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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number:
333-50219
SBA COMMUNICATIONS CORPORATION
(Exact name of Registrant as specified in its charter)
Florida 65-0716501
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Town Center Road 33486
Boca Raton, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code:
(561) 995-7670
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[X]
The number of shares outstanding of the Registrant's common stock (as
of December 31, 1998):
Class A Common Stock -- 880,922 shares
Class B Common Stock -- 8,075,000 shares
The aggregate market value of the voting stock held by non-affiliates
of the Registrant is approximately $20,250,000 as of December 31, 1998.
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PART I
ITEM 1. BUSINESS
GENERAL
We are a leading independent owner and operator of wireless communications
infrastructure in the United States. We generate revenue from our two primary
businesses -- site leasing and site development services. Since our founding in
1989, we have participated in the development of more than 10,000 antennae sites
in 49 of the 51 major wireless markets in the United States. 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 trend toward colocation and
independent tower ownership. As of December 31, 1998, we owned 494 towers,
having added 443 since January 1, 1998. We currently own over 550 towers and
have one of the most extensive backlogs in the industry which include:
. over 425 mandates for build-to-suit towers; and
. agreements to acquire approximately 50 additional towers.
As a result of our extensive existing tower base, we believe we are well-
positioned to continue to capitalize on the growth opportunities available in
the rapidly consolidating and highly fragmented tower leasing industry.
Our primary focus is the leasing of antennae space on our multi-tenant
towers to a variety of wireless service providers under long-term lease
contracts. We lease antennae space on: (1) our towers we construct through
build-to-suit programs; (2) existing sites we acquire; (3) our towers we develop
strategically; and (4) sites we lease, sublease and/or manage for third parties.
Under a build-to-suit program, we build a tower for a wireless service provider
who has entered into a long-term anchor tenant lease. We retain ownership of
the tower and the exclusive right to colocate additional tenants on the tower.
We also develop towers strategically, identifying an attractive location and
completing all pre-construction procedures (such as zoning) necessary to secure
the site. We then market the tower site to potential customers. We construct
more of our towers than we acquire and we expect this trend to continue.
Our site development services business is an "end-to-end" service offering
design, construction and operating expertise to a range of wireless service
providers. Our site development services consist of: (1) network pre-design;
(2) communication site selection; (3) communication site acquisition; (4) local
zoning and permitting; and (5) site construction and antennae installation.
We have used our leadership in the site development services business, our
existing national field organization and our strong relationships with wireless
service providers to expand into the ownership and leasing of communication
sites. We have added build-to-suit programs and other antennae site leasing
options to our service offerings and have sought the acquisition of attractive
communication sites. Our build-to-suit programs provide an integrated solution
to those wireless service providers seeking to minimize their capital
expenditures, overhead and time associated with the build-out and on-going
maintenance of their wireless network infrastructure.
We have a diverse range of customers, including cellular, PCS, paging, SMR
and ESMR providers, as well as other users of wireless transmission and
reception equipment. Our customers currently include many of the major wireless
communications companies, including AT&T Wireless, BellSouth, Nextel, Omnipoint,
Pac Bell, PrimeCo and Sprint PCS.
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We will continue to use our site development expertise to complement our
site leasing business, secure additional build-to-suit mandates and choose
acquisitions and strategic sites which we believe will be attractive for future
tenants. We believe that as the site development industry matures, our revenues
and gross profit from that business will decline significantly. We also believe
that, over the longer term, our site leasing revenues will increase as carriers
move to outsource ownership and management of towers and as the number of towers
we own grows as a result.
BUSINESS STRATEGY
Our strategy is to lease antennae space to multiple tenants on towers that
we construct or acquire. We plan to enhance our position as a leading owner
and operator of communication sites. Key elements of our strategy include:
.MAXIMIZING USE OF TOWER CAPACITY. We believe that many of our towers have
or will have significant capacity available for antennae space leasing and that
increased use of our owned towers can be achieved at low incremental cost. We
generally construct our towers to accommodate multiple tenants in addition to
the anchor tenant. We actively market space on our own towers through our
internal sales force.
.DEVELOPING NEW TOWERS THAT WE WILL OWN AND OPERATE. As wireless service
providers increasingly outsource their investment in, and ownership of, towers,
we can meet their outsourcing needs by using our expertise and relationships in
the site development business to construct towers with anchor tenants through
build-to-suit programs. We can also independently identify attractive locations
for new towers and strategically complete pre-construction procedures necessary
to secure tower sites in advance of customer demand. We believe that we have one
of the largest number of non-binding build-to-suit mandates from wireless
service providers in the industry. We currently have non-binding mandates to
build over 425 additional towers under build-to-suit programs and have in
varying stages of development over 150 additional sites which we believe will be
attractive locations for new tower construction. In 1998, we built 308 towers,
increasing our overall tower portfolio to 494 towers.
.ACQUIRING EXISTING TOWERS. We believe that our existing national field
organization gives us a competitive advantage in identifying opportunities for
the acquisition of existing towers. Our strategy is to acquire towers that can
service multiple tenants and are attractive to wireless service providers based
on their location, height and available capacity. While we generally target
smaller acquisitions, we believe that there are many potential acquisition
candidates and that the number of available towers will grow as large cellular,
PCS and other wireless service providers divest their tower holdings. We have
strict valuation criteria and believe that certain tower properties can be
purchased at reasonable price levels. We currently have agreements with respect
to pending acquisitions for approximately 50 towers.
.MAINTAINING AND CAPITALIZING ON STRONG RELATIONSHIPS WITH MAJOR WIRELESS
SERVICE PROVIDERS. We are well-positioned to be a preferred partner in build-
to-suit programs because of our strong relationships with wireless service
providers and proven operating experience. In many cases, the personnel
awarding site development projects for wireless service providers are the same
personnel who make decisions with respect to build-to-suit programs. We
continually market our build-to-suit programs to our site development service
customers. Our build-to-suit customers include AT&T Wireless, BellSouth
Mobility DCS, Nextel, PrimeCo PCS, Sprint PCS and Western Wireless.
.MAINTAINING OUR EXPERTISE IN SITE DEVELOPMENT SERVICES. We continue to
perform an array of site development services for wireless service providers
across the United States, including AT&T Wireless, BellSouth Mobility, Nextel,
Pacific Bell Mobile Services, PrimeCo PCS, and Sprint PCS. We have a broad
national field organization that allows us to identify and participate in site
development projects across the
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country and that gives us a knowledge of local markets and strong customer
relationships with wireless service providers.
.CAPITALIZING ON MANAGEMENT EXPERIENCE. Our management team has extensive
experience in site leasing and site development services. Management believes
that its industry expertise and strong relationships with wireless carriers will
allow us to continue to build and acquire a high-quality portfolio of towers.
Steven E. Bernstein, our President and Chief Executive Officer, has more than 12
years of experience in the wireless industry and our other executive officers
have an average of approximately 5 years of experience in this industry. In
addition, management is highly motivated to produce strong operating results
based on their approximately 52.6% ownership of our common stock equivalents
currently outstanding.
COMPANY SERVICES
General We are a leading independent provider of communication sites and
services, offering an array of site leasing and site development services to the
wireless communications industry. We offer our customers the flexibility of
choosing between the provision of a full ready-to-operate site or any of the
component services involved in the operation of a full ready-to-operate site.
The site leasing services we provide, include owning, leasing or managing
communication sites and leasing antennae space on communication sites to
wireless service providers. The site development services we provide, directly
or through subcontractors, include all activities associated with the selection,
acquisition and construction of communication sites for wireless service
providers.
The full range of services of the site development business typically occur
in five phases:
. network pre-design;
. communication site selection;
. communication site acquisition;
. local zoning and permitting; and
. site construction and antennae installation.
We use our experience and expertise in the site development business to
offer additional services in our site leasing business, which contributes to:
. our ownership or management of communication sites pursuant to our
build-to-suit programs, strategic builds and through acquisitions;
. the leasing or subleasing of antennae space on communication sites to
wireless service providers; and
. our maintenance and management of communication sites.
Where appropriate, we contract out certain of the site development
services.
Site Leasing Business
The site leasing business consists of:
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. the ownership of communication sites pursuant to build-to-suit programs,
strategic builds and acquisitions;
. the leasing or subleasing of antennae space on communication sites to
wireless service providers; and
. the maintenance and management of communication sites.
We lease and sublease antennae space on our communication sites to a
variety of wireless service providers. We own or lease from third parties, the
ground under such communication sites, and in some cases manage communication
sites for third parties in exchange for a percentage of the revenues or tower
cash flow. The substantial majority of our owned towers are the result of
build-to-suit programs. In our build-to-suit programs, we utilize some or all
of the five phases of our site development business as we would when providing
site development services to a third party. After a tower has been constructed,
we lease antennae space on the tower. We generally receive monthly lease
payments from customers payable under written antennae site leases. The
majority of our outstanding customer leases, and the new leases we typically
enter into, have original terms of five years (with four or five renewal periods
of five years each) and usually provide for annual or periodic price increases.
Monthly lease pricing varies with the number and type of antennae installed on a
communication site. Broadband customers such as PCS, cellular or ESMR generally
pay substantially more monthly rent than paging or other narrowband customers.
We also provide a lease/sublease service as part of our site leasing business
whereby we lease space on a communication site and sublease the space to a
wireless service provider.
Management believes that the site leasing portion of our business has
significant potential for our growth and we intend to expand our site leasing
business through increasing activity from our new tower builds and selective
acquisitions.
In 1998, total capital expenditures associated with the acquisition and
construction of 443 towers were approximately $138.1 million. As of December
31, 1998, the following table indicates the total number of our built and
acquired towers:
<TABLE>
<CAPTION>
LOCATION OF TOWERS ACQUIRED NEW BUILDS TOTAL % OF TOTAL
-------------------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C>
South Carolina 1 72 73 15%
Georgia 2 62 64 13%
Tennessee 17 38 55 11%
New York 33 9 42 9%
Texas 10 29 39 8%
Wisconsin 8 21 29 6%
Pennsylvania 17 6 23 5%
Michigan 0 19 19 4%
Minnesota 16 3 19 4%
Florida 12 6 18 4%
Oklahoma 0 14 14 3%
Iowa 8 2 10 2%
Louisiana 9 0 9 2%
North Carolina 2 6 8 2%
Ohio 0 8 8 2%
Connecticut 1 6 7 1%
Kentucky 2 5 7 1%
Missouri 1 5 6 1%
New Mexico 6 0 6 1%
</TABLE>
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<TABLE>
<CAPTION>
LOCATION OF TOWERS ACQUIRED NEW BUILDS TOTAL % OF TOTAL
-------------------- ---------- ------------ ------- ------------
<S> <C> <C> <C> <C>
Delaware 0 5 5 1%
Nebraska 1 4 5 1%
Colorado 4 0 4 1%
Indiana 3 1 4 1%
Virginia 2 2 4 1%
Maine 3 0 3 1%
South Dakota 3 0 3 1%
California 2 0 2 *
Illinois 2 0 2 *
Maryland 0 2 2 *
Alabama 1 0 1 *
Kansas 1 0 1 *
Mississippi 1 0 1 *
North Dakota 1 0 1 *
--- --- --- ---
Total 169 325 494 100%
=== === === ===
</TABLE>
____________
* less than 1%
Build-to-Suit Programs
Under our build-to-suit programs, we generally construct towers only after
having signed an antennae site lease agreement with an anchor tenant and having
made the determination that the initial or planned capital investment for those
towers would not exceed a targeted multiple of expected tower cash flow from
those towers after a certain period of time. In selling our build-to-suit
programs, our sales representatives utilize their existing relationships in the
wireless communications industry to target wireless service providers interested
in outsourcing their network buildout. Our sales representatives make proposals
for build-to-suit towers in response to competitive bids or specific requests
and in circumstances where we believe the provider would have an interest in
build-to-suit towers. Although the terms vary from proposal to proposal, we
typically sign a five-year lease agreement with an anchor tenant, with four or
file additional five-year renewal periods at the option of the lessee. While the
proposed monthly rent also varies, broadband customers such as PCS, cellular or
ESMR generally pay more than the aggregate monthly rent paid by paging or other
narrowband customers. In addition, anchor tenants will typically pay lower
monthly rents than subsequent tenants of a similar type service. In certain
cases, an anchor tenant may also enjoy an introductory lease rate for a period
of time.
If a wireless provider accepts the terms of the proposal submitted by us,
the provider will award us a non-binding mandate to pursue specific sites,
specific search rings or general areas. Based on the status of the geographic
areas we have been given a mandate to pursue, we will perform due diligence
investigations for a designated period during which time we will analyze the
site based on a number of factors, including colocation opportunities, zoning
and permitting issues, economic potential of the site, difficulty of
constructing a multi-tenant tower and remoteness of the site. These mandates are
non-binding agreements and either party may terminate the mandate at any time.
If, after our due diligence investigation during the mandate, we conclude
that it is economically feasible to construct the towers requested by the
wireless service provider, we will enter into an antennae site lease agreement
with the provider. In some cases we must build a tower for the carrier
regardless of the outcome of our due diligence investigation. We have negotiated
several master build-to-suit agreements, including antennae site lease terms,
with providers in specific markets that we believe will facilitate our obtaining
build-to-suit programs from such providers in those markets. The antennae site
lease agreements typically provide that all obligations are conditioned on our
receiving all necessary zoning approvals where
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zoning remains to be obtained. Certain of the antennae site lease agreements
contain penalty or forfeiture provisions in the event the tower is not completed
within specified time periods.
Strategic Siting
Out strategic siting activities focus on developing new towers in locations
chosen by us, instead of by the anchor tenant in a build to suit program. We try
to identify attractive locations for new towers and strategically complete pre-
construction procedures necessary to secure the site in advance of demand from a
specific customer. We may invest in the zoning and permitting of these strategic
sites (and even the construction of the towers) when we have not yet obtained an
anchor tenant if we believe that demand for the site will exist in the near
term, or that a competitor of ours may acquire the site if we wait until an
anchor tenant is secured. We generally will not build, however, a tower on a
strategic site until we have signed a lease with a tenant.
Acquisitions
We actively pursue acquisitions of revenue-producing communication sites.
Our acquisition strategy, like our new build strategy, is financially-oriented
as opposed to geographically or customer-oriented. Our goal is to acquire towers
that have an initial or planned capital investment not exceeding a targeted
multiple of expected tower cash flow from the acquired towers after a certain
period of time. We determine tower cash flow by subtracting from gross tenant
revenues the direct expenses associated with operating the communication site,
such as ground lease payments, real estate taxes, utilities, insurance and
maintenance.
Our dedicated mergers and acquisitions personnel direct our acquisition
activities and are responsible for identification, negotiation, documentation
and consummation of acquisition opportunities, as well as the coordination and
management of independent advisors and consultants retained by us from time to
time in connection with acquisitions. In addition to our mergers and
acquisitions personnel, we rely on our national field representatives to
identify potential acquisitions. Our field representatives identify generally
smaller acquisition prospects, involving one to ten towers, and often provide us
with the exclusive opportunity to structure and consummate a transaction with
the potential seller. We believe that our field representatives and knowledge of
potential acquisition candidates gained through our substantial site development
business experience provide us with a competitive advantage. This information
will permit us to identify and consummate acquisitions on more favorable terms
than would be available to us through competitively-bid or brokered acquisition
prospects. As is the case with our new tower builds, our focus is to acquire
multi-tenant communication sites with underutilized capacity in locations that
we believe will be attractive to wireless service providers which have not yet
built out their service in such locations.
Lease/Sublease
Under our lease/sublease program, we lease antennae space on a
communication site and then sublease the space to wireless service providers.
When these lease/subleases were first signed, these providers chose the
financial benefits associated with the lease/sublease program, which include
reduced capital expenditures, as compared to paying for site development
services on a fee basis. Wireless paging providers comprise a significant
majority of customers who sublease antennae sites from us. The subleases
generally have original terms of five years, with four or five renewal periods
of five years each at the option of the lessee, and usually provide for annual
or periodic price increases.
Maintenance and Management
Once acquired or constructed, we maintain and manage our communication
sites through a combination of in-house personnel and independent contractors.
In-house personnel are responsible for
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oversight and supervision of all aspects of site maintenance and management, and
are particularly responsible for monitoring security access and lighting, RF
emission and interference issues, signage, structural engineering and tower
capacity, tenant relations and supervision of independent contractors. We hire
independent contractors locally to perform routine maintenance functions such as
landscaping, pest control, snow removal, vehicular access, site access and
equipment installation oversight. We engage independent contractors on a fixed
fee or time and materials basis or, in a few limited circumstances where such
contractors were sellers of towers to us, for a percentage of tower cash flow.
We have our network operations center in Boca Raton, Florida where we have
centralized monitoring of security access and lighting for our towers, as well
as other functions. As the number of communication sites owned and managed by
us increases, we anticipate increased expenditures to expand our maintenance
infrastructure, including expenditures for personnel and computer hardware and
software, which expenditures may be material.
Site Development Business
We offer each phase of our site development services to our customers.
These services and phases are the same ones we employ for our own benefit when
we build towers for our ownership. During Phase I, network pre-design, we
perform pre-design analysis by investigating those geographic areas that are
designated as a priority by our customer. We will then identify, to the extent
possible, all sites which meet the customer's RF requirements in those areas.
GIS specialists create maps of the sites, analyzing for a number of factors,
including which areas may have the most favorable zoning regulations and
availability of colocation opportunities. Typically, we conduct preliminary
zoning analysis and determine those areas where zoning approval is likely, along
with a possible time frame for approval. We use Phase I services to eliminate
costly redesigns once a project is started, which can result in significant
savings of both time and money.
In Phase II, site selection, we determine:
. which sites most closely meet the RF engineering requirements of the
customer;
. which sites are leasable or can be purchased;
. which sites have the potential to be zoned for site construction or
colocation based on the then current zoning requirements; and
. which sites are most suitable for construction and installation of
antennae.
GIS specialists select the most suitable sites based on demographics,
traffic patterns and signal characteristics. Typically, we will identify two or
three potential sites for each location in the RF engineering plan, with the
intent of colocating on an existing site or constructing a new site on the
location most advantageous to the customer. We also seek FAA approval at this
time.
In Phase III, site acquisition, we secure the right from the property owner
to construct a tower or colocate on the site. Depending on the type of interest
in the property that we believe will best suit the needs of the customer, we
will negotiate and enter into on behalf of the customer:
. a contract of sale pursuant to which the customer acquires fee title to
the property;
. a long-term ground or rooftop lease pursuant to which the customer
acquires a leasehold interest in the property (typically a five-year
lease with four or five renewal periods of five years each);
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. an easement agreement pursuant to which the customer acquires an
easement over the property; or
. an option to purchase or lease the property pursuant to which the
customer has a future right to acquire fee title to the property or
acquire a leasehold interest.
It is during this phase of the site development service that we generally
obtain a title report on the site, conduct a survey of the site, perform soil
analysis of the site and obtain an environmental survey of the site.
