activities in the year ended December 31, 1998. The change is primarily
attributable to the favorable cash flows generated from communications tower
acquisitions in 1999.
For the year ended December 31, 1999, cash flows used in investing
activities were $813.2 million compared to $45.0 million for the year ended
December 31, 1998. In the year ended December 31, 1999, SpectraSite invested
$692.8 million in purchases of property and equipment and deposits on future
acquisitions, primarily related to the acquisition of communication towers from
Nextel. In addition, we used $128.4 million to acquire Westower in September
1999 and Stainless and Doty-Moore in December 1999. These investments were
partially offset by $15.4 million in maturities of short-term investments.
In the year ended December 31, 1999, cash flows provided by financing
activities were $733.9 million as compared to $144.7 million in the year ended
December 31, 1998. The increase in cash provided by financing activities was
attributable to the proceeds from the sales of Series C preferred stock and the
2009 notes, as well as proceeds from borrowings under the credit facility.
Net cash used in operating activities during the year ended December 31,
1998 was $2.3 million compared to $0.2 million provided by operating activities
during the comparable period in 1997. The increase in cash used in operating
activities was primarily attributable to an increase in accounts receivable
resulting from the timing of billings related to site development services and
the net loss incurred during the year. Net cash used for investing for the year
ended December 31, 1998 was $45.0 million compared to $7.5 million for the year
ended December 31, 1997. The cash used for investing activities during the year
ended December 31, 1998 was primarily the result of the investment of unused
proceeds from the sale of the 2008 notes in short-term investments, costs
associated with tower construction, the acquisition of towers from Airadigm
Communications, Inc. and the acquisition of GlobalComm. The cash used for
investing activities during the year ended December 31, 1997 primarily related
to the acquisition of Telesite. Net cash provided by financing activities for
the year ended December 31, 1998 was $144.7 million compared to $9.6 million for
the same period in 1997. The increase in cash provided by financing activities
was attributable to the proceeds from the sales of Series B preferred stock and
the 2008 notes.
MERGERS AND ACQUISITIONS
We acquired 45 communications towers and certain related assets from
Airadigm for an aggregate purchase price of $11.25 million in 1998 and 1999.
Airadigm is the anchor tenant on 48 of our towers and has filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. We cannot predict the impact of
this proceeding on our future results of operations or financial condition.
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On April 20, 1999, we acquired 2,000 communications towers from Nextel in a
merger transaction. All the sites were then leased back to Nextel under a master
lease agreement. In addition, in connection with this transaction, Nextel and
its controlled affiliates agreed to offer SpectraSite certain exclusive
opportunities relating to the construction or purchase of an additional 1,700
sites. Some of these sites may in the future be leased to Nextel Partners
Operating Corp. instead of Nextel. Nextel Partners, Inc., the parent of Nextel
Partners Operating Corp., is an entity in which Nextel has a minority equity
interest. In connection with this acquisition, we paid $560.0 million in cash
and issued 14.0 million shares of Series C preferred stock, valued at $70.0
million, to Nextel.
The following table sets forth the sources and uses of funds for the Nextel
tower acquisition in thousands of dollars:
SOURCES OF FUNDS:
Credit facility..................................... $150,000
11 1/4% senior discount notes due 2009.............. 340,004
Series C preferred stock issued to Nextel........... 70,000
Series C preferred stock sold to the Series C
investors......................................... 231,434
--------
Total sources..................................... $791,438
========
USES OF FUNDS:
Cash paid to Nextel................................. $560,000
Series C preferred stock issued to Nextel........... 70,000
Cash available for general corporate purposes....... 127,688
Estimated fees and expenses......................... 33,750
--------
Total uses........................................ $791,438
========
On September 2, 1999, we acquired Westower Corporation, a Washington
corporation, in a stock-for-stock merger. In this transaction, Westower
stockholders received 1.81 shares of our common stock, plus cash for any
fractional Westower share, in exchange for each of their shares of Westower
common stock. In connection with the merger, SpectraSite repaid approximately
$70.0 million of Westower indebtedness with cash-on-hand. Westower Corporation
now operates as a wholly-owned subsidiary of SpectraSite Communications, which
in turn is a wholly-owned subsidiary of SpectraSite Holdings.
On September 8, 1999, we acquired a 33% interest in Concourse
Communications Group, LLC for an aggregate purchase price of $2.5 million.
Concourse was established to build certain wireless communications
infrastructures at facilities owned by the Port Authority of New York and New
Jersey, including the Holland and Lincoln Tunnels, World Trade Center Concourse
and New York's three major airports. As part of our investment, we agreed to
provide approximately $14.4 million of working capital and construction
financing to Concourse in the form of secured loans over the next three years.
At December 31, 1999, Concourse owed us $2.9 million under these loans. In
addition, after three years, we have an option to purchase an additional 33%
interest in Concourse, and after six years, we have an option to purchase the
remaining interest in Concourse.
In November 1999, we entered into an agreement to acquire 94 communications
towers from DigiPH PCS, Inc. for $36.0 million in cash. The towers span the
corridor connecting Jackson, Mississippi, Mobile, Alabama and Tallahassee,
Florida. We acquired 61 towers for approximately $23.9 million on December 29,
1999, and we expect to acquire the remaining towers during the first quarter of
2000.
On December 30, 1999, we acquired Stainless, Inc., formerly a wholly-owned
subsidiary of Northwest Broadcasting, L.P., for $40.0 million in cash. Stainless
provides engineering, fabrication and other services in connection with the
erection of towers used for television broadcast companies. Also on December 30,
1999, we acquired Doty-Moore Tower Services, Inc., Doty-Moore Equipment Company,
Inc. and Doty Moore RF Services, Inc. for $2.5 million in cash and 500,000
unregistered shares of our common stock. Doty-Moore is a leading source for
broadcast tower construction and technical services. In addition, on January 5,
2000, we acquired Vertical Properties, Inc. in a merger transaction under which
we issued 225,000 unregistered shares
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of our common stock and repaid outstanding indebtedness of approximately $2.0
million. Vertical Properties is a broadcast tower development company formed to
meet the needs of broadcasters in secondary broadcast markets faced with the
complexities of converting to digital technology through site acquisition, tower
placement and leasing of antenna space. On January 28, 2000, we acquired
substantially all of the assets of International Towers Inc. and its
subsidiaries, including S&W Communications Inc. International Towers owns a
modern broadcast tower manufacturing facility and, through S&W Communications,
provides integrated services for the erection of broadcast towers, foundations
and multi-tenant transmitter buildings. We paid $5.5 million and issued an
aggregate of 350,000 unregistered shares of our common stock in connection with
this acquisition. We borrowed an additional $50.0 million under our credit
facility in December 1999 to partially fund these mergers and acquisitions.
On January 5, 2000, we acquired Apex Site Management Holdings, Inc. in a
merger transaction. Apex provides rooftop and in-building access to wireless
carriers. We issued approximately 4.5 million unregistered shares of our common
stock to the stockholders of Apex and approximately 194,000 options to purchase
common stock at an exercise price of $3.58 per share to certain option holders
of Apex at the closing of the merger. In addition, we issued approximately 1.5
million additional shares of common stock into escrow, which shares may be
released to Apex's stockholders six months after this offering based on the
average trading price for our common stock for the 30-day period immediately
preceding the six-month anniversary of this offering. We also used approximately
$6.2 million in cash to repay outstanding indebtedness and other obligations of
Apex in connection with the merger.
On February 17, 2000, we entered into an agreement with AirTouch and
several of its affiliates, under which we agreed to lease or sublease
approximately 430 communications towers for $155.0 million, subject to
adjustment. Under the terms of the agreement and the master sublease which the
parties will enter into at closing, we will manage, maintain and lease the
available space on AirTouch towers covered by the agreement and located
throughout Southern California. AirTouch will pay us an average monthly fee per
site for its cellular, microwave and paging facilities. We also have the right
to lease available tower space to co-location tenants in specified situations.
We also entered into a site marketing agreement with AirTouch to provide
AirTouch with certain tower leasing and marketing services pending the closing
of the master sublease, and we have agreed to enter into a three-year exclusive
build-to-suit agreement with AirTouch in Southern California. Under the terms of
the build-to-suit agreement, we will develop and construct locations for
wireless communications towers on real property designated by AirTouch.
We expect the AirTouch transaction to close in stages, with the initial
closing to occur no later than November 15, 2000, if certain conditions are met.
The initial closing will involve at least 105 towers and each subsequent closing
will involve at least 45 towers, or a smaller number when fewer than 45 towers
remain to be transferred, and the final closing will occur no later than six
months after the initial closing. At each respective closing, we will pay for
the towers included in that closing according to a formula contained in the
master sublease. As partial security for our obligations under the master
sublease, we deposited $23.0 million into escrow.
FINANCING TRANSACTIONS
In connection with the Nextel tower acquisition, we privately placed
46,286,795 shares of Holdings' Series C preferred stock for an aggregate
purchase price of $231.4 million. On April 20, 1999, SpectraSite completed the
private offering of $586.8 million aggregate principal amount at maturity of
11 1/4% senior discount notes due 2009. We used a portion of the net proceeds
from these offerings to partially fund the Nextel tower acquisition and to pay
related fees and expenses. We used the remaining proceeds for general corporate
purposes, including the purchase and construction of new towers and selective
acquisitions.
Also on April 20, 1999, we entered into a $500.0 million seven-year credit
facility. We borrowed $150.0 million under this facility at the closing of the
Nextel tower acquisition. We also issued 2.0 million shares of common stock to
various parties as consideration for providing financing commitments related to
the Nextel tower acquisition. We did not utilize these commitments for the
Nextel acquisition primarily because of the success of the 2009 notes offering.
We currently have $300.0 million available under our credit facility
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to fund new tower construction or acquisition activity. In addition, as of
December 31, 1999, our cash and cash equivalents were $37.8 million.
On September 15, 1999, we completed registered exchange offers for our 2008
notes and our 2009 notes. Under a registration rights agreement with the initial
purchasers of the 2008 notes, we agreed to complete an exchange offer for the
privately placed 2008 notes prior to March 10, 1999. Since we did not complete
this exchange offer prior to March 10, 1999, the interest rate on the 2008 notes
increased by 0.50% per year. This additional interest accrued on the 2008 notes
until we completed the exchange offer, and we paid this interest in cash on
January 15, 2000. Similarly, under a registration rights agreement with the
initial purchasers of the 2009 notes, Holdings agreed to file a registration
statement with the SEC for an exchange offer of registered notes for the
privately placed 2009 notes before July 20, 1999. Since we did not file the 2009
notes exchange offer registration statement before July 20, 1999, the interest
rate on the 2009 notes increased by 0.50% per year. This additional interest
accrued on the 2009 notes until we filed the exchange offer registration
statement on August 12, 1999, and we paid this interest in cash on October 15,
1999.
On February 4, 2000, we completed a public offering of our common stock. We
offered 25,645,000 shares of common stock, including an over-allotment option
exercised by our underwriters. In addition, each share of our preferred stock
converted to a share of common stock upon the closing of the offering. The
number of shares of our common stock outstanding immediately after the offering,
including the 70,749,625 shares issued upon conversion of the preferred stock
and 6,007,996, 225,000 and 350,000 shares issued in connection with our
acquisitions of Apex and Vertical Properties in merger transactions and
substantially all of the assets of International Towers, Inc., was 123,169,225.
