-----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, Kg9+8IKMMNNdfKJItFqriHB5GDm9pZnHuDxYhJyR3Sy5am2abEpDOTrAx45/3JyX 9RfEC4VMYy4FUG0PSry0CQ== 0000950109-99-004114.txt : 19991117 0000950109-99-004114.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950109-99-004114 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SBA COMMUNICATIONS CORP CENTRAL INDEX KEY: 0001034054 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION SPECIAL TRADE CONTRACTORS [1700] IRS NUMBER: 650716501 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-30110 FILM NUMBER: 99754258 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 FORM 10-Q 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, 1999 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 333-50219 --------- 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 12, 1999 Class A Common Stock - 21,101,647 Class B Common Stock - 7,644,264 shares 1 of 22 SBA COMMUNICATIONS CORPORATION INDEX
Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999...................4 Consolidated Statements of Operations for the three and nine months ended September 30, 1998 and 1999..............................................................5 Consolidated Statements of Shareholders' Equity (Deficit) for the nine months ended September 30, 1999.......................................................................6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1999.................................................................................7-8 Condensed Notes to Consolidated Financial Statements........................................9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................................................................13 Item 3. Quantitative and Qualitative Disclosures About Market Risk...............................20 PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K........................................................21 SIGNATURES...........................................................................................22
2 of 22 SBA COMMUNICATIONS CORPORATION PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS -------------------- The following consolidated financial statements of SBA Communications Corporation, a Florida corporation (the "Company") 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 generally accepted accounting principles. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the financial information for the interim period reported have been made. Results of operations for the nine months ended September 30, 1999 are not necessarily indicative of the results for the entire fiscal year ending December 31, 1999. 3 of 22
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) December 31, 1998 September 30, 1999 ----------------- ------------------ ASSETS Current assets: Cash and cash equivalents, includes interest bearing amounts of $26,227,973 and $1,248,133 in 1998 and 1999 $ 26,743,270 $ 2,704,694 Accounts receivable, net of allowances of $436,671 and $720,298 in 1998 and 1999 12,512,574 20,597,636 Prepaid and other current assets 5,981,134 6,519,051 Costs and estimated earnings in excess of billings on uncompleted contracts 598,971 2,523,426 ------------ ------------ Total current assets 45,835,949 32,344,807 ------------ ------------ Property and equipment, net 150,946,480 284,508,667 Intangible assets, net 6,932,486 16,154,409 Note receivable-stockholder 3,784,768 - Other assets 7,073,643 14,175,657 ------------ ------------ Total assets $214,573,326 $347,183,540 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 14,447,384 $ 28,841,840 Accrued expenses 2,247,282 5,245,608 Accrued salaries and payroll taxes 1,841,392 2,084,336 Notes payable 17,001,000 50,176 Billings in excess of costs and estimated earnings on uncompleted contracts 166,526 1,293,806 Other current liabilities 2,049,058 3,150,442 ------------ ------------ Total current liabilities 37,752,642 40,666,208 ------------ ------------ Other liabilities: Senior discount notes payable 165,572,133 180,673,810 Notes payable - 75,188,160 Deferred tax liabilities 3,370,439 3,173,745 Other long-term liabilities 415,201 710,094 ------------ ------------ Total long-term liabilities 169,357,773 259,745,809 ------------ ------------ Commitments and contingencies (see Note10) Redeemable preferred stock (30,000,000 shares authorized, 8,050,000 shares 33,558,333 - issued and outstanding in 1998, none outstanding in 1999) Shareholders' equity (deficit): Common stock: Class A (100,000,000 shares authorized) 880,922 and 21,101,614 shares issued and outstanding in 1998 and 1999, respectively 8,809 211,016 Class B (8,100,000 shares authorized) 8,075,000 and 7,644,264 shares issued and outstanding in 1998 and 1999, respectively 80,750 76,443 Additional paid in capital 716,131 97,728,766 Accumulated deficit (26,901,112) (51,244,702) ------------ ------------ Total shareholders' equity (deficit) (26,095,422) 46,771,523 ------------ ------------ Total liabilities and shareholders' equity (deficit) $214,573,326 $347,183,540 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets 4 of 22
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (unaudited) For the three months For the nine months ended September 30, ended September 30, --------------------------- ---------------------------- 1998 1999 1998 1999 ----- ---- ---- ---- Revenues: Site development revenue $ 9,965,367 $ 17,500,989 $ 33,623,782 $ 39,723,133 Site leasing revenue 3,327,964 7,110,004 8,132,215 18,009,433 ----------- ----------- ------------ ------------ Total revenues 13,293,331 24,610,993 41,755,997 57,732,566 ----------- ----------- ------------ ------------ Cost of revenues (exclusive of depreciation shown below) Cost of site development revenue 8,044,084 13,689,711 26,014,756 30,322,472 Cost of site leasing revenue 1,919,516 3,238,123 5,039,074 8,392,646 ----------- ----------- ----------- ------------ Total cost of revenues 9,963,600 16,927,834 31,053,830 38,715,118 ----------- ----------- ----------- ------------ Gross profit 3,329,731 7,683,159 10,702,167 19,017,448 Operating expenses: Selling, general and administrative 4,325,787 4,781,248 13,127,718 13,714,319 Depreciation and amortization 1,326,467 4,313,319 2,803,936 10,982,712 ----------- ----------- ----------- ------------ Total operating expenses 5,652,254 9,094,567 15,931,654 24,697,031 ----------- ----------- ----------- ------------ Operating loss (2,322,523) (1,411,408) (5,229,487) (5,679,583) Other income (expense): Interest income 1,070,610 160,242 3,374,091 766,907 Interest expense - (1,013,398) - (3,239,717) Non-cash amoritization of original issue discount and debt issue costs (4,480,304) (5,552,718) (10,811,279) (16,205,675) Other - 4,499 - 28,026 ----------- ----------- ----------- ------------ Total other income (expense) (3,409,694) (6,401,375) (7,437,188) (18,650,459) ----------- ----------- ----------- ------------ Loss before provision for income taxes and extraordinary item (5,732,217) (7,812,783) (12,666,675) (24,330,042) (Provision) benefit for income taxes 612,229 (172,898) - 403,003 ----------- ----------- ----------- ------------ Net loss before extraordinary item (5,119,988) (7,985,681) (12,666,675) (23,927,039) Extraordinary item, write-off of deferred financing fees - - - (1,149,954) ----------- ----------- ----------- ------------ Net loss (5,119,988) (7,985,681) (12,666,675) (25,076,993) Dividends on preferred stock (712,500) - (1,862,500) 733,403 ----------- ----------- ----------- ------------ Net loss to common shareholders $(5,832,488) $(7,985,681) $(14,529,175) $(24,343,590) ============ ============ ============= ============= Basic and diluted loss per common share before extraordinary item $ (.66) $ (.28) $ (1.73) $ (1.42) Extraordinary item - - - (.07) ------------ ----------- ----------- ------------ Basic and diluted loss per common share $ (.66) $ (.28) $ (1.73) $ (1.49) ============ =========== =========== ============ Basic and diluted weighted average number of shares of common stock 8,877,738 28,450,537 8,407,238 16,348,073 ============ =========== =========== ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements 5 of 22 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) --------------------------------------------------------- FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 -------------------------------------------- (unaudited)