Phase IV, local zoning and permitting, includes preparing all appropriate
zoning applications and providing representation at any zoning hearings that may
be conducted. We also obtain all necessary entitlement land use permits
necessary to commence construction on the site or install equipment on the site.
Phase V, construction and installation, involves the construction
management of the tower on a selected site, whether by the third party or
directly by us. Phase V includes preparing a construction budget, installing or
monitoring the installation of equipment and antennae, hiring sub-contractors to
perform the actual construction of the tower or equipment installation when not
performed by us, preparing a construction schedule, monitoring all vendors'
delivery and installation of equipment and monitoring the completion of all
construction and landscaping of the site.
The acquisition of Communication Site Services, Inc. ("CSSI") in 1997
provided us with in-house tower construction and antennae installation
capability. CSSI had extensive experience in the development and construction of
tower sites and the installation of antennae, microwave dishes and electrical
and telecommunications lines. CSSI's site development and construction services
include clearing sites, laying foundations and electrical and telecommunications
lines, and constructing equipment shelters and towers. CSSI has designed and
built tower sites for a number of its customers and will continue to provide
construction services for third parties. In addition, CSSI has constructed and
is expected to construct a portion of our towers in the future. Through CSSI, we
can provide cost-effective and timely completion of construction projects in
part because its site development personnel are cross-trained in all areas of
site development, construction and antennae installation. CSSI maintains a
varied inventory of heavy construction equipment and materials at its five-acre
equipment storage and handling facility in Ocala, Florida, which is used as a
staging area for projects in the southeastern region of the United States.
Our site development business is headquartered in Boca Raton, Florida.
Once we are hired on a site development project, we dispatch a site development
team from headquarters to the project site. We establish a temporary field
office for the duration of the project. The site development team is typically
composed of our permanent employees and supplemented with local hires employed
only for that particular project. A team leader is assigned to each phase of the
site development project and reports to a project manager who oversees all team
leaders. Upon the completion of a site development project, the field office is
typically closed and all of our permanent employees are either relocated to
another project or directed to return to headquarters.
We generally set prices for each site development service separately.
Customers are billed for these services on a fixed price or time and materials
basis and we may negotiate fees on individual sites or for groups of sites.
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CUSTOMERS
We have performed site development and site leasing services for many of
the largest wireless service providers over the past eight years. The majority
of our contracts have been for PCS broadband, ESMR, cellular and paging
customers. We also serve PCS narrowband, SMR and MDS wireless providers. In
both our site development and site leasing businesses, we work with both large
national providers and smaller local, regional or private operators. In 1998,
our largest customers were Sprint PCS, BellSouth and Pacific Bell Mobile
Services, representing 41.3%, 23.8% and 13.5%, respectively, of site development
revenues and PageNet, representing 33.4%, of our site leasing revenues.
PageNet's revenues come primarily from our lease/sublease component of our site
leasing business. No other customer represented more than 10.0% of our
revenues.
We have provided site development services in 1997 or 1998 for the
following customers:
Alltel Omnipoint
A+ Network Pacific Bell Mobile Services
Aerial Communications PageNet
AT&T Wireless Services Powertel
Bell Atlantic NYNEX Mobile Systems PrimeCo PCS
BellSouth Mobility Sprint PCS
CellNet Data Systems 360. Communications Company
Comnet Cellular, Inc. US West Communication
Nextel WinStar
SALES AND MARKETING
Our sales and marketing goals are:
. to continue to grow our site leasing business;
. to further cultivate existing customers to obtain mandates for build-to-
suit programs as well as to sell site development services;
. to use our contacts and industry knowledge to better identify attractive
locations for new tower builds;
. to use existing relationships and develop new relationships with
wireless service providers to lease antennae space on our owned or
managed communication sites;
. to form affiliations with select communications systems vendors who
utilize end-to-end services, including those provided by us, which will
enable us to market our services and product offerings through
additional channels of distribution; and
. to sustain our market leadership position in the site development
business.
Historically, we have capitalized on the strength of our experience,
performance and relationships with wireless service providers to position
ourselves for additional site development business. We have leveraged these
attributes to obtain build-to-suit mandates, and we expect to continue to
enhance and leverage these to sell build-to-suit programs and antennae space on
our owned or managed communications sites. We also use these attributes to
identify attractive locations to build towers on strategic sites.
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We have a dedicated sales force supplemented by members of our executive
management team. Our salespeople are based regionally as well as in the
corporate office. Maintaining and cultivating relationships with wireless
service providers is a main focus of senior management. Our strategy is to
delegate sales efforts to those employees of ours who have the best
relationships with the wireless service providers. We assign our
representatives specific accounts based on historical experience with a provider
and the quality of the relationship between our representative and the provider.
Most wireless service providers have national corporate headquarters with
regional offices. We believe that most decisions for site development and site
leasing services are made by providers at the regional level with input from
their corporate headquarters. Our sales representatives work with provider
representatives at the local level and at the national level when appropriate.
Our sales staff compensation is heavily weighted to incentive-based goals and
measurements. In addition to our marketing and sales staff, we rely upon our
executive and operations personnel on the national and field office levels to
identify sales opportunities within existing customer accounts, as well as
acquisition opportunities.
Our primary marketing and sales support is centralized and directed from
our headquarters office in Boca Raton, Florida and is supplemented by our
regional offices. We have a full-time staff dedicated to our marketing efforts.
The marketing and sales support staff are charged with implementing our
marketing strategies, prospecting and producing sales presentation materials and
proposals.
COMPETITION
We compete for site leasing tenants with:
. wireless service providers that own and operate their own tower
footprints and lease, or may in the future decide to lease, antennae
space to other providers;
. site development companies that acquire antennae space on existing
towers for wireless service providers, manage new tower construction and
provide site development services;
. other large independent tower companies; and
. smaller local independent tower operators.
Wireless service providers that own and operate their own tower networks
generally are substantially larger and have greater financial resources than
ours. We believe that tower location, capacity, price, quality of service and
density within a geographic market historically have been and will continue to
be the most significant competitive factors affecting tower leasing companies.
We also compete for development and new tower construction opportunities with
wireless service providers, site developers and other independent tower
operating companies and believe that competition for site development will
increase and that additional competitors will enter the tower market, some of
which may have greater financial resources than ours.
The following is a list of certain of the tower companies that compete with
us: American Tower Corporation, Crown Castle International Corp., Lodestar
Communications, Microcell, Motorola, Pinnacle Tower, SpectraSite and Unisite.
The following companies are primarily competitors for our site management
activities: AAT, APEX, JJS Leasing, Inc., Motorola, Signal One, Subcarrier
Communications and Tower Resources Management.
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We believe that the majority of our competitors in the site development
business operate within local market areas exclusively, while some firms appear
to offer their services nationally, including American Tower Corporation,
Tetratech, Pyramid, NLS and SpectraSite. The market includes participants from
a variety of market segments offering individual, or combinations of, competing
services. The field of competitors includes site development consultants,
zoning consultants, real estate firms, right-of-way consulting firms,
construction companies, tower owners/managers, radio frequency engineering
consultants, telecommunications equipment vendors (which provide end-to-end site
development services through multiple subcontractors) and providers' internal
staff. We believe that providers base their decisions on site development
services on certain criteria, including a company's experience, track record,
local reputation, price and time for completion of a project. We believe that
we compete favorably in these areas.
EMPLOYEES
As of December 31, 1998, we had 331 employees, none of whom is represented
by a collective bargaining agreement. We consider our employee relations to be
good. Due to the nature of our business, we experience a "run-up" and "run-
down" in employees as contracts are completed in one area of the country and are
commenced in a different area.
REGULATORY AND ENVIRONMENTAL MATTERS
Federal Regulations. Both the FCC and FAA regulate towers used for
wireless communications transmitters and receivers. These regulations control
the siting and marking of towers and may, depending on the characteristics of
particular towers, require registration of tower facilities. Wireless
communications devices operating on towers are separately regulated and
independently licensed based upon the particular frequency used.
Pursuant to the requirements of the Communications Act of 1934, the FCC, in
conjunction with the FAA, has developed standards to consider proposals for new
or modified antennae. These standards mandate that the FCC and the FAA consider
the height of proposed antennae, the relationship of the structure to existing
natural or man-made obstructions and the proximity of the antennae to runways
and airports. Proposals to construct or to modify existing antennae above
certain heights are reviewed by the FAA to ensure the structure will not present
a hazard to aviation. The FAA may condition its issuance of a no-hazard
determination upon compliance with specified lighting and/or marking
requirements. The FCC will not license the operation of wireless
telecommunications devices on towers unless the tower has been registered with
the FCC or a determination has been made that such registration is not
necessary. The FCC will not register a tower unless it has been cleared by the
FAA. The FCC may also enforce special lighting and painting requirements.
Owners of wireless transmissions towers may have an obligation to maintain
painting and lighting to conform to FCC standards. Tower owners may also bear
the responsibility of notifying the FAA of any tower lighting outage. We
generally indemnify our customers against any failure to comply with applicable
regulatory standards. Failure to comply with the applicable requirements may
lead to civil penalties.
The Telecommunications Act of 1996 amended the Communications Act of 1934
by giving state and local zoning authorities jurisdiction over the construction,
modification and placement of towers. The new law preserves local zoning
authority by prohibiting any action that would (1) discriminate between
different providers of personal wireless services or (2) ban altogether the
construction, modification or placement of radio communication towers. Finally,
the 1996 Telecom Act requires the federal government to help licensees for
wireless communications services gain access to preferred sites for their
facilities. This may require that federal agencies and departments work
directly with licensees to make federal property available for tower facilities.
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Owners and operators of antennae may be subject to, and therefore must
comply with, environmental laws. The FCC's decision to license a proposed tower
may be subject to environmental review pursuant to the National Environmental
Policy Act of 1969, which requires federal agencies to evaluate the
environmental impacts of their decisions under certain circumstances. The FCC
has issued regulations implementing the National Environmental Policy Act.
These regulations place responsibility on each applicant to investigate any
potential environmental effects of operations and to disclose any significant
effects on the environment in an environmental assessment prior to constructing
a tower. In the event the FCC determines the proposed tower would have a
significant environmental impact based on the standards the FCC has developed,
the FCC would be required to prepare an environmental impact statement. This
process could significantly delay the registration of a particular tower.
As an owner and operator of real property, we are subject to certain
environmental laws that impose strict, joint and several liability for the
cleanup of on-site or off-site contamination and related personal or property
damages. We are also subject to certain environmental laws that govern tower
placement, including pre-construction environmental studies. Operators of
towers must also take into consideration certain RF emissions regulations that
impose a variety of procedural and operating requirements. The potential
connection between RF emissions and certain negative health effects, including
some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies
have been inconclusive. We believe that we are in substantial compliance with
and we have no material liability under all applicable environmental laws.
These costs of compliance with existing or future environmental laws and
liability related thereto may have a material adverse effect on our prospects,
financial condition or results of operations.
State and Local Regulations. Most states regulate certain aspects of real
estate acquisition and leasing activities. Where required, we conduct the site
acquisition portions of our site development services business through licensed
real estate brokers or agents, who may be our employees or hired as independent
contractors. Local regulations include city and other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local zoning authorities generally have been hostile to
construction of new transmission towers in their communities because of the
height and visibility of the towers.
RISK FACTORS
We have made forward-looking statements in this document that are subject
to risks and uncertainties. These could cause actual events to differ
materially from those we predict in our forward-looking statements. Forward-
looking statements include the information concerning our possible or assumed
future results of operations. They also include statements concerning (1) the
outcome of our growth strategy, (2) future liquidity and capital expenditures,
(3) future construction and acquisition activities, (4) future debt levels and
the ability to obtain financing and service debt, (5) future competitive
conditions in the communications site and wireless carrier industries, (6)
future regulatory developments in the communications site and wireless carrier
industries, (7) projected growth of the wireless communications and wireless
carrier industries, and (8) future general economic conditions. Also, when we
use words such as "believe", "expect", "anticipate" or similar expressions, we
are making forward-looking statements. You should note that many of the
following risk factors, some of which are discussed elsewhere in this document,
could affect our company in the future and could cause our results to differ
materially from those expressed in our forward-looking statements contained
throughout this document.
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WE EXPECT OUR SITE DEVELOPMENT REVENUES TO DECLINE AS WE DEVELOP OUR SITE
LEASING BUSINESS.
Our growth strategy is primarily focused on expanding our site leasing
business, as opposed to our site development business. However, substantially
all of our revenues have historically come from the consulting segment of our
site development business. Our construction and acquisition of towers are key
elements to this growth strategy. The success of our site leasing business will
depend on our ability to construct and acquire towers and profitably manage the
leasing of antennae sites on those towers. In particular, the profitability of
our site leasing business will depend on the ability to secure additional
tenants following initial tower construction or acquisition. We have only
limited experience in owning towers, and we cannot assure you that we will be
successful in acquiring or constructing towers or securing additional tenants.
In addition, we believe that wireless service providers have begun to move
away from the traditional build-out formula where those providers contract for
site development services for a fee and invest the capital necessary to build
and own their own network of communication towers. We believe that the use of
build-to-suit programs is rapidly becoming the preferred method of wireless
network expansion. As a result, our site development revenues from consulting
declined in fiscal 1997 and 1998, and we expect a further substantial decline in
our site development revenues from consulting in fiscal 1999. We do not expect
that revenues recognized from our site development business will ever return to
the level experienced in fiscal 1996. We expect that our site development
business from consulting will continue to decline in the near term as well as
for the foreseeable future as our customers move toward build-to-suit programs
and other outsourcing alternatives while moving away from wireless service
provider-funded site development and ownership. In addition, we anticipate that
our operating expenses may, and cash needs will, continue to increase from their
1998 levels as we continue to implement our strategy of acquiring tower assets.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our success in the site leasing business depends to a large extent on our
management's expectations and assumptions concerning future demand for
independently-owned communication sites and numerous other factors, many of
which are beyond our control. Any material error in any of these expectations
or assumptions could have a material adverse effect on our prospects, financial
condition or results of operations. Because most of our towers are newly
constructed, and because these towers have little or no positive cash flow at
the time of their construction, the risks of lower tenant demand for tower space
are much greater for us than for a tower company which has grown its portfolio
by acquiring towers with existing cash flow. We cannot assure you that we will
be successful in growing our site leasing business.
THE NUMBER OF TOWERS WE BUILD AND OUR SITE DEVELOPMENT BUSINESS REVENUES
FLUCTUATE FROM QUARTER TO QUARTER.
The number of towers we build and the demand for our site development
services each fluctuates from period to period and within periods. A number of
factors cause these fluctuations, including the timing of our customers' capital
expenditures, the number and significance of active customer engagements during
a quarter, delays incurred in connection with a project, employee hiring, the
use of consultants and the rate and volume of wireless service providers' tower
build-outs. While this demand fluctuates, we incur significant fixed costs,
such as maintaining a staff and office space in anticipation of future
contracts, even when there is no current business. The timing of revenues is
difficult to forecast as our sales cycle can be relatively long and may depend
on factors such as the size and scope of assignments, budgetary cycles and
pressures and general economic conditions. Seasonal factors, such as weather,
vacation days and total business days in a quarter, and the business practices
of customers, such as deferring commitments on new projects until after the end
of the calendar year or the customers' fiscal year, may add to the variability
of new tower builds and revenues and could have a material adverse effect on our
prospects, financial condition or results of operations. Consequently, the
number of towers we build and operating results of our
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site development business for any particular period may vary significantly, and
should not be considered as necessarily being indicative of longer-term results.
WE FACE ZONING AND OTHER RESTRICTIONS ON OUR ABILITY TO CONSTRUCT NEW TOWERS.
Our growth strategy depends on our ability to construct and operate towers
in conjunction with the expansion by wireless service providers of their tower
network infrastructure. A number of factors beyond our control, including
zoning and local permitting requirements, FAA considerations, availability of
tower components and construction equipment, skilled construction personnel and
bad weather conditions, can affect our ability to construct new towers. In
addition, as the concern over tower proliferation has grown in recent years,
certain communities have placed restrictions on new tower construction or have
delayed granting permits required for construction. We cannot assure you (1) of
the number of mandates that we will be awarded or the number of mandates that
will result in constructed towers; (2) that we will be able to overcome
regulatory or other barriers to new construction; (3) that the number of towers
planned for construction will be completed in accordance with the requirements
of our customers; or (4) that there will be a significant need for the
construction of new towers once existing wireless service providers complete
their tower network infrastructure build-out. Certain of our anchor tenant
leases contain penalty or forfeiture provisions in the event the towers are not
completed within specified time periods.
WE FACE INCREASING COMPETITION FOR NEW TOWER OPPORTUNITIES AND ACQUISITIONS
OF EXISTING TOWERS.
We compete for new tower opportunities primarily with site developers,
wireless carriers and other independent tower companies. We believe that
competition for new tower opportunities will increase and that additional
competitors will enter the tower market. Some of these additional competitors
have or are expected to have greater financial resources than we do.
Our growth strategy also depends on our ability to acquire and operate
existing towers not built by us to augment our existing tower network. We
compete with other independent tower owners and operators for acquisitions of
towers, as well as site developers, and we expect that this competition will
increase. Increased competition for acquisitions may result in fewer acquisition
opportunities for us, as well as higher acquisition prices. We regularly explore
acquisition opportunities, and we are currently actively negotiating to acquire
additional towers. We currently have agreements with respect to our acquisition
of approximately 50 additional towers. We cannot assure you that we will be able
to identify towers or tower companies to acquire in the future on commercially
reasonable terms or at all.
We cannot assure you that we will be able to identify, finance and complete
future acquisitions on acceptable terms or that we will be able to profitably
manage and market available space on our towers. The extent to which we are
unable to construct or acquire additional towers, or profitably manage such
tower operations, may have a material adverse effect on our growth rate,
prospects, financial condition or results of operations.
In addition, the timeframe for the current wireless build-out cycle may be
limited to the next few years, and many PCS networks have already been built out
in large markets. Our failure to move quickly and aggressively to obtain growth
capital and capitalize on this infrastructure opportunity could have a material
adverse effect on our growth rate, prospects, financial condition or results of
operations with respect to both site development services and site leasing.
WE WILL NEED TO SEEK ADDITIONAL FINANCING TO FUND OUR BUSINESS PLAN.
We currently estimate that we will make at least $150.0 million of capital
expenditures in 1999 for the construction and acquisition of communication
sites, primarily towers. Based on our current operations
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and anticipated revenue growth, we believe that, if our business strategy is
successful, cash flow from operations and available cash, together with
available borrowings under our existing credit facility, will be sufficient to
fund our anticipated capital expenditures through the end of 1999. Thereafter,
however, or in the event we exceed our currently anticipated capital
expenditures by the end of 1999, or are unable to fully draw on our credit
facility, we anticipate that we will need to seek additional equity or debt
financing to fund our business plan. We cannot assure you that additional
financing will be available (on commercially acceptable terms or at all) or
permitted by the terms of our existing indebtedness, including our senior
discount notes. Prior to March 1, 2003, interest expense on these notes will
consist solely of non-cash accretion of original issue discount and the notes
will not require cash interest payments. After this time, these notes will have
accreted to $269.0 million and will require annual cash interest payments of
approximately $32.3 million. To the extent we are unable to finance future
capital expenditures, we will be unable to achieve our currently contemplated
business goals. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
THE DEVELOPMENT OF OUR SITE LEASING BUSINESS MAY STRAIN OUR RESOURCES.