We received net proceeds of $411.3 million from the offering, which we intend to
use to fund costs related to the construction and acquisition of towers,
including under the AirTouch agreements, and for general corporate purposes.
INFLATION
Some of our expenses, such as those for marketing, wages and benefits,
generally increase with inflation. However, we do not believe that our financial
results have been, or will be, adversely affected by inflation in a material
way.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133
requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS 133
is effective for all fiscal years beginning after June 15, 2000. We have not yet
determined the effect that the adoption of SFAS 133 will have on our
consolidated financial statements.
YEAR 2000 COMPLIANCE
We have not experienced any immediate adverse impact from the transition to
the year 2000. However, we cannot assure you that we or our suppliers and
customers have not been affected in a manner that is not yet apparent. In
addition, certain computer programs which were date sensitive to the year 2000
may not process the year 2000 as a leap year, and any negative consequential
effects remain unknown. As a result, we continue to monitor our year 2000
compliance and the year 2000 compliance of our suppliers and customers.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We use financial instruments, including fixed and variable rate debt, to
finance our operations. The information below summarizes our market risks
associated with debt obligations outstanding as of December 31, 1999. The
following table presents principal cash flow and related weighted average
interest rates by fiscal year of maturity. Variable interest rate obligations
under the credit facility are not included in the table. We have no long-term
variable interest obligations other than borrowings under the credit facility.
EXPECTED MATURITY DATE
----------------------------------------------------------------------------
1999 2000 2001 2002 2003 THEREAFTER TOTAL
-------- -------- -------- -------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
Long-term obligations:
Fixed rate............ $ -- $ -- $ -- $ -- $ -- $516,251 $516,251
Average interest
rate............. -- -- -- -- -- 11.5% 11.5%
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ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required by
this Item are included in this report beginning on page F-1.
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 executive officers of SpectraSite are as follows:
NAME AGE POSITION
---------------------- --- --------
Stephen H. Clark............................ 55 President and Chief Executive Officer
Timothy G. Biltz............................ 41 Chief Operating Officer
David P. Tomick............................. 48 Executive Vice President, Chief Financial Officer and
Secretary
Richard J. Byrne............................ 42 Executive Vice President--Business Development
Calvin J. Payne............................. 47 Executive Vice President--Design and Construction
Terry L. Armant............................. 51 Senior Vice President--Operations
John H. Lynch............................... 42 Vice President, General Counsel
Daniel I. Hunt.............................. 35 Vice President--Finance and Administration
Steven C. Lilly............................. 30 Vice President and Treasurer
Douglas A. Standley......................... 42 Vice President--Broadcast Group
Alexander L. Gellman........................ 38 Vice President--Site Management Group
The remaining information required by this Item is incorporated by
reference to SpectraSite's Proxy Statement for the 2000 Annual Meeting of
Stockholders.
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ITEM 11. EXECUTIVE COMPENSATION
Other than as set forth below, the information required by this Item is
incorporated by reference to SpectraSite's Proxy Statement for the 2000 Annual
Meeting of Stockholders.
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid by
or incurred on behalf of SpectraSite to its Chief Executive Officer and four
other most highly compensated executive officers for the years ended December
31, 1997, 1998 and 1999. Amounts shown for 1997 include compensation paid by
Spectrasite Holdings to the named executive officers from April 25, 1997, the
date of Spectrasite Holdings' inception, through December 31, 1997.
LONG TERM
COMPENSATION AWARDS
-----------------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
--------------------------------------- UNDERLYING ALL OTHER
NAME AND OTHER RESTRICTED OPTIONS/ COMPENSATION($)
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ANNUAL($) STOCK($) SARS(#) (e)
------------------ ---- --------- -------- --------- ---------- ---------- ------------------
Stephen H. Clark........ 1999 219,006 150,000 -- -- 775,000 2,535
Chief Executive
Officer 1998 168,000 68,000 -- -- 300,000 2,400
1997 107,046 -- -- -- 425,000 --
David P. Tomick......... 1999 187,921 77,360 -- -- 225,000 2,442
Chief Financial
Officer 1998 140,000 56,000 -- -- 50,000 2,178
1997 64,029 -- -- -- 225,000 --
Terry L. Armant(a)...... 1999 148,025 51,845 -- -- 25,000 2,316
1998 55,192 68,150 -- -- 125,000 --
Senior Vice
President-Operations
Richard J. Byrne(b)..... 1999 103,205 70,613 138,613 224,500(d) 200,000 22,172
Executive Vice
President-Business
Development
Timothy G. Biltz(c)..... 1999 89,000 50,000 17,609 -- 400,000 32,064
Chief Operating
Officer
- ---------------
(a) Mr. Armant joined SpectraSite in August 1998.
(b) Mr. Byrne joined SpectraSite in April 1999.
(c) Mr. Biltz joined SpectraSite in August 1999.
(d) Mr. Byrne received 50,000 shares of restricted common stock in April 1999 in
connection with his employment by SpectraSite, and he is entitled to
dividends, if any, paid on his restricted stock. As of December 31, 1999,
Mr. Byrne held 50,000 shares of restricted common stock with a fair market
value of $544,000. No other named executive officer holds shares of
restricted stock.
(e) Amounts reported for 1999 include SpectraSite's contribution under its
401(k) plan of $2,535, $2,442, $2,316 and $707 for Messrs. Clark, Tomick,
Armant and Byrne, respectively, and relocation allowances of $21,465 and
$32,064 for Messrs. Byrne and Biltz, respectively.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of forms submitted to SpectraSite during and with
respect to 1999, all executive officers, directors and 10% beneficial owners
filed reports pursuant to Section 16 (a) of the Exchange Act on a timely basis,
except for the initial report of beneficial ownership on Form 3 by two
executive officers. In addition, one 10% beneficial owner did not file its Form
3 or a Form 4 reporting one transaction on a timely basis.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
SpectraSite's Proxy Statement for the 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
SpectraSite's Proxy Statement for the 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents incorporated by reference or filed with this Report
(1) The required financial statements are included in this report
beginning on page F-1.
(2) The required financial schedule information is provided in the
financial statements included in this report.
(3) Listed below are the exhibits which are filed or incorporated
by reference as part of this report (according to the number
assigned to them in Item 601 of Regulation S-K).
EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.1 Agreement and Plan of Merger, dated as of February 10, 1999,
among Nextel Communications, Inc., Tower Parent Corp., Tower
Merger Vehicle, Inc., Tower Asset Sub Inc., SpectraSite
Holdings, Inc. (the "Registrant"), SpectraSite
Communications, Inc. and SHI. Merger Sub, Inc. (the "Nextel
Merger Agreement"). Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.2 Amendment No. 1 to the Nextel Merger Agreement. Incorporated
by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
2.3 Agreement and Plan of Merger among Westower Corporation,
SpectraSite Holdings, Inc. and W. Acquisition Corp., dated as
of May 15, 1999. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
2.4 Merger Agreement and Plan of Reorganization, dated as of
November 24, 1999, among SpectraSite Holdings, Inc. (the
"Apex Merger Agreement"), Apex Merger Sub, Inc. and Apex Site
Management Holdings, Inc. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-1, file no. 333-93873
2.5 Stock Purchase Agreement, dated as of December 30, 1999,
between Northwest Broadcasting, L.P. and SpectraSite
Holdings, Inc. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-1, file no. 333-93873
2.6 Stock Purchase Agreement, dated as of December 30, 1999,
among Donald Doty, John Patrick Moore and SpectraSite
Holdings, Inc. Incorporated by reference to the corresponding
exhibit to the Registrant's registration statement on Form
S-1, file no. 333-93873
2.7 Merger Agreement and Plan of Reorganization, dated as of
December 30, 1999, among SpectraSite Holdings, Inc., VPI
Merger Sub, Inc., Vertical Properties, Inc. and the
stockholders of Vertical Properties, Inc. Incorporated by
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1, file no. 333-93873
2.8 Asset Purchase Agreement, dated as of January 5, 2000, among
International Towers, Inc., S&W Communications, Inc., Tri-Ex
Tower, Inc., International Tower Industries and SpectraSite
Holdings, Inc. Incorporated by reference to the
corresponding exhibit to the Registrant's report on Form
8-K filed on January 21, 2000
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
2.9 Agreement to Sublease, dated as of February 16, 2000, by and
between AirTouch Communications, Inc. and the Other Parties
Named Therein as Sublessors and California Tower, Inc. and
SpectraSite Holdings, Inc.
3.1 Certificate of Incorporation of Integrated Site Development
("ISD"), dated and filed as of April 25, 1997. Incorporated
by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
3.2 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of May 11, 1997 (authorizing Series A
Preferred Stock) and filed May 12, 1997. Incorporated by
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
3.3 Certificate of Amendment of the Certificate of Incorporation
of ISD, dated as of August 14, 1997 (changing name to
SpectraSite Communications, Inc. ("SCI")) and filed August
15, 1997. Incorporated by reference to the corresponding
exhibit to the Registrant's registration statement on Form
S-4, file no. 333-67403
3.4 Certificate of Amendment of the Certificate of Incorporation
of SCI, dated and filed as of October 29, 1997 (changing name
to SpectraSite Holdings, Inc.). Incorporated by reference to
the corresponding exhibit to the Registrant's registration
statement on Form S-4 , file no. 333-67403
3.5 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated and filed as of March 23, 1998
(authorizing Series B Preferred Stock). Incorporated by
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
3.6 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of May 29, 1998 and filed June 2,
1998. Incorporated by reference to the corresponding exhibit
to the Registrant's registration statement on Form S-4, file
no. 333-67403
3.7 Certificate of Amendment of the Certificate of Incorporation
of the Registrant, dated as of August 18, 1998 and filed
August 19, 1998. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
3.8 Amended Bylaws of SpectraSite Holdings, Inc. Incorporated by
reference to the
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-1, file no. 333-93873
3.9 Amended and Restated Certificate of Incorporation of the
Registrant. Incorporated by reference to the corresponding
exhibit to the Registrant's registration statement on Form
S-4, file no. 333-67403
3.10 Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the Registrant, dated August
31, 1999. Incorporated by reference to the corresponding
exhibit to the Registrant's report on Form 8-K, dated
September 2, 1999 and filed September 17, 1999
4.1 Indenture, dated as of June 26, 1998, between the Registrant
and United States Trust Company of New York, as trustee.
Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-4 , file no.
333-67403
4.2 First Supplemental Indenture, dated as of March 25, 1999,
between the Registrant and United States Trust Company of New
York, as trustee. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4 , file no. 333-67403
4.3 Indenture, dated as of April 20, 1999, between the Registrant
and United States Trust Company of New York, as trustee.