Common Stock ------------------------------------------- Additional Retained Class A Class B Paid In Earnings ------------------------------------------- Number Amount Number Amount Capital (Deficit) Total ------ ------ ------ ------ ------- --------- ----- BALANCE, December 31, 1998 880,922 $ 8,809 8,075,000 $80,750 $ 716,131 $(26,901,112) $(26,095,422) Initial public offering of common 10,000,000 100,000 - - 82,660,994 - 82,760,994 stock, net of issuance costs Exercise of over-allotment, net of 1,300,000 13,000 - - 10,868,000 - 10,881,000 issuance costs Non-cash compensation adjustment - - - - 186,646 - 186,646 Preferred stock dividends - - - - - (1,345,500) (1,345,500) Preferred stock conversion/redemption 8,050,000 80,500 - - (80,500) 2,078,903 2,078,903 Repayment of shareholder loan - - (430,736) (4,307) (3,872,319) - (3,876,626) Issuance of common stock in 780,000 7,800 - - 7,012,200 - 7,020,000 connection with acquisition of Com-Net Exercise of employee stock options 90,692 907 - - 237,614 - 238,521 Net loss - - - - - (25,076,993) (25,076,993) ---------- -------- --------- ------- ----------- ------------ ----------- BALANCE, September 30, 1999 21,101,614 $211,016 7,644,264 $76,443 $97,728,766 $(51,244,702) $46,771,523 ========== ======== ========= ======= =========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 6 of 22 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (unaudited)
For the nine months ended September 30, -------------------------------------- 1998 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(12,666,675) $ (25,076,993) Adjustments to reconcile net loss to net cash provided by operating activities- Depreciation and amortization 2,803,936 10,982,712 Provision for doubtful accounts 312,876 439,522 Non-cash compensation expense 144,375 186,646 Non-cash amortization of original issue discount and debt issue costs 10,993,874 16,205,675 Interest on shareholder note (166,200) (91,858) Write-off of deferred financing fees - 1,149,954 Changes in operating assets and liabilities: (Increase) decrease in- Accounts receivable 770,150 (2,003,863) Prepaid and other current assets (2,190,984) 341,228 Costs and estimated earnings in excess of billings on uncompleted contracts (253,940) (1,056,649) Other assets (389,085) (2,777,928) Intangible assets (118,000) - Increase (decrease) in- Accounts payable 15,069,059 10,500,346 Accrued expenses 77,235 2,317,430 Accrued salaries and payroll taxes 88,067 155,246 Other liabilities 1,121,066 (384,687) Deferred tax liabilities - (220,931) Other long-term liabilities 451,221 294,893 Billings in excess of costs and estimated earnings on uncompleted contracts 374,997 501,961 ------------- ------------ Total adjustments 29,088,647 36,539,697 ------------- ------------ Net cash provided by operating activities 16,421,972 11,462,704 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for Com-Net acquisition - (7,914,634) Tower and other capital expenditures (103,560,718) (140,058,514) ------------- ------------ Net cash used in investing activities (103,560,718) (147,973,148) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from senior discount notes payable 150,236,500 - Proceeds from notes payable 12,486,767 121,000,000 Repayment of notes payable (22,669,821) (63,013,543) Increase in notes receivable (450,000) - Proceeds of public offerings, net of issuance costs - 93,641,994 Issuance of common stock 75,229 - Exercise of stock options 45,075 238,521 Preferred stock redemption - (32,824,930) Deferred financing fees (6,196,922) (6,570,174) ------------- ------------ Net cash provided by financing activities 133,526,828 112,471,868 ------------- ------------ Net increase (decrease) in cash and cash equivalents 46,388,082 (24,038,576) CASH AND CASH EQUIVALENTS: Beginning of period 6,109,418 26,743,270 ------------- ------------ End of period $52,497,500 $2,704,694 ============= ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements 7 of 22 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (continued)
For the nine months ended September 30, --------------------------------------- 1998 1999 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 364,752 $ 3,166,844 ----------- ------------ Taxes $ 2,314,548 $ 502,424 ----------- ------------ NON-CASH ACTIVITIES: Dividends on preferred stock $1,862,500 $ (733,403) ----------- ------------ Interest on bonds payable $10,558,490 $15,101,677 ----------- ------------ Note receivable - shareholder - $(3,876,626) ------------ Exchange of Series B preferred stock for common stock - $ 8,050,000 ------------ ACQUISITION SUMMARY: Assets acquired in Com-Net acquisition - $21,601,360 Liabilities acquired in acquisition - (6,666,726) Stock issued for acquisition - (7,020,000) ----------- ------------ Cash paid for Com-Net acquisition - $ 7,914,634 =========== ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements 8 of 22 SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES ----------------------------------------------- CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------------------- 1. GENERAL ------- The accompanying unaudited condensed consolidated financial statements include the accounts of SBA Communications Corporation and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. Certain information related to the Company's organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented and the disclosures herein are adequate to make the information presented not misleading. Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto. Certain reclassifications have been made to the 1998 financial statements to conform to the 1999 presentation. 2. CURRENT ACCOUNTING PRONOUNCEMENTS --------------------------------- Comprehensive Income In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income" which established standards for reporting and display of comprehensive income and its components in a full set of general-purpose financial statements. This statement requires that an enterprise classify items of other comprehensive income separately from accumulated deficit and additional paid-in-capital in the equity section of the balance sheets. Comprehensive income is defined as the change in equity during the financial reporting period of a business enterprise resulting from non-owner sources. During the nine months ended September 30, 1998 and 1999, the Company did not have any changes in its equity resulting from such non-owner sources and accordingly, comprehensive loss as set forth by SFAS No. 130 was equal to the net loss amounts presented for the respective periods in the accompanying Consolidated Statements of Operations. Derivative Instruments and Hedging Activities In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 required that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Management believes adopting this statement will not have a material impact upon the Company's results of operations or financial position. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." This statement deferred the effective date of SFAS No. 133 until fiscal years beginning after June 15, 2000. 3. ACQUISITIONS ------------ During the nine months ended September 30, 1999, the Company completed 27 acquisitions consisting of 174 towers and related assets from various sellers, all of which were individually insignificant to the Company. The aggregate purchase price was approximately $64.3 million and was paid with proceeds from long-term borrowings as well as with proceeds from the initial public offering. On April 30, 1999, the Company acquired through merger all of the issued and outstanding stock of Com-Net Construction Services, Inc. ("Com-Net"). The Company issued 780,000 shares of its Class A common stock to the shareholders of Com-Net, of which 480,000 shares have been pledged back to the Company and are subject to forfeiture if certain 1999 earnings targets are not achieved by the acquired company. In addition, the shareholders of Com-Net may receive up to $2.5 million in cash and 320,000 additional shares of Class A common stock if certain 1999 earnings targets are met by the acquired company, and up to an additional 400,000 shares of Class A common stock if certain 2000 earnings targets are met. The Company accounted for the above acquisitions using the purchase method of accounting. The above acquisitions resulted in goodwill of approximately $9.4 million, which is being amortized over fifteen years. The results of operations of the acquired assets are included with those of the Company from the dates of the respective acquisitions. The following unaudited pro forma 9 of 22 summary for the nine months ended September 30, 1998 and 1999 presents the consolidated results of operations as if the acquisitions had occurred as of the beginning of each of the periods presented, after giving effect to certain adjustments such as depreciation and amortization. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of the beginning of the periods presented or of results which may occur in the future. For the nine months ended September 30, --------------------------------------- 1998 1999 ---- ---- Unaudited Pro-forma Revenues $ 61,873,391 $ 69,982,587 ============ ============ Unaudited Pro-forma Net Loss $(11,819,535) $(25,047,398) ============ ============= Basic and diluted loss per share $ (1.49) $ (1.46) ========== =========== Common shares outstanding $9,187,238 $ 16,688,073 ========== ============= 4. PROPERTY AND EQUIPMENT ---------------------- Property and equipment, net consists of the following: December 31, September 30, 1998 1999 ----------------------------- Towers $141,755,358 $274,065,348 Land 5,307,754 6,267,178 Furniture and equipment 1,708,132 5,891,827 Buildings and improvements 506,120 591,067 Vehicles 442,496 497,941 Construction in process 7,736,769 15,618,905 ------------ ------------ 157,456,629 302,932,266 Less: Depreciation and amortization (6,510,149) (18,423,599) ------------ ------------ Property and equipment, net $150,946,480 $284,508,667 ============ ============ Construction in process represents costs incurred related to towers which are under development and will be used in the Company's operations. 5. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS December 31, September 30, 1998 1999 ------------------------------ Costs incurred on uncompleted contracts $ 4,633,768 $20,334,788 Estimated earnings 1,357,134 4,392,441 Billings to date (5,558,457) (23,497,609) ----------- ----------- $ 432,445 $ 1,229,620 =========== =========== This amount is included in the accompanying balance sheet under the following captions:
December 31, September 30, 1998 1999 ----------------------------- Costs and estimated earnings in excess of billing $598,971 $ 2,523,426 Billings in excess of costs and estimated earnings (166,526) (1,293,806) --------- ----------- $432,445 $ 1,229,620 ========= ===========
10 of 22 6. CURRENT AND LONG TERM DEBT -------------------------- Current and long term debt consists of the following:
December 31, September 30, 1998 1999 ------------ ------------ Senior Credit Facility term loan, variable interest at 8.7425% at September 30, 1999 quarterly installments based on reduced availability beginning March 31, 2001, maturing December 31, 2004 $ - $ 25,000,000 Senior Credit Facility revolving loan, variable interest ranging from 8.45875% to 8.7525% at September 30, 1999 quarterly installments based on reduced availability beginning March 31, 2001, maturing December 31, 2004 - 50,000,000 Senior 12% discount notes, net of unamortized original issue discount of $88,326,619 at September 30, 1999, unsecured, cash interest payable semi- annually in arrears beginning March 1, 2003, balloon principal payment of $269,000,000 due at maturity on March 1, 2008 165,572,133 180,673,810 Note Payable, principal installments of $4,181 plus interest at 90 day LIBOR plus 2.25% (7.79%% at September 30, 1999). Secured by vehicles - 238,336 Bank Credit Agreement 17,001,000 - ------------ ------------ 182,573,133 255,912,146 Less: current maturities (17,001,000) (50,176) ------------ ------------ Long term debt $165,572,133 $255,861,970 ============ ============
7. SHAREHOLDERS' EQUITY (DEFICIT) ------------------------------ In April 1999, the Company adopted the 1999 Equity Participation Plan. A total of 2.5 million shares of Class A common stock are reserved for issuance under this plan. During the nine months ended September 30, 1999, the Company granted options to employees for the purchase of approximately 1,020,000 shares of Class A common stock at exercise prices ranging from $8.00 - $9.00 per share, which approximated fair market value. The options vest over 32 to 36-month periods commencing December 31, 1999 and ending in September, 2002. On June 21, 1999, the Company completed an initial public offering of its Class A common stock. The Company raised gross proceeds of $90 million, which produced net proceeds after deduction of the underwriting discount and estimated offering expenses of $82.8 million. The Company used approximately $32.8 million of these net proceeds to pay all outstanding dividends on all outstanding shares of the Company's Series A preferred stock and to redeem all shares of the Company's Series B preferred stock. Prior to redemption, the Company recorded dividends on the effective interest rate method over the period from issuance to scheduled redemption. Upon redemption, the Company recorded the difference between the accreted value of the preferred stock and the redemption amount totaling approximately $2.1 million as an increase to retained earnings and as a component of "net loss to common shareholders." The Company also used $46.0 million to repay all revolving credit loans under the Senior Credit Facility. Remaining proceeds were used for the construction and acquisition of towers and for general working capital purposes. As a result of the initial public offering, all 8,050,000 shares of Series A preferred stock were converted into 8,050,000 shares of Class A common stock and the Company no longer has any shares of preferred stock outstanding. On June 21, 1999 the Chief Executive Officer of the Company surrendered 430,736 shares of Class B common stock to fully repay principal and accrued interest on a promissory note issued to the Company in March, 1997. These shares have been retired by the Company. On July 19, 1999, the managing underwriters of the Company's initial public offerings exercised and closed on their right to purchase 1,300,000 shares of Class A common stock. The Company received net proceeds of approximately $10.9 million from the sales of shares, which were sold at the initial public offering price of $9.00 per share. These net proceeds were also used for the construction and acquisition of towers and for general working capital purposes. 8. INCOME TAXES ------------ Income taxes have been provided for based upon the Company's annual effective income tax rate. A reconciliation of the statutory U.S. Federal tax rate (34%) and the effective income tax for the period is as follows: 11 of 22 For the nine months ended September 30, --------------------------------------- 1998 1999 ---- ---- Federal income tax $4,306,670 $4,031,453 State income tax (144,298) (643,708) Foreign tax (40,120) (243,881) Change in valuation allowance (1,111,721) (2,740,861) Other (3,010,531) - ---------- ---------- $ - $ 403,003 ========== ========== The Company has recorded a benefit in the first nine months of 1999 as a result of net operating loss carry-backs available. The amount recorded as a benefit represents the entire carry-back amount available.. The Company is currently generating net operating loss carry forwards which are fully reserved because the Company does not anticipate that it will generate taxable income within the upcoming year. 9. EARNINGS PER SHARE ------------------ In computing loss per share in accordance with SFAS No. 128, the weighted average number of shares for the basic and diluted loss per share calculations is the same. Options to purchase approximately 2,150,000 shares of the Company's common stock, with exercise prices ranging from $.05 to $9.00 per share and expiration dates between 2004 and 2008, were outstanding at September 30, 1999, but were not included in the computation of diluted earnings per share because their effect would be anti-dilutive if exercised. Also outstanding at September 30, 1999 was a warrant to acquire 402,500 shares of common stock at an exercise price of $3.73 and expiring in 2002. This was also not included in the computation of diluted earnings per share because of the anti-dilutive effect. 10. 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. 11. SEGMENT DATA ------------ The Company operates principally in three business segments: site development consulting, site development construction, and site leasing. The Company's reportable segments are strategic business units that offer different services. They are managed separately based on the fundamental differences in their operations. Revenue, operating income, identifiable assets, cash capital expenditures and depreciation and amortization pertaining to the segments in which the Company operates are presented below:
For the nine months ended September 30, --------------------------------------- 1998 1999 ---- ---- Revenue: Site development - consulting $ 22,592,231 $ 12,746,182 Site development - construction 11,031,551 26,976,951 Site leasing 8,132,215 18,009,433 ------------ ------------ $ 41,755,997 $ 57,732,566 ============ ============ Gross Profit: Site development - consulting $ 4,357,084 $ 3,810,671 Site development - construction 3,251,942 5,589,990 Site leasing 3,093,141 9,616,787 ------------ ------------ $ 10,702,167 $ 19,017,448 ============ ============ Capital expenditures: Site development - consulting $ 443,620 $ 1,797 Site development - construction 900,966 7,627,973 Site leasing 102,017,304 139,440,478 Capital expenditures not identified by segment 198,828 902,899 ------------ ------------ $103,560,718 $147,973,147 ============ ============