Implementation of our strategy to expand our site leasing business may
impose significant strains on our management, operating systems and financial
resources. In addition, we anticipate that our operating expenses may increase
from their 1998 levels as we implement our strategy of constructing and
acquiring tower assets. Our failure to manage our growth or unexpected
difficulties encountered during expansion could have a material adverse effect
on our prospects, financial condition or results of operations. The pursuit and
integration of new tower builds, acquisitions, investments, joint ventures and
strategic alliances will require substantial attention from our senior
management, which will limit the amount of time available to devote to our
existing operations.
From January 1, 1995 to December 31, 1998, our work force increased from 82
to 331 employees. This growth has placed, and will likely continue to place a
substantial strain on our administrative, operational and financial resources.
Our executive officers generally have had no experience in managing companies
this large. In addition, as part of our business strategy, we may acquire
complementary businesses or expand into new businesses. We cannot assure you
that we will be able to manage our growth successfully, or that our management,
personnel or operational and financial control systems will be adequate to
support expanded operations. Any such inabilities or inadequacies could have a
material adverse effect on our growth rate, prospects, financial condition or
results of operations.
WE DEPEND ON DEMAND FOR WIRELESS COMMUNICATIONS FOR OUR REVENUES.
Substantially all of our customers to date have been providers of wireless
communications services and, therefore, our success is dependent on their
success. Demand for our services is dependent on demand for communication sites
from wireless service providers, which, in turn, is dependent on the demand for
wireless services. Most types of wireless services currently require ground-
based network facilities, including communication sites for transmission and
reception. The extent to which wireless service providers lease these
communication sites depends on a number of factors beyond our control, including
the level of demand for wireless services, the financial condition and access to
capital of wireless service providers, the strategy of providers with respect to
owning or leasing communication sites, government licensing of broadcast rights,
changes in telecommunications regulations and general economic conditions. In
addition, wireless service providers frequently enter into roaming agreements
with competitors allowing them to utilize one another's wireless communications
facilities to accommodate customers who are out of range of their home
provider's services. These roaming agreements may be viewed by wireless service
providers as a superior alternative to leasing antennae space on communications
sites owned by us. The
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proliferation of these roaming agreements could have a material adverse effect
on our growth rate, prospects, financial condition or results of operations.
The wireless communications industry has grown significantly in recent
years. A slowdown in the growth of, or reduction in, demand in a particular
wireless segment could adversely affect the demand for communication sites. For
example, we anticipate that a significant amount of our revenues over the next
several years will be generated from providers in the PCS market and, as such,
we will be subject to downturns in PCS demand. Moreover, wireless service
providers often operate with substantial leverage, and financial problems for
our customers could result in accounts receivable going uncollected, in the loss
of a customer and the associated lease revenue, or in a reduced ability of these
customers to finance expansion activities.
OUR OPERATIONS MAY BE UNDERMINED BY THE SUCCESS OF NEW TECHNOLOGIES.
The emergence of new technologies could also have a negative impact on our
operations. For example, the FCC has granted license applications for three low-
earth orbiting satellite systems that are intended to provide mobile voice and
data services. Although such systems are highly capital-intensive and
technologically untested, mobile satellite systems could compete with land-based
wireless communications systems. These systems could reduce the demand for our
infrastructure services. The occurrence of any of these factors could have a
material adverse effect on our growth rate, prospects, financial condition or
results of operations.
WE HAVE MANY COMPETITORS FOR SITE LEASING TENANTS.
We compete for site leasing tenants with: (1) wireless service providers
that own and operate their own tower footprints and lease, or may in the future
decide to lease, antennae space to other providers; (2) site development
companies that acquire antennae space on existing towers for wireless service
providers, manage new tower construction and provide site development services;
(3) other large independent tower companies; and (4) smaller local independent
tower operators. Wireless service providers that own and operate their own
tower footprints generally are substantially larger and have greater financial
resources than we do. Several other independent companies also have larger
tower footprints and greater financial resources than we do. We believe that
tower location and capacity, price, quality of service and density within a
geographic market historically have been and will continue to be the most
significant competitive factors affecting the site leasing business. Because
most of our towers are newly constructed, and because these towers have little
or no positive cash flow at the time of their construction, the risks of lower
tenant demand for tower space are much greater for us than for a tower company
which has purchased most of its towers with existing cash flow.
OUR MANDATES MAY NOT YIELD BINDING AGREEMENTS.
We currently have non-binding mandates to build over 425 towers under
build-to-suit programs for wireless service providers. Although we believe that
the the majority of these non-binding mandates will result in long-term anchor
leases for specific communication towers, there are a number of steps that need
to occur before any leases are executed. These steps include, in some cases,
finalization of build-out plans by the customers who have awarded the mandates,
completion of due diligence by us and our customers and finalization of other
definitive documents between the parties. As a result, we cannot assure you as
to the percentage of current and future non-binding mandates that will
ultimately result in binding anchor tenant leases and constructed towers.
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WE DEPEND ON A SMALL NUMBER OF CUSTOMERS FOR MOST OF OUR REVENUES.
We derive a significant portion of our revenues from a small number of
customers. For example, during 1997 and 1998, our five largest customers
accounted for approximately 89.9% and 91.4%, respectively, of our revenues from
site development services. Four of the five largest site development customers
were also among our five largest customers overall in 1998. Sprint PCS, our
largest customer for the years ended December 31, 1997 and 1998, accounted for
53.6% and 41.3%, respectively, of our revenues from site development services
during those years. Other large customers include Pacific Bell Mobile Systems,
which accounted for 14.0% and 13.5% of our revenues from site development
services for the years ended December 31, 1997 and 1998, respectively, and
BellSouth, which accounted for 23.8% of our revenues from site development
services for 1998. Customers engage us on a project-by-project basis, and a
customer can generally terminate an assignment at any time without penalty. In
addition, a customer's need for site development services can decrease, and we
cannot assure you that we will be successful in establishing relationships with
new clients. Moreover, we cannot assure you that our existing customers will
continue to engage us for additional projects. We have experienced and expect to
continue to experience a decline in overall demand for our site development
services. The loss of any significant customer could have a material adverse
effect on our growth rate, prospects, financial condition or results of
operations.
WE MUST COMPLY WITH A VARIETY OF REGULATIONS.
We are subject to a variety of regulations, including those at the federal,
state and local level. Both the FCC and the FAA regulate towers and other sites
used for wireless communications transmitters and receivers. Such regulations
control siting and marking of towers and may, depending on the characteristics
of the tower, require registration of tower facilities. Wireless communications
devices operating on towers are separately regulated and independently licensed
based upon the regulation of the particular frequency used. All proposals to
construct new communication sites or to modify existing communication sites are
reviewed by both the FCC and the FAA to ensure that a site will not present a
hazard to aviation. Owners of towers may have an obligation to paint them or
install lighting to conform to FCC and FAA standards and to maintain such
painting or lighting. Tower owners may also bear the responsibility for
notifying the FAA of any tower lighting failures. We generally indemnify our
customers against any failure to comply with applicable standards. Failure to
comply with applicable requirements may lead to civil penalties.
Local regulations include city or other local ordinances, zoning
restrictions and restrictive covenants imposed by community developers. These
regulations vary greatly, but typically require tower owners to obtain approval
from local officials or community standards organizations prior to tower
construction. Local regulations can delay or prevent new tower construction or
site upgrade projects, thereby limiting our ability to respond to customers'
demands. In addition, these regulations increase the costs associated with new
tower construction. We cannot assure you that existing regulatory policies will
not adversely affect the timing or cost of new tower construction or that
additional regulations will not be adopted which increase these delays or result
in additional costs to us. These factors could have a material adverse effect
on our prospects, financial condition or results of operations and on our
ability to implement and/or achieve our business objectives in the future.
Our customers may also become subject to new regulations or regulatory
policies that adversely affect the demand for communication sites. In addition,
if we pursue international opportunities, we will be subject to regulation in
foreign jurisdictions.
In addition, our operations are subject to federal, state and local
environmental laws and regulations regarding the use, storage, disposal,
emission, release and remediation of hazardous and nonhazardous
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substances, materials or wastes. Under certain of these environmental laws, we
could be held strictly, jointly and severally liable for the remediation of
hazardous substance contamination at our facilities or at third-party waste
disposal sites, and could also be held liable for any personal or property
damage related to such contamination. Although we believe that we are in
substantial compliance with and have no material liability under applicable
environmental laws, the costs of compliance with existing or future
environmental laws and liability related to those laws may have a material
adverse effect on our growth rate, prospects, financial condition or results of
operations.
We and the wireless service providers that use our towers are also subject
to government requirements and other guidelines relating to RF emissions. The
potential connection between RF emissions and certain negative health effects,
including some forms of cancer, has been the subject of substantial study by the
scientific community in recent years. To date, the results of these studies
have been inconclusive. Although we have not been subject to any claims
relating to RF emissions, we may be subject to such claims in the future.
OUR TOWERS ARE SUBJECT TO DAMAGE FROM NATURAL DISASTERS.
Our towers are subject to risks associated with natural disasters such as
tornadoes, hurricanes and earthquakes. We maintain insurance to cover the
estimated cost of replacing damaged towers, but these insurance policies are
subject to caps and deductibles. We also maintain third party liability
insurance to protect us in the event of an accident involving a tower. A tower
accident for which we are uninsured or underinsured, or damage to a tower or
group of towers, could have a material adverse effect on our growth rate,
prospects, financial condition or results of operations.
MANAGEMENT CONTROLS THE OUTCOME OF SHAREHOLDER VOTES.
Steven E. Bernstein, our President and Chief Executive Officer, by virtue
of his ownership of 100% of the outstanding shares of Class B Common Stock, and
other executive officers controlled, as of December 31, 1998, 50.3% of all votes
on a primary basis and 50.0% of all votes on a fully diluted basis. As a
result, executive management has the ability to elect three out of five of our
directors and the ability to control the outcome of all matters determined by a
vote of our common shareholders.
WE DEPEND ON THE SERVICES OF OUR EXECUTIVE OFFICERS.
Our success depends to a significant extent upon the continued services of
Steven E. Bernstein, our President and Chief Executive Officer, Ronald G.
Bizick, II, our Executive Vice President-Sales and Marketing, Robert M.
Grobstein, our Chief Accounting Officer, Michael N. Simkin, our Chief Operating
Officer and Jeffrey A. Stoops, our Chief Financial Officer. Each of Messrs.
Bizick, Grobstein, Simkin and Stoops has employment agreements. We do not have
an employment agreement with Mr. Bernstein. Mr. Bernstein's compensation and
other terms of employment will be determined by the Board of Directors.
Although we maintain key person life insurance on Mr. Bernstein, such insurance
would not adequately compensate for the loss of his services. The loss of the
services of any of Messrs. Bernstein, Bizick, Grobstein, Simkin, Stoops or other
key managers or employees, could have a material adverse effect upon our growth
rate, prospects, financial condition or results of operations.
WE NEED TO ATTRACT, RETAIN AND MANAGE SKILLED EMPLOYEES.
Our business involves the delivery of professional services and is labor-
intensive. Our success depends in large part upon our ability to attract,
develop, motivate and retain skilled employees. We compete with other wireless
communications firms and other enterprises for employees with the skills
required to perform our services. We cannot assure you that we will be able to
attract and retain a sufficient
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number of highly-skilled employees in the future or that we will continue to be
successful in training, retaining and motivating employees. The loss of a
significant number of employees and/or our inability to hire a sufficient number
of qualified employees could have a material adverse effect on our growth rate,
prospects, financial condition or results of operations.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR PAYMENT OBLIGATIONS.
We have a significant amount of indebtedness. The following chart shows
certain important credit statistics:
AT DECEMBER 31,
1998
---------------
Total indebtedness........................... $182,573,133
Shareholders' equity (deficit)............... $(26,095,422)
Our substantial indebtedness could have important consequences to you. For
example, it could:
. increase our vulnerability to general adverse economic and industry
conditions;
. limit our ability to fund future working capital, capital expenditures,
research and development costs and other general corporate requirements;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general
corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. limit, along with the financial and other restrictive covenants in our
indebtedness, among other things, our ability to borrow additional
funds. And, failing to comply with those covenants could result in an
event of default which, if not cured or waived, could have a material
adverse effect on us.
If our senior discount notes required the payment of cash interest today,
our earnings and cash flow would be insufficient to cover our fixed charges. We
may be able to incur substantial additional indebtedness in the future. If new
debt is added to our current debt levels, the related risks that we face could
intensify.
BECAUSE OF OUR HOLDING COMPANY STRUCTURE, WE DEPEND ON OUR SUBSIDIARIES FOR CASH
FLOW. SBA'S ACCESS TO THIS CASH FLOW IS RESTRICTED.
We are a holding company with no business operations of our own. Our only
significant asset is and will be the outstanding capital stock of our
subsidiaries. We conduct, and will conduct, all of our business operations
through our subsidiaries. Accordingly, our only source of cash is distributions
from our subsidiaries of their net earnings and cash flow. We currently expect
that the earnings and cash flow of our subsidiaries will be retained and used by
them in their operations, including to service their debt obligations. Even if
our subsidiaries determined to make a distribution in respect of their capital
stock, we cannot assure
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you that applicable state law and contractual restrictions, including negative
covenants contained in our credit facility, would permit such dividends or
distributions.
ITEM 2. PROPERTIES
We are headquartered in Boca Raton, Florida, where we currently lease
approximately 32,000 square feet of space. Due to the need for additional space
resulting from our growth, in February 1998 we increased and consolidated our
headquarters space in a single location in Boca Raton. The aggregate annual
lease expense for the headquarters space has increased by approximately $500,000
as a result of the relocation. We open and close project offices from time to
time in connection with our site development business, which offices are
generally leased for periods not to exceed 18 months. We have entered or into
longer leases in Atlanta, Boston and Milwaukee, which are regional office
locations.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of business. We are not a party to any
such legal proceeding, the adverse outcome of which, individually or taken
together with all other legal proceedings, is expected to have a material
adverse effect on our prospects, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the vote of security holders during the fourth
quarter of fiscal 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
There is no established public trading market for any class of our common
stock. We are not aware of any sales of our common stock by individuals in
1998. One person holds all of our Class B Common Stock issued and outstanding,
and five people hold all of our Class A Common Stock issued and outstanding. We
have not paid any dividends on our common stock and have no present intention to
begin paying dividends. Even if we wanted to pay dividends on our common stock,
the terms of our Notes and our new credit facility limit or restrict entirely
our ability to pay cash dividends.
In the fourth quarter of 1998, we issued 78,151 shares of Class A Common
Stock to two executive officers as part of their 1998 bonus programs. We
recorded compensation expense of $429,831 in issuing such shares, or $5.50 per
share, which represents the fair value at the date of grant.
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth summary historical financial data as of and for
the years ended December 31, 1994, 1995, 1996, 1997 and 1998 that has been
derived from, and is qualified by reference to, our audited financial
statements. The financial statements for periods ending on or prior to December
31, 1996 are the combined financial statements of SBA, Inc. and SBA Leasing,
Inc., two predecessor companies that we acquired during the first quarter of
1997. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this report.
20
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Operating Data:
Revenues:
Site development revenue................................... $10,604 $22,700 $60,276 $ 48,241 $ 46,705
Site leasing revenue....................................... 896 2,758 4,530 6,759 12,396
------- ------- ------- -------- ---------
Total revenues............................................... 11,500 25,458 64,806 55,000 59,101
Cost of revenues (exclusive of depreciation shown below):
Cost of site development revenue........................... 7,358 13,993 39,822 31,470 36,500
Cost of site leasing revenue............................... 647 2,121 3,638 5,356 7,281
------- ------- ------- -------- ---------
Total cost of revenues....................................... 8,005 16,114 43,460 36,826 43,781
------- ------- ------- -------- ---------
Gross profit................................................. 3,495 9,344 21,346 18,174 15,320
------- ------- ------- -------- ---------
Selling, General and administrative(a)....................... 1,627 5,968 17,754 12,033 18,302
Depreciation and amortization................................ 5 73 160 514 5,802
------- ------- ------- -------- ---------
Operating income (loss)...................................... 1,863 3,303 3,432 5,627 (8,784)
Interest income.............................................. (2) (6) (7) (644) (4,303)
Interest expense 19 11 139 407 2,357
Non cash amortization of original issue discount and
debt issuance costs....................................... - - - - 14,550
Other - - - - 37
------- ------- ------- -------- ---------
Income (loss) before income taxes............................ 1,846 3,298 3,300 5,863 (21,425)
Provision (benefit) for income taxes(b)...................... 738 1,319 1,320 5,596 (1,524)
------- ------- ------- -------- ---------
Net income (loss)............................................ $ 1,108 $ 1,979 $ 1,980 $ 267 $ (19,901)
======= ======= ======= ======== =========
OTHER DATA:
Adjusted EBITDA(c)........................................... $ 1,868 $ 3,376 $10,603 $ 7,155 $ (2,377)
Capital expenditures......................................... 51 660 145 17,676 138,124
Net cash provided by (used in) operating activities.......... 873 (533) 1,215 7,829 7,471
Net cash used in investing activities........................ (51) (660) (145) (17,676) (138,124)
Net cash provided by (used in) financing activities.......... (689) 1,298 (1,036) 15,645 151,286
---------------------------------------------------
As of December 31,
---------------------------------------------------
1994 1995 1996 1997 1998
------- ------- ------- -------- ---------
(DOLLARS IN THOUSANDS)
Balance Sheet Data (at end of period):
Total assets................................................. $ 2,610 $ 7,429 $18,060 $ 44,797 $ 214,573
Total debt(d)................................................ 1 1,500 4,921 10,184 182,573
Redeemable preferred stock................................... -- -- -- 30,983 33,558
Common shareholders' equity (deficit)........................ 1,745 4,793 102 (4,344) (26,095)
</TABLE>
(footnotes on following page)
21
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(a) For the year ended December 31, 1995, general and administrative expense
includes cash compensation expense of $1.3 million representing the amount
of officer compensation in excess of what would have been paid had the
officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1996, general and
administrative expense includes non-cash compensation expense of $7.0
million in incurred connection with the consolidation of the predecessor
companies and cash compensation expense of $4.9 million representing the
amount of officer compensation in excess of what would have been paid had
the officer employment agreements entered into in 1997 been in effect during
that period. For the year ended December 31, 1997, general and
administrative expense includes non-cash compensation expense of $1.0
million incurred in the consolidation of the predecessor companies. For the
year ended December 31, 1998, general and administrative expense includes
non-cash compensation expense of $.6 million incurred with the issuance of
stock options and Class A Common Stock.
(b) Provision for income taxes represents a pro forma calculation (40%) for the
years ended December 31, 1994, 1995 and 1996, when we were treated as an S
Corporation under Subchapter S of the Code (as defined). We converted to a C
Corporation in 1997. Provision (benefit) for income taxes for the years
ended December 31, 1997 and 1998 represents an actual provision (benefit).