Incorporated by reference to the corresponding exhibit to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.1 Stock Purchase Agreement (Series A Preferred Stock), dated as
of May 12, 1997, by and among U.S. Towers, Inc. ("UST"),
Telesite Services, LLC ("Telesite"), Metrosite Management,
LLC ("Metrosite"), Whitney Equity Partners, L.P. ("Whitney
Equity"), Kitty Hawk Capital Limited Partnership, L.P., III
("Kitty Hawk III"), and ISD. Incorporated by reference to
the corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
10.2 Stock Purchase Agreement (Series B Preferred Stock), dated as
of March 23, 1998, by and among the Registrant, Whitney
Equity, J. H. Whitney, III, L.P. ("Whitney III"), Whitney
Strategic Partners III, L.P. ("Whitney Strategic"),
Waller-Sutton Media Partners, L.P. ("Waller-Sutton"), Kitty
Hawk III, Kitty Hawk Capital Limited Partnership, IV ("Kitty
Hawk IV"), Eagle Creek Capital, L.L.C. ("Eagle Creek"), The
North Carolina Enterprise Fund, L.P. ("NCEF"), Finley Family
Limited Partnership ("Finley LP"), William R. Gupton
("Gupton"), Jack W. Jackman ("Jackman") and Alton D. Eckert
("Eckert"). Incorporated by reference to the corresponding
exhibit to the Registrant's registration statement on Form
S-4, file no. 333-67403
10.3 First Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of May 29, 1998. Incorporated by
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
10.4 Second Amendment to Stock Purchase Agreement (Series B
Preferred Stock), dated as of August 27, 1998. Incorporated
by reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
10.5 Second Amended and Restated Registration Rights Agreement,
dated as of April 20, 1999, by and among the Registrant,
Whitney Equity, Whitney III, Whitney Strategic,
Waller-Sutton, Kitty Hawk III, Kitty Hawk IV, Eagle Creek,
NCEF, Finley LP, certain affiliates of CIBC Oppenheimer Corp.
(the "CIBC Purchasers"), certain affiliates and employees of
Welsh Carson Anderson & Stowe (the "WCAS Purchasers"), Tower
Parent Corp., Gupton, Eckert, Stephen H. Clark ("Clark") and
David P. Tomick ("Tomick"). Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.6 Third Amended and Restated Stockholders' Agreement, dated as
of April 20, 1999, by and among the Registrant, Whitney
Equity, Whitney III, Whitney Strategic, Waller-Sutton, Kitty
Hawk III, Kitty Hawk IV, Eagle Creek, Clark, Tomick, Finely
LP, NCEF, the CIBC Purchasers, the WCAS Purchasers, Tower
Parent Corp., Edward Lutkewich ("Lutkewich"), Jackman,
Eckert, and Gupton. Incorporated by reference to the
corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
10.7 Employment Agreement with Clark. Incorporated by reference
to the corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
10.8 Employment Agreement with Tomick. Incorporated by reference
to the corresponding exhibit to the Registrant's registration
statement on Form S-4, file no. 333-67403
10.9 Employment Agreement with Richard J. Byrne. Incorporated by
reference to the corresponding exhibit to the Registrant's
registration statement on Form S-4, file no. 333-67403
10.10 Credit Agreement, dated as of April 20, 1999, by and among
the Registrant, SCI, CIBC Oppenheimer Corp., Credit Suisse
First Boston Corporation and the other parties thereto (the
"Credit Agreement"). Incorporated by reference to exhibit no.
10.1 to the Registrant's registration statement on Form 8-A
filed on September 1, 1999
10.11 SpectraSite Holdings, Inc. Stock Incentive Plan.
Incorporated by reference to the exhibit no. 10.16 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.12 SpectraSite Holdings, Inc. Employee Stock Purchase Plan.
Incorporated by reference to the exhibit no. 10.17 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.13 Agreement, dated September 15, 1998, by and between Robert M.
Long and the Registrant. Incorporated by reference to
exhibit no. 10.22 to the Registrant's registration statement
on Form S-4, file no. 333-67403
10.14 Asset Purchase Agreement, dated as of August 14, 1998 by and
among Airadigm Communications, Inc. ("Airadigm") and SCI.
Incorporated by reference to exhibit no. 10.23 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.15 Form of Master Tower Attachment Lease Agreement by and
between Airadigm and SCI. Incorporated by reference to
exhibit no. 10.24 to the Registrant's registration statement
on Form S-4, file no. 333-67403
10.16 Asset Purchase, dated as of August 20, 1998, by and among
Amica Wireless Phone Service, Inc. ("Amica") and SCI.
Incorporated by reference to exhibit no. 10.25 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.17 Form of Master Design Build Lease Agreement by and between
Amica and SCI. Incorporated by reference to exhibit no. 10.26
to the Registrant's registration statement on Form S-4, file
no. 333-67403
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EXHIBIT
NUMBER DESCRIPTION
------- -----------
10.18 Preferred Stock Purchase Agreement (Series C Preferred
Stock), dated as of February 10, 1999, by and among
SpectraSite Holdings, Inc., the WCAS Purchasers, the Whitney
Purchasers, the CIBC Purchasers and the Additional
Purchasers. Incorporated by reference to exhibit no. 10.30 to
the Registrant's registration statement on Form S-4, file no.
333-67403
10.19 First Amendment to Preferred Stock Purchase Agreement (Series
C Preferred Stock). Incorporated by reference to exhibit no.
10.31 to the Registrant's registration statement on Form S-4,
file no. 333-67403
10.20 Security & Subordination Agreement, dated as of April
20,1999. Incorporated by reference to exhibit no. 10.32 to
the Registrant's registration statement on Form S-4, file no.
333-67403
10.21 Master Site Commitment Agreement, dated as of April 20, 1999.
Incorporated by reference to exhibit no. 10.33 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.22 Master Site Lease Agreement, dated as of April 20, 1999.
Incorporated by reference to exhibit no. 10.34 to the
Registrant's registration statement on Form S-4, file no.
333-67403
10.23 Employment Agreement with Calvin J. Payne. Incorporated by
referenced to exhibit 10.1 to the Registrant's report on Form
8-K, dated September 2, 1999 and filed September 17, 1999
10.24 Joinder Agreement to SpectraSite Restated Registration Rights
Agreement. Incorporated by reference to exhibit no. 10.36 to
the Registrant's registration statement on Form S-1, file no.
333-93873
10.25 First Amendment to the Credit Agreement, dated as of August
23, 1999. Incorporated by reference to exhibit 10.2 to the
Registrant's report on Form 8-K, dated September 2, 1999 and
filed September 17, 1999
10.26 Second Amendment to the Credit Agreement, dated as of
December 22, 1999.
10.27 Third Amendment to the Credit Agreement, dated as of February
14, 2000.
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule
99.1 Unaudited Pro Forma Financial Data
(b) Reports on Form 8-K filed during the quarter ended December 31,
1999:
None.
30
34
INDEX TO FINANCIAL STATEMENTS
PAGE
-------
Report of Independent Auditors F-2
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1999........................... F-3
Consolidated Statements of Operations for the period from inception (April 25,
1997) to December 31, 1997 and for the years ended December 31, 1998 and 1999...................... F-4
Consolidated Statements of Redeemable Convertible Preferred Stock and Shareholders'
Deficiency......................................................................................... F-5
Consolidated Statements of Cash Flows for the period from inception (April 25,
1997) to December 31, 1997 and for the years ended December 31, 1998 and 1999...................... F-6
Notes to Consolidated Financial Statements........................................................... F-7
TELESITE SERVICES, LLC
Report of Independent Auditors....................................................................... F-24
Consolidated Balance Sheet as of December 31, 1996................................................... F-25
Consolidated Statements of Operations for the year ended December 31, 1996 and
for the period from January 1, 1997 through May 12, 1997........................................... F-26
Consolidated Statements of Members' Equity........................................................... F-27
Consolidated Statements of Cash Flows for the year ended December 31, 1996 and for
the period from January 1, 1997 through May 12, 1997............................................... F-28
Notes to Consolidated Financial Statements........................................................... F-29
F-1
35
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SpectraSite Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of SpectraSite
Holdings, Inc. and subsidiaries as of December 31, 1998 and 1999 and the related
consolidated statements of operations, redeemable convertible preferred stock
and shareholders' equity (deficiency) and cash flows for the years ended
December 31, 1998 and 1999 and for the period from April 25, 1997 (inception) to
December 31, 1997. 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 audits to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SpectraSite
Holdings, Inc. and subsidiaries at December 31, 1998 and 1999 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1998 and 1999 and for the period from April 25, 1997 (inception) to
December 31, 1997 in conformity with accounting principles generally accepted in
the United States.
/s/ ERNST & YOUNG LLP
February 14, 2000
Raleigh, North Carolina
F-2
36
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
AS OF DECEMBER 31,
---------------------
1998 1999
-------- ----------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 99,548 $ 37,778
Short-term investments.................................... 15,414 --
Accounts receivable, net of allowance of $0 and $1,530.... 3,353 31,785
Costs and estimated earnings in excess of billings........ -- 11,545
Inventories............................................... -- 4,083
Prepaid expenses and other................................ 253 4,353
-------- ----------
Total current assets........................................ 118,568 89,544
Property and equipment, net................................. 28,469 763,757
Goodwill and other intangible assets, net................... 12,757 307,197
Other assets................................................ 2,152 59,455
-------- ----------
Total assets................................................ $161,946 $1,219,953
======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.......................................... $ 1,635 $ 21,230
Accrued and other expenses................................ 809 16,942
Billings in excess of costs and estimated earnings........ -- 5,247
-------- ----------
Total current liabilities................................... 2,444 43,419
Long-term debt.............................................. -- 202,527
Other long-term liabilities................................. 224 --
Senior discount notes....................................... 132,689 516,251
-------- ----------
Total liabilities........................................... 135,357 762,197
-------- ----------
Series A redeemable convertible preferred stock, $0.001 par,
3,462,830 shares authorized, and 3,462,830 outstanding,
stated at liquidation value............................... 11,300 --
-------- ----------
Series B redeemable convertible preferred stock, $0.001 par,
7,000,000 shares authorized, and 7,000,000 outstanding,
stated at liquidation value............................... 29,356 --
-------- ----------
Shareholders' equity (deficiency):
Series A convertible preferred stock, $0.001 par,
3,462,830 shares authorized and outstanding, stated at
liquidation value...................................... -- 10,000
Series B convertible preferred stock, $0.001 par,
7,000,000 shares authorized and outstanding, stated at
liquidation value...................................... -- 28,000
Series C convertible preferred stock, $0.001 par,
60,286,795 shares authorized and outstanding, stated at
liquidation value...................................... -- 301,494
Common stock, $0.001 par, 20,000,000 and 300,000,000
authorized, respectively, 956,753 and 20,191,604 issued
and outstanding, respectively.......................... 1 20
Additional paid-in-capital................................ -- 230,546
Accumulated other comprehensive income.................... -- 192
Accumulated deficit....................................... (14,068) (112,496)
-------- ----------
Total shareholders' equity (deficiency)..................... (14,067) 457,756
-------- ----------
Total liabilities, redeemable preferred stock and
shareholders' equity (deficiency)......................... $161,946 $1,219,953
======== ==========
F-3
37
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM
INCEPTION YEAR YEAR
(APRIL 25, 1997) TO ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------------- ------------ ------------
Revenues:
Site leasing............................... $ -- $ 656 $ 46,515
Network services........................... 5,002 8,142 53,570
------- -------- --------
Total revenues............................... 5,002 8,798 100,085
------- -------- --------
Operating expenses:
Cost of operations, excluding depreciation
and amortization expense:
Site leasing.......................... -- 299 17,825
Network services...................... 1,120 2,492 36,489
Selling, general and administrative
expenses................................... 7,390 9,690 38,182
Depreciation and amortization expense........ 489 1,268 37,976
Restructuring and non-recurring charges...... -- -- 7,727
------- -------- --------
Total operating expenses..................... 8,999 13,749 138,199
------- -------- --------
Operating loss............................... (3,997) (4,951) (38,114)
------- -------- --------
Other income (expense):
Interest income............................ 122 3,569 8,951
Interest expense........................... (164) (8,170) (67,513)
Other income (expense)..................... 149 473 (424)
------- -------- --------
Total other income (expense)................. 107 (4,128) (58,986)
------- -------- --------
Loss before income taxes..................... (3,890) (9,079) (97,100)
Income tax expense........................... -- -- 568
------- -------- --------
Net loss..................................... $(3,890) $ (9,079) $(97,668)
======= ======== ========
Loss applicable to common shareholders:
Net loss..................................... $(3,890) $ (9,079) $(97,668)
Accretion of redemption value of preferred
stock...................................... (500) (2,156) (760)
------- -------- --------
Net loss applicable to common shareholders... $(4,390) $(11,235) $(98,428)
======= ======== ========
Net loss per common share:
Basic and diluted.......................... $ (5.21) $ (11.98) $ (12.48)
======= ======== ========
Weighted average common shares outstanding:
Basic and diluted.......................... 842 938 7,886
======= ======== ========
F-4
38
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF REDEEMABLE
CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY (DEFICIENCY)
(DOLLARS IN THOUSANDS)
REDEEMABLE CONVERTIBLE PREFERRED STOCK SHAREHOLDERS' EQUITY (DEFICIENCY)
--------------------------------------
REDEEMABLE REDEEMABLE
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
SERIES A SERIES B SERIES A SERIES B SERIES C
--------------- --------------- --------------- --------------- ---------------
Balance at April 25, 1997
(inception).............. $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................... -- -- -- -- --
Issuance of warrants...... -- -- -- -- --
Issuance of preferred
stock.................... 10,000 -- -- -- --
Stock issuance costs...... -- -- -- -- --
Accretion of redemption
value.................... 500 -- -- -- --
Net loss.................. -- -- -- -- --
-------- -------- ------- ------- --------
Balance at December 31,
1997..................... 10,500 -- -- -- --
Exercise of warrants...... -- -- -- -- --
Issuance of preferred
stock.................... -- 28,000 -- -- --
Stock issuance costs...... -- -- -- -- --
Accretion of redemption
value.................... 800 1,356 -- -- --
Repurchase of common
stock.................... -- -- -- -- --
Net loss.................. -- -- -- -- --
-------- -------- ------- ------- --------
Balance at December 31,
1998..................... 11,300 29,356 -- -- --
Net loss.................. -- -- -- -- --
Foreign currency
translation adjustment... -- -- -- -- --
Total comprehensive
loss.....................
