-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CppGJq40WeGhUisd2TjsGHtgNFxvt0l+4TAcm5+4neDXElHif02FYVBvbfmotCkh 0kGb7dACAZX8/LToedst1A== 0000916641-01-501536.txt : 20020410 0000916641-01-501536.hdr.sgml : 20020410 ACCESSION NUMBER: 0000916641-01-501536 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBA COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001034054 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 650716501 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30110 FILM NUMBER: 1784053 BUSINESS ADDRESS: STREET 1: ONE TOWN CENTER RD STREET 2: THIRD FLOOR CITY: BOCA RATON STATE: FL ZIP: 33486 BUSINESS PHONE: 5619957670 MAIL ADDRESS: STREET 1: ONE TOWN CENTER RD STREET 2: THIRD FLOOR CITY: BOCA RATON STATE: FL ZIP: 33486 10-Q 1 d10q.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended September 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934. For the transition period from to Commission file number 000-30110 SBA COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) Florida 65-0716501 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Town Center Road, Boca Raton, Florida 33486 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (561) 995-7670 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirement for the past 90 days. Yes X No ------ ------ Number of shares of common stock outstanding at November 7, 2001 Class A Common Stock - 42,458,358 shares Class B Common Stock - 5,455,595 shares ---------- SBA COMMUNICATIONS CORPORATION INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations for the three and nine months ended September 30, 2001 and 2000 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and 2000 5 Consolidated Statement of Shareholders' Equity for the nine months ended September 30, 2001 6 Condensed Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 21 SIGNATURES 22
2 ITEM 1: UNAUDITED FINANCIAL STATEMENTS SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands, except per share amounts)
September 30, 2001 December 31, 2000 ------------------ ----------------- ASSETS Current assets: Cash and cash equivalents $ 70,447 $ 14,980 Accounts receivable, net of allowance of $4,449 and $2,117 in 2001 and 2000, respectively 51,668 47,704 Prepaid and other current assets 11,323 5,968 Costs and estimated earnings in excess of billings on uncompleted contracts 17,379 13,584 ----------- --------- Total current assets 150,817 82,236 Property and equipment, net 1,104,060 765,815 Intangible assets, net 115,987 83,387 Other assets 10,243 17,380 ----------- --------- Total assets $1,381,107 $948,818 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 65,632 $ 76,944 Accrued expenses 18,490 13,504 Current portion - notes payable 289 2,606 Interest payable 8,848 49 Billings in excess of costs and estimated earnings on uncompleted contracts 3,837 5,942 Other current liabilities 15,233 10,665 ----------- --------- Total current liabilities 112,329 109,710 ----------- --------- Long-term liabilities: Senior discount notes payable 228,108 209,042 Senior notes payable 500,000 - Notes payable 50,275 72,625 Deferred tax liabilities, net 18,895 18,445 Other long-term liabilities 1,481 836 ----------- --------- Total long-term liabilities 798,759 300,948 ----------- --------- Commitments and contingencies (see Note 8) Shareholders' equity: Common stock-Class A par value $.01 (100,000 shares authorized), 42,458 and 40,989 shares issued and outstanding in 2001 and 2000, respectively 424 410 Common stock-Class B par value $.01 (8,100 shares authorized), 5,456 shares issued and outstanding in 2001 and 2000 55 55 Additional paid-in capital 654,650 627,370 Accumulated deficit (185,110) (89,675) ----------- --------- Total shareholders' equity 470,019 538,160 ----------- --------- Total liabilities and shareholders' equity $1,381,107 $948,818
The accompanying Condensed Notes to Consolidated Financial Statements on pages 7 through 12 herein are an integral part of these consolidated financial statements. 3 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands, except per share amounts)
For the three months For the nine months ended September 30, ended September 30, ------------------------ ----------------------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Site development $ 35,359 $ 31,741 $100,872 $ 78,775 Site leasing 27,674 13,654 72,872 35,552 -------- -------- -------- -------- Total revenues 63,033 45,395 173,744 114,327 -------- -------- -------- -------- Cost of revenues (exclusive of depreciation and amortization shown below): Cost of site development 27,223 23,834 77,455 60,053 Cost of site leasing 9,886 5,001 26,124 13,325 -------- -------- -------- -------- Total cost of revenues 37,109 28,835 103,579 73,378 -------- -------- -------- -------- Gross profit 25,924 16,560 70,165 40,949 Operating expenses: Selling, general and administrative 10,009 7,037 31,409 19,494 Non-recurring developmental charge 24,399 - 24,399 - Depreciation and amortization 20,145 9,517 53,520 24,279 -------- -------- -------- -------- Total operating expenses 54,553 16,554 109,328 43,773 -------- -------- -------- -------- Operating income (loss) (28,629) 6 (39,163) (2,824) Other income (expense): Interest income 1,578 2,056 6,785 4,877 Interest expense (14,099) (967) (34,736) (5,494) Non-cash amortization of original issue discount and debt issuance costs (7,614) (6,646) (21,870) (19,215) Other 54 (19) (142) 32 -------- -------- -------- -------- Total other expense (20,081) (5,576) (49,963) (19,800) -------- -------- -------- -------- Loss before provision for income taxes and extraordinary item (48,710) (5,570) (89,126) (22,624) Provision for income taxes (408) (335) (1,240) (912) -------- -------- -------- -------- Net loss before extraordinary item (49,118) (5,905) (90,366) (23,536) Extraordinary item - write-off of deferred financing fees - - (5,069) - -------- -------- -------- -------- Net loss $(49,118) $ (5,905) $(95,435) $(23,536) ========= ========= ========= ========= Basic and diluted loss per common share before extraordinary item $(1.03) $(0.14) $(1.91) $(0.60) Extraordinary item - write-off of deferred financing fees - - (0.11) - -------- -------- -------- -------- Basic and diluted loss per common share $(1.03) $(0.14) $(2.02) $(0.60) Basic and diluted weighted average number of shares of common stock 47,600 43,370 47,172 39,344 ========= ========= ========= =========
The accompanying Condensed Notes to Consolidated Financial Statements on pages 7 through 12 herein are an integral part of these consolidated financial statements. 4 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (in thousands)
For the nine months ended September 30, --------------------------------------- 2001 2000 ---- ---- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net loss $ (95,435) $ (23,536) Adjustments to reconcile net loss to net cash provided by operating activities- Depreciation and amortization 53,520 24,279 Non-cash non-recurring developmental charge 24,148 - Non-cash compensation expense 2,533 211 Provision for doubtful accounts 1,166 1,318 Amortization of original issue discount and debt issuance costs 21,870 19,215 Write-off of deferred financing fees 5,069 - Changes in operating assets and liabilities: (Increase) decrease in-- Accounts receivable 2,631 (19,048) Prepaid and other current assets (5,340) (3,826) Costs and estimated earnings in excess of billings on uncompleted contracts (2,845) (7,089) Other assets 5,751 (1,952) Increase (decrease) in-- Accounts payable (12,951) 19,748 Accrued expenses 3,612 4,249 Accrued interest 8,799 - Other liabilities 4,623 5,208 Billings in excess of costs and estimated earnings on uncompleted contracts (2,310) 2,947 --------- --------- Total adjustments 110,276 45,260 --------- --------- Net cash provided by operating activities 