12 of 22 As of As of December 31, 1998 September 30, 1999 ----------------- ------------------ Assets: Site development - consulting $ 14,914,547 $ 21,106,428 Site development - construction 9,690,197 33,934,008 Site leasing 173,481,938 276,895,399 Assets not identified by segment 16,486,644 15,247,705 ------------ ------------ $214,573,326 $347,183,540 ============ ============ 12. SUBSEQUENT EVENTS ----------------- On October 28, 1999, after receiving the requisite consents from the holders of the Company's senior discount notes, the Company amended the indenture governing the notes to increase one of the categories of permitted indebtedness from $175.0 million to $300.0 million. In connection therewith, the Company paid in cash approximately $5.3 million to the holders of the notes. At approximately the same time the Company received commitments from certain of its existing senior credit lenders to amend and expand its existing $175.0 million Senior Credit Facility to $300.0 million. Of such $125.0 million increase, $50.0 million will be funded at closing in the form of a term loan and the remainder represented by an increase in the revolving line of credit to $225.0 million. 13. PRO FORMA DATA -------------- As discussed in Note 7, in June 1999, the Company completed an initial public offering of 10.0 million shares of its Class A Common Stock resulting in net proceeds of approximately $82.7 million. In addition, the Company used approximately $32.8 million of the net proceeds to pay all outstanding dividends on all outstanding shares of the Company's Series A preferred stock and to redeem all shares of the Company's Series B preferred stock. As a result of the initial public offering, all 8,050,000 shares of Series A preferred stock were converted into 8,050,000 shares of Class A common stock and the Company no longer has any shares of preferred stock outstanding. Also discussed in Note 7, the managing underwriters exercised and closed on their right to purchase 1,300,000 shares of Class A Common Stock. The Company received approximately $10.9 million in net proceeds. Additionally, as a result of the initial public offering, the Chief Executive Officer surrendered 430,736 shares of Class B common stock to fully repay principal and accrued interest on a promissory note issued to the Company in March, 1997. The following unaudited pro forma consolidated financial data has been prepared assuming the initial public offering, the exercise of the over allotment, the conversion/redemption of the Series A preferred stock, and the repayment of the shareholder note had occurred as of the beginning of each period presented. The following unaudited pro forma data does not include the effect of the "Com-Net" acquisition discussed in Footnote 3. Nine Months ended September 30, ------------------- 1998 1999 ---- ---- Pro Forma Statement of Operations Data: Operating loss $( 5,229,487) $( 5,679,583) Net loss (12,685,101) (25,113,444) Preferred stock dividends - 2,078,903 ------------- ------------- Net loss available to common shareholders $(12,685,101) $(23,034,541) ============= ============= Basic and diluted loss per share $(.45) $(.81) ====== ====== Weighted average shares outstanding 27,913,790 28,342,141 =========== =========== ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- The following discussion and analysis reflects only changes from information previously presented for the 1998 fiscal year. Financial information relating to the September 30, 1998 and September 30, 1999 three and nine month periods is unaudited. This interim discussion and analysis should be read in conjunction with our 1998 audited financial statements, notes thereto and management's discussion and analysis of financial condition and results of operations. 13 of 22 The following discussion should be read in conjunction with the "Risk Factors" section of our Form 10-K filed with the SEC on March 31, 1999 and Form S-1 initially filed with the SEC on April 19, 1999, and as subsequently amended. We are a leading independent owner and operator of wireless communications infrastructure in the United States. Our strategy is to utilize our historical leadership position in the site development business, a project revenue business, and to expand our ownership and leasing of communication towers, a recurring revenue business. We are transitioning our revenue stream from project driven revenues to recurring revenues through the leasing of antennae space at or on communications facilities. While we intend to continue to offer site development services to wireless carriers where demand and profitable opportunities exist, we will emphasize our site leasing business through the construction of owned towers for lease to wireless service providers, the acquisition of existing sites and the leasing, subleasing and management of other antennae sites. We believe that as the site development industry matures, our revenues and gross profit from the site development consulting segment of that business will continue to decline substantially in the near term and this rate of decline will increase for the foreseeable future as wireless service providers choose to outsource ownership of communication sites in order to conserve capital. We also believe that, over the longer term, site leasing revenues will increase as carriers move to outsource tower ownership and the number of towers we own grows. As a result of these trends and the shift in focus of our business, our earnings has declined in 1999 from the prior periods and capital expenditures have increased sharply as we accumulated towers. Our EBITDA, however, has increased in 1999 as compared to 1998 and is expected to continue to increase even more in the future. Additionally, we expect capital expenditures to increase even more in 1999 as compared to 1998. In addition, we anticipate that our operating expenses will remain at or above 1998 levels as we continue to construct and acquire tower assets. We derive our revenues from two businesses-site development and site leasing. Our site development business consists of site development consulting and site development construction. We provide site development services, both consulting and construction, on a contract basis which is usually customer and project specific. We generally charge for site development services on either a time and materials basis or a fixed price basis. The majority of these services are performed on a fixed fee basis. We also provide site leasing services on a contract basis. Revenue from our site development business may fluctuate from period to period depending on construction activities, which are a function of our clients' build-out schedules, weather and other factors. Our antennae site leases are typically long-term agreements with renewal periods. Leases are generally paid on a monthly basis. Because of the low variable operating costs of the site leasing business, additional tenants on a tower generate disproportionately larger increases in tower cash flow. We have focused our capital deployment on build-to-suit and "mom and pop" acquisitions. Of the 956 towers we owned at September 30, 1999, 613 were new builds. In general, we have chosen to build rather than buy the substantial majority (64%) of our towers due to what we believe are more favorable economics. To date, the construction cost of a new tower averages approximately $230,000, while the industry's average acquisition cost of a tower over the last two years has been approximately $403,000. Given our current opportunities and expertise, we believe that that new tower construction and small acquisitions are a better use of capital than large acquisitions of tower assets from national wireless service providers. At September 30, 1999 we had non-binding mandates from wireless service providers to build over 330 additional towers under build-to-suit programs (the majority of which we expect will result in binding anchor tenant lease agreements). We believe we have one of the largest number of non-binding build-to-suit mandates from wireless service providers in the industry. We are also pursuing over 370 new builds strategically in locations chosen by us based on our industry knowledge and experience. While we have focused primarily on new build towers for growth, we have also acquired 343 towers as of September 30, 1999. Rather than target large tower acquisitions, our acquisition strategy has focused on small, "mom and pop" acquisition targets, those which we believe are better opportunities for value. We seek to acquire towers at or below a 15.0x tower cash flow multiple, and through additional tenant leases, increase cash flow to drive down the acquisition cost per tower cash flow multiple to 5.0x or below after five years. The 343 tower acquisitions to date have been completed at an average acquisition price of approximately $388,000 per tower and a 14.4x purchase multiple, significantly less than the industry average of $403,000. In addition to what we have already acquired, we are currently actively negotiating to acquire existing towers. At September 30, 1999, we had letters of intent or definitive agreements to acquire 63 additional towers in a