Issuance of common
stock.................... -- -- -- -- --
Stock issuance costs...... -- -- -- -- --
Issuance of Series C
preferred stock.......... -- -- -- -- 301,494
Accretion of redemption
value.................... 200 560 -- -- --
Cancellation of redemption
status of preferred
stock.................... (11,500) (29,916) 10,000 28,000 --
-------- -------- ------- ------- --------
Balance at December 31,
1999..................... $ -- $ -- $10,000 $28,000 $301,494
======== ======== ======= ======= ========
REDEEMABLE
CONVERTIBLE SHAREHOLDERS' EQUITY (DEFICIENCY)
--------------- ---------------------------------
ACCUMULATED
COMMON STOCK ADDITIONAL COMPREHENSIVE OTHER
------------------- PAID-IN INCOME COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL (LOSS) INCOME DEFICIT TOTAL
---------- ------ ---------- ------------- ------------- ----------- --------
Balance at April 25, 1997
(inception).............. -- $ -- $ -- $ -- $ -- $ --
Issuance of common
stock.................... 931,753 1 2,281 -- -- 2,282
Issuance of warrants...... -- -- 390 -- -- 390
Issuance of preferred
stock.................... -- -- -- -- -- --
Stock issuance costs...... -- -- (180) -- -- (180)
Accretion of redemption
value.................... -- -- (500) -- -- (500)
Net loss.................. -- -- -- $ (3,890) -- (3,890) (3,890)
---------- ---- -------- ======== ---- --------- --------
Balance at December 31,
1997..................... 931,753 1 1,991 -- (3,890) (1,898)
Exercise of warrants...... 150,000 -- -- -- -- --
Issuance of preferred
stock.................... -- -- -- -- -- --
Stock issuance costs...... -- -- (434) -- -- (434)
Accretion of redemption
value.................... -- -- (1,557) -- (599) (2,156)
Repurchase of common
stock.................... (125,000) -- -- -- (500) (500)
Net loss.................. -- -- -- $ (9,079) -- (9,079) (9,079)
---------- ---- -------- ======== ---- --------- --------
Balance at December 31,
1998..................... 956,753 1 -- (14,068) (14,067)
Net loss.................. -- -- -- $(97,668) -- (97,668) (97,668)
Foreign currency
translation adjustment... -- -- -- 192 192 -- 192
--------
Total comprehensive
loss..................... $(97,476)
========
Issuance of common
stock.................... 19,234,851 19 233,844 -- -- 233,863
Stock issuance costs...... -- -- (6,714) -- -- (6,714)
Issuance of Series C
preferred stock.......... -- -- -- -- -- 301,494
Accretion of redemption
value.................... -- -- -- -- (760) (760)
Cancellation of redemption
status of preferred
stock.................... -- -- 3,416 -- -- 41,416
---------- ---- -------- ---- --------- --------
Balance at December 31,
1999..................... 20,191,604 $ 20 $230,546 $192 $(112,496) $457,756
========== ==== ======== ==== ========= ========
F-5
39
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
PERIOD FROM INCEPTION
(APRIL 25, 1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
--------------------- ----------------- -----------------
OPERATING ACTIVITIES
Net loss........................................... $(3,890) $ (9,079) $ (97,668)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation..................................... 191 712 31,967
Amortization of goodwill and other intangibles... 298 556 6,009
Amortization of debt issuance costs.............. -- 244 3,086
Non-cash financing charge........................ -- -- 9,000
Loss (gain) on sale of assets.................... 60 (473) 95
Amortization of discount--senior discount
notes.......................................... -- 7,689 43,558
Non-cash compensation charges.................... 2,600 -- 350
Write-off of goodwill............................ -- -- 6,178
Equity in net loss of an affiliate............... -- -- 408
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.............................. (289) (1,451) (8,535)
Interest receivable on short-term investments.... -- (759) --
Costs and estimated earnings in excess of
billings....................................... -- -- (4,240)
Inventories...................................... -- -- 1,526
Prepaid expenses and other....................... 136 (164) (4,024)
Accounts payable................................. 317 591 11,457
Other current liabilities........................ 1,005 (213) 18,388
Other, net....................................... (205) -- --
------- -------- ---------
Net cash provided by (used in) operating
activities....................................... 223 (2,347) 17,555
------- -------- ---------
INVESTING ACTIVITIES
Purchases of property and equipment................ (850) (26,598) (644,778)
Acquisitions, net of cash acquired................. (5,028) (1,989) (128,414)
Proceeds from note receivable...................... -- 41 142
Issuance of note receivable........................ -- -- (500)
Investment in affiliates........................... -- -- (4,167)
Loan to affiliate.................................. -- -- (2,875)
Distribution from affiliate........................ -- 150 --
Purchases of investments........................... -- (30,005) --
Maturities of short-term investments............... -- 15,350 15,414
Proceeds from sale of assets....................... -- 299 22
Repurchase of common stock......................... -- (500) --
Deposits on acquisitions........................... (1,300) (1,750) (48,069)
------- -------- ---------
Net cash used in investing activities.............. (7,178) (45,002) (813,225)
------- -------- ---------
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock.......... 10,000 28,000 231,494
Proceeds from issuance of common stock............. -- -- 1,007
Stock issuance costs............................... (179) (434) (6,714)
Proceeds from issuance of long-term debt........... -- -- 200,000
Proceeds from issuance of senior discount notes.... -- 125,000 340,004
Debt issuance costs................................ -- (4,836) (29,307)
Net repayments on line of credit................... (568) (628) --
Repayment of note to shareholder and other debt.... (64) (2,439) (2,584)
------- -------- ---------
Net cash provided by financing activities.......... 9,189 144,663 733,900
------- -------- ---------
Net increase (decrease) in cash and cash
equivalents...................................... 2,234 97,314 (61,770)
Cash and cash equivalents at beginning of period... -- 2,234 99,548
------- -------- ---------
Cash and cash equivalents at end of period......... $ 2,234 $ 99,548 $ 37,778
======= ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest........... $ 64 $ 216 $ 9,019
======= ======== =========
SUPPLEMENTAL DISCLOSURES OF NON CASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued for acquisitions............... $ -- $ 224 $ 217,855
======= ======== =========
Series C preferred stock issued for purchase of
property and equipment........................... $ -- $ -- $ 70,000
======= ======== =========
F-6
40
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
FORMATION OF COMPANY
SpectraSite Holdings, Inc. ("SpectraSite") and its wholly owned
subsidiaries (collectively referred to as the "Company"), are principally
engaged in providing services to companies operating in the telecommunications
industry, including leasing antenna sites on multi-tenant towers, network
design, tower construction and antenna installation throughout the United States
and Canada.
SpectraSite, formerly known as Integrated Site Development, Inc. ("ISD"),
was incorporated in the State of Delaware on April 25, 1997. On May 12, 1997,
SpectraSite issued 850,000 shares of its common stock and warrants to purchase
150,000 shares of common stock in exchange for the 850,000 issued and
outstanding shares of common stock and warrants to purchase 150,000 shares of
common stock of US Towers, Inc. ("UST"). SpectraSite's chief executive officer
was the principal shareholder of UST prior to this transaction. One of the
primary purposes of the exchange of shares was the hiring of the chief executive
officer. Since UST had minimal assets and operations, this transaction was
compensatory in nature, rather than a business combination or an asset
acquisition. Accordingly, this transaction resulted in a non-cash compensation
charge of $2.6 million based on the estimated fair value of the stock of $2.60
per share and the estimated fair value of the warrants of $2.60 per warrant at
the date of issuance. The warrants entitled the holder to the right to purchase
150,000 shares of SpectraSite common stock at a price of $0.001 per share,
through 2001. In September and October 1998, all of the warrants were exercised.
On May 12, 1997, SpectraSite acquired all of the outstanding membership
interests of TeleSite Services, LLC ("TeleSite") and its subsidiary, MetroSite
Management, LLC ("MetroSite"), for consideration including $4.9 million in cash,
81,753 shares of common stock valued at $0.2 million and a $2.3 million note
payable. Since SpectraSite had minimal operations prior to this acquisition,
TeleSite is considered SpectraSite's predecessor for financial reporting
purposes. In October 1997, TeleSite was merged into UST, and UST changed its
name to SpectraSite Communications, Inc. The acquisition was accounted for as a
purchase in accordance with the provisions of APB 16 and, accordingly, the
results of operations of TeleSite are included in the consolidated operations of
the Company from the date of acquisition.
In connection with the TeleSite acquisition, SpectraSite was required to
provide additional consideration of 55,919 shares of its common stock based upon
TeleSite achieving certain operating goals through the end of December 31, 1998,
pursuant to a provision in the TeleSite acquisition agreement. The Company
accounted for the obligation as an additional cost of the acquisition, recording
approximately $0.2 million of goodwill and a related long-term liability based
upon the fair value of the Company's common stock at December 31, 1998. During
1999, this obligation was satisfied by the issuance of 55,919 shares of common
stock valued at $0.2 million.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
SpectraSite and its subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-7
41
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
At December 31, 1998, the Company's short-term investments consisted of
commercial paper and certificates of deposit with maturities of less than one
year. The carrying amount of these investments approximated market value.