For 1997 the effective rate is in excess of the 40% rate used in the pro
forma calculations due to the tax effect of our conversion to a C
Corporation.
(c) EBITDA represents earnings before interest income, interest expense, other
income, income taxes, depreciation, and amortization. EBITDA is commonly
used in the telecommunications industry to analyze companies on the basis of
operating performance, leverage and liquidity. EBITDA is not intended to
represent cash flows for the periods presented, nor has it been presented as
an alternative to operating income or as an indicator of operating
performance and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles. Adjusted EBITDA represents EBITDA less non-cash
compensation charges. Companies calculate Adjusted EBITDA differently and,
therefore, Adjusted EBITDA as presented for us may not be comparable to
Adjusted EBITDA reported by other companies. See our Consolidated Statements
of Cash Flows in our Consolidated Financial Statements contained elsewhere
in this report. Adjusted EBITDA for the years ended December 31, 1996 and
1997 excludes the effect of non-cash compensation expense of $7.0 million
and $1.0 million, respectively, which was incurred in the consolidation of
predecessor companies. Adjusted EBITDA for the year ended December 31, 1998
excludes the effect of non-cash compensation expense of $.6 million incurred
in with the issuance of stock options and Class A Common Stock.
(d) Total debt does not include amounts owed to the shareholder of $0.1 million
and $10.7 million as of December 31, 1995 and 1996, respectively. These
amounts were paid in March 1997.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and 21E of the Exchange Act. This
discussion contains statements concerning projections, plans, objective, future
events or performance and underlying assumptions and other statements which are
other than statements of historical fact. We wish to caution readers that
certain important factors may have affected and could in the future affect our
actual results and could cause our actual results for subsequent periods to
differ materially from those express in any forward-looking statement made by us
or on our behalf. Such factors include: (1) substantial capital requirements
and leverage, principally as a consequence of our ongoing acquisition and
construction activities; (2) dependence on demand for wireless communications;
and (3) the success of our new tower construction program.
OVERVIEW
We are a leading independent owner and generator 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, 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, revenues and gross profit from 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
before interest, taxes, depreciation, amortization and certain other non-cash
charges ("EBITDA") declined in 1997 and 1998 from the prior periods and capital
expenditures increased sharply as we accumulated towers. We expect capital
expenditures to increase even more in 1999. 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. Approximately 35%, 61% and 80% of
site development services were performed on a time and materials basis in 1998,
1997 and 1996, respectively. We also provide site leasing services on a
contract basis. 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 are in the process of acquiring and constructing towers to be owned by us and
leased to wireless service providers. We intend to continue to make strategic
acquisitions in the fragmented and rapidly consolidating tower owner and
operator industry. We completed our first tower acquisition in June 1997, and
spent $17.7
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<PAGE>
million in capital expenditures in 1997 and $138.1 million in 1998 to acquire
and construct tower assets and acquire a tower construction company. Of the
towers we owned as of December 31, 1998, 325 were new builds. We currently have
non-binding mandates to build over 425 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. In
addition, we are currently actively negotiating to acquire additional towers. We
have agreements to acquire 50 additional towers in a number of separate
transactions for an aggregate purchase price of approximately $12.0 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.
TOWER ECONOMICS
We intend to increase the site leasing portion of our business by constructing
new multi-tenant towers, primarily through build-to-suit programs for wireless
service providers, and by making selective acquisitions of existing towers. We
evaluate potential tower construction and acquisition opportunities for
projected future operating results before making any capital investments.
The total cost of constructing a tower can vary significantly from site to site.
The primary components of tower costs are the tower structure and related
components, tower foundations, labor, site preparation and finish and providing
vehicular and utilities access. If we are responsible for the zoning of a site
prior to construction (which is often the case), the cost associated with
obtaining the necessary zoning may also be material. We estimate that the
average cost of constructing a multi-tenant tower is approximately $225,000
exclusive of land costs, although this estimate may vary from site to site.
While we may purchase the underlying property, we typically lease any necessary
real estate pursuant to a long-term lease. The typical property lease has a
term of five years, usually provides for annual or periodic price increase and
gives us the option to renew the lease for up to four or five additional five-
year terms.
NEW TOWER BUILDS
As part of our new build strategy, we generally begin construction of a new
tower only if an anchor tenant (which is typically a PCS, cellular or ESMR
provider) has signed an antennae site lease agreement with us. In some cases we
may build towers before we have obtained a tenant, although we do not expect to
do this very often. The tower site is marketed to other wireless service
providers whose monthly rents vary based usually on location, the different
antennae installations and tower loading requirements of each type of service.
The typical PCS, cellular or ESMR provider pays a monthly rent substantially
greater than that of the typical paging provider. Other tenants, including
local wireless service providers, generally pay lower monthly rent. Anchor
tenants usually receive a discount from the rent paid by subsequent tenants of
the same type of wireless service. In certain cases, an anchor tenant may also
enjoy an introductory lease rate for a period of time. Our objective is to
construct towers for identified anchor tenants in locations where we believe we
can secure other wireless providers as additional tenants. Through the addition
of new tenants, we seek to achieve a target multiple of tower-level cash flow to
the cost of construction by the end of a specified period following
construction. We believe that our targeted multiple, which we constantly
evaluate and is subject to change from time to time, can be achieved through a
variety of tenant mixes ranging from two to three PCS, cellular or ESMR tenants
to a greater number of paging or local wireless service providers. Additional
tenants provide an increase in revenue without generating significant increases
in operating expense. The expenses associated with tower ownership are limited
and generally remain fixed regardless of the number of tenants on the tower.
These expenses are primarily ground lease payments, real estate taxes,
utilities, insurance and maintenance. Because of the operating leverage of the
site leasing business, additional tenant leases generate a disproportionately
higher increase in tower cash flow.
24
<PAGE>
We build towers for our ownership on locations selected by us or, in the case of
carrier build-to suit programs, by the carrier. Build-to-suit projects
typically originate from a proposal we submit in response to a request from a
wireless service provider. If the wireless service provider accepts the terms
of our proposal, the provider will award us a non-binding mandate to pursue (1)
specific sites: (2) search rings: or (3) general areas. Based on the status of
the site we have been given a mandate to pursue, we will perform due diligence
investigations for a designated period, during which time we will analyze the
site based on a number of factors, including collocation opportunities, zoning
and permitting issues, economic potential of the site, difficulty of
constructing a multi-tenant tower and remoteness of the site. These mandates
are non-binding agreements and either party may terminate the mandate at any
time. In some cases we must build a tower for the carrier if no suitable
collocation site is available, regardless of the results of our due diligence
and marketability analysis.
If we conclude that it is economically feasible to construct the tower after our
due diligence investigation during the mandate, we will enter into an antennae
site lease agreement with the provider. The antennae site lease agreement
typically provides that the lessees' obligations are conditioned on our receipt
of all necessary zoning approvals where zoning remains to be obtained. We have
negotiated several master build-to-suit programs with PCS, Cellular and ESMR
Carriers. Some antennae site lease agreements contain penalty or forfeiture
provisions in the event the tower is not completed within specified time
periods.
FUTURE ACQUISITIONS
We also regularly explore tower acquisition opportunities as part of our growth
strategy. While we evaluate potential tower acquisitions on an individual
basis, our acquisition criteria is similar to our construction criteria. In
general, we seek to acquire towers with existing revenues in locations where we
believe we will be able to secure other wireless service providers as tenants so
that the tower will generate a targeted multiple of tower-level cash flow by a
certain time period after its acquisition. In making this determination, we
evaluate several factors, including: the existing number of tenants, current
revenue of the tower, tower location, available tower capacity for additional
tenants and the availability and likelihood of securing additional tenants.
While we use projections of future tower cash flows when evaluating potential
tower builds or acquisitions, we cannot assure you that our projections will
prove to be accurate nor can we assure you that we will be able to successfully
market a tower to other tenants or implement our build-out strategy on the
timetable currently contemplated or at all. Numerous factors affect the
economics of each tower, many of which are beyond our control. We cannot assure
you that any particular tower will generate the revenue projected at the time it
is first constructed or acquired by us.
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
interest expense increased significantly in 1998 and are expected to continue to
increase significantly in future periods. We believe that our construction
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.
25
<PAGE>
1998 Compared to 1997
Total revenues increased 7.5% to $59.1 million for 1998 from $55.0 million for
1997. 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 revenues decreased 3.2% to
$46.7 million in 1998 from $48.2 million in 1997 due to a substantial decline in
site development consulting revenues, which was largely offset by a substantial
increase in site development construction revenues. Site development consulting
revenues decreased 41.6% to $27.4 million for 1998 from $47.0 million for 1997,
due primarily to the decreased demand for site acquisition and zoning services
from PCS licensees, as well as the increasing acceptance by wireless carriers of
outsourced communication site infrastructure through build-to-suit programs.
Site development construction revenues increased to $19.3 million for 1998 from
$1.2 million for 1997, due to the acquisition of our construction subsidiary in
September 1997 and higher levels of activity. Site leasing revenues increased
83.4% to $12.4 million for 1998 from $6.8 million for 1997, due to a substantial
number of revenue producing towers added during the period through new builds
and acquisitions.
Total cost of revenues increased 18.9% to $43.8 million for 1998 from $36.8
million for 1997. Site development cost of revenues increased 16.0% to $36.5
million in 1998 from $31.5 million in 1997 due to a substantial increase in site
development construction cost of revenues, which was partially offset by a
decrease in site development consulting cost of revenues. Site development
consulting cost of revenues decreased 28.5% to $21.9 million for 1998 from $30.6
million for 1997, due to lower revenues. Site development construction cost of
revenues increased to $14.6 million for 1998 from $.8 million for 1997, due
again to the inclusion of the construction subsidiary for a full twelve months
in 1998 versus three months in 1997. Site leasing cost of revenues increased
35.9% to $7.3 million for 1998 from $5.4 million for 1997, due primarily to the
increased volume of towers owned resulting in an increased amount of lease
payments to site owners.
Gross profit decreased 15.7% to $15.3 million for 1998 from $18.2 million for
1997, due to the decrease in site development consulting revenues and lower
margins earned on such revenues, which more than offset increased site
development construction revenues and increased site leasing revenues. Gross
profit for site development consulting services decreased 66.1% to $5.6 million
for 1998 from $16.4 million for 1997. The lower gross profit margins
experienced in 1998 were due to more work being performed on a fixed fee basis
and the completion of a number of large projects on which we experienced
proportionately higher expenses than on the earlier stages of a project. Gross
profit for site development construction services increased to $4.7 million for
1998 from $0.4 million for 1997 due to higher revenues. Gross profit for the
site leasing business increased 264.6% to $5.1 million for 1998 from $1.4
million for 1997 due primarily to higher revenues but also due to higher gross
profit margins earned on towers owned as opposed to the margins earned on our
lease/sublease business which contributed most of our 1997 site leasing
revenues. As a percentage of total revenues, gross profit decreased to 25.9%
for 1998 as compared to 33.0% for 1997 due to significantly lower site
development consulting gross profit.
Selling, general and administrative expenses increased 52.1% to $18.3 million
for 1998 from $12.0 million for 1997 primarily due to the addition of personnel,
the expansion of office space and overall increases in operating expenses
attributable to the growth in the organization and building our tower
development infrastructure. We also incurred $1.0 million of direct expenses on
acquisitions or proposed new tower builds which were not completed. As a
percentage of total revenues, selling, general and administrative expenses
increased to 31.0% for 1998 from 21.9% in 1997.
26
<PAGE>
Depreciation and amortization increased to $5.8 million for 1998 as compared to
$0.5 million for 1997. This increase is directly related to the increased
amount of fixed assets (primarily towers) we owned in 1998 as compared to 1997.
Operating income (loss) decreased to $(8.8) million for 1998 from $5.6 million
for 1997 as a result of the factors discussed above. Other income (expense)
decreased to $(12.6) million for 1998 from $0.2 million for 1997. This decrease
resulted primarily from the interest expense associated with the Senior Discount
Notes offset by interest income that was earned on cash balances. Net income
(loss) was $(19.9) million for 1998 as compared to net income of $0.3 million
for 1997.
1997 Compared to 1996
Total revenues decreased 15.1% to $55.0 million for 1997 from $64.8 million for
1996. Site development revenues decreased 20.0% to $48.2 million in 1997 from
$60.3 million in 1996 due to a substantial decline in site development
consulting revenues. Site development consulting revenues decreased 22.0% to
$47.0 million for 1997 from $60.3 million for 1996, due primarily to the
decreased demand for site development services from A- and B- block broadband
PCS licensees, partially offset by the increased demand for services from D-, E-
, and F- block broadband PCS licensees and ESMR providers. This decreased
demand from A- and B- block licensees resulted from their initial markets
nearing build-out completion and not yet having commenced anticipated build out
of secondary or tertiary markets, as well as the increasing acceptance by these
providers of outsourced communication site infrastructure through build-to-suit
programs. Site development construction revenues were $1.2 million for 1997.
There was no site development construction revenues in 1996 because our
construction subsidiary was not acquired until September 1997, in the CSSI
acquisition. Site leasing revenues increased 49.2% to $6.8 million for 1997
from $4.5 million for 1996, due primarily to the continued growth of
lease/sublease business from new and existing paging clients, and also to our
ownership of 51 revenue producing towers at year end 1997.
Total cost of revenues decreased 15.3% to $36.8 million for 1997 from $43.5
million for 1996. Site development cost of revenues decreased 21.0% to $31.5
million in 1997 from $39.8 million in 1996 due to a decrease in site development
consulting cost of revenues. Site development consulting cost of revenues
decreased 23.0% to $30.6 million for 1997 from $39.8 million for 1996 due
primarily to decreased site development consulting revenues. Site development
construction cost of revenues was $0.8 million for 1997. There was no site
development construction cost of revenues in 1996 because the purchase of CSSI
did not occur until September 1997. Site leasing cost of revenues increased
47.2% to $5.4 million in 1997 from $3.6 million in 1996, due primarily to the
higher revenues.
Gross profit decreased 14.9% to $18.2 million for 1997 from $21.3 million for
1996, due primarily to the decrease in site development revenues. Gross profit
for site development consulting services decreased 19.9% to $16.4 million for
1997 from $20.5 million for 1996. This decrease was related to the decrease in
revenues. Gross margin percentages were constant at 34%. Gross profit for site
development construction was $0.4 million for 1997. Gross profit for the site
leasing business increased 57.3% to $1.4 million for 1997 from $0.9 million for
1996. These increases were attributable to the growth of the lease/sublease.
As a percentage of total revenues, gross profit remained constant at 33% for
1997 and 1996.
Selling, general and administrative expenses decreased 32.2% to $12.0 million
for 1997 from $17.8 million for 1996, primarily due to a reduction in executive
compensation and increased 1996 expenses associated with a bonus paid to Mr.
Bernstein, our sole shareholder, and non-cash compensation expense of $7.0
million relating to the granting of options to our other officers. The bonus
was $4.0 million in 1996. Non-cash compensation expense recorded in 1997 was
$1.0 million. As a percentage of total revenues, selling, general and
administrative expenses decreased to 21.9% for 1997 from 27.4% for 1996.
Excluding
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<PAGE>
the effect of the above mentioned bonus and non-cash compensation expense,
selling, general and administrative expenses as a percentage of revenues would
have increased to 20.1% for 1997 from 10% for 1996. This increase is
attributable to the addition of personnel and increased operating expenses we
incurred to grow the site leasing business.
Depreciation and amortization increased to $0.5 million for 1997 as compared to
$.2 million for 1996. This increase is directly related to the increased amount
of fixed assets (primarily towers) we owned in 1997 as compared to 1996.
Operating income increased 63.9% to $5.6 million for 1997 from $3.4 million for
1996. Other income (expense) was not material in either period. Net income
decreased 91.9% to $.3 million for 1997 from $3.3 million for 1996. On a pro
forma basis, net income decreased 86.5% to $.3 million for 1997 from $2.0
million for 1996. These decreases result from a reduction in site development
revenues and the inclusion of a provision for income taxes in 1997. Prior to
1997, we were not subject to tax at the corporate level.
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 the we determined to pay
a dividend on or make a distribution in 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 1998 and 1997 was relatively constant at
$7.5 million and $7.8 million, respectively. Net cash used in investing
activities for 1998 was $138.1 million compared to $17.7 million for 1997. The
increase in cash used for investing activities results from the acquisition and
construction of 443 towers during 1998. Net cash provided from financing
activities for 1998 was $151.1 million compared to $15.6 million for 1997. This
increase is attributable to the proceeds of the Senior Discount Notes.
Net cash provided by operations during 1997 was $7.8 million compared to $1.2
million in 1996. The increase in net cash provided by operations was primarily
attributable to the decrease in net income together with changes in the account
balances associated with accounts receivable, accounts payable, intangibles and
various tax accounts for the respective periods. Net cash used in investing
activities for 1997 was $17.7 million compared to $0.1 million for 1996. The
increase in cash used for investing activities resulted from the acquisition of
towers and a tower construction company. Net cash provided by financing
activities for 1997 was $15.6 million compared to net cash used in financing
activities of $1 million for 1996. The increase in net cash provided by
financing activities was primarily attributable to the proceeds from the
preferred stock offering.
As a result of a preferred stock offering in March 1997, we received net
proceeds of $25.3 million after deducting the agents' commission, offering
expenses and a stock redemption. These proceeds were used primarily for the
repayment of short-term debt, for the funding of various expansion costs, for
the construction and acquisition of various towers and for general working
capital.
Our balance sheet reflected positive working capital of $8.0 million and $16,000
as of December 31, 1998 and December 31, 1997, respectively.
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<PAGE>
On March 2, 1998 we issued $269 million 12% Senior discount notes due 2008 (the
"Notes"). This offering provided approximately $150.2 million of gross proceeds
to us. From these gross proceeds, we repaid approximately $20.2 million of
existing indebtedness and paid approximately $5.7 million of fees and expenses.
The remaining proceeds were used primarily for the acquisition and construction
of telecommunications towers. Prior to March 1, 2003, interest expense on the
Notes will consist solely of non-cash accretion of original issue discount and
the Notes will not require cash interest payments. After such time, the Notes
will have accreted to $269 million and will require annual cash interest
payments of approximately $32.3 million. In addition, the Notes mature on March
1, 2008.
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 million term loan and a $150 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 new 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
restrictions on, among other things, the incurrence of debt and liens,
disposition of assets, transactions with affiliates and certain investments.
We currently estimate that we will make at least $150.0 million of capital
expenditures through fiscal year end 1999 for the construction and acquisition
of communication sites, primarily towers. We expect to use cash from operations
together with the availability under the new credit facility to fund these
capital expenditures. These expected capital expenditures will substantially
exhaust our availability under our new credit facility. However, the exact
amount of our future capital expenditures will depend on a number of factors.