number of separate transactions for an aggregate purchase price of approximately $19.7 million. We cannot assure you that we will be able to close these transactions, or identify towers or tower companies to acquire in the future. On April 30, 1999, we acquired Com-Net Construction Services, Inc. ("Com-Net"). Com-Net provides turnkey construction services of towers and terminal switches primarily throughout the mid-western, eastern and western United States and for the year ended December 31, 1998 had construction revenues of over $20 million. We issued 780,000 shares of our Class A common stock to the shareholders of Com-Net, of which 480,000 shares have been pledged back to us and are subject to forfeiture if certain 1999 earnings 14 of 22 targets are not achieved by the acquired company. In addition, the shareholders of Com-Net may receive up to $2.5 million in cash and 320,000 additional shares of Class A common stock if certain 1999 earnings targets are met by the acquired company, and up to an additional 400,000 shares of Class A common stock if certain 2000 earnings targets are met. On the same date we acquired an affiliate of Com-Net, Com-Net Development Group, LLC ("Development Group"). Development Group owns 18 completed or substantially completed towers in Texas, Ohio and Tennessee and over 30 sites in various stages of development under build-to-suit programs. We paid $1.0 million in cash and assumed debt of approximately $2.5 million dollars for Development Group. RESULTS OF OPERATIONS As we continue our transition into site leasing, operating results in prior periods may not be meaningful predictors of future prospects. You should be aware of the dramatic changes in the nature and scope of our business when reviewing the ensuing discussion of comparative historical results. We expect that the acquisitions consummated to date and any future acquisitions, as well as our new tower builds, will have a material impact on future revenues, expenses and net income. In particular depreciation and amortization and net interest expense increased significantly in the period ended September 30, 1999 over the year earlier period, and are expected to continue to increase significantly in future periods. We believe that our new build tower ownership programs will have a material effect on future operation, which effect will probably be negative until such time, if ever, as the newly constructed towers attain higher levels of tenant use. Third Quarter of 1999 Compared to Third Quarter of 1998 Total revenues increased 85.1% to $24.6 million for the third quarter of 1999 from $13.3 million for the third quarter of 1998. We derive our revenues from two businesses-site development and site leasing. Our site development business consists of site development consulting and site development construction. Site development revenue increased 75.6 % to $17.5 million in the third quarter of 1999 from $10.0 million in the third quarter of 1998 due to an increase in site development construction revenue, which more than offset a decrease in site development consulting revenue. Site development consulting revenue decreased 5.1% to $4.7 million for the third quarter of 1999 from $4.9 million for the third quarter of 1998, due primarily to the decreased demand for site acquisition and zoning services from PCS licensees stemming from the continued acceptance by wireless carriers of outsourced communication site infrastructure through build-to-suit programs. Site development construction revenue increased 154.9% to $12.8 million for the third quarter of 1999 from $5.0 million for the third quarter of 1998, due primarily to the acquisition of Com-Net on April 30, 1999, resulting in a full quarter of revenue from Com-Net, as well as the expanded activities of our CSSI construction company subsidiary. Site leasing revenue increased 113.6% to $7.1 million for the third quarter of 1999 from $3.3 million for the third quarter of 1998, due to the substantially greater number of towers in our portfolio during the third quarter of 1999 compared to the third quarter of 1998 and new tenant leases added to our towers. Total cost of revenue increased 69.9% to $16.9 million for the third quarter of 1999 from $10.0 million for the third quarter of 1998. Site development cost of revenue increased 70.2% to $13.7 million in the third quarter of 1999 from $8.0 million in the third quarter of 1998 due to higher revenues. Site development consulting cost of revenue decreased 21.0% to $3.3 million for third quarter 1999 from $4.2 million for third quarter 1998 due primarily to lower revenue but also to improved margin. Site development construction cost of revenue increased to $10.4 million for third quarter 1999 from $3.8 million for the third quarter of 1998, due primarily to increased revenues which were attributable to the acquisition of Com-Net. Site leasing cost of revenue increased 68.7% to $3.2 million for the third quarter of 1999 from $1.9 million for the third quarter of 1998, due primarily to the increased number of towers owned resulting in an increased amount of ground lease payments. Gross profit increased 130.7% to $7.7 million for the third quarter of 1999 from $3.3 million for the third quarter of 1998, due to increased site leasing and site development gross profits. Gross profit from site development increased 98.4% to $3.8 million in the third quarter of 1999 from $1.9 million in the third quarter of 1998 due to increases in both site development consulting gross profit and site development construction gross profit. Site development consulting gross profit increased primarily due to increased profit margins in the third quarter of 1999, which more than offset the decline in revenues. Gross profit margin on site development consulting increased in the third quarter of 1999 to 29% from 14% in the third quarter of 1998. This increase is attributable to a changing mix in the timing of projects, where the earlier phases of consulting projects tend to be more profitable. Gross profit from site development construction increased to $2.5 million in the third quarter of 1999 from $1.2 million in the third quarter of 1998. Gross profit margin on site development construction dropped in third quarter 1999 to 19% from 24% in the third quarter of 1998, reflecting the integration of Com-Net, which has historically had gross profit margins in the 15% to 20% range, and the use by CSSI of more subcontract labor required by greater levels of activity. Gross profit for the site leasing business increased 174.9% to $3.9 million in the third quarter of 1999 from $1.4 million in the third quarter of 1998, and site leasing gross profit margin improved to 54% in the third quarter of 1999 from 42% in the third quarter of 1998. The increased gross profit and improved margin were both due to the substantially greater number of towers owned in the third quarter 1999 period and the lease-up of our towers with additional tenants. As a percentage of total revenues, gross profit increased to 31% of total revenues in the third quarter of 1999 from 25% in the third quarter of 1998 due to higher margins in site development and site leasing gross profit. 15 of 22 We expect site leasing gross profit in the fourth quarter of 1999 to be negatively impacted by approximately $.3 million of lease/sublease expense, without corresponding revenue, as the Company works out of certain leases to third parties for space previously subleased by Conxus, which rejected such subleases in September 1999 as part of its Chapter 7 bankruptcy liquidation proceeding. On an annual basis, the subleases rejected by Conxus represented approximately $.2 million of site leasing gross profit to SBA. Selling, general and administrative expenses increased 10.5% to $4.8 million in the third quarter of 1999 from $4.3 million in the third quarter of 1998. This increase is primarily attributable to the general and administrative expenses associated with Com-Net. As a percentage of total revenues, selling, general and administrative expenses decreased to 19.4% for the third quarter of 1999 from 32.5% in the third quarter of 1998. Depreciation and amortization increased to $4.3 million for the third quarter of 1999 as compared to $1.3 million for the third quarter of 1998. This increase is directly related to the increased amount of fixed assets (primarily towers) we owned in the third quarter of 1999 as compared to the third quarter of 1998. Operating loss decreased to $(1.4) million for the third quarter of 1999 from $(2.3) million for the third quarter of 1998 as a result of the increased revenues and increased gross margins which more than offset increased selling, general and administrative expenses and depreciation and amortization in the third quarter of 1999. Other income (expense) increased to ($6.4) million for third quarter 1999 from ($3.4) million for third quarter of 1998. This increase