REVENUE RECOGNITION
Site leasing revenues are recognized when earned. Escalation clauses
present in the lease agreements with the Company's customers are recognized on a
straight-line basis over the term of the lease. Network service revenues from
site selection, construction and construction management activities are derived
under service contracts with customers which provide for billing on a time and
materials or fixed price basis. Revenues are recognized as services are
performed with respect to time and materials contracts. Revenues are recognized
using the percentage-of-completion method for fixed price contracts, measured by
the percentage of contract costs incurred to date compared to estimated total
contract costs. Costs and estimated earnings in excess of billings on
uncompleted contracts represent revenues recognized in excess of amounts billed.
Billings in excess of costs and estimated earnings on uncompleted contracts
represent billings in excess of revenues recognized. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are
determined.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method and consist primarily of materials purchased for future
construction not associated with specific jobs.
INVESTMENTS
An investment in an entity in which the Company owns more than 20% but less
than 50% is accounted for using the equity method and is included in other
assets. Under the equity method, the investment is stated at cost plus the
Company's equity in net income (loss) of the entity since acquisition. The
equity in net income (loss) of such entity is recorded in "Other income
(expense)" in the accompanying consolidated statements of operations. An
investment in an entity in which the Company owns less than 20% is accounted for
using the cost method and is included in other assets.
PROPERTY AND EQUIPMENT
Property and equipment, including towers, are stated at cost. The Company
capitalizes costs incurred in bringing towers to an operational state. Direct
costs related to the development and construction of towers, including interest,
are capitalized and are included in construction in progress. Approximately $0.1
million and $1.1 million of interest was capitalized for the years ended
December 31, 1998 and 1999, respectively. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets ranging from
three to fifteen years.
GOODWILL
The Company has classified as goodwill the cost in excess of fair value of
net assets acquired in purchase transactions. Goodwill is being amortized on a
straight-line basis over fifteen years. On an on going basis, the
F-8
42
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company assesses the recoverability of its goodwill by determining its ability
to generate future cash flows sufficient to recover the unamortized balance over
the remaining useful life. Goodwill determined to be unrecoverable based on
future cash flows would be written-off in the period in which such determination
is made.
DEBT ISSUANCE COSTS
The Company capitalized costs relating to the issuance of long-term debt
and senior discount notes. The costs are amortized using the straight-line
method over the term of the related debt.
INCOME TAXES
The liability method is used in accounting for income taxes and deferred
tax assets and liabilities are determined based on differences between the
financial reporting and tax basis of assets and liabilities.
FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, short-term investments
and the credit facility approximates fair value for these instruments. The
estimated fair value of the senior discount notes is based on the quoted market
price. The estimated fair values of the Company's financial instruments, along
with the carrying amounts of the related assets (liabilities), are as follows:
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
------------------ ---------------------- ----------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ------ --------- --------- --------- ---------
(IN THOUSANDS)
Cash and cash
equivalents.......... $2,234 $2,234 $ 99,548 $ 99,548 $ 37,778 $ 37,778
Short-term
investments.......... -- -- 15,414 15,414 -- --
12% Senior Discount
Notes due 2008....... -- -- (132,689) (114,871) (149,137) (132,890)
11.25 % Senior Discount
Notes Due 2009....... -- -- -- -- (367,114) (312,471)
Credit Facility........ -- -- -- -- (200,000) (200,000)
EARNINGS PER SHARE
Basic and diluted earnings 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 convertible
preferred stock and outstanding stock options. These potential common stock
equivalents were not included in diluted earnings per share for all periods
because the effect would have been antidilutive. Accordingly, basic and diluted
net loss per share are the same for all periods presented.
COSTS OF OPERATIONS
Costs of operations for network services consist of direct costs incurred
to provide the related services excluding depreciation and amortization expense.
Costs of operations for site leasing consist of direct costs incurred to provide
the related services including ground lease cost, tower maintenance and related
real estate taxes. Costs of operations for site leasing do not include
depreciation expense of the related leased assets.
F-9
43
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SIGNIFICANT CUSTOMERS
The Company's customer base consists of businesses operating in the
wireless telecommunications industry. The Company's exposure to credit risk
consists primarily of unsecured accounts receivable from these customers. Five
customers accounted for 96.6% of the Company's 1997 revenue. Two customers
accounted for 70.9% of the Company's 1998 revenue. Following is a list of
significant customers:
PERCENT OF
REVENUES
FOR THE PERIOD FROM PERCENT OF REVENUES PERCENT OF
APRIL 25, 1997 PERCENT OF ACCOUNTS FOR THE YEAR ACCOUNTS
(INCEPTION) TO RECEIVABLE AT ENDED RECEIVABLE AT
DECEMBER 31, 1997 DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1998
------------------- ------------------- ------------------- -----------------
Customer 1........... 38.9% 75.0% 46.6% 15.6%
Customer 2........... 18.8% -- -- --
Customer 3........... 14.7% -- -- --
Customer 4........... 13.0% -- -- --
Customer 5........... 11.2% -- -- --
Customer 6........... -- -- 24.3% 45.0%
Customer 7........... -- -- -- 22.7%
In the year ended December 31,1999, one customer, which is a significant
shareholder of the Company, accounted for 35.0% of the Company's revenues.
RESTRUCTURING AND NON-RECURRING CHARGES
In September 1999, the Company announced that it would no longer directly
provide site acquisition services. As a result, the Company recorded
restructuring charges of $7.1 million, of which $6.2 million related to the
write-off of goodwill related to the purchase of TeleSite and $0.9 million was
related to the cost of employee severance. In March 1999, the Company announced
that it would relocate its marketing and administrative operations from Little
Rock, Arkansas and Birmingham, Alabama to its corporate headquarters in Cary,
North Carolina. As a result, the Company recorded a non-recurring charge of $0.6
million for employee termination and other costs related to the relocation of
these activities.
STOCK OPTIONS
The Company has elected under the provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS
123") to account for its employee stock options in accordance with Accounting
Principle Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB
25"). Companies that account for stock based compensation arrangements for its
employees under APB No. 25 are required by SFAS 123 to disclose the pro forma
effect on net income (loss) as if the fair value based method prescribed by SFAS
123 had been applied. The Company plans to continue to account for stock based
compensation using the provisions of APB 25 and has adopted the disclosure
requirements of SFAS 123.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"), which establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. SFAS 130 only impacts
financial statement presentation as opposed to actual amounts recorded. Other
comprehensive income includes all nonowner changes in equity that are excluded
from net income. During the period from
F-10
44
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inception (April 25, 1997) to December 31, 1997 and during the year ended
December 31, 1998, the Company had no items of other comprehensive income.
During the year ended December 31, 1999, the Company had other comprehensive
income related to foreign currency translation adjustments.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 changes the way public companies report segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial statements to
shareholders. SFAS 131 also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The application of
the new rules did not have a significant impact on the Company's financial
position at December 31, 1998 or its results of operations for the year ended
December 31, 1998 as the Company operated in only one segment. During 1999, the
Company commenced operations in a second business segment.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 requires that derivative instruments be recognized as either
assets or liabilities in the consolidated balance sheet based on their fair
values. Changes in the fair values of such derivative instruments will be
recorded either in results of operations or in other comprehensive income,
depending on the intended use of the derivative instrument. The initial
application of SFAS 133 will be reported as the effect of a change in accounting
principle. SFAS 133 is effective for all fiscal years beginning after June 15,
2000. We have not yet determined the effect that the adoption of SFAS 133 will
have on our consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1998 consolidated
financial statements to conform to the 1999 presentation. These
reclassifications had no effect on net loss or shareholders' deficiency as
previously reported.
2. LONG-LIVED ASSETS
Property and equipment consist of the following:
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
Towers.......................................... $24,780 $723,075
Equipment....................................... 823 9,884
Furniture and fixtures.......................... 288 2,256
Other........................................... 212 15,240
------- --------
26,103 750,455
Less accumulated depreciation................... (870) (32,837)
------- --------
25,233 717,618
Construction in progress........................ 3,236 46,139
------- --------
Property and equipment, net..................... $28,469 $763,757
======= ========
F-11
45
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill and other intangible assets consist of the following:
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
Goodwill........................................ $ 8,963 $280,666
Debt issuance costs............................. 4,836 33,955
------- --------
13,799 314,621
Less accumulated amortization................... (1,042) (7,424)
------- --------
$12,757 $307,197
======= ========
Other assets consist of the following:
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
Deposits........................................ $1,750 $49,153
Other........................................... 402 10,302
------ -------
$2,152 $59,455
====== =======
3. DEBT
11.25% SENIOR DISCOUNT NOTES DUE 2009
In April 1999, the Company issued $586.8 million aggregate principal amount
at maturity of senior discount notes due 2009 (the "2009 Notes") for gross
proceeds of $340.0 million. Interest on the 2009 Notes accretes daily at a rate
of 11.25% per annum, compounded semiannually, to an aggregate principal amount
of $586.8 million on April 15, 2004. Cash interest will not accrue on the 2009
Notes prior to April 15, 2004. Commencing April 15, 2004, cash interest will
accrue and be payable semiannually in arrears on each April 15 and October 15,
commencing October 15, 2004, at a rate of 11.25% per annum. After April 15,
2004, the Company may redeem all or a portion of the 2009 Notes at specified
redemption prices, plus accrued and unpaid interest, to the applicable
redemption date. On one or more occasions prior to April 15, 2002, the Company
may redeem up to 35% of the aggregate principal amount at maturity of the 2009
Notes with the net cash proceeds from one or more equity offerings. The
redemption price would be 111.25% of the accreted value on the redemption date.
The Company is required to comply with certain covenants under the terms of the
2009 Notes that restrict the Company's ability to incur additional indebtedness,
make certain payments and issue preferred stock, among other things.
12% SENIOR DISCOUNT NOTES DUE 2008
In June 1998, the Company issued $225.2 million aggregate principal amount
at maturity of senior discount notes due 2008 (the "2008 Notes") for gross
proceeds of $125.0 million. The 2008 Notes accrete daily at a rate of 12% per
annum, compounded semiannually, to an aggregate principal amount of $225.2
million on July 15, 2003. Cash interest will not accrue on the 2008 Notes prior
to July 15, 2003. Commencing July 15, 2003, cash interest will accrue and be
payable semiannually in arrears on each January 15 and July 15, commencing
January 15, 2004, at a rate of 12% per annum. After July 15, 2003, the Company
may redeem all or a portion of the 2008 Notes at specified redemption prices,
plus accrued and unpaid interest, to the applicable redemption date. On one or
more occasions prior to July 15, 2001, the Company may redeem up to 25% of the
aggregate principal amount at maturity of the 2008 Notes issued with the net
cash proceeds from one or more equity offerings. The redemption price would be
112% of the accreted value on the redemption
F-12
46
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date. The Company is required to comply with certain covenants under the terms
of the 2008 Notes that restrict the Company's ability to incur indebtedness,
make certain payments and issue preferred stock among other things.
During the years ended December 31, 1998 and 1999, the Company recorded
amortization of debt discount of approximately $7.7 million and $43.6 million
related to the 2008 Notes and 2009 Notes as additional interest expense. The
senior discount notes consist of the following:
AS OF AS OF
DECEMBER 31, DECEMBER 31,
1998 1999
------------ ------------
(IN THOUSANDS)
Senior discount notes........................... $225,238 $ 812,038
Unamortized discount............................ (92,549) (295,787)
-------- ---------
$132,689 $ 516,251
======== =========
CREDIT FACILITY
In April 1999 in connection with the acquisition of communications towers
from Nextel Communications, Inc. ("Nextel"), SpectraSite Communications, Inc.