14,841 21,724 --------- --------- CASH FLOWS USED IN INVESTING ACTIVITIES: Tower and other capital expenditures (415,170) (283,113) --------- --------- Net cash used in investing activities (415,170) (283,113) --------- --------- CASH FLOWS PROVIDED BY FINANCING ACTIVITIES: Net proceeds from common stock offerings - 464,603 Proceeds from option exercise 2,853 3,161 Proceeds from senior notes payable, net of financing fees 484,261 - Borrowings under senior credit facility 30,000 11,000 Proceeds from senior secured credit facility, net of financing fees 44,320 Repayment of senior credit facility and notes payable (105,638) (95,666) --------- --------- Net cash provided by financing activities 455,796 383,098 --------- --------- Net increase in cash and cash equivalents 55,467 121,709 CASH AND CASH EQUIVALENTS: Beginning of period 14,980 3,131 --------- --------- End of period $ 70,447 $ 124,840 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 27,897 $5,508 Taxes $1,992 $1,124 NON-CASH INVESTING ACTIVITIES: Assets acquired in connection with acquisitions $ 48,943 $ 42,351 Liabilities assumed in connection with acquisitions $ (4,549) $ (315) Common stock issued in connection with acquisitions $ (21,908) $ (36,798)
The accompanying Condensed Notes to Consolidated Financial Statements on pages 7 through 12 herein are an integral part of these consolidated financial statements. 5 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (unaudited) (in thousands)
Additional Paid-In Accumulated Common Stock Capital Deficit Total ----------------------------------------- ----------- ------- ----- Class A Class B ------- ------- Number Amount Number Amount ------ ------ ------ ------ BALANCE, December 31, 2000 40,989 $410 5,456 $55 $627,370 $ (89,675) $538,160 Common stock issued in connection with acquisitions 847 8 - - 21,900 - 21,908 Exercise of employee stock options 622 6 - - 2,847 - 2,853 Non-cash compensation expense - - - - 2,533 - 2,533 Net loss - - - - - (95,435) (95,435) ------ ---- ----- --- -------- ---------- -------- BALANCE, September 30, 2001 42,458 $424 5,456 $55 $654,650 $(185,110) $470,019 ====== ==== ===== === ======== ========== ========
The accompanying Condensed Notes to Consolidated Financial Statements on pages 7 through 12 herein are an integral part of these consolidated financial statements. 6 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying consolidated financial statements should be read in conjunction with the 2000 Form 10-K for SBA Communications Corporation. These financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States. In the opinion of the Company's management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period may not give a true indication of the results for the year. During the three and nine months ended September 30, 2001 and 2000, the Company did not have any changes in its equity resulting from non-owner sources and accordingly, comprehensive income was equal to the net loss amounts presented for the respective periods in the accompanying Consolidated Statements of Operations. The Company has potential common stock equivalents related to its outstanding stock options. These potential common stock equivalents were not included in diluted loss per share because the effect would have been anti-dilutive. Accordingly, basic and diluted loss per common share and the weighted average number of shares used in the computation are the same for all periods presented. There were 3.7 million and 3.2 million options outstanding at September 30, 2001 and 2000, respectively. 2. CURRENT ACCOUNTING PRONOUNCEMENTS In June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS 133. SFAS 133 established accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts and for hedging activities. SFAS 138 addresses a limited number of issues causing implementation difficulties for numerous entities that apply SFAS 133 and amends the accounting and reporting standards of SFAS 133 for certain derivative instruments and certain hedging activities. The Company adopted SFAS 138 on January 1, 2001 and there was not a significant impact from the adoption. In June 2001, the FASB issued Statement of Financial Accounting Standards No. 141 ("SFAS 141"), Business Combinations. SFAS 141 addresses financial accounting and reporting for business combinations and supercedes APB NO. 16, Business Combinations and SFAS No. 38 Accounting for Preacquisition Contingencies of Purchased Enterprises. All business combinations in the scope of SFAS 141 are to be accounted for under the purchase method. SFAS 141 is effective June 30, 2001. The Company adopted SFAS 141 on June 30, 2001. The adoption of SFAS 141 did not have an impact on the Company's consolidated financial statements. In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). This standard eliminates the amortization of goodwill against earnings. Instead, goodwill will be subject to at least an annual assessment for impairment by applying a fair-value-based test. Goodwill will be written-down against earnings only in the periods in which the recorded value of goodwill is more than its fair value. Goodwill existing at June 30, 2001 will continue to be amortized until December 31, 2001. Goodwill acquired subsequent to June 30, 2001 will not be amortized during the year ending December 31, 2001. Management expects to have SFAS 142 fully implemented by January 1, 2002, however, the effect SFAS 142 will have on the consolidated financial statements has not been determined. 7 In June 2001, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued an exposure draft of a proposed Statement of Position ("SOP") entitled Accounting for Certain Costs and Activities Related to Property, Plant and Equipment. The proposed SOP may limit the ability of companies to capitalize certain costs as part of property, plant and equipment ("PP&E"). The proposed SOP would also require that each significant separately identifiable part of PP&E with a useful life different from the useful life of the PP&E to which it relates be accounted for separately and depreciated over the individual component's expected useful life. The proposed SOP would be effective for fiscal years beginning after June 15, 2002. Management has not determined the effect this SOP, if issued as proposed, would have on the consolidated financial statements, but believes it may be material. In August, 2001, the FASB issued SFAS 143, Accounting for Asset Retirement Obligations. SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This standard requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset. The statement is effective for fiscal years beginning after June 15, 2002. Management has not determined the effect SFAS 143 will have on the Company's consolidated financial statements. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS 144 supercedes FAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long Lived Assets to Be Disposed of." SFAS 144 applies to all long-lived assets (including discontinued operations) and consequently amends Accounting Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business." SFAS 144 is effective for financial statement issued for fiscal years beginning after December 15, 2001. Management has not determined the effect, if any, this standard will have on the Company's consolidated financial statements. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following: As of September 30, December 31, 2001 2000 ---- ---- (in thousands) Towers $1,122,554 $ 721,361 Construction in process 43,128 69,012 Furniture, equipment and vehicles 29,421 19,497 Land 11,533 10,014 Buildings and improvements 1,286 625 ---------- -------- 1,207,922 820,509 Less: accumulated depreciation and amortization (103,862) (54,694) ---------- -------- Property and equipment, net $1,104,060 $765,815 ========== ======== Construction in process represents costs incurred related to towers which are under development. Interest is capitalized in connection with the construction of towers. Approximately $2.0 and $1.6 million of interest cost was capitalized during the nine months ended September 30, 2001 and the year ended December 31, 2000, respectively. During the quarter ended September 30, 2001, the Company wrote off $23.6 million in costs that were recorded in the Company's balance sheet as construction in process. This write-off occurred as a result of the Company's decision to reduce the scale of construction activities, in response to current capital market conditions. 8 4. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS Costs and estimated earnings on uncompleted contracts consist of the following:
For the nine months ended For the year ended September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) Costs incurred on uncompleted contracts $44,371 $ 48,060 Estimated earnings 9,471 9,941 Billings to date (40,300) (50,359) ------- -------- $13,542 $ 7,642 ======= ========
As of As of September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) Costs and estimated earnings in excess of billings on uncompleted contracts $ 17,379 $ 13,584 Billings in excess of costs and estimated earnings on uncompleted contracts (3,837) (5,942) -------- -------- $ 13,542 $ 7,642 ======== ========
5. CURRENT AND LONG-TERM DEBT
As of As of September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) 12% senior discount notes, net of unamortized original issue discount of $40,892 at September 30, 2001, unsecured, cash interest payable semi-annually in arrears beginning September 1, 2003, balloon principal payment of $269,000 due at maturity on March 1, 2008. $228,108 $209,042 10 1/4% senior notes, unsecured, interest payable semi-annually beginning August, 2001, balloon principal payment of $500,000 due at maturity on February 1, 2009. 500,000 - Senior secured credit facility term loan, interest at varying rates (6.28% at September 30, 2001) quarterly installments based on reduced availability beginning September 30, 2003, maturing June 15, 2007. 50,000 - Notes payable, interest at varying rates (4.9% to 9.0% at September 30, 2001). 564 231 Senior credit facility term loan, repaid in February 2001. - 50,000 Senior credit facility revolving loan, repaid in March 2001. - 25,000 -------- -------- 778,672 284,273 Less: current maturities (289) (2,606) -------- -------- Long-term debt $778,383 $281,667 ======== ========
9 6. SHAREHOLDERS' EQUITY In January 2001, the Company entered into bonus agreements with certain executives and employees to issue shares, or options to acquire shares, of the Company's Class A common stock. The Company expects to record approximately $3.3 million of non-cash compensation expense in 2001 and $1.1 million in non-cash compensation expense in each year from 2002 through 2006. The Company recorded approximately $0.9 million and $2.5 million in non-cash compensation expense during the three and nine months ended September 30, 2001, respectively. 7. INCOME TAXES The components of the provision for income taxes are as follows:
For the nine months ended ------------------------- September 30, 2001 September 30, 2000 ------------------ ------------------ (in thousands) Federal income tax $ 32,026 $ 8,002 State income tax (1,231) (814) Foreign tax (9) (9) Change in valuation allowance (32,026) (8,091) -------- ------- $(1,240) $ (912) ======== =======
The Company has taxable losses in the three and nine months ended September 30, 2001 and 2000, and as a result net operating loss carry-forwards have been generated. These net operating loss carry-forwards are fully reserved as management believes it is not "more likely than not" that the Company will generate sufficient taxable income in future periods to recognize the assets. 8. COMMITMENTS AND CONTINGENCIES The Company is involved in various claims, lawsuits and proceedings arising in the ordinary course of business. While there are uncertainties inherent in the ultimate outcome of such matters and it is impossible to presently determine the ultimate costs that may be incurred, management believes the resolution of such uncertainties and the incurrence of such costs should not have a material adverse effect on the Company's consolidated financial position or results of operations. As part of the consideration for its acquisitions, the Company sometimes agrees to issue additional shares of Class A common stock if the towers or businesses that are acquired meet or exceed certain earnings or new tower targets in the 1-3 years after they have been acquired. As of September 30, 2001, the Company had the obligation to issue approximately 2.7 million additional shares of Class A common stock and pay approximately $7.2 million in cash if the earnings targets identified in various acquisition agreements are met. 9. ACQUISITONS During the nine months ended September 30, 2001 the Company completed 59 acquisitions, all of which were individually insignificant to the Company. The aggregate purchase price for the acquisitions was $217.9 million for the nine months ended September 30, 2001, of which $21.9 million was paid through the issuance of the Company's stock and the remaining $196.0 million was paid in cash. 10. SEGMENT DATA The Company operates principally in three business segments: site development consulting, site development construction, and site leasing. The Company's reportable segments are strategic business units that offer different services. These business units are managed separately based on the fundamental differences in their operations. The Company's segment information for revenues, gross profit, capital expenditures (including assets acquired through the issuance of the Company's Class A common stock) and assets is as follows: 10
For the three months ended For the nine months ended -------------------------- ------------------------- September 30, September 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: Site development - consulting $ 4,977 $ 5,091 $ 18,867 $ 17,522 Site development - construction 30,382 26,650 82,005 61,253 Site leasing 27,674 13,654 72,872 35,552 ------- ------- -------- -------- $63,033 $45,395 $173,744 $114,327 ======= ======= ======== ======== Gross profit: Site development - consulting $ 1,550 $ 1,637 $ 6,037 $ 5,872 Site development - construction 6,586 6,271 17,380 12,850 Site leasing 17,788 8,652 46,748 22,227 ------- ------- -------- ------- $25,924 $16,560 $ 70,165 $40,949 ======= ======= ======== =======
For the nine months ended For the nine months ended September 30, 2001 September 30, 2000 ------------------ ------------------- Capital expenditures: Site development - consulting $ 1,062 $ 1,134 Site development - construction 31,491 3,978 Site leasing 402,237 313,633 Assets not identified by segment 2,288 1,166 -------- -------- $437,078 $319,911 ======== ========
As of As of September 30, 2001 December 31, 2000 ------------------ ----------------- (in thousands) Assets: Site development - consulting $ 12,727 $ 14,248 Site development - construction 125,172 99,962 Site leasing 1,141,546 815,660 Assets not identified by segment 101,662 18,948 ---------- -------- $1,381,107 $948,818 ========== ========