resulted primarily from much greater interest income being earned from the proceeds of the Senior Discount Notes in the 1998 quarter, and the greater interest expense associated with outstanding borrowings against the credit facility in the 1999 quarter. Net loss was ($8.0) million for the third quarter of 1999 as compared to net loss of $(5.1) million for the third quarter of 1998, due primarily to higher depreciation, amortization and net interest expense. Basic and diluted loss per common share decreased to ($.28) for the third quarter of 1999 from ($.66) for the third quarter of 1998. This decrease was attributable to an increased weighted average number of shares as well as the effect of the preferred stock redemption on dividends for the quarter. Nine Months of 1999 Compared to Nine Months of 1998 Total revenues increased 38.3% to $57.7 million for the nine months of 1999 from $41.8 million for the first nine months of 1998 due to increases in both site development and site leasing revenue. Site development revenue increased 18.1% to $39.7 million in the first nine months of 1999 from $33.6 million in the first nine months of 1998 due to increased site development construction revenue, which more than offset a decrease in site development consulting revenue. Site development consulting revenue decreased 43.6% to $12.8 million for the first nine months of 1999 from $22.6 million for the first nine months of 1998, due primarily to the decreased demand for site acquisition and zoning services from PCS licensees stemming from the increasing acceptance by wireless carriers of outsourced communication site infrastructure through build-to-suit programs. Site development construction revenue increased 144.5% to $27.0 million for the first nine months of 1999 from $11.0 million for 1998, due primarily to the acquisition of Com-Net on April 30, 1999 as well as the expanded activities of our CSSI construction company subsidiary. Site leasing revenue increased 121.5% to $18.0 million for the first nine months of 1999 from $8.1 million for the first nine months of 1998, due primarily to the substantially greater number of towers in our portfolio during the first nine months of 1999 compared to the first nine months of 1998 and new tenant leases added to our towers. Total cost of revenue increased 24.7% to $38.7 million for the first nine months of 1999 from $31.0 million for the first nine months of 1998. A greater rate of increase in revenues offset the increase in cost of revenues and resulted in improved gross profit margin. Site development cost of revenue increased 16.6% to $30.3 million in the first nine months of 1999 from $26.0 million in the first nine months of 1998 due to higher revenues. Site development consulting cost of revenue decreased 51.0% to $8.9 million for the first nine months of 1999 from $18.2 million for the first nine months of 1998 due primarily to lower revenue. Site development construction cost of revenue increased to $21.4 million for the first nine months of 1999 from $7.8 million for the first nine months of 1998, due primarily to the acquisition of Com-Net as well as increased revenues from CSSI. Site leasing cost of revenue increased 66.6% to $8.4 million for the first nine months of 1999 from $5.0 million for the first nine months of 1998, due primarily to the increased number of towers owned resulting in an increased amount of ground lease payments. Gross profit increased 77.7% to $19.0 million for the first nine months of 1999 from $10.7 million for the first nine months of 1998, due to increased revenue and higher margins. Gross profit from site development increased 23.5% to $9.4 million in the first nine months of 1999 from $7.6 million in the first nine months of 1998 due to higher site development construction gross profit which more than offset decreased site development consulting gross profit. Site development consulting gross profit declined primarily due to decreased revenue. Gross profit margin on site development consulting increased in the first nine months of 1999 to 30% from 19% in the first nine months of the 1998 period. This increase is attributable to a changing mix in the timing of projects as the earlier phases of consulting projects tend to be more profitable. Gross profit margin on site development construction dropped in the first nine months of 1999 to 21% from 29% in the first nine months of 1998, reflecting the integration of Com-Net which has historically had gross profit margins in the 15% - 20% range and the use by CSSI of more subcontract labor required by greater levels of activity. 16 of 22 Gross profit for the site leasing business increased 210.9% to $9.6 million in the first nine months of 1999 from $3.1 million in the first nine months of the 1998 period, and site leasing gross profit margin improved to 53% in the first nine months of 1999 from 38% in the first nine months of 1998. The increased gross profit and improved margin were both due to the substantially greater number of towers owned in the first nine months of the 1999 period and the lease-up of our towers with additional tenants. As a percentage of total revenues, gross profit increased to 32.9% of total revenues in first nine months of 1999 from 25.6% in the first nine months of 1998 due primarily to increased levels of site leasing and site development construction revenues and higher margins in site leasing gross profit. Selling, general and administrative expenses increased 4.5% to $13.7 million for the first nine months of 1999 as compared to $13.1 million for the first nine months of 1998. This increase is primarily attributable to the additional selling and administrative expenses associated with Com-Net. As a percentage of total revenues, selling, general and administrative expenses decreased to 23.7% for the first nine months of 1999 from 31.4% in the first nine months of 1998. Depreciation and amortization increased to $11.0 million for the first nine months of 1999 as compared to $2.8 million for the first nine months of 1998. This increase is directly related to the increased amount of fixed assets (primarily towers) we owned in the first nine months of 1999 as compared to the first nine months of 1998. Operating loss increased to $(5.7) million for the first nine months in 1999 from $(5.2) million for the first nine months of 1998 as a result increased depreciation and amortization expenses in the first nine months of 1999, which more than offset increased gross profits. Other income (expense) increased to $(18.7) million for the first nine months of 1999 from $(7.4) million for the first nine months of 1998. This increase resulted primarily from the non-cash amortization of original issue discount associated with the Senior Discount Notes and greater interest expense associated with outstanding borrowings against the credit facility in 1999. Net loss was $(25.1) million for the first nine months of 1999 as compared to a net loss of $(12.7) million for the first nine months of 1998 due to increased depreciation, amortization and net interest expense. Basic and diluted loss per common share decreased to ($1.49) for the first nine months of 1999 from $(1.73) for the first nine of 1998. This decrease was attributable to the increased weighted average number of shares in the first nine months of 1999 as compared to the first nine months of 1998. On a pro forma basis, basic and diluted loss per common share increased to ($.81) for the first nine months of 1999 from ($.45) for the first nine months of 1998. LIQUIDITY AND CAPITAL RESOURCES SBA Communications Corporation is a holding company with no business operations of its own. It's only significant asset is the outstanding capital stock of its subsidiaries. It conducts all its business operations through its subsidiaries. Accordingly, it's only source of cash to pay its obligations is distributions with respect to its ownership interest in its subsidiaries from the net earnings and cash flow generated by such subsidiaries. Even if we decided to pay a dividend on or make a distribution with respect of the capital stock of its subsidiaries, there can be no assurance that our subsidiaries will generate sufficient cash flow to pay such a dividend or distribute such funds. Net cash provided by operations during the nine months ended September 30, 1999 was $10.5 million compared to $16.4 million in 1998. Net cash used in investing activities for 1999 was $(147.1) million compared to $(103.6) million for 1998. This increase is attributable to a higher level of tower acquisition and new build activity in 1999 versus 1998. Net cash provided from financing activities for 1999 was $112.5 million compared to $133.5 million for 1998. The 1999 amount includes the proceeds from our initial public offering of Class A common stock, while the 1998 amount includes the proceeds of the Senior Discount Notes. Our balance sheet reflected