("Communications"), a wholly-owned subsidiary of SpectraSite, entered into a
$500.0 million credit facility. The credit facility consists of a $50.0 million
revolving credit facility that subject to the satisfaction of certain financial
covenants, may be drawn at any time up to December 31, 2005, at which time all
amounts drawn under the revolving credit facility must be paid in full; a $300.0
million multiple draw term loan that may be drawn at any time through March 31,
2002, which requires that the amount drawn be repaid in quarterly installments
commencing on June 30, 2002 and ending on December 31, 2005; and a $150.0
million term loan that was drawn in full at the closing of the Nextel tower
acquisition and that amortizes at a rate of 1.0% annually, payable in quarterly
installments beginning on June 30, 2002 through December 31, 2005, $67.5 million
on March 31, 2006 and the balance due on June 30, 2006.
The revolving credit loans and the multiple draw term loans will bear
interest, at our option, at either Canadian Imperial Bank of Commerce's base
rate, plus an applicable margin of 1.5% per annum initially, which margin after
a period of time may decrease based on a leverage ratio, or the reserve adjusted
London interbank offered rate, plus an applicable margin of 3.0% per annum
initially, which margin after a period of time may decrease based on a leverage
ratio.
The term loan bears interest, at our option, at either Canadian Imperial
Bank of Commerce's base rate, plus 2.0% per annum, which margin after a period
of time may decrease based on a leverage ratio, or the reserve adjusted London
interbank offered rate, plus 3.5% per annum, which margin after a period of time
may decrease based on a leverage ratio.
Communications will be required to pay a commitment fee of between 1.25%
and 0.50% per annum in respect of the undrawn portion of the multiple draw term
loan, depending on the amount undrawn. We are required to pay a commitment fee
of 0.50% per annum in respect of the undrawn portion of the revolving credit
facility.
Communications may be required to prepay the credit facility in part upon
the occurrence of certain events, such as a sale of assets, the incurrence of
certain additional indebtedness, the issuance of equity and the generation of
excess cash flow.
SpectraSite and each of Communications' subsidiaries has guaranteed the
obligations under the credit facility. The credit facility is further secured by
substantially all the tangible and intangible assets of
F-13
47
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Communications and its subsidiaries and a pledge of all of the capital stock of
Communications and its subsidiaries.
The credit facility contains a number of covenants that, among other
things, restrict our ability to incur additional indebtedness; create liens on
assets; make investments, make acquisitions, or engage in mergers or
consolidations; dispose of assets; enter into new lines of business; engage in
certain transactions with affiliates; and pay dividends or make capital
distributions. SpectraSite, however, will be permitted to pay dividends after
July 15, 2003, for the purpose of paying interest on the 2008 Notes and the 2009
Notes so long as no default under the credit facility then exists or would exist
after giving effect to such payment.
In addition, the credit facility requires compliance with certain financial
covenants, including requiring Communications and its subsidiaries, on a
consolidated basis, to maintain a maximum ratio of total debt to annualized
EBITDA; a minimum interest coverage ratio; a minimum fixed charge coverage
ratio; and a minimum annualized EBITDA, for the first year only.
OTHER LONG-TERM DEBT
Long-term debt, other than the 2008 Notes and 2009 Notes, consists of the
following:
AS OF
DECEMBER 31,
----------------
1998 1999
---- --------
(IN THOUSANDS)
Credit facility........................................... $ -- $200,000
Other obligations......................................... 18 3,128
Less current portion...................................... (18) (601)
---- --------
Long-term debt, less current portion...................... $ -- $202,527
==== ========
In connection with the acquisition of Westower Corporation ("Westower"),
the Company assumed certain long-term obligations of the acquired entity.
Substantially all of Westower's outstanding long-term obligations were repaid
prior to the acquisition, with the remaining unpaid obligations payable in
monthly installments through 2004. Other obligations for the year ended December
31, 1998 consisted of installment notes payable to a bank, which were
subsequently paid during 1999.
BANK CREDIT AGREEMENT
In January 1998, the Company signed a letter of intent with a bank for a
$50.0 million revolving credit facility for the purpose of financing the
construction and/or the acquisition of telecommunication towers for personal
communications services or other wireless communication services and other
permitted acquisitions as defined by the agreement, contingent upon certain
events. In the year ended December 31, 1998 the Company incurred approximately
$0.3 million in commitment fees related to the agreement. The agreement expired
on December 31, 1998.
4. CONVERTIBLE VOTING PREFERRED STOCK AND SHAREHOLDERS' EQUITY
SERIES A AND B CONVERTIBLE VOTING PREFERRED STOCK
At December 31, 1998, Spectrasite had mandatorily redeemable convertible
preferred stock consisting of Series A and Series B cumulative redeemable
preferred stock, each with a $0.001 par value, 10,462,830 shares authorized in
the aggregate and 3,462,830 and 7,000,000 shares issued and outstanding,
respectively. In connection with closing the Nextel tower acquisition,
provisions for dividends and redemption were eliminated with respect to the
Series A and Series B preferred stock. Previously accrued dividends have been
eliminated,
F-14
48
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and the outstanding balances have been reclassified as convertible preferred
stock in shareholders' equity in the balance sheet as of December 31, 1999. Each
share of Series A and Series B preferred stock is convertible into one share of
common stock and entitles the holder to vote on an as-converted basis with
holders of common stock. Contemporaneously with the closing of an underwritten
public offering of common stock, the outstanding shares of Series A and Series B
preferred stock automatically converted to common stock on February 4, 2000.
SERIES C CONVERTIBLE PREFERRED STOCK
In connection with closing the Nextel tower acquisition, SpectraSite sold
46,286,795 shares of Series C preferred stock at a price of $5.00 per share. In
addition, Nextel received 14 million shares of Series C preferred stock. At
December 31, 1999, SpectraSite had 60,286,795 of $0.001 par value Series C
shares authorized, issued and outstanding. Each share of Series C preferred
stock is convertible into one share of common stock and entitles the holder to
vote on an as-converted basis with holders of common stock. Contemporaneously
with the closing of an underwritten public offering of common stock, the
outstanding shares of Series C preferred stock automatically converted to common
stock on February 4, 2000.
COMMON STOCK
In connection with the Nextel tower acquisition, SpectraSite also restated
its certificate of incorporation. The amended and restated certificate
authorized 85 million shares of common stock, $0.001 par value per share. In
addition, the Company increased the maximum number of shares for which options
may be granted under its stock option plan to 4.1 million.
In August 1999, SpectraSite amended its restated certificate of
incorporation to increase the authorized shares of common stock to 300 million.
In addition, SpectraSite increased the maximum number of shares for which
options may be granted under its stock option plan to 10 million and authorized
one million shares to be issued under an Employee Stock Purchase Plan.
WARRANTS
During September and October, 1998, 150,000 shares of common stock were
issued in connection with the exercise of common stock warrants at a price of
$0.001 per share.
On October 9, 1998, the Company paid a former employee $500,000 under an
agreement to buy 125,000 shares of SpectraSite common stock from the former
employee for an agreed upon price and to release the Company from any potential
claims. In addition, the agreement provided that shareholders of SpectraSite
would have an option to purchase the former employee's remaining 37,605 shares
of SpectraSite common stock for the same price per share, provided that the
Company advise the former employee in writing of the exercise of all or any
portion of such option by November 15, 1998. The shares were subsequently
purchased by a shareholder of the Company on February 5, 1999 for an aggregate
purchase price of $150,000.
STOCK OPTIONS
During 1997, the Company adopted a stock option plan which provides for the
purchase of common stock by key employees, directors, advisors and consultants
of the Company. The maximum number of shares for which options may be granted
under the plan shall not exceed 10 million shares. Stock options are granted
under various stock option agreements. Each stock option agreement contains
specific terms. During the period from inception (April 25, 1997) to December
31, 1997 and the years ended December 31, 1998 and 1999, option grants were made
solely to employees.
The options without a performance acceleration feature, which were granted
under the terms of the incentive stock option agreement, and options granted
under the terms of the non-qualified stock option
F-15
49
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement vest and become exercisable ratably over a four or five-year period,
commencing one year after date of grant.
The options with a performance acceleration feature, which were granted
under the terms of the incentive stock option agreement, and the non-qualified
stock option agreement vest and become exercisable upon the seventh anniversary
of the grant date. Vesting, however, can be accelerated upon the achievement of
certain milestones defined in each agreement.
In accordance with SFAS 123, the fair value of each option grant was
determined by using the Black-Scholes option pricing model with the following
weighted average assumptions for the period ended December 31, 1997, the years
ended December 31, 1998 and 1999: dividend yield of 0.0%; volatility of .70;
risk free interest rate of 6.0% to 5.0%; and expected option lives of 7 years.
Had compensation cost for the Company's stock options been determined based on
the fair value at the date of grant consistent with the provisions of SFAS 123,
the Company's net loss and net loss per share would have been $4.0 million and
$5.37 for the period ended December 31, 1997, $9.5 million and $12.44 for the
year ended December 31, 1998 and $100.9 million and $12.80 for the year ended
December 31, 1999.
Option activity under the Company's plans is summarized below:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
Outstanding at April 25, 1997................. -- $ --
Options granted............................... 884,700 2.89
Options exercised............................. -- --
Options canceled.............................. -- --
---------
Outstanding at December 31, 1997.............. 884,700 2.89
Options granted............................... 842,000 3.33
Options exercised............................. -- --
Options canceled.............................. (158,800) 2.92
---------
Outstanding at December 31, 1998.............. 1,567,900 3.12
Options granted............................... 2,705,810 5.32
Options exercised............................. (200,006) 2.52
Options canceled.............................. (271,670) 3.41
Options assumed in Westower acquisition....... 1,921,757 8.62
---------
Outstanding at December 31, 1999.............. 5,723,791 6.02
=========
At December 31, 1997, there were no options exercisable under the stock
option plan. There were 185,475 and 1,765,666 options exercisable under the
stock option plan at December 31, 1998 and 1999, respectively.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ------------------------------
NUMBER WEIGHTED NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AS OF REMAINING WEIGHTED AVERAGE AS OF WEIGHTED AVERAGE
EXERCISE PRICES 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE 12/31/99 EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$0.01-$ 4.56 2,061,273 7.92 $ 3.75 1,113,320 $ 3.97
$5.00-$ 5.00 2,382,810 9.41 5.00 -- --
$6.35-$17.06 1,279,708 9.14 11.55 652,346 12.16
--------- ---------
$0.01-$17.06 5,723,791 8.81 6.02 1,765,666 7.00
========= =========
F-16
50
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average remaining contractual life of the stock options
outstanding was 8.76 years, 9.98 years and 8.81 years at December 31, 1997, 1998
and 1999, respectively.