11. NON-RECURRING DEVELOPMENTAL CHARGE In August 2001, the Company announced that, in light of its assessment of capital market conditions, acquisition opportunities and the Company's success in growing its tower portfolio year to date, it was adjusting its new tower build construction plan and operation to produce 100 to 150 new towers per quarter commencing with the third quarter of 2001, instead of the 200 to 250 new towers per quarter previously built or capable of being built. The Company now expects to build a total of approximately 600 to 700 new towers in 2001, and approximately 400 to 600 new towers in 2002. In connection with the adjustment to the scale of its new tower construction operation, the Company recorded a $24.4 million non-recurring developmental charge in the third quarter of 2001. Included in the charge is a write-off of approximately $23.6 million of costs recorded in the balance sheet as work in process for certain new tower build sites for which development activity has ceased. The remaining $.8 million relates primarily to the costs of employee separation for 102 employees and the costs associated with the closing and consolidation of selected offices that were utilized primarily in its new asset development activities. Approximately $.5 million remains in accrued liabilities at September 30, 2001, representing primarily the future lease commitments for the closed offices that extend through September 2002. 11 12. SUBSEQUENT EVENT In October 2001, the Company filed a shelf registration statement on Form S-4 registering up to a total of 3.5 million shares of Class A Common Stock which the Company may issue in connection with the acquisition of wireless communication towers or companies that provide related services at various locations in the United States. This registration statement has not yet been declared effective. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS We are a leading independent owner and operator of wireless communications towers in the United States. We generate revenues from our two primary businesses, site leasing and site development. In our site leasing business, we lease antenna space to wireless service providers on towers and other structures that we own or manage for others. The towers that we own have either been constructed by us at the request of a carrier, built or constructed based on our own initiative or acquired. In our site development business, we offer wireless service providers assistance in developing their own networks, including designing a network with full signal coverage, identifying and acquiring locations to place their antennas, obtaining zoning approvals, building towers when necessary and installing their antennas. Since our founding in 1989, we have participated in the development of more than 15,000 antenna sites in 49 of the 51 major wireless markets in the United States. Site Leasing Services In 1997, we began aggressively expanding our site leasing business by capitalizing on our nationally recognized site development experience and strong relationships with wireless service providers to take advantage of the trends toward independent tower ownerships and co-location, which is the placement of multiple antennas on one tower. As of September 30, 2001, we owned or controlled 3,464 towers and had agreements providing us with the rights to acquire 270 additional existing towers. As of September 30, 2001 we had carrier directives to build approximately 600 additional towers and had, in various phases of development, approximately 500 sites we had internally identified as desirable locations on which to build a tower. We believe our history and experience in providing site development services gives us a competitive advantage in choosing the most attractive locations on which to build new towers or buy existing towers, as measured by our success in increasing tower revenues and cash flows. Based on tenant leases executed as of September 30, 2001, same tower revenue growth for the trailing twelve months on the 1,950 towers we owned as of September 30, 2000 was 26%. Our annualized rate of tenants added per tower, on a broadband equivalent basis, was .44, .47, .52, and .56, for the quarters ended September 30, 2001, June 30, 2001, March 31, 2001, and December 31, 2000, respectively. A broadband equivalent basis is calculated by dividing total lease revenue by $1,500, an industry benchmark for monthly rent per tenant. We have focused our capital expenditures on building new towers and acquiring existing towers and related businesses. Our average construction cost of a new tower is approximately $250,000, while we believe the industry's average acquisition cost of a new tower over the last two years has been approximately $350,000. As a result of these favorable economics, we have historically elected to build the majority, 60%, of our towers. However, this trend changed somewhat in 2001 as the average acquisition price per tower declined. We acquired more towers than we built in the first nine months of 2001 and expect this trend to continue through year ending December 31, 2001. On August 9, 2001, we announced that, in light of our assessment of capital market conditions, acquisition opportunities and its success in growing the tower portfolio year-to-date, we were adjusting our new tower build construction plan and operation to produce 100 to 150 new towers per quarter commencing with the third quarter of 2001, instead of the 200 to 250 new towers per quarter previously built or capable of being built. We now expect to build a total of approximately 600 to 700 new towers in 2001 and approximately 400 to 600 in 2002. The adjustment is not expected to impact our anticipated portfolio at year-end 2001 of 3,800 to 4,000 towers. In connection with the adjustment to the scale of our new tower construction operation, we recorded a $24.4 million, non-recurring developmental charge in the third quarter of 2001. Included in the charge was a $23.6 million write-off of costs previously reflected on our balance sheet as work in process for certain new tower build sites for which development activity has ceased. The remaining $.8 million relates primarily to the costs of employee separation for certain employees and costs associated with the closing and consolidation of selected offices that were utilized primarily in our new asset development activities. Approximately $.5 million remains in accrued liabilities at September 30, 2001, representing primarily the future lease commitments for the closed offices that extend through September 2002. 12 We have acquired 1,398 towers as of September 30, 2001. We seek to acquire towers where we can increase cash flow to substantially reduce the tower cash flow multiple paid at acquisition through additional tenant leases. During the quarter ended September 30, 2001, we acquired 77 towers. The 77 tower acquisitions were completed at an aggregate purchase price of $23.8 million, an average price of approximately $309,000 per tower. In addition to what we have previously acquired, we are actively negotiating to acquire additional existing towers. As of September 30, 2001, we had agreements to acquire 270 additional towers for an aggregate purchase price of approximately $67.8 million or an average acquisition price of approximately $251,000 per tower. These numbers do not include an option to purchase up to 100 additional towers from US Unwired later in 2001, as we do not expect to exercise this option as of the date of this report. These acquisitions are subject to a number of conditions and may or may not close. The following chart shows the number of towers we constructed for our own account and the number of towers we acquired during the periods indicated: Nine months ended Year ended September 30, 2001 December 31, 2000 ------------------ ----------------- Towers constructed 524 779 Towers acquired 550 448 Site Development Services Our site development business consists of two segments, site development consulting and site development construction, through which we provide wireless service providers a full range of end-to-end services. In the consulting segment of our site development business, we offer clients the following services: (1) network pre-design; (2) identification of potential