negative working capital of $(8.3) million as of September 30, 1999, as compared to positive working capital of $8.1 million as of December 31, 1998. In February 1999, we entered into a new Senior Credit Facility through our Telecommunications subsidiary with a group of lenders. This new $175 million credit facility, which replaced our prior $55 million credit facility, consists of a $25.0 million term loan and a $150.0 million revolving line of credit. The term loan was fully funded at closing. Availability under the new facility is determined by a number of factors including number of towers built by us with anchor tenants on the date of completion, the financial performance of our other towers, site development and construction segments, as well as by other financial covenants, financial ratios and other conditions. The new credit facility, pursuant to a schedule, matures December 31, 2004 and amortization and reduced availability begins March 31, 2001. Borrowings under the new facility will bear interest at the EURO rate plus a margin ranging from 2.25% to 3.50% (determined by a leverage ratio) or a "base rate" (as defined in the new facility) plus a margin ranging from 1.25% to 2.50% (determined by a leverage ratio). The Senior Credit Facility is secured by substantially all of the assets of Telecommunications and its direct and indirect subsidiaries, requires Telecommunications to maintain certain financial covenants and places restriction on, among other things, the incurrence of debt and liens, disposition of assets, transactions with affiliates and certain investments. Deferred financing fees related to obtaining the Senior Credit Facility were approximately $3.9 million. Additionally, 17 of 22 on March 8, 1999, after receiving the requisite consents from the holders of our Senior Discount Notes (the "Notes"), we amended the indenture governing the Notes to increase one of the categories of permitted indebtedness from $125 million to $175 million. In connection therewith, we paid $2.1 million to the holders of the Notes. The amount is also reflected in deferred financing fees. On October 28, 1999, after receiving the requisite consents from the holders of the Notes, we again amended the indenture governing the Notes to increase one of the categories of permitted indebtedness from $175 million to $300 million. In connection therewith, we paid $5.3 million in cash to the holders of the Notes, which amount will be reflected in deferred financing fees. At approximately the same time as we obtained the consents, we received commitments from certain of our existing senior credit lenders to amend and expand our existing $175 million Senior Credit Facility to $300 million. Of such $125 million increase, $50.0 million will be funded at closing in the form of a term loan and the remainder represented by an increase in the revolving line of credit to $225.0 million. Finalization of documentation and closing of the increase to the Senior Credit Facility is expected in December, 1999. The other terms, covenants, and conditions of the increase, including interest rate, are materially the same as those of the original $175 million facility. Deferred financing fees of approximately $2.5 million are expected to be included in connection with the increase. As of September 30, 1999 we had approximately $113.0 million of total availability under the Senior Credit Facility, of which $75 million had been borrowed. On June 21, 1999 we completed an initial public offering of 10.0 million shares of Class A common stock, which number was later increased to 11.3 million by the exercise of an over allotment granted by us to the underwriters. We originally raised $90 million, which produced net proceeds after deduction of the underwriting discount and estimated offering expenses of $82.8 million. The exercise of the over-allotment raised an additional $11.7 million and produced net proceeds, after deduction of the underwriting discount, of $10.9 million. We used approximately $32.8 million of these net proceeds to pay all outstanding dividends on all outstanding shares of our Series A preferred stock and to redeem all shares of our Series B preferred stock. We also used $46.0 million to repay all revolving credit loans under the Senior Credit Facility. Remaining proceeds were used for the construction and acquisition of towers, and for general working capital purposes. As a result of our initial public offering, all 8,050,000 shares of Series A preferred stock were converted into 8,050,000 shares of Class A common stock and we no longer have any shares of preferred stock outstanding. In the event that the business acquired in the Com-Net acquisition achieves certain EBITDA targets in 1999 and 2000, we may be obligated to issue up to 720,000 additional shares of Class A common stock and to pay up to $2.5 million to the former shareholder of Com-Net. We currently estimate that we will make at least $45 million of capital expenditures during the fourth quarter of 1999 for the construction and acquisition of communication sites, primarily towers, and the cash portion of the contingent purchase price payment related to the acquisition of Com-Net. We expect to use cash from operations together with proceeds from availability under our Senior Credit Facility to fund these capital expenditures. However, the exact amount of our future capital expenditures will depend on a number of factors. We currently anticipate building a significant number of towers for which we have non-binding mandates pursuant to our build-to-suit program or pursuant to our strategic site initiatives. We also intend to continue to explore opportunities to acquire additional towers, tower companies and/or related businesses. Our future capital expenditures will depend in part upon acquisition opportunities that become available during the period, the needs of our build-to-suit customers and the availability to us of additional debt or equity capital on acceptable terms. We currently plan for capital expenditures in 2000 of $150 to $200 million. All to substantially all of these planned capital expenditures are expected to be funded by borrowings under our Senior Credit Facility. In the event that there is not sufficient availability under the Senior Credit Facility when an acquisition or construction opportunity arises, we would be required to seek additional debt or equity financing. We cannot assure you that any such financing will be available on commercially reasonable terms or at all or that any additional debt financing would be permitted by the terms of our existing indebtedness. Our ability to make scheduled payments of principal of, or to pay interest on, our debt obligations, and our ability to refinance any such debt obligations, or to fund planned capital expenditures, will depend on our future performance, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business strategy contemplates substantial capital expenditures in connection with our planned tower build-out and acquisitions. Based on our current operations and anticipated revenue growth, we believe that, if our business strategy is successful, cash flow from operations and available borrowings under the Senior Credit Facility will be sufficient to fund all anticipated capital expenditures in fiscal 1999, and all to substantially all anticipated capital expenditures in fiscal 2000. Thereafter, however, or in the event we exceed our currently anticipated capital expenditures, we anticipate that we will need to seek additional equity or debt financing to fund our business plan. Failure to obtain any such financing could require us to significantly reduce our planned capital expenditures and scale back the scope of our tower build-out or acquisitions, either of which could have a material adverse effect on our projected financial condition or results of operations. In addition we may need to refinance all or a portion of our indebtedness (including the Notes and/or the senior credit facility) on or prior to its scheduled maturity. We cannot assure you that we will generate sufficient cash flow from operations in the future, that anticipated revenue growth will be realized or that future borrowings or equity contributions will be 18 of 22 available in amounts sufficient to service our indebtedness and make anticipated capital expenditures. In addition, we cannot assure you that we will be able to effect any required refinancing of our indebtedness (including the Notes) on commercially reasonable terms or at all. Year 2000 During 1999, we continued our review of the installation of new systems hardware and software and determined that the installation is on schedule for completion before the year 2000. There are five phases that describe our process in becoming Year 2000 compliant. The awareness phase encompasses developing a budget and project plan. The assessment phase identifies