EMPLOYEE STOCK PURCHASE PLAN
In August 1999, SpectraSite adopted the SpectraSite Holdings, Inc. Employee
Stock Purchase Plan. The board of directors has reserved and authorized one
million shares of common stock for issuance under the plan. Eligible employees
may purchase a number of shares of common stock equal to the total dollar amount
contributed by the employee to a payroll deduction account during each six-month
offering period divided by the purchase price per share. The price of the shares
offered to employees under the plan will be 85% of the lesser of the fair market
value at the beginning or end of each six-month offering period. As of December
31, 1999, SpectraSite had not initiated an offering period.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved shares of its authorized shares of common stock
for future issuance as follows:
AS OF
DECEMBER 31, 1999
-----------------
Convertible preferred stock...................... 70,749,625
Outstanding stock options........................ 5,723,791
Possible future issuance under stock option
plans.......................................... 4,076,203
Employee stock purchase plan..................... 1,000,000
----------
Total............................................ 81,549,619
==========
5. LEASES
OPERATING LEASES FROM OTHERS
The Company leases land ("ground leases"), office space and certain office
equipment under noncancelable operating leases. Ground leases are generally for
terms of five years and are renewable at the option of the Company. Rent expense
was approximately $0.2 million, $0.6 million and $17.9 million for the period
from April 25, 1997 (inception) to December 31, 1997 and the years ended
December 31, 1998 and 1999, respectively. The future minimum lease payments for
these leases are as follows:
AS OF
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
2000............................................. $ 24,686
2001............................................. 22,618
2002............................................. 19,055
2003............................................. 13,121
2004............................................. 8,139
Thereafter....................................... 22,725
--------
Total............................................ $110,344
========
ANTENNA SPACE LEASED TO OTHERS
The Company currently leases antenna space on multi-tenant towers to a
variety of wireless service providers under non-cancelable operating leases. The
tenant leases are generally for terms of five years and
F-17
51
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include options for renewal. The approximate future minimum rental income under
operating leases that have initial or remaining non-cancelable terms in excess
of one year are as follows:
AS OF
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
2000............................................. $ 63,494
2001............................................. 63,872
2002............................................. 61,548
2003............................................. 58,403
2004............................................. 43,861
Thereafter....................................... 10,684
--------
Total............................................ $301,862
========
6. INCOME TAXES
The provision for income taxes is comprised of the following:
PERIOD FROM
INCEPTION
(APRIL 25, 1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------------- ------------ ------------
(IN THOUSANDS)
Current:
State...................... $ -- $ -- $ 40
Foreign.................... -- -- 528
---------- ---------- ----------
Total provision for income
taxes.................... $ -- $ -- $ 568
========== ========== ==========
The reconciliation of income taxes computed at the U.S. federal statutory
rate to income tax provision (benefit) is as follows:
PERIOD FROM
INCEPTION
(APRIL 25, 1997) TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1998 1999
------------------- ------------ ------------
Federal income tax benefit at statutory
rate..................................... (35.0)% (35.0)% (35.0)%
Foreign tax rate differential.............. -- -- 0.6%
Non-deductible goodwill amortization....... -- -- 2.0%
Non-deductible interest expense............ -- 5.8% 0.5%
Change in valuation allowance.............. 35.0% 29.2% 32.5%
---------- ---------- ----------
Effective income tax rate.................. --% --% 0.6%
========== ========== ==========
F-18
52
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of net deferred taxes are as follows:
AS OF DECEMBER 31,
---------------------------
1997 1998 1999
----- ------ --------
(IN THOUSANDS)
Deferred tax assets:
Tax loss carry forwards................................... $ 183 $1,038 $ 15,600
Accreted interest on senior discount notes................ -- 2,978 19,730
Accrued liabilities....................................... -- -- 1,920
Depreciation.............................................. -- 41 1,760
----- ------ --------
Total gross deferred tax assets........................ 183 4,057 39,010
Valuation allowance....................................... (183) (4,057) (39,010)
----- ------ --------
Total net deferred tax assets.......................... $ -- $ -- $ --
===== ====== ========
The Company has a federal net operating loss carry forward of approximately
$40 million that begins to expire in 2012. Also, the Company has state tax
losses of $40 million that expire beginning in 2002. Based on the Company's
history of losses to date, management has provided a valuation allowance to
fully offset the deferred assets related to federal and state net operating loss
carry forwards.
7. RELATED PARTY TRANSACTIONS
In conjunction with the acquisition of TeleSite, the Company issued a $2.3
million note payable to a shareholder. In the period from April 25, 1997
(inception) to December 31, 1997 and during the year ended December 31, 1998,
the Company incurred approximately $100,000 and $81,000 of interest expense
related to the note payable to shareholder, respectively. In June 1998, the note
was repaid in full.
On April 20, 1999, in connection with the Nextel tower acquisition, four
directors purchased 50,000, 25,000, 262,973 and 100,000 shares of SpectraSite's
Series C preferred stock for $5.00 per share, respectively. In addition, one
director purchased 100,000 shares of common stock and executed promissory notes
as payment for the common stock. The promissory notes mature on April 20, 2009
and bear interest at 5.67% per year. Under the purchase agreement, 25% of the
shares of common stock vest each year, with the first installment vesting on
April 20, 2000. In addition, SpectraSite has the right to repurchase half of the
shares at their original cost to the director at any time prior to April 20,
2000 and upon the date the director ceases to perform services for SpectraSite.
Affiliates of three significant stockholders received an aggregate of two
million shares of SpectraSite's common stock valued at $9.0 million as
consideration for financing commitments made in connection with the Nextel tower
acquisition. Affiliates of each entity are members of the Company's board
directors.
To finance a portion of the cash consideration paid to Nextel, SpectraSite
issued and sold the 2009 Notes in a private offering and borrowed $150.0 million
under its credit facility. CIBC World Markets Corp. was an initial purchaser in
the 2009 notes offering, and an affiliate of CIBC World Markets is an agent and
a lender under the credit facility. CIBC World Markets was also an initial
purchaser of SpectraSite's 2008 Notes. CIBC World Markets and its affiliates
received customary fees for such services. One director of SpectraSite is a
Managing Director of CIBC World Markets.
In May 1997, an officer agreed to invest additional personal funds in
SpectraSite at the average per share price of Series A and Series B preferred
stock. In satisfaction of this commitment, the officer purchased 210,000 shares
of common stock for an aggregate purchase price of $0.8 million on April 20,
1999.
In August 1999, SpectraSite loaned an officer $325,000 in connection with
the exercise of certain stock options. The 112,500 shares the officer acquired
through the exercise of these options are pledged to
F-19
53
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SpectraSite as security for this loan. The loan bears interest at the applicable
federal rate under the Internal Revenue Code, 5.36% per annum, and matures in
August 2002.
In September 1999, SpectraSite loaned an officer $500,000 to purchase a
home as a relocation incentive. This loan will be secured by any shares of
SpectraSite's common stock issued to the officer upon exercise of options, bears
interest at 5.82% per annum and matures in September 2004.
The Company has a revolving loan arrangement with an affiliate under which
the affiliate may borrow up to $14.4 million. The loan accrues interest at 12%
and is collateralized by property, equipment, investments, contracts and other
assets of the affiliate. At December 31, 1999, the affiliate owed $2.9 million
to the Company under the loan. In 1999, the Company had interest income of $0.1
million from amounts outstanding under the loan.
8. EMPLOYEE BENEFIT PLAN
The Company provides a 401(k) plan for the benefit of all its employees
meeting specified eligibility requirements. The Company's expenses related to
the plan are discretionary and totaled approximately $11,000, $31,000 and
$121,000 for the period from April 25, 1997 (inception) to December 31, 1997 and
for the years ended December 31, 1998 and 1999, respectively.
9. SALE OF AFFILIATES
In February 1998, the Company entered into an agreement under which it sold
a wholly-owned subsidiary, MetroSite, for $299,000. The Company recognized a
gain on the sale of $257,000.
In May 1998, the Company sold its ownership interest in Communication
Management Specialists, LLC ("CMS") for $375,000, in exchange for a note
receivable bearing interest at 8.5% per annum, payable to the Company over 60
months. The total amount due to the Company at December 31, 1999 is $261,000 of
which the current portion, $73,000, is included in prepaid expenses and other
current assets in the accompanying balance sheet. The Company recognized a gain
on the sale of approximately $189,000. Prior to the sale, the Company's
ownership interest in CMS was accounted for using the equity method.
10. ACQUISITION ACTIVITY
In June 1998, the Company entered into an agreement under which it acquired
all of the membership interests of H&K Investments, LLC for $1.4 million in a
transaction accounted for as a purchase. The results of operations of H&K are
included in the Company's operations from the date of acquisition. The Company
paid $1.3 million in cash and recorded notes payable for $0.1 million in
conjunction with the acquisition. The outstanding note payable was subsequently
paid in December 1998.
In August 1998, the Company entered into an asset purchase agreement with
Airadigm Communications, Inc. ("Airadigm") for the purchase of 47 towers for
approximately $11.8 million. As of December 31, 1998, 40 towers had been placed
in service. During 1999, five additional towers were placed in service and
Airadigm refunded the Company's deposit for the remaining two towers. Under the
terms of the agreement, the Company will lease antenna space on the towers to
Airadigm.
In August 1998, the Company entered into an asset purchase agreement with
Amica Wireless Phone Service, Inc. for the purchase of the construction in
progress related to 14 towers for approximately $474,000.
In September 1998, the Company acquired all of the outstanding common stock
of GlobalComm, Inc. for $2.0 million in cash in a transaction accounted for as a
purchase. The results of operations of GlobalComm are included in the Company's
operations from the date of acquisition. The Company recorded approximately $1.7
million of goodwill related to the transaction.
In April 1999, the Company purchased 2,000 communications towers from
Nextel for $560.0 million in cash and 14 million shares of Series C preferred
stock valued at $70.0 million, which represented approximately 18% of all the
Company's outstanding capital stock. As part of the transaction, Nextel agreed
to lease 1,700 additional sites on the Company's towers as part of Nextel's
national deployment. SpectraSite and certain of Nextel's subsidiaries entered
into a master site commitment agreement under which Nextel and its
F-20
54
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
controlled affiliates will offer SpectraSite exclusive opportunities, under
specific terms and conditions, relating to the construction or purchase of, or
co-location on, additional communications sites. These sites will then be leased
by subsidiaries of Nextel under the terms of the master site lease agreement. If
the number of new sites leased is less than the agreed upon number as of
particular dates, Nextel has agreed to make payments to SpectraSite. The master
site commitment agreement also gives SpectraSite a right of first refusal to
acquire any towers that Nextel or certain affiliates desire to sell. Of the
total consideration paid to Nextel, $45.0 million has been allocated as a
deposit relating to this commitment. The Company used $150.0 million of
borrowings under a $500.0 million committed credit facility, $340.0 million from
the proceeds of the 2009 Notes and $231.4 million from the sale of new Series C
preferred stock to fund the cash purchase price and to pay related fees and
expenses.
In connection with the purchase, Nextel entered into a master site lease
agreement to become the anchor tenant on each of the acquired towers and also
conveyed to the Company certain third-party co-location site leases associated
with the acquired assets. Nextel also transferred to the Company certain
non-cancelable ground leases, and the Company assumed all operating and other
costs associated with the acquired assets.
In September 1999, the Company consummated the Agreement and Plan of
Merger, dated as of May 15, 1999 with Westower. Under the terms of the
agreement, Westower shareholders received 1.81 shares of SpectraSite common
stock for each share of Westower common stock. In the aggregate, SpectraSite
exchanged 15.5 million shares of its common stock valued at $205.6 million for
8.6 million shares of Westower common stock and assumed $81.5 million of debt.
The Company repaid $72.2 million of such assumed debt at closing. In addition,
the Company assumed the outstanding Westower employee stock options, which were
converted into options to purchase 1.7 million shares of SpectraSite's common
stock.