locations for towers and antennas; (3) support in buying or leasing the location; and (4) assistance in obtaining zoning approvals and permits. In the construction segment of our site development business we provide a number of services, including the following: (1) tower and related site construction; (2) switch construction; (3) antenna installation; and (4) radio equipment installation, optimization and service. We believe that our total site development business will grow with the expected overall growth of wireless and other telecommunications networks. We anticipate that site development construction revenues will continue to exceed site development consulting revenues. We also believe that our site leasing revenues will grow as wireless service providers continue to lease antenna space on our towers and the number of towers we own or control grows. RESULTS OF OPERATIONS As we continue our transition into site leasing, operating results in prior periods may not be meaningful predictors of future prospects. You should be aware of the dramatic changes in the nature and scope of our business when reviewing the ensuing discussion of comparative historical results. We expect that the acquisitions consummated to date and any future acquisitions, as well as our new tower builds, will have a material impact on future revenues, expenses and net loss. We believe that our new tower build programs may have a material effect on future financial results, and that effect will probably be negative until such time, if ever, as the newly constructed towers attain higher levels of tenant use. Revenues, cost of revenues, selling, general and administrative expenses, depreciation and amortization, interest income and interest expense each increased significantly in the three and nine month period ended September 30, 2001 as compared to the respective periods in the prior year, and some or all of those items may continue to increase significantly in future periods. Additionally, during the nine months ended September 30, 2001, we recorded an extraordinary loss of $5.1 million for the write-off of deferred financing fees associated with the termination of a prior senior credit facility and a $24.4 million non-recurring developmental charge arising from our decision to reduce the scale of our new tower construction operations. 13 Third Quarter 2001 compared to the Third Quarter 2000 Total revenues increased 38.9% to $63.0 million for the third quarter of 2001 from $45.4 million for the third quarter of 2000. Site development revenues increased 11.4% to $35.4 million for the third quarter of 2001 from $31.7 million for the third quarter of 2000 due primarily to an increase in site construction revenues. Site development consulting revenues remained relatively consistent for the third quarter of 2001 at $5.0 million as compared to $5.1 million for the same period in 2000. Site development construction revenues increased 14.0% to $30.4 million for the third quarter of 2001 from $26.7 million for the third quarter of 2000, due to the increased demand for construction services from wireless communications carriers, the number of projects on which services were rendered and the acquisition of several small construction companies. Site leasing revenues increased 102.7% to $27.7 million for the third quarter of 2001 from $13.7 million for the third quarter of 2000, due to the increased number of tenants added to our towers, higher average rents received and the increase in the number of towers added to our portfolio. Total cost of revenues increased 28.7% to $37.1 million for the third quarter of 2001 from $28.8 million for the third quarter of 2000. Site development cost of revenues increased 14.2% to $27.2 million for the third quarter of 2001 from $23.8 million for the third quarter of 2000 due primarily to the increased volume in site development construction activity. Site development consulting cost of revenues remained relatively consistent at $3.4 million for the third quarter of 2001 as compared to $3.5 million for the same period in 2000. Site development construction cost of revenues increased 16.8% to $23.8 million for the third quarter of 2001 from $20.4 million for the third quarter of 2000 due primarily to higher volume of construction activity. Site leasing cost of revenues increased 97.7% to $9.9 million for the third quarter of 2001 from $5.0 million for the third quarter of 2000, due primarily to the increased number of towers owned resulting in an increased amount of lease payments to site owners and other related site costs. Gross profit increased 56.5% to $25.9 million for the third quarter of 2001 from $16.6 million for the third quarter of 2000, due primarily to increased site leasing revenues. Gross profit from site development increased 2.9% to $8.1 million in the third quarter of 2001 from $7.9 million in the third quarter of 2000. Gross profit margin on site development consulting remained relatively consistent at 32.1% for the third quarter of 2001 and 31.1% for the same period in 2000. Gross profit margin on site development construction decreased in the third quarter of 2001 to 21.7% from 23.5% in the third quarter of 2000 but met our minimum expectations of at least 21%. Gross profit for the site leasing business increased 105.6% to $17.8 million in the third quarter of 2001 from $8.7 million in the third quarter of 2000, and site leasing gross profit margin improved to 64.3% in the third quarter of 2001 from 63.4% in the third quarter of 2000. The increased gross profit was due to the substantially greater number of towers owned, the increase in the number of tenants and the greater average revenue per tower in the 2001 period. As a percentage of total revenues, gross profit increased to 41.1% of total revenues for the third quarter of 2001 from 36.5% for the third quarter of 2000 due primarily to increased levels of higher margin site leasing gross profit. Selling, general and administrative expenses increased 42.2% to $10.0 million for the third quarter of 2001 from $7.0 million for the third quarter of 2000. The increase in selling, general and administrative expenses represents the addition of support personnel and other infrastructure necessary to support our growth as well as increased non-cash compensation expense. The amount recorded as non-cash compensation in the third quarter of 2001 was $0.9 million as compared to only eight thousand dollars of non-cash compensation expense in the third quarter of 2000. This increase results from our increased usage of common stock and stock options as a means of rewarding and retaining key employees. In the third quarter, we recorded a $24.4 million non-recurring developmental charge relating to a reduction in the scale of our new tower construction operations. Approximately $23.6 million of this charge related to costs that were previously reflected in the Company's balance sheet as construction in process. The remaining $.8 million relates primarily to the costs of employee separation for 102 employees and the costs associated with the closing and consolidation of selected offices that were primarily utilized in our new asset development activities. Depreciation and amortization increased to $20.1 million for the third quarter of 2001 as compared to $9.5 million for the third quarter of 2000. This increase is directly related to the increased amount of fixed assets (primarily towers) we owned in 2001 as compared to 2000. Operating loss was $(28.6) million for the third quarter 2001, as compared to operating income of approximately six thousand dollars for the third quarter of 2000. Total other expenses increased to $(20.1) million for the third quarter of 14 2001, as compared to $(5.6) million for the third quarter of 2000, primarily as a result of increased interest expense. The increase in interest expense is due primarily to interest expense on our $500.0 million 10 1/4 % senior notes issued in February 2001 and the related amortization of deferred financing fees. Earnings before interest, taxes, depreciation and amortization, non-cash compensation expense and non-recurring and extraordinary items ("EBITDA") increased 75.9% to $16.8 million for the third quarter of 2001 from $9.5 million in the third quarter of 2000. The following table provides a reconciliation of EBITDA to net loss:
Three months ended September 30, -------------------------------- 2001 2000 ---- ---- (in thousands) EBITDA $ 16,769 $ 9,531 Interest expense (14,099) (967) Amortization of original issue discount and debt issuance costs (7,614) (6,646) Interest income 1,578 2,056 Provision for income taxes (408) (335) Depreciation and amortization (20,145) (9,517) Other (expense) income 54 (19) Non-recurring developmental charge (24,399) - Non-cash compensation expense (854) (8) --------- -------- Net loss $(49,118) $(5,905) ========= ========
First Nine Months of 2001 compared to the First Nine Months of 2000 Total revenues increased 52.0% to $173.7 million for the first nine months of 2001 from $114.3 million for the first nine months of 2000. Site development revenues increased 28.1% to $100.9 million in the first nine months of 2001 from $78.8 million in the first nine months of 2000 due to increases in both site development consulting revenues and construction revenues. Site development consulting revenues increased 7.7% to $18.9 million for the first nine months of 2001 from $17.5 million for the first nine months of 2000, due to the increased demand for site acquisition, zoning and other consulting services from wireless communications carriers. Site development construction revenues increased 33.9% to $82.0 million for the first nine months of 2001 from $61.3 million for the first nine months of 2000, due to the increased demand for construction services from wireless communications carriers, the number of projects on which services were rendered and the acquisition of several small construction companies. Site leasing revenues increased 105.0% to $72.9 million for the first nine months of 2001, from $35.6 million for the first nine months of 2000, due to the increased number of tenants added to our towers, higher average rents received and the increase in the number of towers added to our portfolio. Total cost of revenues increased 41.2% to $103.6 million for the first nine months of 2001 from $73.4 million for the first nine months of 2000. Site development cost of revenues increased 29.0% to $77.5 million for the first nine months of 2001 from $60.1 million in the first nine months of 2000 due to the increased volume in both site development consulting and construction revenues. Site development consulting cost of revenues increased 10.1% to $12.8 million for the first nine months of 2001 from $11.7 million for the first nine months of 2000 due primarily to higher volume. Site development construction cost of revenues increased 33.5% to $64.6 million for the nine months of 2001 from $48.4 million in the first nine months of 2000 due primarily to higher volume. Site leasing cost of revenues increased 96.1% to $26.1 million for the first nine months of 2001 from $13.3 million for the first nine months of 2000, due primarily to the increased number of towers owned resulting in an increased amount of lease payments to site owners and other related site costs. Gross profit increased 71.3% to $70.2 million for the nine months of 2001 from $40.9 million for the nine months of 2000, due to increased site development and site leasing revenues. Gross profit from site development increased 25.1% to $23.4 million in the nine months of 2001 from $18.7 million in the nine months of 2000. Gross profit margin on site development consulting decreased slightly to 32.0% for the nine months of 2001 from 33.5% for the nine months of 2000, reflecting different states of project completions. Gross profit margin on site development construction remained relatively consistent at 21.0% for the first 15 nine months of 2001 as compared to 21.2% for the first nine months of 2000. Gross profit for the site leasing business increased 110.3% to $46.7 million in the nine months of 2001 from $22.2 million in the nine months of 2000, and site leasing gross profit margin improved to 64.2% in the nine months of 2001 from 62.5% in the nine months of 2000. The increased gross profit was due to the substantially greater number of towers owned, the increase in the number of tenants and the greater average revenue per tower in the 2001 period. As a percentage of total revenues, gross profit increased to 40.4% of total revenues for the nine months of 2001 from 35.8% for the nine months 2000 due primarily to increased levels of higher margin site leasing gross profit. Selling, general and administrative expenses increased 61.0% to $31.4 million for the first nine months of 2001 from $19.5 million for the first nine months of 2000. The increase in selling, general and administrative expenses represented the addition of offices, personnel and other infrastructure necessary to support our growth as well as increased non-cash compensation expense and recurring developmental expenses. The amount recorded as non-cash compensation in the first nine months of 2001 was $2.5 million as compared to $.2 million in the first nine months of 2000. This increase results from the Company's increased usage of common stock and stock options as a means of rewarding and retaining key employees. The increase in recurring developmental expenses is due to higher levels of new build and acquisition activity, the increasingly difficult zoning environment and, to a lessor extent, pending acquisitions that ultimately did not close. During the nine months ended September 30, 2001, we recorded a $24.4 million non-recurring developmental charge relating to a reduction in the scale of our new tower construction operations. Approximately $23.6 million of this charge related to costs that were previously reflected in the Company's balance sheet as construction in process. The remaining $.8 million relates primarily to the costs of employee separation for 102 employees and the costs associated with the closing and consolidation of selected offices that were primarily utilized in our new asset development activities. Depreciation and amortization increased to $53.5 million for the first nine months of 2001 as compared to $24.3 million for the first nine months of 2000. This increase is directly related to the increased amount of fixed assets (primarily towers) we owned in 2001 as compared to 2000. Operating loss was $39.2 million for the first nine months of 2001, as compared to an operating loss of $2.8 million for the first nine months of 2000. Total other expenses increased to $50.0 million for the first nine months of 2001, as compared to $19.8 million for the first nine months of 2000, primarily as a result of increased interest expense. The increase in interest expense is primarily due to additional interest expense on our $500.0 million 10 1/4 % senior notes issued in February 2001. The extraordinary loss in 2001 of $5.1 million relates to the write-off of deferred financing fees associated with a prior credit facility we terminated in the first quarter of 2001. (Continued on the following page) 16 EBITDA increased 90.6% to $41.3 million for the first nine months of 2001 from $21.7 million in the first nine months of 2000. The following table provides a reconciliation of EBITDA to net loss:
Nine months ended September 30, 2000 2001 ---- ---- (in thousands) EBITDA $ 41,289 $ 21,666 Interest expense (34,736) (5,494) Amortization of original issue discount and debt issuance costss (21,870) (19,215) Interest income 6,785 4,877 Provision for income taxes (1,240) (912) Depreciation and amortization (53,520) (24,279) Other income (expense) (142) 32 Non-cash compensation expense (2,533) (211) Non-recurring developmental charge (24,399) - Extraordinary item, write-off of deferred financing fees (5,069) - --------- --------- Net loss $(95,435) $(23,536) ========= =========
LIQUIDITY AND CAPITAL RESOURCES SBA Communications Corporation is a holding company with no business operations of its own. Our only significant asset is the outstanding capital stock of our subsidiaries. We conduct all our business operations through our subsidiaries. Accordingly, our only source of cash, other than financings, to pay our obligations is distributions we receive from our subsidiaries from the net earnings and cash flow generated by these subsidiaries. Even if we decided to pay a dividend, we cannot assure you that our subsidiaries will generate sufficient cash flow to pay a dividend. Our ability to pay cash or stock dividends is restricted under the terms of our senior secured credit facility and other loan documents. Net cash provided by operations during the nine months ended September 30, 2001 was $14.8 million as compared to $21.7 million in the nine months ended September 30, 2000. Net cash used in investing activities for the nine months ended September 2001 was $(415.2) million compared to $(283.1) million for the nine months ended September 30, 2000. This increase is primarily attributable to a higher level of acquisitions and new build activity in 2001 versus 2000. Net cash provided by financing activities for the nine months ended September 30, 2001 was $455.8 million compared to $383.1 million for the nine months ended September 30, 2000. The increase in net cash provided by financing activities is primarily due to the issuance of our $500.0 million 10 1/4% senior notes completed in February 2001 and net borrowings under our senior secured credit facility. Our balance sheet reflected positive working capital of $38.5 million as of September 30, 2001 compared to negative working capital of $(27.5) million as of December 31, 2000. This change is primarily attributable to increased cash balances as a result of the issuance of our $500.0 million 10 1/4% senior notes completed in February 2001, the $50.0 borrowing under our senior secured credit facility. In February 2001, the Company issued $500.0 million 10 1/4% senior notes due 2009, which produced net proceeds of approximately $483.4 million after deducting offering expenses. Interest on the 10 1/4% senior notes is payable on February 1 and August 1 of each year, beginning August 1, 2001. The 10 1/4% senior notes are unsecured and pari passu in right of payment with the Company's other existing and future senior indebtedness. The 10 1/4% senior notes place certain restrictions on, among other things, the incurrance of debt and liens, issuance of preferred stock, payment of dividends or other distributions, sale of assets, transactions with affiliates, sale and leaseback transactions, certain investments and our ability to merge or consolidate with other entities. In June 2001, SBA Telecommunications, Inc. ("Telecommunications"), a subsidiary of SBA Communications, entered into a $300.0 million senior secured credit facility. The facility provides for a $100.0 million term loan and a $200.0 million revolving loan, the availability of which is based on compliance with certain convenants. Telecommunications drew $50.0 million of the term loan at closing and the additional $50.0 million available under the term loan will be drawn by December 15, 2001. The term loan and the revolving loan mature June 15, 2007 and amortization of the term loan begins in September 2003. Borrowings under the senior secured credit facility accrue interest at the euro dollar rate plus a margin or a base rate plus a margin, as defined in the agreement. The 17 senior secured credit facility is secured by substantially all of the assets of Telecommunications and its subsidiaries. The facility also places certain restrictions on, among other things, the incurrance of debt and liens, the sale of assets, capital expenditures, transactions with affiliates, sale and lease-back transactions and the number of towers that can be built without anchor tenants. Our cash capital expenditures for the nine months ended September 30, 2001 were $415.2 million, and for the year ended December 31, 2000 were $445.3 million. We currently plan to make total cash capital expenditures during the year ending December 31, 2001 of approximately $490.0 million to $500.0 million. Substantially all of these planned capital expenditures are expected to be funded by the remaining proceeds of our $500.0 million 10 1/4% senior note offering completed in February 2001, borrowings under our senior secured credit facility and cash flow from operations. Cash capital expenditures for fiscal year end 2002 are currently estimated at approximately $130.0 million to $180.0 million. The borrowings under our senior secured credit facility and cash flows from operations are expected to be sufficient to fund planned 2002 cash capital expenditures. The exact amount of our future capital expenditures will depend on a number of factors including acquisition opportunities that become available during the period, the needs of our build-to-suit customers, the number of towers we build and the availability to us of additional debt or equity capital on acceptable terms. Thereafter, however, or in the event we exceed current estimated cash capital expenditures, we anticipate that we will need to seek additional equity or debt financing to fund our business plan. In the event that we do not have sufficient liquidity, there is insufficient availability under the senior secured credit facility when an acquisition or construction opportunity arises, we would be required to seek additional debt or equity financing. Failure to obtain any such financing could require us to significantly reduce our planned capital expenditures and scale back the scope of our construction or acquisition activities, either of which could have a material adverse effect on our financial condition or results of operations. In addition we may need to refinance all or a portion of our indebtedness (including the 12% senior discount notes and the 10 1/4% senior notes) on or prior to scheduled maturity. Our ability to meet our planned capital expenditures in 2002 and beyond, to meet our long-term liquidity obligations and to grow our business is extremely dependent on the availability of capital. Prior to September 11, 2001, the U.S. capital markets, and specifically the availability of capital for wireless communications infrastructure, had weakened. The terrorist activities of September 11, 2001 and their aftermath have already caused and may continue to cause additional weakness in the U.S. business and economic environment and in the U.S. capital markets. If we are unable to access sufficient capital to fund our new tower builds or tower acquisitions, or if our clients are unable to access or are unwilling to allocate sufficient capital to fund network expension, our liquidity and our results of operations would be negatively impacted. We have on file with the Securities & Exchange Commission ("SEC") shelf registration statements on Form S-4 registering up to a total of 3.0 million shares of Class A common stock that we may issue in connection with the acquisition of wireless communication towers or companies that provide related services at various locations in the United States. During the nine months ended September 30, 2001, we issued 0.8 million shares of Class A common stock under the terms of certain acquisition agreements. As of the date of this report, the Company may issue 1.1 million shares under these shelf registration statements. In addition, in October 2001, we filed another shelf registration statement on Form S-4 registering up to a total of 3.5 million shares of Class A Common Stock which we may also issue in connection with the acquisition of wireless communications towers or companies that provide related services at various locations in the United States. This registration statement has not yet been declared effective. We have on file with the SEC a universal shelf registration statement on Form S-3 registering the sale of up to $252.7 million of any combination of the following securities: Class A common stock, preferred stock, debt securities, depositary shares or warrants. INFLATION The impact of inflation on our operations has not been significant to date. However, we cannot assure you that a high rate of inflation in the future will not adversely affect our operating results. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks which are inherent in our financial instruments. These instruments arise from transactions entered into in the normal course of business, and in some cases relate to our acquisition of related businesses. We are subject to interest rate risk on our senior secured 18 credit facility and certain other notes payable and any future financing requirements, however, the majority of our indebtedness currently consists of fixed rate debt. The following table presents the future principal payment obligations and interest rates associated with our long-term debt instruments assuming our actual level of long-term debt indebtedness as of September 30, 2001:
(in thousands) 2001 2002 2003 2004 2005 Thereafter ---- ---- ---- ---- ---- ---------- Long-term debt: Fixed rate (12.0%) -- -- -- -- -- $269,000 Fixed rate (101/4%) -- -- -- -- -- $500,000 Term loan, variable rate 6.28% at Sept. 30, 2001 -- -- $2,500 $7,500 $12,500 $ 27,500 Notes payable variable rates (between 4.9% and 9.0% at Sept. 30, 2001) $53 $356 $ 127 $ 28 -- --
Our primary market risk exposure relates to (1) the interest rate risk on long-term and short-term borrowings, (2) our ability to refinance our senior discount and our senior notes at maturity at market rates, (3) the impact of interest rate movements on our ability to meet interest expense requirements and financial covenants and (4) the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions, and other capital expenditures. We manage the interest rate risk on our outstanding long-term and short-term debt through our use of fixed and variable rate debt and, if warranted, hedging instruments. Although we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis. Senior Discount Note and Senior Note Disclosure Requirements The indentures governing our 12% senior discount notes and our 10 1/4% senior notes require certain financial disclosures for restricted subsidiaries separate from unrestricted subsidiaries and the disclosure of Tower Cash Flow, as defined in the indentures, for the most recent fiscal quarter and Adjusted Consolidated Cash Flow, as defined in the indentures, for the most recently completed four-quarter period. As of September 30, 2001, we had no unrestricted subsidiaries. Tower Cash Flow, as defined in the indentures, for the quarter ended September 30, 2001 was $13.8 million. Adjusted Consolidated Cash Flow for the twelve months ended September 30, 2001 was $64.3 million. Disclosure Regarding Forward-Looking Statements This quarterly report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act. Discussions containing forward-looking statements may be found in the material set forth in the section "Management's Discussion and Analysis of Financial Condition and Results of Operations." These statements concern expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. Specifically, this quarterly report contains forward-looking statements regarding: 19 o the impact of the $24.4 million non-recurring developmental charge we recorded; o our strategy to transition the primary focus of our business from site development services toward the site leasing business, including our intent to make strategic acquisitions of towers and related businesses; o anticipated trends in the site development industry and its effect on our revenues and profits; o our estimates regarding the future development of the site leasing industry and its effect on our site leasing revenues; o our plan to continue to construct and acquire tower assets and the resulting effect on our revenues, capital expenditures, expenses and net income; o our ability to successfully conclude letters of intent or definitive agreements for newly built towers, acquisitions of existing towers and related businesses, and the resulting effect on our financial operations; o our estimate of the amount of planned capital expenditures for the years ending December 31, 2001 and 2002 that will be required for the construction or acquisition of towers and related businesses; o our expectations regarding the average acquisition cost per tower and our average construction cost per tower and; o our intention to fund cash capital expenditures through the end of 2002 from the net remaining proceeds of our February 2001 10 1/4% senior note offering, cash flow from operations and borrowings under our senior secured credit facility. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have affected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: o our ability to access sufficient capital to fund our new tower builds and acquisitions; o the inability of our clients to access sufficient capital, or their unwillingness to expend capital to fund network expansion or enhancements; o our ability and the ability of our customers to access sufficient capital to fund expansion of networks and new tower builds and acquisitions; o our ability to secure as many site leasing tenants as planned; o our ability to expand our site leasing business and maintain or expand our site development business; o our ability to complete construction of new towers on a timely and cost-efficient basis, including our ability to successfully address zoning issues, carrier design changes, changing local market conditions and the impact of adverse weather conditions; o our ability to identify and acquire new towers and related businesses, including our capability to timely complete a review of the business, financial, and legal aspects and obtain third party consents; o our ability to retain current lessees on newly acquired towers; o our ability to realize economies of scale for newly acquired towers; o the continued use of towers and dependence on out-sourced site development services by the wireless communications industry; o our ability to compete effectively for new tower opportunities and site development services in light of increased competition; and o our ability to close and raise substantial additional financing to expand our tower holdings. o our ability to continue to comply with covenants and the terms of our senior secured credit facility. We assume no responsibility for updating forward-looking statements in this quarterly report. 20 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) REPORTS ON FORM 8-K The Company filed a report on Form 8-K on July 19, 2001, and reported, under Item 5, certain operational results. The Company filed a report on Form 8-K on August 10, 2001 and reported, under Item 5, certain financial results. 21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. November , 2001 /s/ John Marino ----------------- John Marino Chief Financial Officer (Duly Authorized Officer) November , 2001 /s/ John F. Fiedor ------------------- John F. Fiedor Chief Accounting Officer (Principal Accounting Officer) 22 -----END PRIVACY-ENHANCED MESSAGE-----