In 1999, we currently anticipate building a significant number of towers for
which we have mandates pursuant to our build-to-suit program. We also intend to
continue to explore opportunities to acquire additional towers. Our capital
expenditures through fiscal year end 1999 will depend in part upon acquisition
opportunities that become available during the period, the needs of our primary
build-to-suit customers and the availability to us of additional debt or equity
capital on acceptable terms. In the event that the borrowings under the new
credit facility have otherwise been utilized 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 its planned tower build-out and acquisition. Based on the 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 new credit facility will be sufficient to fund the our
anticipated capital expenditures through fiscal 1999. Thereafter, however, or
in the event we exceed our currently anticipated capital expenditures for 1999,
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
29
<PAGE>
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 new credit facility) on or prior to its
scheduled maturity. There can be no assurance 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 available in
amounts sufficient to service our indebtedness and make anticipated capital
expenditures. In addition, there can be no assurance that we will be able to
effect any required refinancing of our indebtedness (including the Notes) on
commercially reasonable terms or at all. See "Risk Factors."
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:
<TABLE>
1999 2000 2001 2002 2003 Thereafter
<S> <C> <C> <C> <C> <C> <C>
Liabilities:
Long-term debt -- -- -- -- -- $269,000,000
Fixed rate (12.0%)
</TABLE>
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.
Year 2000
During 1998 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 begun implementation of a new financial system. The system is certified
as Year 2000 compliant. In conjunction with this implementation, we have
undertaken the renovation of our operational systems.
30
<PAGE>
The testing and implementation of these systems is scheduled for completion in
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 by Year 2000 compliant in 1999 for all major systems. We are
assessing 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 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 December 31, 1998 we had no unrestricted subsidiaries. Tower cash
flow, as defined in the indenture, for the quarter ended December 31, 1998 was
$0.2 million. Adjusted Consolidated Cash Flow for the year ended December 31,
1998 was $(1.1) million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data for the Company are on pages
1 through 19.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth certain information concerning our directors and
executive officers at December 31, 1998.
31
<PAGE>
<TABLE>
<CAPTION>
NAME Age Position
- --------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Steven E. Bernstein.................... 38 Chairman of the Board, President and Chief Executive
Officer
Ronald G. Bizick, II................... 31 Executive Vice President - Sales and Marketing
Robert M. Grobstein.................... 39 Chief Accounting Officer
Michael N. Simkin...................... 46 Chief Operating Officer
Jeffrey A. Stoops...................... 40 Chief Financial Officer
Donald B. Hebb, Jr..................... 56 Director
C. Kevin Landry........................ 54 Director
Robert S. Picow........................ 43 Director
</TABLE>
Steven E. Bernstein, our founder, has been our President and Chief
Executive Officer since our inception in 1989. From 1986 to 1989, Mr. Bernstein
was employed by McCaw Cellular Communications. While at McCaw, Mr. Bernstein
was responsible for the development of the initial Pittsburgh non-wireline
cellular system and the start-up of the Pittsburgh sales network. Mr. Bernstein
is a graduate of the University of Florida, where he majored in Real Estate and
earned a Bachelor of Science degree in Business Administration. He was PCIA's
1996 Entrepreneur of the Year.
Ronald G. Bizick, II, Executive Vice President - Sales and Marketing, has
been an executive officer with us since 1993. He is responsible for sales and
marketing of our site development and site leasing services. Prior to joining
us in 1990, Mr. Bizick was employed by a private land planning and development
firm specializing in commercial and residential wetland and zoning approvals.
Mr. Bizick is a cum laude graduate of the University of Pittsburgh, where he
earned a Bachelor of Arts degree in Business and Communications.
Robert M. Grobstein, CPA, Chief Accounting Officer, has been an executive
officer with us since December 1993. He is responsible for risk management,
financial reporting, and accounting. From January 1990 to December 1993, Mr.
Grobstein served as Controller for Turnberry Isle Resort and Country Club, where
he supervised a 28-person accounting staff. Mr. Grobstein is a graduate of
Robert Morris College, where he majored in Accounting and earned a Bachelor of
Science degree in Business Administration. He is a member of both the American
Institute of C.P.A.'s and the Florida Institute of C.P.A.'s.
Michael N. Simkin, Chief Operating Officer, joined us in April 1998. From
July 1997 to February 1998, he was Chief Executive Officer of Centennial
Communications Corporation, an international specialized mobile radio service
provider based in Denver. From April 1995 to April 1997, he was Vice President
and General Manager of PrimeCo Personal Communications for the South Florida
region. From April 1993 to April 1995, Mr. Simkin was Executive Director of
Corporate Strategy for Airtouch Communications. He has an A.B. in Economics and
MBA Degree from the University of California at Berkeley.
Jeffrey A. Stoops, Chief Financial Officer, joined us in April 1997. Mr.
Stoops is responsible for all finance, mergers and acquisitions, capital market
activities and legal matters for us. Prior to joining us, Mr. Stoops was a
partner with Gunster, Yoakley, Valdes-Fauli & Stewart, P.A., a South Florida law
firm, where he practiced for thirteen years in the corporate, securities and
mergers and acquisitions areas. Mr. Stoops received his Bachelor of Science
degree and his JD degree from Florida State University, and is a member of the
Florida Bar and also serves as our General Counsel.
32
<PAGE>
Donald B. Hebb, Jr. was elected as a director of ours in February 1997. Mr.
Hebb also has been a Managing Member of the general partner of ABS Capital
Partners II, L.P., a private equity fund, and related entities, since December
1993. Prior to that time, he was a Managing Director of Alex. Brown and Sons
Incorporated, investing private equity funds. Prior to that time, Mr. Hebb
served as President and Chief Executive Officer of Alex. Brown Incorporated, and
in that capacity, initiated the Alex. Brown Merchant Banking Group early in
1990. Mr. Hebb was the nominee of ABS for election as director.
C. Kevin Landry was elected as a director of ours in March 1997. Mr. Landry
has been a Managing Director and Chief Executive Officer of TA Associates, Inc.
since its incorporation in 1994. From 1982 to 1994, he served as a Managing
Partner of its predecessor partnership. Mr. Landry also serves on the Board of
Directors of Standex International Corporation. He has also served as a director
of Alex. Brown Incorporated. Mr. Landry was the nominee of TA Associates for
election as director.
Robert S. Picow was elected as a director of ours in November 1998. Mr.
Picow founded Allied Communications, a distributor of communications equipment,
in 1982. He served as the Chief Executive Officer of Allied until its sale in
1996 to Brightpoint, Inc., a publicly traded communications equipment company.
Mr. Picow also served as a director of Brightpoint from June 1996 to August
1997. Mr. Picow is a private investor.
The terms of our Series A Preferred Stock provide for a five person Board
of Directors. Of these five Directors, one is Mr. Bernstein, two will be elected
by the Series A Preferred Shareholders and the other two will be determined by a
vote of the shareholders (with one required to be reasonably acceptable to the
Directors elected by our Series A Preferred Shareholders). Messrs. Bernstein and
other executive officers, through their current ability to vote in excess of 50%
of all votes represented by our outstanding capital stock, effectively control
this determination. Messrs. Hebb and Landry currently serve as the
representatives of the Series A Preferred Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and non-cash compensation paid by
or incurred on our behalf of SBA to our Chief Executive Officer and four other
most highly compensated executive officers for each of the years ended December
31, 1996, 1997 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
COMPENSATION
AWARDS
-------------
Number of
SECURITIES ALL
UNDERLYING OTHER
OPTIONS/ COMPEN-
Annual Compensation
-----------------------
Name and Principal Year SALARY ($) BONUS ($) SARS (#) SATION ($)
Position ---- ---------- ---------- ------------- ----------
------------------
<S> <C> <C> <C> <C> <C>
Steven E. 1998 354,822 283,850(a) __ 13,066(c)
Bernstein........................... 1997 354,822 100,000(b) -- 15,669(c)
Chairman of the Board, President and 1996 195,000 3,995,000 -- 23,172(c)
Chief Executive Officer
Ronald G. Bizick, 1998 275,000 151,250 -- 1,000
II.................................. 1997 275,000 100,000 773,528(d) 1,000
Executive Vice President 1996 75,000 1,629,000 1,000
Sales and Marketing
Robert M. Grobstein 1998 204,815 108,000 -- 1,000
.................................... 1997 204,815 100,000 386,764 1,000
Chief Accounting Officer 1996 104,980 560,020 -- 1,000
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
NUMBER OF
SECURITIES ALL
UNDERLYING OTHER
OPTIONS/ COMPEN-
ANNUAL COMPENSATION
-----------------------
NAME AND PRINCIPAL YEAR SALARY ($) BONUS ($) SARS (#) SATION ($)
POSITION ---- ---------- ---------- ------------- ----------
------------------
<S> <C> <C> <C> <C> <C>
Michael N. 1998 254,815(e) 145,981(f) 200,000 1,000
Simkin............................ 1997 -- -- -- --
Chief Operating Officer 1996 -- -- -- --
Jeffrey A. Stoops 1998 304,798 165,000 -- 1,000
.................................. 1997 304,798(g) 100,000 100,000(h) 1,000
Chief Financial Officer 1996 -- -- -- --
</TABLE>
(a) This number represents 51,609 shares of Class A Common Stock issued to Mr.
Bernstein on December 31, 1998.
(b) This number represents 26,810 shares of Class A Common Stock issued to Mr.
Bernstein in the first quarter of 1998.
(c) This number represents the provision of a car allowance to Mr. Bernstein.
(d) These options were exercised by Mr. Bizick in June 1998.
(e) This number represents Mr. Simkin's annual compensation. Mr. Simkin began
his employment with us on April 13, 1998.
(f) This number represents 26,542 Shares of Class A Common Stock issued to Mr.
Simkin on December 31, 1998.
(g) This number represents Mr. Stoops' annual compensation. Mr. Stoops began his
employment with us on April 1, 1997.
(h) Does not include options to purchase Class B Common Stock granted by Mr.
Bernstein to Mr. Stoops. On March 14, 1997, Mr. Bernstein granted Mr. Stoops
options to purchase 1,369,863 shares of Class B Common Stock at an exercise
price of $2.19 a share.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS/SARS ASSUMED ANNUAL RATE OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR
OPTIONS/SARS EMPLOYEES PRICE EXPIRATION OPTION TERM(1)
------------------------------
Name Granted IN 1998 PER SHARE DATE 5% ($) 10% ($)
-------- ------------- -------------- ------------- ------------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Bernstein........ -- -- -- -- -- --
Ronald G. Bizick, II....... -- -- -- -- -- --
Robert M. Grobstein........ -- -- -- -- -- --
Michael N. Simkin.......... 200,000 25% 2.63 6/15/08 330,799 838,309
Jeffrey A. Stoops.......... -- -- -- -- -- --
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED ON Value at December 31, 1998 DECEMBER 31, 1998($)
-------------------------------- --------------------------
Name EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------------- ---------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Steven E. Bernstein.............. -- -- -- -- -- --
Ronald G. Bizick, II............. 773,528(a) $1,372,239 -- -- -- --
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS AT
ACQUIRED ON Value at December 31, 1998 DECEMBER 31, 1998($)
-------------------------------- --------------------------
Name EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------- -------------- ---------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Grobstein.............. -- -- 386,764 -- $2,107,864 --
Michael N. Simkin................ -- -- 66,667 133,333 191,334 382,666
Jeffrey A. Stoops................ -- -- 66,667(b) 33,333(c) 191,334 95,666
</TABLE>
(a) These options were exercised by Mr. Bizick in June 1998 and have not been
sold.
(b) This does not include exercisable options to acquire 913,242 shares of Class
B Common Stock that Mr. Bernstein granted to Mr. Stoops.
(c) This does not include unexercisable options to acquire 456,621 shares of
Class B Common Stock that Mr. Bernstein granted to Mr. Stoops.
EMPLOYMENT AGREEMENTS
Steven E. Bernstein. We do not have an employment agreement with Steven E.
Bernstein, our President and Chief Executive Officer. Mr. Bernstein is,
therefore, not subject to non-competition or non-solicitation contractual
restrictions. Mr. Bernstein was paid a base salary of $350,000 for 1998 and an
annual cash bonus based on achievement of performance criteria established by
the Board. This annual cash bonus did not exceed his base annual salary. Mr.
Bernstein's compensation and other terms of employment are determined by our
Board of Directors.
Ronald G. Bizick, II. Mr. Bizick is party to an employment agreement with
us dated as of January 1, 1997. Under his employment agreement, Mr. Bizick
receives an initial base salary of $275,000 per year and an annual cash bonus
based on achievement of performance criteria established by the Board of
Directors. Mr. Bizick's bonus is not permitted to exceed his base annual salary.
Mr. Bizick's employment agreement is for an initial three-year term, and
automatically renews for an additional one-year term unless either Mr. Bizick or
SBA provides written notice to the other party at least 90 days prior to
renewal. Mr. Bizick's employment agreement provides that upon termination of
employment by us, other than for cause or retirement, we shall pay an amount
equal to the aggregate present value of the product of the base annual
compensation paid to Mr. Bizick by us multiplied by 2.0. The agreement also
provides for noncompetition, nonsolicitation and nondisclosure covenants.
Robert M. Grobstein. Mr. Grobstein is party to an employment agreement with
us dated as of January 1, 1997. Under his employment agreement, Mr. Grobstein
received an initial base salary of $200,000 per year and an annual cash bonus
based on achievement of performance criteria established by the Board of
Directors. Mr. Grobstein's bonus is not permitted to exceed Mr. Grobstein's base
annual salary. Mr. Grobstein's employment agreement is for an initial three-year
term, and automatically renews for an additional one-year term unless either Mr.
Grobstein or SBA provides written notice to the other party at least 90 days
prior to renewal. Mr. Grobstein's employment agreement provides that upon
termination of employment by us, other than for cause or retirement, we shall
pay an amount equal to the aggregate present value of the base annual
compensation paid to Mr. Grobstein by us, multiplied by 2.0. The agreement also
provides for noncompetition, nonsolicitation and nondisclosure covenants.
Michael N. Simkin. Mr. Simkin is party to an employment agreement with us
dated as of June 15, 1998. Under his employment agreement, Mr. Simkin receives
an initial base salary of $250,000 per year and an annual cash bonus based on
achievement of performance criteria established by the Board of Directors. This
bonus is not permitted to exceed Mr. Simkin's pro-rated base salary then in
effect. For calendar year 1998, Mr. Simkin's pro-rated period is the period from
April 13, 1998 to December 31, 1998. Mr. Simkin's employment agreement is for an
initial 35-month term, and automatically renews for an additional one-year term,
unless either Mr. Simkin or SBA provides written notice to the other party at
least 90 days prior to renewal. Mr. Simkin's employment agreement provides that
upon termination of employment by us, other than for cause or retirement, we
shall pay an amount equal to one time Mr.
35
<PAGE>
Simkin's aggregate annual compensation. The agreement also provides for
noncompetition, nonsolicitation and nondisclosure covenants.
Jeffrey A. Stoops. Mr. Stoops is party to an employment agreement with us
dated as of March 14, 1997. Under his employment agreement, Mr. Stoops receives
an initial base salary of $300,000 per annum and an annual cash bonus based on
achievement of performance criteria established by the Board of Directors. Mr.
Stoops' bonus is not permitted to exceed Mr. Stoops' base annual salary. Mr.
Stoops' employment agreement is for an initial 32-month term, and automatically
renews for an additional one-year term, unless either Mr. Stoops or SBA provides
written notice to the other party at least 90 days prior to renewal. Mr. Stoops'
employment agreement provides that upon termination of employment by us, other
than for cause or retirement, we shall pay an amount equal to one time Mr.
Stoops' aggregate annual compensation. The agreement also provides for
noncompetition, nonsolicitation and nondisclosure covenants.
COMPENSATION OF DIRECTORS
Our three outside directors are reimbursed for expenses incidental to
attendance at meetings of the Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Our Board of Directors does not currently have a compensation committee.
During 1996, 1997 and 1998, Mr. Bernstein served as a director, our Chairman of
the Board, our President and our Chief Executive Officer. Mr. Bernstein
participated in deliberations of our Board of Directors concerning executive
compensation.
STOCK OPTION PLAN
We have adopted the 1996 Stock Option Plan, pursuant to which stock options
(both nonqualified stock options and incentive stock options), stock
appreciation rights and restricted stock may be granted to directors, key
employees and consultants at a price per share equal to the greater of (1) the
fair market value at the time of grant or (2) $2.63. A total of 1,800,000 shares
of Class A Common Stock are reserved for issuance under this option plan. As of
December 31, 1998, options to acquire 1,167,533 shares were issued and
outstanding, with an exercise price of $2.63 per share and options to acquire
105,719 shares were issued and outstanding with an exercise price of $4.00 per
share. These options generally vest over three-year periods from the date of
grant. As of December 31, 1998, options granted under this option plan to
purchase 2,433 shares had been exercised.
With respect to the grant of awards under this option plan, the Board of
Directors or a committee of the Board of Directors will determine persons to be
granted stock options, stock appreciation rights and restricted stock, the
amount of stock or rights to be optioned or granted to each such person, and the
terms and conditions of any stock options, stock appreciation rights and
restricted stock. Both types of stock options (incentive stock options and
nonqualified stock options) may be granted under this option plan.
Stock appreciation rights may be granted in conjunction with the grant of
an incentive or nonqualified stock option under this option plan or
independently of any such stock option. A stock appreciation right granted in
conjunction with a stock option may be an alternative right. In which event, the
exercise of the stock option terminates the stock appreciation right to the
extent of the shares purchased upon exercise of the stock option and,
correspondingly, the exercise of the stock appreciation right terminates the
stock option to the extent of the shares with respect to which such right is
exercised. Subject to the terms of this option plan, the Board of Directors or a
committee thereof may award shares of
36
<PAGE>
restricted stock to the participants of this option plan. Generally, a
restricted stock award will not require the payment of any option price by a
participant but will call for the transfer of shares to this participant subject
to forfeiture, without payment of any consideration by us, if the participant's
employment terminates during a "restricted" period (which must be at least six
months) specified in the award of the restricted stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of December 31, 1998, certain information
with respect to the beneficial ownership of our capital stock by (1) each person
who we know to be beneficial owner of more than 5% of any class or series of our
capital stock; (2) each of the directors and executive officers individually and
(3) all directors and executive officers as a group. At December 31, 1998, we
had outstanding the following shares of capital stock: Class A Common Stock--
880,922 shares; Class B Common Stock--8,075,000 shares; Series A Preferred
Stock--8,050,000 shares. At December 31, 1998 no other classes or series of
capital stock had any shares issued and outstanding. Each share of Series A
Preferred Stock is currently convertible into one share of Class A Common Stock
and one share of Series B Preferred Stock upon the occurrence of certain events.
This table does not give effect to shares of Class A Common Stock that may be
acquired pursuant to options outstanding as of December 31, 1998, except as
described in footnote b.