mission-critical systems to check for compliance. Both of these phases have been completed. We are at various stages in the three remaining phases: renovation, validation and implementation. Renovation is the design of the systems to be Year 2000 compliant. Validation is testing the systems followed by implementation. We have implemented a new financial system. The system is certified as Year 2000 compliant. In conjunction with this implementation, we have undertaken the renovation of our various operational systems. The testing and implementation of these systems is underway and is scheduled for completion in the fourth quarter of 1999. Although we have not completely determined the effect of expenditures related to the Year 2000 issue, it is not expected to be significant and will be expensed as incurred. The state of Year 2000 readiness for third parties with whom we share a material relationship, such as banks and vendors used by us is being reviewed by management. At this time, we are unaware of any third party Year 2000 issues that would materially effect these relationships or our financial condition. We expect to be Year 2000 compliant in 1999 for all major systems. We are continuing to assess our risks and the full impact on operations if the worst case Year 2000 scenario were to occur. In conjunction with this, we are developing a contingency plan and expect to complete the development of this plan in the forth quarter of 1999. 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. Senior Discount Note Disclosure Requirements The indenture governing our 12% Senior Discount Notes due 2008 require certain financial disclosures for restricted subsidiaries separate from unrestricted subsidiaries and the disclosure to be made of Tower Cash Flow, as defined in the indenture, for the most recent fiscal quarter and Adjusted Consolidated Cash Flow, as defined in the indenture, for the most recently completed four-quarter period. As of September 30, 1999, we had no unrestricted subsidiaries. Tower Cash Flow, as defined in the indenture, for the quarter ended September 30, 1999 was $2.5 million. Adjusted Consolidated Cash Flow for the year ended September 30, 1999 was $10.5 million. Cautionary Statements Regarding Forward-Looking Statements This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. 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 report contains forward-looking statements regarding: . our business strategy to transition our business from site development services to the site leasing business, including our intent to make strategic acquisitions of towers and tower companies; . anticipated trends in the maturation of the site development industry and its effect on our revenues and profits; . our estimates regarding the future development of site leasing industry and its effect on our site leasing revenues; . our plan to continue to construct and acquire tower assets and the resulting effect on our revenues, capital expenditures, expenses and net income; . our ability to successfully conclude letters of intent or definitive agreements for newly built towers or acquisitions of existing towers and the resulting effect on our financial operations; . the effect on our financial operations of Conxus rejecting certain of their subleases with us pursuant to their bankruptcy proceedings; . our estimate of the amount of capital expenditures for the fourth quarter 1999 and fiscal year 2000 that will be required for the construction or acquisition of communications sites and the contingent purchase price payment related to the acquisition of Com-Net; and . our intention to fund capital expenditures for the fourth quarter and for fiscal year 2000 from cash from operations and borrowings under our Senior Credit Facility. These forward-looking statements reflect our current views about future events and are subject to risks, uncertainties and assumptions. We wish to caution readers that certain important factors may have effected and could in the future affect our actual results and could cause actual results to differ significantly from those expressed in any forward-looking statement. The most important factors that could prevent us from achieving our goals, and cause the assumptions underlying forward-looking statements and the actual results to differ materially from those expressed in or implied by those forward-looking statements include, but are not limited to, the following: . our ability to expand our site leasing business; . our ability to complete construction of new towers on a timely and cost-efficient basis, including our ability to successfully address zoning issues, carrier design changes, changing local market conditions and the impact of adverse weather conditions; . our ability to identify and acquire new towers, including our capability to timely complete due diligence and obtain third party consents; . our ability to retain current lessors on newly acquired towers; . our ability to realize economies of scale for newly acquired towers; . the continued dependence on towers for the communication relays by the wireless communications industry; . our ability to compete effectively for new tower opportunities in light of increased competition; and . our ability to raise substantial additional financing to expand our tower holdings. These and other risks and uncertainties affecting SBA Communications are discussed in greater detail in this report and in our other filings with the Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 19 of 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- 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 credit facility and any future financing requirements. Our fixed rate debt consists primarily of the accreted balance of the Senior Discount Notes. The following table presents the future principle payment obligations and weighted average interest rates associated with our existing long-term debt instruments assuming our actual level of long-term debt indebtedness:
1999 2000 2001 2002 2003 Thereafter ---- ---- ---- ---- ---- ---------- Liabilities: Long-term debt --- --- --- --- --- $180,673,810 $269,000,000 Fixed rate (12.0%) Term Loan --- --- $2,500,000 $ 2,500,000 $ 7,500,000 $ 12,500,000 Variable rate (8.7425% at September 30, 1999) Revolving Loan --- --- $5,000,000 $10,000,000 $15,000,000 $ 20,000,000 Variable rate (ranging from 8.45875% to 8.7525% at September 30, 1999) Note Payable --- $25,088 $ 50,176 $50,176 $ 50,176 $ 12,544 Variable rate (7.79% at September 30, 1999)
Our primary market risk exposure relates to (1) the interest rate risk on long-term and short-term borrowings, (2) our ability to refinance our Senior Discount Notes at maturity at market rates, (3) the impact of interest rate movements on our ability to meet interest expense requirements and exceed financial covenants and (4) the impact of interest rate movements on our ability to obtain adequate financing to fund future acquisitions. We manage the interest rate risk on our outstanding long-term and short-term debt through our use of fixed and variable rate debt. While we cannot predict or manage our ability to refinance existing debt or the impact interest rate movements will have on our existing debt, we continue to evaluate our financial position on an ongoing basis. 20 of 22 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 27. Financial Data Schedule (filed only electronically with the SEC). (b) Reports on Form 8-K: (1) On July 14, 1999, Form 8-K was filed with the Securities and Exchange Commission. (2) On July 26, 1999, Form 8-K was filed with the Securities and Exchange Commission. (3) On August 19, 1999, Form 8-K was filed with the Securities and Exchange Commission. Items 1, 2, 3, 4 and 5 are not applicable and have been omitted. 21 of 22 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 12, 1999 /s/ Jeffrey A. Stoops ---------------------- Jeffrey A. Stoops Chief Financial Officer (Duly Authorized Officer) November 12, 1999 /s/ Robert M. Grobstein ------------------------ Robert M. Grobstein Chief Accounting Officer (Principal Accounting Officer) 22 of 22 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SBA COMMUNICATIONS 10-Q 9/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT. 9-MOS 9-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 SEP-30-1998 SEP-30-1999 26,743,270 2,704,694 0 0 12,949,245 21,317,934 (436,671) (720,298) 0 0 45,835,949 32,344,807 157,456,629 302,932,266 (6,510,149) (18,423,599) 214,573,326 347,183,540 37,752,642 40,666,208 165,572,133 180,673,810 0 0 35,558,333 0 89,559 287,459 716,131 97,729,766 214,573,326 347,183,540 41,755,997 57,732,566 41,755,997 57,732,566 31,053,830 38,715,118 31,053,830 38,715,118 0 0 0 0 10,811,279 19,445,392 (12,666,675) (24,330,042) 0 403,003 (12,666,675) (23,927,039) 0 0 0 (1,149,954) 0 0 (12,666,675) (25,076,993) (1.73) (1.49) (1.73) (1.49)
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