On December 30, 1999, SpectraSite acquired Stainless, Inc., formerly a
wholly-owned subsidiary of Northwest Broadcasting, L.P., for $40.0 million in
cash. Stainless provides engineering, fabrication and other services in
connection with the erection of towers used for television broadcast companies.
Also on December 30, 1999, SpectraSite acquired Doty-Moore Tower Services,
Inc., Doty-Moore Equipment Company, Inc. and Doty Moore RF Services, Inc. for
$2.5 million in cash and 500,000 shares of SpectraSite's common stock valued at
$5.4 million. Doty-Moore is a leading source for broadcast tower construction
and technical services.
The acquisitions of Westower, Stainless and Doty-Moore were accounted for
as purchases, and the excess of cost over fair value of the net assets acquired
is being amortized on a straight-line basis over fifteen years. The operations
of each are included in the consolidated statement of operations from the date
of acquisition.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if the acquisitions of Westower, Doty-Moore and
Stainless had been consummated as of January 1, 1999. The pro forma information
does not necessarily reflect the actual results that would have been achieved,
nor is it necessarily indicative of future consolidated results for the Company.
YEAR ENDED
DECEMBER 31, 1999
------------------------
(IN THOUSANDS OF DOLLARS
EXCEPT PER SHARE DATA)
Net revenues........................................ $ 187,082
Net loss............................................ (112,515)
Basic and diluted net loss per common share......... (5.11)
11. BUSINESS SEGMENTS
The Company previously operated in one business segment. As a result of the
Nextel tower and Westower acquisitions, the Company now operates in two business
segments, site leasing and network services. Prior period information has been
restated to reflect the current business segments. The site leasing segment
provides for leasing and subleasing of antennae sites on multi-tenant towers for
a diverse range of
F-21
55
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
wireless communication services, including personal communication services,
paging, cellular and microwave. The network services segment offers a broad
range of network development services, including network design, tower
construction and antenna installation.
In evaluating financial performance, management focuses on operating profit
(loss), excluding depreciation and amortization and restructuring charges. This
measure of operating profit (loss) is also before interest income, interest
expense, other income (expense) and income taxes. All reported segment revenues
are generated from external customers as intersegment revenues are not
significant.
Summarized financial information concerning each reportable segment is
shown in the following table. The "Other" column represents amounts excluded
from specific segments, such as income taxes, corporate general and
administrative expenses, depreciation and amortization, restructuring and other
non-recurring charges and interest. In addition, "Other" also includes corporate
assets such as cash and cash equivalents, tangible and intangible assets and
income tax accounts which have not been allocated to a specific segment.
SITE NETWORK
LEASING SERVICES OTHER TOTAL
-------- -------- --------- ----------
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1999
Revenues.......................................... $ 46,515 $53,570 $ -- $ 100,085
Income (loss) before income taxes................. 28,661 7,915 (133,676) (97,100)
Assets............................................ 756,442 60,149 403,362 1,219,953
YEAR ENDED DECEMBER 31, 1998
Revenues.......................................... $ 656 $ 8,142 $ -- $ 8,798
Income (loss) before income taxes................. 357 5,650 (15,086) (9,079)
Assets............................................ 25,865 -- 136,081 161,946
PERIOD FROM INCEPTION (APRIL 25, 1997) TO DECEMBER
31, 1997
Revenues.......................................... $ -- $ 5,002 $ -- $ 5,002
Income (loss) before income taxes................. -- (3,997) 107 (3,890)
Assets............................................ -- -- 13,642 13,642
From inception (April 25, 1997) until the acquisition of Westower on
September 2, 1999, all of the Company's operations were located in the United
States.
Net revenues for the year ended December 31, 1999 were located in
geographic areas as follows:
(IN THOUSANDS)
United States........................................ $ 90,984
Canada............................................... 13,794
Eliminations......................................... (4,693)
--------
Consolidated net revenues............................ $100,085
========
At December 31, 1999, assets were located in geographic areas as follows:
(IN THOUSANDS)
United States........................................ $1,065,256
Canada............................................... 65,153
----------
Consolidated long-lived assets....................... $1,130,409
==========
F-22
56
SPECTRASITE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. YEAR 2000 ISSUE (UNAUDITED)
The Company has not experienced any immediate adverse impact from the
transition to the Year 2000; however, management cannot provide assurance that
the company, it's suppliers or it's customers have not been affected in a manner
that is not yet apparent. In addition, certain computer programs which were date
sensitive to the Year 2000 may not process the Year 2000 as a leap year, and any
negative consequential effects remain unknown. As a result, the Company
continues to monitor Year 2000 compliance and the Year 2000 compliance of its
suppliers and customers.
13. SUBSEQUENT EVENTS (UNAUDITED)
On January 5, 2000, SpectraSite acquired Vertical Properties, Inc. in a
merger transaction under which SpectraSite issued 225,000 unregistered shares of
its common stock and repaid outstanding indebtedness of approximately $2.0
million. Vertical Properties is a broadcast tower development company formed to
meet the needs of broadcasters in secondary broadcast markets faced with the
complexities of converting to digital technology through site acquisition, tower
placement and leasing of antenna space.
On January 5, 2000, SpectraSite acquired Apex Site Management Holdings,
Inc. ("Apex") in a merger transaction. Apex provides rooftop and in-building
access to wireless carriers. SpectraSite issued approximately 4.5 million
unregistered shares of its common stock and approximately 194,000 options to
purchase common stock at an exercise price of $3.58 per share to the
shareholders of Apex at the closing of the merger. In addition, SpectraSite
issued approximately 1.5 million additional shares of common stock into escrow.
These shares may be released to Apex's shareholders six months after
SpectraSite's currently pending public offering is consummated based on the
average trading price for SpectraSite's common stock for the 30-day period
immediately preceding the six-month anniversary of the public offering.
SpectraSite also used approximately $6.2 million in cash to repay outstanding
indebtedness and other obligations of Apex in connection with the merger.
On January 28, 2000, SpectraSite acquired substantially all of the assets
of International Towers Inc. and its subsidiaries, including S&W Communications
Inc. International Towers owns a broadcast tower manufacturing facility and,
through S&W Communications, provides integrated services for the erection of
broadcast towers, foundations and multi-tenant transmitter buildings.
SpectraSite paid $5.5 million and issued an aggregate of 350,000 unregistered
shares of its common stock in connection with this acquisition.
On February 4, 2000, SpectraSite completed an underwritten public offering
of 25.6 million shares of common stock for net proceeds of approximately $411.3
million. As a result of the offering, all Series A, B, C preferred stock
automatically converted to common stock on a share-for-share basis.
On February 17, 2000, the company signed a definitive agreement with
AirTouch Communications, Inc. to obtain the rights to approximately 430 towers
through a master sublease for approximately $155 million. The transaction is
expected to close in stages with the initial closing to occur no later than
November 15, 2000, if certain conditions are met.
F-23
57
REPORT OF INDEPENDENT AUDITORS
The Members
TeleSite Services, LLC
We have audited the accompanying consolidated balance sheet of TeleSite
Services, LLC as of December 31, 1996 and the related consolidated statements of
operations and members' equity and cash flows for the year ended December 31,
1996 and for the period from January 1, 1997 through May 12, 1997. 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 consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TeleSite
Services, LLC at December 31, 1996 and the consolidated results of its
operations and its cash flows for the year ended December 31, 1996 and for the
period from January 1, 1997 through May 12, 1997, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Raleigh, North Carolina
March 27, 1998
F-24
58
TELESITE SERVICES, LLC
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
ASSETS
Current assets:
Cash...................................................... $ 4,854
Accounts receivable:
Trade.................................................. 1,777,611
Other.................................................. 37,107
Prepaid expenses and other................................ 39,964
----------
Total current assets........................................ 1,859,536
Property and equipment, net................................. 931,291
Investment in affiliate..................................... 131,459
----------
Total assets................................................ $2,922,286
==========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities:
Line of credit............................................ $ 946,724
Accounts payable.......................................... 688,180
Accrued expenses.......................................... 33,092
Current portion of long-term debt......................... 295,711
----------
Total current liabilities................................... 1,963,707
Long-term debt, less current portion........................ 81,106
----------
Total liabilities........................................... 2,044,813
Members' equity............................................. 877,473
----------
Total liabilities and members' equity....................... $2,922,286
==========
See accompanying notes.
F-25
59
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE
PERIOD FROM
FOR THE JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ---------------
Revenues................................................ $8,840,869 $1,925,985
Costs of operations..................................... 2,254,777 594,683
Selling, general and administrative expenses............ 4,255,840 1,741,856
Depreciation expense.................................... 91,133 55,870
---------- ----------
Operating income (loss)................................. 2,239,119 (466,424)
Interest expense........................................ (66,505) (35,695)
Equity in earnings (loss) of affiliate.................. 116,459 (1,087)
---------- ----------
Net income (loss)....................................... $2,289,073 $ (503,206)
========== ==========
Pro forma income data (unaudited):
Net income (loss) as reported......................... $2,289,073 $ (503,206)
Pro forma provision for income taxes.................. 892,783 --
---------- ----------
Pro forma net income (loss)........................... $1,396,290 $ (503,206)
========== ==========
See accompanying notes.
F-26
60
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
Members' deficiency at January 1, 1996...................... $ (445,584)
Distributions to members.................................. (966,016)
Net income................................................ 2,289,073
----------
Members' equity at December 31, 1996........................ $ 877,473
Contribution to capital................................... 100
Distributions to members.................................. (211,256)
Net loss.................................................. (503,206)
----------
Members' equity at May 12, 1997............................. $ 163,111
==========
See accompanying notes.
F-27
61
TELESITE SERVICES, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
PERIOD FROM
FOR THE JANUARY 1, 1997
YEAR ENDED TO
DECEMBER 31, 1996 MAY 12, 1997
----------------- ---------------
OPERATING ACTIVITIES
Net income (loss)....................................... $ 2,289,073 $(503,206)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation.......................................... 91,133 55,870
Equity in (earnings) loss of affiliate................ (116,459) 1,087
Changes in operating assets and liabilities:
Trade accounts receivable.......................... (1,314,087) 456,345
Other accounts receivable.......................... (34,072) (76,610)
Prepaid expenses and other......................... (35,827) (17,487)
Accounts payable................................... 197,702 (42,534)
Accrued expenses................................... 31,568 55,593
----------- ---------
Net cash provided by (used in) operating
activities.................................... 1,109,031 (70,942)
INVESTING ACTIVITIES
Purchases of property and equipment..................... (837,808) (321,788)
Investment in affiliate................................. (15,000) --
----------- ---------
Net cash used in investing activities............ (852,808) (321,788)
FINANCING ACTIVITIES
Net proceeds from line of credit........................ 368,724 249,338
Net proceeds from long-term debt........................ 556,391 293,785
Repayment of long-term debt............................. (224,923) --
Proceeds from capital contribution...................... -- 100
Distribution to members................................. (966,016) (153,499)
----------- ---------
Net cash (used in) provided by financing
activities.................................... (265,824) 389,724
----------- ---------
Net decrease in cash.................................... (9,601) (3,006)
Cash at beginning of period............................. 14,455 4,854
----------- ---------
Cash at end of period................................... $ 4,854 $ 1,848
=========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest................ $ 64,000 $ 30,695
=========== =========
See accompanying notes.
F-28