37
<PAGE>
<TABLE>
<CAPTION>
Number of Percentage of Total
SHARES VOTING POWER OF
BENEFICIALLY CLASS A
EXECUTIVE OFFICERS AND DIRECTORS(A) Title of Class Owned(b) Common Stock(b)
- ---------------------------------- --------------------- ---------------- -------------------
<S> <C> <C> <C>
Steven E. Bernstein(c) Class B Common Stock 8,075,000 49.6%
Class A Common Stock 78,419 --
Ronald G. Bizick, II Class A Common Stock 773,528 *
Robert M. Grobstein(d) Class A Common Stock 386,764 *
Michael N. Simkin(e) Class A Common Stock 93,208 *
Jeffrey A. Stoops(f) Class A Common Stock 979,908 *
Donald B. Hebb, Jr.(g) Series A Preferred Stock 3,220,000 19.9
C. Kevin Landry(h) Series A Preferred Stock 2,736,987 16.8
Robert S. Picow(i) Class A Common Stock -- *
All executive officers and directors as a group
(8 persons) 15,430,572 86.8
Beneficial Owners of 5% or More of Capital Stock
- ----------------------------------------------
ABS Capital Partners, II, L.P.(j) Series A Preferred Stock 3,220,000 19.9%
TA Associates, Inc.(k) Series A Preferred Stock 2,736,987 16.8
The Hillman Company(l) Series A Preferred Stock 1,169,808 7.2
</TABLE>
_____________
* Less than 1%.
(a) Except as otherwise indicated, the address of each person named in this
table is c/o SBA Communications Corporation, One Town Center Road, Third
Floor, Boca Raton, Florida 33486.
(b) In determining the number and percentage of shares beneficially owned by
each person, shares that may be acquired by such person pursuant to options
exercisable within 60 days after December 31, 1998 are deemed outstanding
for purposes of determining the total number of outstanding shares for such
person and are not deemed outstanding for such purpose for all other
shareholders. To our actual knowledge, except as otherwise indicated,
beneficial ownership includes sole voting and dispositive power with respect
to all shares. We have reserved for issuance options to purchase 1,800,000
shares of the Class A Common Stock at exercise prices at or above $2.63 per
share, of which options for 1,273,252 shares were issued at December 31,
1998. Of these options, 200,500 will be exercisable within 60 days after
December 31, 1998.
(c) Mr. Bernstein has granted Mr. Stoops options to purchase 1,369,863 of his
shares of Class B Common Stock at an exercise price of $2.19 per share,
which options vest over an approximately 33 month period in three equal
installments. As of December 31, 1998, options to purchase 913,242 of such
shares were exercisable. Until such time as Mr. Stoops exercises his
options, Mr. Bernstein retains voting control over such shares. Upon
exercise by Mr. Stoops, the shares convert to Class A Common Stock.
(d) All shares are in the form of an immediately exercisable option to purchase
Class A Common Stock at $.05 per share.
(e) This number includes currently exerciseable options to purchase 66,666
Shares of Class A Common Stock for $2.63 per share granted under the 1996
Stock Option Plan. This number does not include unvested options to purchase
133,334 shares of our Class A Common Stock at an exercise price of $2.63 per
share.
(f) This number includes currently exercisable options granted by Mr. Bernstein
to Mr. Stoops for 913,242 shares at $2.19 per share and options granted
under the 1996 Stock Option Plan for 66,666 shares currently exercisable
at $2.63 per share. Until exercised, the shares subject to the options
granted by Mr. Bernstein remain in the voting control of Mr. Bernstein. Does
not include options to purchase an additional 456,621 shares of Common Stock
for $2.19 per share granted from Mr. Bernstein to Mr. Stoops, which vest on
December 31, 1999. Also does not include additional options to purchase
33,333 shares of Class A Common Stock at $2.63 per share granted under the
Option Plan, which vest on December 31, 1999.
(g) This number includes 3,220,000 shares of Series A Preferred Stock owned by
ABS. Mr. Hebb is Managing Member of ABS Partners II, L.L.C., the general
partner of ABS. Mr. Hebb disclaims beneficial ownership of these shares,
except to the extent of his pecuniary interest therein.
(h) This number includes 1,102,850 shares owned by Advent Atlantic and Pacific
III, L.P., of which Mr. Landry is a Managing Director of the General
Partner; 1,610,000 shares owned by Advent VII, L.P., of which Mr. Landry is
Managing Director of the General Partner; and 24,147 shares owned by TA
Venture Investors Limited
38
<PAGE>
Partnership, of which Mr. Landry is a General Partner. Mr. Landry disclaims
beneficial ownership of these shares, with the exception of 2,212.93 shares
held through TA Venture Investors Limited Partnership.
(i) This number does not include options to purchase 100,000 shares of Class A
Common Stock at $2.63 per share, which vest in three equal annual
installments beginning November 12, 1999.
(j) The principal business address of ABS Capital Partners, II, L.P. is One
South Street, Baltimore, MD 21202.
(k) This number includes 1,102,850 shares owned by Advent Atlantic and Pacific
III, L.P., of which TA Associates is a General Partner, 1,610,000 shares
owned by Advent VII, L.P., of which TA Associates is a General Partner, and
24,147 shares owned by TA Venture Investors Limited Partnership, of which
Mr. Landry is a General Partner. The principal business address of TA
Associates, Inc. is 125 High Street, Boston, MA 02110.
(l) This number includes 233,960 shares held by C.G. Grefenstette and Thomas G.
Bigley as Trustees for Henry Lea Hillman, Jr., Juliet Lea Hillman, Audry
Hilliard Hillman, and William Talbott Hillman, 175,470 shares held by Henry
L. Hillman, Elsie Hilliard Hillman and C.G. Grefenstette as Trustees of the
Henry L. Hillman Trust, 584,908 shares owned by Juliet Challenger, Inc., and
175,470 shares owned by Venhill Limited Partnership. The principal business
address of The Hillman Company is Grant Building, Pittsburgh, PA 15219.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Steven M. Bernstein, our President and Chief Executive Officer, is indebted
to us in the amount of $3,784,768, including accrued interest as of December 31,
1998. The indebtedness was incurred in March, 1997 in the principal amount of
$3.5 million, accrues interest at 5.83% per annum and is secured by 823,530
shares of Mr. Bernstein's Class B Common Stock. The debt matures on the earlier
of March, 2001 or the completion of an initial public offering of our common
stock.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Financial Statements
See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements included with this Annual Report on Form 10-K.
(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
See "Item 8. Financial Statements and Supplementary Data" for
Financial Statements Schedules included with this Annual Report on
Form 10-K.
All other schedules have been omitted because they are not required, not
applicable, or the information is otherwise set forth in the financial
statements or notes thereto.
(3) Exhibits
EXHIBIT
No. Description of Exhibits
------- -----------------------
**3.1 --Articles of Incorporation, as amended, of SBA Communications
Corporation.
**3.2 --Amended and Restated Statement of Designation of SBA Communications
Corporation.
**3.3 --By-Laws of SBA Communications Corporation.
**4.1 --Indenture, dated as of March 2, 1998, between SBA Communications
Corporation and State Street Bank and Trust Company, as trustee,
relating to $269,000,000 in aggregate principal amount at maturity
of 12% Senior Discount Notes due 2008.
39
<PAGE>
**4.4 --Registration Rights Agreement, dated as of March 2, 1998, between
SBA Communications Corporation and BT Alex. Brown Incorporated and
Lehman Brothers Inc.
**10.1 --SBA Communications Corporation Registration Rights Agreement dated
as of March 5, 1997, among the Company, Steven E. Bernstein, Ronald
G. Bizick, II and Robert M. Grobstein.
**10.2 --SBA Communications Corporation Registration Rights Agreement dated
as of March 6, 1997, among the Company and the Preferred
Shareholders, as defined therein.
**10.3 --SBA Communications Corporation Shareholders Agreement dated as of
March 5, 1997, among the Company, Steven E. Bernstein and the
Preferred Shareholders, as defined therein.
**10.4 --$3,500,000 Promissory Note dated as of March 8, 1997 of Steven E.
Bernstein in favor of the Company.
**10.5 --Pledge and Security Agreement dated as of March 8, 1997, between the
Company and Steven E. Bernstein.
**10.6 --Warrant to Purchase 402,500 Shares of Class A Common Stock of SBA
Communications Corporation dated March 6, 1997.
**10.7 --Credit Agreement dated as of August 8, 1997, among the Company,
BankBoston, N.A., First Union National Bank and Fleet National Bank.
**10.71 --Credit Agreement Amendment No. 2 among the Company, BankBoston,
N.A., Banque Paribas, First Union National Bank, Fleet National
Bank, Lehman Commercial Paper Inc. and Suntrust Bank, Central
Florida, N.A.
**10.75 --Amended and Restated Credit Agreement dated as of June 29, 1998,
among SBA Telecommunications, Inc., BankBoston, N.A., First Union
National Bank and Fleet National Bank.
**10.8 --Employment Agreement dated as of January 1, 1997, between the
Company and Ronald G. Bizick, II.
**10.9 --Employment Agreement dated as of January 1, 1997, between the
Company and Robert M. Grobstein.
**10.10 --Employment Agreement dated as of March 14, 1997, between the Company
and Jeffrey A. Stoops.
**10.105 --Employment Agreement dated as of June 15, 1998, between the Company
and Michael N. Simkin.
**10.11 --Stock Option Agreement dated as of March 5, 1997, between the
Company and Ronald G. Bizick, II.
**10.12 --Stock Option Agreement dated as of March 5, 1997, between the
Company and Robert M. Grobstein.
**10.125 --Incentive Stock Option Agreement dated as of June 15, 1998 between
the Company and Michael N. Simkin.
**10.13 --Nonqualified Stock Option Agreement-Revised dated March 14, 1997,
between the Company and Jeffrey A. Stoops.
**10.14 --SBA Communications Corporation Subordination Agreement dated as of
August 8, 1997, among the Company, the holders of in excess of the
73% of the Company's Series A Convertible Preferred Stock, and
BankBoston, N.A.
21.1 --Subsidiaries of SBA Communications Corporation.
27.1 --Financial Data Schedule
- ----------
** Incorporated by reference to the exhibits with the corresponding exhibit
numbers in the Registration Statement on Form S-4 previously filed by the
Company (Registration no. 333-50219)
40
<PAGE>
(b) Reports on Form 8-K:
(1) The Company filed a report on Form 8-K on October 8, 1998. In this
report, the Company reported, under Item 2, the consummation of a
stock purchase of Caddo Tower Company, Inc. for an aggregate purchase
price of $4.9 million. The Company also filed, under Item 7, the Stock
Purchase Agreement pursuant to which the transaction was consummated.
(c) Item 60l Exhibits:
The exhibits required by Item 601 of Regulation S-K are set forth in (a)(3)
above.
(d) Financial Statement Schedules:
The financial statement schedules required by Regulation S-K are set forth
in (a)(2) above.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Boca
Raton, State of Florida on March 31, 1999.
SBA COMMUNICATIONS CORPORATION
By: /s/ Steven E. Bernstein
---------------------------------
Steven E. Bernstein
Chairman of the Board of Directors,
President and Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of Jeffrey A. Stoops and Robert Grobstein,
or any of them, each acting alone, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for such person and
in his name, place and stead, in any and all capacities, in connection with the
Registrant's report on Form 10-K under the Securities Exchange Act of 1934,
including to sign the report in the name and on behalf of the Registrant or on
behalf of the undersigned as a director or officer of the Registrant, and any
and all amendments or supplements to the report, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and any applicable securities exchange or
securities self-regulatory body, granting unto said attorneys-in-fact and
agents, each acting alone, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or their substitutes or substitute, may lawfully do or cause to be done
by virtue hereof.
42
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons in the capacities
indicated on this 31 day of March, 1999.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Steven E. Bernstein Chairman of the Board of Directors, March 31, 1999
- ---------------------------- President and Chief Executive
Steven E. Bernstein Officer (Principal Executive Officer)
/s/ Jeffrey A. Stoops Chief Financial Officer March 31, 1999
- ---------------------------- (Principal Financial Officer)
Jeffrey A. Stoops
/s/ Robert M. Grobstein Chief Accounting Officer March 31, 1999
- ---------------------------- (Principal Accounting Officer)
Robert M. Grobstein
/s/ Donald B. Hebb, Jr. Director March 31, 1999
- ----------------------------
Donald B. Hebb, Jr.
/s/ C. Kevin Landry Director March 31, 1999
- ----------------------------
C. Kevin Landry
/s/ Robert S. Picow Director March 31, 1999
- ----------------------------
Robert S. Picow
</TABLE>
43
<PAGE>
- --------------------------------------------------------------------------------
SBA Communications Corporation and Subsidiaries
Consolidated Financial Statements
- --------------------------------------------------------------------------------
Table of Contents
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ......................................................... 1
Consolidated Balance Sheets as of December 31, 1998 and 1997 ............................................... 2
Statements of Operations for the years ended December 31, 1998, 1997 and 1996 .............................. 3
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 .............................. 4
Statements of Stockholders' Deficit for the years ended December 31, 1998, 1997 and 1996 ................... 6
Notes to Consolidated Financial Statements.................................................................. 7
Report of Independent Certified Public Accountants on Schedule.............................................. 18
Valuation and Qualifying Accounts........................................................................... 19
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To SBA Communications Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of SBA
Communications Corporation (a Florida corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
operations, stockholders' deficit and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SBA Communications Corporation
and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
West Palm Beach, Florida,
March 11, 1999
-1-
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, includes interest bearing amounts
of $26,227,973 and $1,397,047 in 1998 and 1997 $ 26,743,270 $ 6,109,418
Accounts receivable, net of allowances of $436,671
and $508,268 in 1998 and 1997 12,512,574 10,931,038
Prepaid and other current assets 5,981,134 982,722
Costs and estimated earnings in excess of billings on
uncompleted contracts 598,971 118,235
------------- -------------
Total current assets 45,835,949 18,141,413
Property and equipment, net 150,946,480 17,829,062
Note receivable-stockholder 3,784,768 3,561,306
Intangible assets, net 6,932,486 2,115,938
Deferred financing fees, net 6,563,772 740,338
Deferred tax assets -- 2,257,462
Other assets 509,871 151,885
------------- -------------
Total assets $214,573,326 $ 44,797,404
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 14,447,384 $ 2,182,447
Accrued expenses 2,247,282 919,563
Accrued salaries and payroll taxes 1,841,392 1,729,273
Notes payable 17,001,000 10,184,054
Deferred tax liabilities -- 1,621,714
Billings in excess of costs and estimated earnings
on uncompleted contracts 166,526 956,688
Other current liabilities 2,049,058 530,964
------------- -------------
Total current liabilities 37,752,642 18,124,703
Other liabilities:
Deferred tax liabilities 3,370,439 --
Senior discount notes payable 165,572,133 --
Other long-term liabilities 415,201 33,635
------------- -------------
Total long-term liabilities 169,357,773 33,635
------------- -------------
Commitments and contingencies (see Note 12)
Redeemable preferred stock 33,558,333 30,983,333
Stockholders' deficit:
Common stock-Class A (32,000,000 shares authorized), 880,922
shares issued and outstanding in 1998, none in 1997 8,809 --
Class B (8,100,000 shares authorized), 8,075,000 shares issued and
outstanding in 1998 and 1997 80,750 80,750
Additional paid in capital 716,131 --
Accumulated deficit (26,901,112) (4,425,017)
------------- -------------
Total stockholders' deficit (26,095,422) (4,344,267)
------------- -------------
Total liabilities and stockholders' deficit $ 214,573,326 $ 44,797,404
============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets
2
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------
1998 1997 1996
---- ---- ----
Revenues:
<S> <C> <C> <C>
Site development revenue $ 46,704,641 $ 48,240,443 $ 60,276,160
Site leasing revenue 12,396,268 6,759,362 4,530,152
------------ ------------ ------------
Total revenues 59,100,909 54,999,805 64,806,312
------------ ------------ ------------
Cost of revenues (exclusive of depreciation shown below)
Cost of site development revenue 36,499,980 31,470,203 39,821,589
Cost of site leasing revenue 7,280,786 5,356,160 3,638,133
------------ ------------ ------------
Total cost of revenues 43,780,766 36,826,363 43,459,722
------------ ------------ ------------
Gross profit 15,320,143 18,173,442 21,346,590
Operating expenses:
Selling, general and administrative 18,302,226 12,032,915 17,753,775
Depreciation and amortization 5,802,090 513,949 160,050
------------ ------------ ------------
Total operating expenses 24,104,316 12,546,864 17,913,825
------------ ------------ ------------
Operating income (loss) (8,784,173) 5,626,578 3,432,765
Other income (expense):
Interest income 4,303,277 643,851 6,643
Interest expense (2,357,413) (406,934) (139,056)
Non cash amortization of original issue discount and
debt issuance costs (14,549,501) -- --
Other (37,591) -- --
------------ ------------ ------------
Total other income (expense) (12,641,228) 236,917 (132,413)
------------ ------------ ------------
Income (loss) before provision for income taxes (21,425,401) 5,863,495 3,300,352
------------ ------------ ------------
Provision (benefit) for income taxes (1,524,306) 5,595,998 --
------------ ------------ ------------
Net income (loss) (19,901,095) 267,497 3,300,352
Pro forma income tax provision (see note 2) 1,320,141
------------
Pro forma net income 1,980,211
Dividends on preferred stock 2,575,000 983,333 --
------------ ------------ ------------
Net income (loss) available to common
stockholders' $(22,476,095) $ (715,836) $ 1,980,211
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
3
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (19,901,095) $ 267,497 $ 3,300,352
Adjustments to reconcile net income to net cash provided by
(used in) operating activities-
Depreciation and amortization 5,921,180 562,653 160,050
Provision for doubtful accounts 282,463 163,416 451,349
Deferred taxes 4,006,187 (2,257,462) --
Amortization of original issue discount and debt issuance costs 15,710,370 -- --
Non cash compensation expense 174,810 934,419 7,011,000
Interest on shareholder notes (223,462) (61,306) --
Changes in operating assets and liabilities:
(Increase) decrease in-
Accounts receivable (1,863,999) 4,999,525 (10,445,316)
Prepaid and other current assets (4,998,412) (98,328) (539,713)
Costs and estimated earnings in excess of
Billings on uncompleted contracts (480,736) (118,235) --
Intangible assets (5,612,272) (2,152,866) --
Other assets (357,986) (12,858) (78,770)
Increase (decrease) in-
Accounts payable 12,264,937 979,474 892,851
Accrued expenses 1,327,717 237,080 398,010
Accrued salaries and payroll taxes 112,119 1,338,172 90,617
Current deferred tax liability -- 1,621,714 --
Other liabilities 1,518,096 464,787 (25,442)
Other long-term liabilities 381,567 4,676 --
Billings in excess of costs and estimated earnings (790,162) 956,688 --
------------- ------------- -------------
Total adjustments 27,372,417 7,561,549 (2,085,364)
------------- ------------- -------------
Net cash provided by operating activities 7,471,322 7,829,046 1,214,988
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Tower acquisitions and other capital expenditures (138,123,784) (17,675,818) (144,942)
------------- ------------- -------------
Net cash used in investing activities (138,123,784) (17,675,818) (144,942)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 178,726,500 23,875,872 22,185,291
Repayment on notes payable (21,583,054) (18,613,168) (18,763,941)
Deferred financing fee (6,407,261) (787,197) --
Issuance of common stock 505,054 -- 1,415
Exercise of options 45,075 -- --
Proceeds from stockholder loans -- -- 11,177,157
Repayment of stockholder loans -- (10,665,788) (632,129)
Shareholder distribution -- -- (15,003,936)
Advances to stockholder -- (3,500,000) --
Proceeds from Series A redeemable preferred stock offering -- 30,000,000 --
Stock option redemption -- (2,236,782) --
Costs incurred for Series A redeemable preferred stock offering -- (2,427,683) --
------------- ------------- -------------
Net cash provided by (used in) financing activities 151,286,314 15,645,254 (1,036,143)
------------- ------------- -------------
Net increase in cash and cash equivalents 20,633,852 5,798,482 33,903
CASH AND CASH EQUIVALENTS:
Beginning of year 6,109,418 310,936 277,033
------------- ------------- -------------
End of year $ 26,743,270 $ 6,109,418 $ 310,936
============= ============= =============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
4
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION:
Cash paid during the year for:
Interest $ 423,302 $ 193,269 $ 139,056
Taxes 2,378,510 6,070,423 --
NON-CASH ACTIVITIES
Liabilities assumed in acquisition of assets -- 2,559,505 --
Dividends on preferred stock 2,575,000 983,333 --
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
5
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
----------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------------
Class A Class B
------- -------
Number Amount Number Amount
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 200 $ 200 -- $ --
Issuance of common stock 1,415 1,415 -- --
Non-cash compensation adjustment -- -- -- --
Net income -- -- -- --
Stockholder distribution -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 1,615 1,615 -- --
Corporate reorganization (1,615) (1,615) 8,075,000 80,750
Costs incurred for Series A Redeemable
Preferred stock offering -- -- -- --
Non-cash compensation adjustment -- -- -- --
Stock option redemption -- -- -- --
Net income -- -- -- --
Preferred stock dividends -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE , December 31,1997 -- -- 8,075,000 80,750
Exercise of stock options 775,961 7,760 -- --
Issuance of common stock as executive compensation 104,961 1,049 -- --
Non-cash compensation adjustment -- -- -- --
Net loss -- -- -- --
Preferred stock dividends -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 880,922 $ 8,809 8,075,000 $ 80,750
================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Additional Retained
Paid In Earnings
Capital (Deficit) Total
--------------------------------------------------------
<S> <C> <C> <C>
BALANCE, December 31, 1995 $ -- $ 4,792,584 $ 4,792,784
Issuance of common stock -- 1,415
Non-cash compensation adjustment -- 7,011,000 7,011,000
Net income -- 3,300,352 3,300,352
Stockholder distribution -- (15,003,936) (15,003,936)
-------------------------------------------------------
BALANCE, December 31, 1996 -- 100,000 101,615
Corporate reorganization -- (79,135) --
Costs incurred for Series A Redeemable
Preferred stock offering -- (2,427,683) (2,427,683)
Non-cash compensation adjustment -- 934,419 934,419
Stock option redemption -- (2,236,782) (2,236,782)
Net income -- 267,497 267,497
Preferred stock dividends -- (983,333) (983,333)
-------------------------------------------------------
BALANCE , December 31,1997 -- (4,425,017) (4,344,267)
Exercise of stock options 37,316 -- 45,076
Issuance of common stock as executive compensation 504,005 -- 505,054
Non-cash compensation adjustment 174,810 -- 174,810
Net loss -- (19,901,095) (19,901,095)
Preferred stock dividends -- (2,575,000) (2,575,000)
-------------------------------------------------------
BALANCE, December 31, 1998 $ 716,131 $(26,901,112) $(26,095,422)
=======================================================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements
6
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
-------
SBA Communications Corporation (the "Company") was incorporated in the State of
Florida in March, 1997. The Company holds all of the outstanding capital stock
of SBA Telecommunications, Inc. ("Telecommunications"). Telecommunications holds
all of the capital stock of SBA Towers, Inc. ("Towers"), SBA, Inc. ("SBA" ), SBA
Leasing, Inc. ("Leasing"), and Communication Site Services, Inc ("CSSI").
Towers and its subsidiaries own and operate transmission towers in various parts
of the country. Space on these towers is leased primarily to wireless
communications carriers.
SBA provides comprehensive turnkey services for the telecommunications industry
in the areas of site development services for wireless carriers. Site
development services provided by SBA includes site identification and
acquisition, contract and title administration, zoning and land use permitting,
construction management and microwave relocation.
Leasing leases antenna tower sites from owners and then subleases such sites to
wireless telecommunications providers.
CSSI is engaged in the erection and repair of, and construction associated with,
transmission towers, including hanging of antennae, cabling and associated tower
components.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
A summary of the significant accounting policies applied in the preparation of
the accompanying consolidated financial statements is as follows:
a. Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries. All significant intercompany transactions have been
eliminated in consolidation.
Prior to the formation of the Company, SBA and Leasing were 100% owned by their
founder. The 1996 financial statements reflect the combining of these two
companies rather than a consolidation.
Historical net income (loss) per share has not been presented because it would
not be meaningful.
b. Use of Accounting Estimates
---------------------------
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The more significant estimates made by management include the
allowance for doubtful accounts receivable, the costs and revenues relating to
the Company's site development and construction contracts and the economic
useful lives of towers. Actual results could differ from those estimates.
c. Cash and Cash Equivalents
-------------------------
The Company classifies as cash and cash equivalents all interest-bearing
deposits or investments with original maturities of three months or less.
d. Property and Equipment
----------------------
Property and equipment are recorded at cost. Depreciation is provided using the
straight-line method over their estimated useful lives. Leasehold improvements
are amortized on a straight-line basis over the shorter of the useful life of
the improvement or the term of the lease. Maintenance and repairs are expensed
as incurred.
Interest is capitalized in connection with the construction of towers. The
capitalized interest is recorded as part of the asset to which it relates and is
amortized over the asset's estimated useful life. As the Company significantly
expanded its construction activities in 1998, $1,160,869 of interest cost was
capitalized in 1998. No interest was capitalized in 1997 or 1996.
7
<PAGE>
e. Intangible Assets
-----------------
Intangible assets are comprised of costs paid in excess of the fair value of
assets acquired ("Goodwill") and amounts paid related to covenants not to
compete. Goodwill is being amortized over periods which range from 7 - 15 years.
The covenants not to compete are being amortized over the terms of the
contracts, which range from 7 to 10 years. Accumulated amortization totaled
approximately $340,000 at December 31, 1998.
f. Impairment of Long-Lived Assets
-------------------------------
Statement of Financial Accounting Standards No. 121 ("SFAS 121") Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
requires that long-lived assets, including certain identifiable intangibles, and
the goodwill related to those assets, be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the asset in
question may not be recoverable. Management has reviewed the Company's
long-lived assets and has determined that there are no events requiring
impairment loss recognition.
g. Deferred Financing Fees
-----------------------
Financing fees have been deferred and are being amortized using the
straight-line method over the length of indebtedness to which they relate. This
method approximates the effective interest rate method.
h. Revenue Recognition
-------------------
Revenue from tower leasing services is recorded on a monthly basis. Revenue for
Leasing is generated on a monthly basis from subleases entered into for periods
of time equivalent to the Company's original lease obligation. Current lease
terms range from one to five years. Revenue received in advance is recorded in
other liabilities.
Site development projects in which the Company performs consulting services
include contracts on a time and materials basis or a fixed price basis. Time and
materials based contracts are billed as the services are rendered. For those
site development contracts in which the Company performs work on a fixed price
basis, site development billing (and revenue recognition) is based on the
completion of agreed upon phases of the project on a per site basis. Upon the
completion of each phase on a per site basis, the Company recognizes the revenue
related to that phase. Revenue related to services performed on uncompleted
phases of site development projects was not recorded by the Company at the end
of the reporting periods presented as it was not material to the Company's
results of operations. Any losses on a particular phase of completion are
recognized in the period in which the loss becomes evident. Site development
projects generally take from 3 to 12 months to complete.
Revenue from construction projects is recognized on the percentage-of-completion
method of accounting, determined by the percentage of cost incurred to date
compared to management's estimated total anticipated cost for each contract.
This method is used because management considers total cost to be the best
available measure of progress on the contracts. These amounts are based on
estimates, and the uncertainty inherent in the estimates initially is reduced as
work on the contracts nears completion. The asset "Costs and estimated earnings
in excess of billings on uncompleted contracts" represents revenues recognized
in excess of amounts billed. The liability, "Billings in excess of costs and
estimated earnings on complete contracts" represents billings in excess of
revenues recognized.
Costs of site development project revenue and construction revenue include all
direct material costs, salaries and labor costs, including payroll taxes,
subcontract labor, vehicle expense and other costs directly related to the
projects. All costs related to site development projects and construction
projects are recognized as incurred. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are determined
to be probable.
i. Income Taxes
------------
Effective January 1, 1997, the Company converted to a C Corporation under
Subchapter C of the Internal Revenue Code of 1986, as amended. The pro-forma
provision for income taxes for the year ended December 31, 1996 represents a
pro-forma calculation (40%) as if the Company was a C Corporation.
Effective January 1, 1997, the Company began accounting for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No., 109 Accounting for Income Taxes ("SFAS No. 109"). SFAS No. 109 requires the
Company to recognize deferred tax liabilities and assets for the expected future
income tax consequences of events that have been recognized in the Company's
consolidated financial statements. Deferred tax liabilities and assets are
determined based on the temporary differences between the consolidated financial
statements carrying amounts and the tax bases of assets and liabilities, using
enacted tax rates in the years in which the temporary differences are expected
to reverse.
-8-
<PAGE>
j. Selling, General and Administrative Expenses
--------------------------------------------
Selling, general and administrative costs represents those costs incurred which
are related to the administration or management of the Company. Also included in
this category are corporate development expenses which represent costs incurred
in connection with acquisitions, construction activities and expansion of the
customer base. These expenses consist of compensation and overhead costs that
are not directly related to the administration or management of existing towers.
The above costs are expensed as incurred.
k. Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts receivable, prepaid
expenses, notes receivable, accounts payable, accrued expenses and notes
payable, approximates fair value. The market value and carrying value of the
Senior Discount Notes Payable is $156.0 million and $165.6 million at December
31, 1998, respectively.
l. Reclassifications
-----------------
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
3. CURRENT ACCOUNTING PRONOUNCEMENTS
---------------------------------
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" which establishes 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 year ended December 31, 1998, 1997, and 1996, the Company did not
have any changes in its equity resulting from such non-owner sources and
accordingly, comprehensive income 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.
Segment Reporting
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is required to be adopted in fiscal
1998. SFAS No. 131 requires the Company to report financial and other
descriptive information about its reportable operating segments. Required
disclosures include, among other things, a measure of segment profit or loss,
certain specific revenue and expense items, and segment assets. The Company has
implemented SFAS No. 131 during 1998.
Derivative Instruments and Hedging Activities
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities. "This statement establishes 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 will require 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 the impact of adopting this statement will not have a material impact
upon the Company's results of operations or financial position.
4. ACQUISITIONS
------------
On September 18, 1997, the Company consummated the acquisition of CSSI and
certain related tower assets of Segars Communications Group, Inc. ("SCGI," and
together with the acquisition of CSSI, the "CSSI Acquisition"). The CSSI
Acquisition provided the Company with 21 towers in Florida and Georgia in
varying stages of construction, together with a number of parcels of leased real
estate on which towers may be constructed in the future, and gave the Company
the in-house capability to construct towers in the southeastern United States.
The Company paid $7 million at closing and an additional $2.6 million as a
contingent payment to the sellers, which was based on certain tenant leasing
goals being realized. The acquisition was accounted for under the purchase
method of accounting. Accordingly, the excess of the purchase price over the
estimated fair value of the net assets acquired, or approximately $2.1 million,
was recorded as goodwill which is being amortized on a straight-line basis over
a period of 15 years. CSSI's results of operations have been included in the
Company's consolidated financial statements from the date of acquisition.
Additionally, in 1997, the Company acquired 30 towers in five separate
transactions for an aggregate initial investment of $5.9 million. These
acquisitions were paid for in cash.
During 1998, the Company completed 39 acquisitions consisting of 133 towers and
related assets from various sellers, all of which were individually
insignificant to the Company. The aggregate purchase price for these
acquisitions for the year ended December 31, 1998 was $55.3 million, which was
paid from cash on hand.
-9-
<PAGE>
The Company accounted for the above acquisitions using the purchase method of
accounting. The results of operations of the acquired assets are included with
those of the Company from the dates of the respective acquisitions. The
pro-forma results of operations listed below reflect purchase accounting and
pro-forma adjustments as if the transactions occurred as of the beginning of the
period presented.
The unaudited pro-forma results have been prepared for comparative purposes only
and include certain adjustments, such as additional amortization expense as a
result of goodwill and pro-forma provision for income taxes for the period in
which CSSI was an S Corporation under Subchapter S of the Internal Revenue Code.
The pro-forma results do not purport to be indicative of results that would have
occurred had the combination been in effect for the periods presented, nor do
they purport to be indicative of the results that will be obtained in the
future.
For the year ended December 31,
-------------------------------
1998 1997
---- ----
Unaudited Pro Forma Revenues $61,754,775 $65,679,788
=========== ===========
Unaudited Pro Forma Net
Income (loss) $(19,768,191) $ 775,002
============= =========
5. CONCENTRATION OF CREDIT RISK
----------------------------
The Company's credit risks consist of accounts receivable in the
telecommunications industry. The Company performs periodic credit evaluations of
its customers' financial condition and provides allowances for doubtful accounts
as required. Following is a list of significant customers and the percentage of
total revenue derived from such customers:
For the years ended December 31,
1998 1997 1996
---- ---- ----
(% of Revenue)
Sprint 34.0 47.0 50.4
Bell South 19.3 6.6 .4
Pacific Bell Mobile Systems 10.7 12.3 18.8
Nextel 8.8 7.8 -
Page Net 7.0 7.6 9.0
AT&T Wireless 2.7 5.3 11.6
6. PROPERTY AND EQUIPMENT
----------------------
Property and equipment, net consists of the following:
<TABLE>
<CAPTION>
Estimated
Useful Lives December 31,
------------ -----------------
(years) 1998 1997
---- ----
<S> <C> <C> <C>
Land $ 5,307,754 $ 414,770
Towers 15 141,755,358 13,525,482
Buildings and improvements 5 - 26 506,120 107,931
Vehicles 2 - 5 442,496 358,569
Furniture and equipment 2 - 7 1,708,132 1,299,341
Construction in process 7,736,769 2,840,593
------------ -----------
157,456,629 18,546,686
Less: Depreciation and
Amortization (6,510,149) (717,624)
------------ ----------
Property and equipment, net $150,946,480 $17,829,062
============ ===========
</TABLE>
Construction in process represents costs incurred related to towers which are
under development and will be used in the Company's operations.
10
<PAGE>
7. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
-----------------------------------------------------
Costs and estimated earnings on uncompleted contracts consist of the following:
December 31,
------------
1998 1997
----- ----
Costs incurred on uncompleted contracts $ 4,633,768 $ 862,660
Estimated earnings 1,357,134 280,438
Billings to date (5,558,457) (1,981,551)
----------- -----------
$ 432,445 $ (838,453)
=========== ===========
This amount is included in the accompanying balance sheet under the following
captions:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
--------- ---------
<S> <C> <C>
Costs and estimated earnings in excess of billing $ 598,971 $ 118,235
Billings in excess of costs and estimated earnings (166,526) (956,688)
--------- ---------
$ 432,445 $(838,453)
========= =========
</TABLE>
8. CURRENT AND LONG TERM DEBT
--------------------------
Current and long term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
----- ----
<S> <C> <C>
Bank Credit Agreement, interest at variable rates (6.9125% to 7.75%
at December 31, 1998) quarterly installments, based on reduced
availability, beginning March 31, 2001, maturing
on June 29, 2005 $ 17,001,000 $ 8,800,000
Installment note payable, interest at 6% -- 1,384,054
Senior 12% discount notes, net of unamortized original issue discount
of $118,763,500, 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 -
------------- ------------
182,573,133 10,184,054
Less current maturities of debt (17,001,000) (10,184,054)
------------- ------------
Long-term debt $ 165,572,133 $ -
============= ============
</TABLE>
Bank Credit Agreement
On August 8, 1997, the Company entered into a credit agreement with a syndicate
of banks (the "Credit Agreement"). The original Credit Agreement consisted of a
secured revolving line of credit in the amount of $10,000,000 and term debt in
an amount up to $65,000,000. Under this Agreement funds were generally borrowed
at the EURO rate at the time of borrowing plus 1.25%.
On June 29, 1998, the Company amended and restated the Credit Agreement. The
amended Credit Agreement provides for revolving credit loans of $55,000,000.
Availability was limited based on a minimum number of owned, leased or managed
towers and at all times by certain financial conditions and covenants and
ratios, and other conditions. The Credit Agreement matures on June 29, 2005. The
borrowings under the Credit Agreement will bear interest at the EURO rate plus a
margin ranging from 1.0% to 3.25% (determined based on a leverage ratio) or an
"alternate base rate" as defined by the lender. The term facility provided
$50,000,000 availability to the Company to be used to secure letters of credit.
As of December 31, 1998, there were no outstanding letters of credit.
The Credit Agreement is secured by substantially all of the Company's tower
assets and assignment of tower leases, requires the Company to maintain certain
financial covenants and places restrictions on the Company's ability to, among
other things, incur debt and liens, dispose of assets, undertake transactions
with affiliates and make investments.
-11-
<PAGE>
This credit agreement was replaced by a new credit facility in February, 1999
(See Note 17).
Senior Discount Notes Payable
On March 2, 1998, the Company closed on $269,000,000 12% Senior Discount Notes
(the "Notes") due March 1, 2008. The issuance of the Notes netted approximately
$150,200,000 in proceeds to the Company. The Notes will accrete in value until
March 1, 2003 at which time they will have an aggregate principal amount of
$269,000,000. Thereafter, interest will accrue on the Notes and will be payable
semi-annually in arrears on March 1 and September 1, commencing September 1,
2003. Proceeds from the Notes are being used to acquire and construct
telecommunications towers as well as for general working capital purposes.
After the issuance of the Notes, the Company became highly leveraged which could
have important consequences to holders of the Notes and common and preferred
stockholders of the Company, including, but not limited to: (i) making it more
difficult for the Company to satisfy its obligations with respect to the Notes,
(ii) increasing the Company's vulnerability to general adverse economic and
industry conditions, (iii) limiting the Company's ability to obtain additional
financing to fund its growth strategy, future working capital, capital
expenditures and other general corporate requirements, (iv) requiring the
dedication of a substantial portion of the Company's cash flow from operations
to the payment of principal of, and interest on, its indebtedness, thereby
reducing the availability of such cash flow to fund its growth strategy, working
capital, capital expenditures or other general corporate purposes, (v) limiting
the Company's flexibility in planning for, or reacting to, changes in its
business and the industry, and (vi) placing the Company at a competitive
disadvantage vis-a-vis less leveraged competitors. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing any Notes
tendered to it upon the occurrence of a change of control.
There can be no assurance that the Company 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 available in amounts
sufficient to service its indebtedness and make anticipated capital
expenditures. In addition, there can be no assurance that the Company will be
able to effect any required refinancing of its indebtedness (including the
Notes) on commercially reasonable terms or at all.
The Notes and Credit Agreement contain numerous restrictive covenants, including
but not limited to covenants that restrict the Company's ability to incur
indebtedness, pay dividends, create liens, sell assets and engage in certain
mergers and acquisitions. The ability of the Company to comply with the
covenants and other terms of the Notes and to satisfy its respective debt
obligations will depend on the future operating performance of the Company. In
the event the Company fails to comply with the various covenants contained in
the Notes it would be in default thereunder, and in any such case, the maturity
of substantially all of its long-term indebtedness could be accelerated.
9. NOTE RECEIVABLE - STOCKHOLDER
------------------------------
The amount due from stockholder as of December 31, 1998 and 1997, represents a
loan made to one of the stockholders plus accrued interest. The loan was in the
amount of $3.5 million and bears interest at a rate of 5.83%. This loan matures
at the earlier of three years or upon consummation of an initial public offering
of the Company. This loan is secured by 823,530 shares of Class B Common Stock
of the Company owned by the stockholder.
10. REDEEMABLE PREFERRED STOCK
--------------------------
In 1997, the Company sold 8,050,000 shares of 4% Series A Preferred Stock,
convertible into one share of the Company's Class A Common Stock and one share
of the Company's 4% Series B Redeemable Preferred Stock, to a syndicate of
institutional investors (the "Private Investors"). The Series A Preferred Stock
has a conversion price of $3.73 and net proceeds received by the Company from
the sale of the shares was approximately $27,600,000 (net of approximately
$2,400,000 of issuance costs charged to retained earnings).
-12-
<PAGE>
The Series A Preferred Stock has the following rights and preferences:
Each holder of Series A Preferred Stock has the right to convert his or her
shares at any time into one share of Class A Common Stock, subject to certain
antidilution protection provisions, and one share of Series B Preferred Stock.
The Series A Preferred Stock will automatically convert into Class A Common
Stock and Series B Preferred Stock upon the earlier of (i) completion by the
Company of a public offering raising gross proceeds of at least $20,000,000 at
an offering price per share greater than or equal to 150% of then applicable
conversion price of the Series A Preferred Stock if such public offering occurs
before June 30, 1998 or at a price per share greater than or equal to 200% of
the then applicable conversion price of the Series A Preferred Stock if such
public offering occurs after June 30, 1998 or (ii) the written consent of the
holders of at least 66 2/3% of the Series A Preferred Stock then outstanding.
The holders of outstanding shares of Series A Preferred Stock are entitled, in
preference to the holders of any and all other classes of capital stock of the
Company (other than the Series B Preferred Stock, which will rank equally with
the Series A Preferred Stock as to dividends), to receive, out of funds legally
available therefore, cumulative dividends on the Series A Preferred Stock in
cash, at a rate per annum of 4% of the Series A Base Liquidation Amount subject
to pro-ration for partial years. The Series Base Liquidation Amount equals the
sum of $3.73 and any accumulated and unpaid dividends on the Series A Preferred
Stock. Accrued but unpaid dividends on the Series A Preferred Stock will be
payable upon conversion of the Series A Preferred Stock into Class A Common
Stock and Series B Preferred Stock. At December 31, 1998, such accrued and
unpaid dividends amounted to $3,558,333. At March 7, 2002, the dividend rate of
the Series A Preferred Stock will increase to 8% of the Series A Base
Liquidation Amount per annum. On March 7, 2003, the dividend rate on the Series
A Preferred Stock will increase to 14% per year. On March 7, 2002, the Company
will, to the extent it may do so under applicable law, redeem all of the
outstanding shares of Series A Preferred Stock over a two year period, one half
in each year, at an aggregate price equal to the Series A Base Liquidation
Amount. The Company accretes for preferred stock dividends on the effective
interest rate method over the period from issuance to scheduled redemption.
In the event of any liquidation or winding up of the Company, including a
merger, sale of all of its outstanding shares of capital stock, consolidation or
sale of all or substantially all of the assets of the Company, each holder of
outstanding Shares of Series B Preferred Stock will be entitled to receive
before any amount shall be paid or distributed to the holders of the Common
Stock, an amount in cash equal to the sum of $3.73 per share plus any
accumulated but unpaid dividends to which such holder is entitled.
The holders of Series A Preferred Stock have ten votes for each share until
converted to Class A Common Stock and Series B Preferred Stock and votes with
holders of shares of Class A Common Stock and Class B Common Stock as a single
voting group on all matters brought before the shareholders, except as otherwise
required by law and other restrictive covenants. The Series B Preferred Stock
does not have voting rights.
The holders of the shares of Series A Preferred Stock are entitled to
participate on a pro rata basis in certain issuances of equity securities by the
Company.
The Series B Preferred Stock generally has the same rights and preferences as
the Series A Preferred Stock plus the following rights and preferences:
Upon a qualified public offering, the Company will redeem all of the outstanding
shares of Series B Preferred Stock at an aggregate price equal to the Series B
Base Liquidation Amount.
The Company's Articles of Incorporation also provide for the issuance of Series
C Preferred Stock and Series D Preferred Stock. The terms of the Series C
Preferred Stock are substantially similar to the terms of the Series A Preferred
Stock other than the Series C Base Liquidation Amount, which is currently $4.472
per share. The terms of the Series D Preferred Stock is substantially similar to
the terms of the Series B Preferred Stock other than the Series D Liquidation
Amount, which is $4.472. Management at this time does not expect to issue any
shares of Series C Preferred Stock or Series D Preferred Stock.
11. INCOME TAXES
------------
The provision for income taxes in the consolidated statements of operations
consists of the following components:
For the Years Ended December 31
-------------------------------
1998 1997
---- ----
Federal income taxes
Current $(1,663,653) $ 5,033,333
Deferred (123,429) (556,280)
----------- -----------
$(1,787,082) $ 4,477,053
----------- -----------
State income taxes
Current $ 280,408 $ 1,198,413
Deferred (17,632) (79,468)
----------- -----------
$ 262,776 $ 1,118,945
----------- -----------
Total $(1,524,306) $ 5,595,998
=========== ===========
-13-
<PAGE>
A reconciliation of the statutory U.S. Federal tax rate (34%) and the effective
income tax rate is as follows:
For the Years Ended December 31
-------------------------------
1998 1997
---- ----
Federal income tax (benefit) $(7,284,636) $ 1,993,588
State income tax (784,569) 224,311
Corporate reorganization -- 3,248,649
Other 221,704 129,450
Valuation allowance 6,323,195 --
----------- -----------
$(1,524,306) $ 5,595,998
=========== ===========
The components of the net deferred income tax asset (liability) accounts are as
follows:
As of December 31
-----------------
1998 1997
---- ----
Cash to accrual Section 481(a) adjustment $ -- $(2,087,966)
Allowance for doubtful accounts 174,668 203,307
Deferred revenue 340,464 127,723
Other 120,201 135,222
Valuation allowance (635,333) --
----------- -----------
Current deferred tax liabilities $ -- $(1,621,714)
=========== ===========
Original issue discount $ 5,552,286 $ --
Employee stock compensation 1,864,841 2,278,161
Book vs. tax depreciation (5,193,422) (154,143)
Other 93,718 133,444
Valuation allowance (5,687,862) --
----------- -----------
Non-current deferred tax assets (liabilities) $(3,370,439) $ 2,257,462
=========== ===========
In connection with the acquisition of certain towers during 1998, the Company
recorded deferred tax liabilities and goodwill of $4.2 million related to the
book/tax basis differences in the acquired towers.
The Company has recorded a valuation allowance for deferred tax assets as
management believes that it is not "more likely than not" that the Company will
be able to generate sufficient taxable income in future periods to recognize the
assets.
12. COMMITMENTS AND CONTINGENCIES
-----------------------------
a. Operating Leases
----------------
The Company is obligated under several non-cancelable operating leases for
office space, vehicles and equipment, and site leases that expire at various
times through June, 2044. The annual minimum lease payments under non-cancelable
operating leases as of December 31, 1998 are as follow:
1999 $ 7,497,510
2000 5,625,577
2001 4,626,198
2002 3,557,578
2003 2,321,144
Thereafter 4,951,829
------------
Total $ 28,579,836
============
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above.
Rent expense for operating leases was $10,834,234, $6,134,045, and $5,417,233
for the years ended December 31, 1998, 1997 and 1996, respectively.
-14-
<PAGE>
b. Tenant Leases
-------------
The annual minimum tower space income to be received for tower space and antenna
rental under non-cancelable operating leases as of December 31, 1998 are as
follows:
1999 $13,352,986
2000 11,034,692
2001 9,336,839
2002 7,301,439
2003 4,154,998
Thereafter 2,767,701
---------
Total $47,948,655
===========
Principally, all of the leases provide for renewal at varying escalations.
Leases providing for fixed rate escalations have been reflected above.
c. Employment Agreements
---------------------
The Company currently has employment contracts with the Chief Operating Officer,
the Chief Accounting Officer, the Chief Financial Officer, and the Executive
Vice President - Sales and Marketing. These employment contracts are for a three
year period and provide for minimum annual compensation of $1,025,000.
Additionally, these contracts provide for incentive bonuses of annual amounts up
to $1,025,000.
d. Litigation
----------
The Company is involved in various claims, lawsuits and proceedings arising in
the ordinary course of business. While there are uncertainties inherent in the
ultimate outcome of such matters and it is impossible to presently determine the
ultimate costs that may be incurred, management believes the resolution of such
uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
13. HEALTH AND RETIREMENT PLANS
---------------------------
The Company has a defined contribution profit sharing plan under Section 401 (k)
of the Internal Revenue Code that provides for voluntary employee contributions
of 1% to 14% of compensation for substantially all employees. The company makes
a matching contribution of 50% of an employee's first $2,000 of contributions.
Company contributions and other expenses associated with the plan were $123,981,
$126,101, and $98,052 for the years ended December 31, 1998, 1997, and 1996
respectively.
14. STOCK OPTIONS AND WARRANTS
--------------------------
As of December 31, 1996, certain of the Company's senior executives terminated
existing employment, incentive and option agreements
in exchange for new employment agreements and, immediately exercisable options
to purchase 1,425,000 shares of Class A Common Stock. All of the options are
exercisable at $.05 per share. The Company accounted for the grant of options in
accordance with APB No. 25 and, accordingly, recognized a nonrecurring
compensation expense of $7,011,000 in 1996 as a result of the grant of the
options. The expense represents the difference between the exercise price of the
options and the estimated fair value of the underlying common stock. During
March 1997, immediately following the consummation of the Series A Preferred
Stock offering, options to purchase 264,708 shares of Class A Common Stock were
redeemed by the Company for $8.50 per share. Accordingly, the Company recognized
compensation expense totaling $934,419 which represented the difference between
the redemption value and the fair value of the common stock at the date of
grant.
The Company also has a stock option plan whereby options (both Non-qualified and
Incentive Stock Options), stock appreciation rights and restricted stock may be
granted to directors, key employees and consultants. A total of 1,800,000 shares
of Class A Common Stock are reserved for issuance under this plan. These options
generally vest over three-year periods from the date of grant. The Company
accounts for this plan under APB Opinion No. 25, under which compensation cost
is not recognized on those issuances where the exercise price exceeds the market
price of the underlying stock on the grant date.
In connection with the issuance of the redeemable preferred stock the Company
issued a five year warrant enabling the holder to purchase up to 402,500 shares
of Class A Common stock with an exercise price of $3.73 per share. Accordingly,
402,500 shares of Class A Common stock are reserved. The fair value of the
warrants at issuance was not material.
-15-
<PAGE>
During 1998, 208,419 options to purchase Class A Common Stock were issued at
exercise prices which the Company believed were at below market value.
Accordingly, the Company recorded compensation expense in the amount of
$174,810. Additional compensation related to these options of approximately
$278,518 will be recorded by the Company over the remaining vesting period of
the options. Also during 1998, the Company granted 104,961 shares of Class A
Common Stock to two executives and recorded non-cash compensation expense of
$505,167 which represents the fair value of the shares on the date of grant.
As required by FASB Statement No. 123 ("FASB 123"), for those options which the
Company granted at or above fair market value, the Company has determined the
pro-forma effect of the options granted had the Company accounted for stock
options granted under the fair value method of FASB 123. The Black-Scholes
option pricing model was used with the following assumptions for 1998 and 1997;
risk free interest rate of 12%, dividend yield of 0%; expected volatility of
.001% and expected lives of 3 years. Had compensation cost for the stock option
plan been determined based on fair value at the date of grant in accordance with
FASB 123, the Company's pro-forma net income (loss) would have totaled
$(20,156,126) and $162,111 for the years ended December 31, 1998 and 1997,
respectively. The effect of applying FASB 123 in this pro-forma disclosure are
not necessarily indicative of future results.
A summary of the status of the Company's stock option plans including their
weighted average exercise price is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- ------------------------
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1, 797,292 $0.96 1,425,000 $0.05 - $ -
Granted 799,019 2.81 810,500 2.63 1,425,000 0.05
Exercised/redeemed (775,961) 0.05 (264,708) 0.05 - -
Forfeited / canceled (160,334) 2.63 (173,500) 2.63 - -
----------- ----- ----------- ----- ---------- ------
Outstanding at end of year 1,660,016 $2.12 1,797,292 $0.96 $1,425,000 $0.05
=========== ===== =========== ===== ========== ======
Options exercisable at end of year 723,883 $1.45 1,193,625 $ .12 $1,425,000 $0.05
=========== ===== =========== ===== ========== ======
Weighted average fair value of options
granted during the year $1.81 $ .96
===== =====
</TABLE>
Option groups outstanding at December 31, 1998 and related weighted average
exercise price and life information are as follows:
<TABLE>
<CAPTION>
Wtd. Avg Remaining
Exercise Price Outstanding Contractual Life (Years) Exercisable
-------------- ----------- ----------------------- -----------
<S> <C> <C> <C>
$ .05 386,764 8.2 386,764
$2.63 1,167,533 9 231,400
$4.00 105,719 10 105,719
----------- -------
1,660,016 723,883
=========== =======
</TABLE>
16. 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, capital expenditures
and depreciation and amortization pertaining to the segments in which the
Company operates are presented below:
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
Site development - consulting $27,448,910 $47,032,197 $60,276,160
Site development - construction 19,255,731 1,208,246 --
Site leasing 12,396,268 6,759,362 4,530,152
----------- ----------- -----------
$59,100,909 $54,999,805 $64,806,312
=========== =========== ===========
Gross profit:
Site development - consulting $ 5,552,140 $16,386,901 $20,454,571
Site development - construction 4,652,521 383,339 --
Site leasing 5,115,482 1,403,202 892,019
----------- ----------- -----------
$15,320,143 $18,173,442 $21,346,590
=========== =========== ===========
</TABLE>
-16-
<PAGE>
Assets:
Site development - consulting $ 14,516,752 $ 15,847,931 $ 17,423,131
Site development - construction 9,690,197 6,488,626 --
Site leasing 173,075,271 12,891,213 637,315
Assets not identified by segment 17,291,106 9,569,634 --
------------ ------------ ------------
$214,573,326 $ 44,797,404 $ 18,060,446
============ ============ ============
Capital expenditures:
Site development - consulting $ 21,565 $ 58,474 $39,058
Site development - construction 119,285 863,863 --
Site leasing 137,274,109 16,425,061 --
Assets not identified by segment 708,825 328,420 105,884
------------ ------------ ------------
$138,123,784 $ 17,675,818 $ 144,942
============ ============ ============
17. SUBSEQUENT EVENTS
-----------------
On February 5, 1999 the Company, through its subsidiary,
Telecommunications, entered into a new senior credit facility (the "New
Facility") with a syndicate of lenders which replaced and superceded in its
entirety the Credit Agreement described in Note 8. The New Facility
consists of a $25 million term, loan, which was fully funded at closing,
and a $100 million revolving line of credit, on which the Company has the
option to increase to $150 million under certain conditions. The New
Facility also provides for letter of credit availability. Availability
under the New Facility is determined by a number of factors, including
number of towers built by the Company with anchor tenants on the date of
completion, the financial performance of the Company's towers, site
development and construction segments, as well as by other financial
covenants, financial ratios and other conditions. The New Facility matures
December 31, 2004 and amortization pursuant to a schedule 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 "base rate" (as defined in the New
Facility) plus a margin ranging from 1.25% to 2.50% (determined by a
leverage rate). The New 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 restrictions on, among other things, the incurrence of debt and
liens, dispositions of assets, transactions with affiliates and certain
investments. In connection with the termination of the previous Credit
Agreement during the first quarter of 1999, the Company recorded a
extraordinary charge of approximately $950,000 representing the write-off
of previously capitalized deferred financing fees related to the previous
Credit Agreement .
On March 8, 1999, after receiving the requisite consents from the holders
of the Notes, the Company amended the indenture governing the Notes to
increase one of the categories of permitted indebtedness from $125 million
to $175 million. Simultaneously, Telecommunications exercised its option to
increase the revolving line of credit portion of the New Facility from $100
million to $150 million.
17
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTS ON SCHEDULE
-----------------------------------------------------------
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commissions rules and are not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
West Palm Beach, Florida
March 11, 1999
18
<PAGE>
SBA COMMUNICATIONS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
Balance at Charged to Deduction
Beginning of Costs and From Balance at
Period Expenses Reserves End of Period
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
December 31, 1996 $ 572,751 $451,349 $ -- $ 1,024,100
December 31, 1997 $1,024,100 $163,416 $679,248 $ 508,268
December 31, 1998 $ 508,268 $282,463 $354,060 $ 436,671
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 26,743,270 6,109,418
<SECURITIES> 0 0
<RECEIVABLES> 12,949,245 11,439,306
<ALLOWANCES> 436,671 508,268
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,835,949 18,141,413
<PP&E> 157,456,629 18,546,686
<DEPRECIATION> 6,510,149 717,624
<TOTAL-ASSETS> 214,573,326 44,797,404
<CURRENT-LIABILITIES> 37,752,642 18,124,703
<BONDS> 165,572,133 0
0 0
33,558,333 30,983,333
<COMMON> 89,559 80,750
<OTHER-SE> 716,131 0
<TOTAL-LIABILITY-AND-EQUITY> 214,573,326 44,797,404
<SALES> 59,100,909 54,999,805
<TOTAL-REVENUES> 59,100,909 54,999,805
<CGS> 43,780,766 36,826,363
<TOTAL-COSTS> 43,780,766 36,826,363
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 16,906,914 406,934
<INCOME-PRETAX> (21,425,401) 5,863,495
<INCOME-TAX> (1,524,306) 5,595,998
<INCOME-CONTINUING> (19,901,095) 267,497
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,901,095) 267,497
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
