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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 4, 2000
PINNACLE HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-24773 65-0652634
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
1549 Ringling Boulevard, Third Floor Sarasota, Florida 34236
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (941) 364-8886
N/A
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(Former name or former address, if changed since last report)
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ITEM 5. In March 1998, the Company completed the Acquisition of 201 towers from
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Southern Communications Services, Inc. Item 7 hereof contains certain related
financial statements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Southern Communications Services, Inc. Tower Operations attached at page F-1
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PINNACLE HOLDINGS INC.
(Registrant)
By: /s/ Steven R. Day
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Steven R. Day, Chief Financial Officer,
Vice President and Secretary
Date: January 4, 2000
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Southern Communications Services, Inc.:
We have audited the accompanying balance sheets of the tower operations (the
"Tower Operations" or "Company") of SOUTHERN COMMUNICATIONS SERVICES, INC. (a
Delaware corporation) as of December 31, 1997 and 1996 and the related
statements of operations, changes in accumulated deficit, and cash flows for
the years then ended. 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 the Tower Operations of
Southern Communications Services, Inc. as of December 31, 1997 and 1996 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Atlanta, Georgia
February 20, 1998
F-1
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Assets
Current Assets:
Accounts receivable................................. $ 39,459 $ 169,994
Prepaids and other.................................. 117,599 102,942
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Total current assets.............................. 157,058 272,936
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Property and Equipment, at cost:
Tower investment.................................... 40,191,788 38,139,393
Less accumulated depreciation....................... (3,875,184) (1,928,510)
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Net property and equipment........................ 36,316,604 36,210,883
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Total assets...................................... $36,473,662 $36,483,819
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Liabilities and Accumulated Deficit
Current Liabilities:
Accounts Payable.................................... $ 78,342 $ 115,865
Due to Parent......................................... 40,930,277 39,007,286
Commitments and Contingencies
Accumulated Deficit................................... (4,534,957) (2,639,332)
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Total liabilities and accumulated deficit......... $36,473,662 $36,483,819
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</TABLE>
The accompanying notes are an integral part of these statements.
F-2
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Revenues............................................. $ 1,017,305 $ 349,428
Expenses:
Operations......................................... 876,614 748,001
Administrative and General......................... 89,642 54,072
Depreciation....................................... 1,946,674 1,810,282
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Total expenses..................................... 2,912,930 2,612,355
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Net Loss............................................. $(1,895,625) $(2,262,927)
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</TABLE>
The accompanying notes are an integral part of these statements.
F-3
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
STATEMENTS OF CHANGES IN ACCUMULATED DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<S> <C>
Accumulated Deficit as of December 31, 1995....................... $ (376,405)
Net Loss.......................................................... (2,262,927)
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Accumulated Deficit as of December 31, 1996....................... (2,639,332)
Net Loss.......................................................... (1,895,625)
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Accumulated Deficit as of December 31, 1997....................... $(4,534,957)
===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
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<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss........................................... $(1,895,625) $(2,262,927)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation...................................... 1,946,674 1,810,282
Changes in current assets and liabilities:
Decrease (increase) in accounts receivable....... 130,535 (169,994)
Decrease (increase) in prepaids and other........ (14,657) (102,942)
(Decrease) increase in accounts payable.......... (37,523) 115,865
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Total adjustments.............................. 2,025,029 1,653,211
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Net cash provided by (used in) operating activities.. 129,404 (609,716)
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Cash Flow From Investing Activities:
Capital expenditures............................... (2,052,395) (8,657,518)
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Net cash used by investing activities................ (2,052,395) (8,657,518)
Cash Flow From Financing Activities:
Change in Due to Parent............................ 1,922,991 9,267,234
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Net cash provided from financing activities.......... 1,922,991 9,267,234
Increase In Cash..................................... $ 0 $ 0
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Cash at Beginning of Year............................ $ 0 $ 0
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Cash at End of Year.................................. $ 0 $ 0
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</TABLE>
The accompanying notes are an integral part of these statements.
F-5
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements present the financial position and the
results of operations of the Tower Operations (the "Company") of Southern
Communications Services, Inc. (the "Parent"), which include the Parent's
business of leasing space on the 201 tower sites that are being acquired by
Pinnacle Towers Inc. ("Pinnacle") (See Note 4) to customers in the broadcast
and wireless communication industries. Tower leasing has been incidental to the
Parent's communications services business, and it has had no concentrated
marketing and sales effort to generate revenues from tower leases.
Tower Operations is not a separate subsidiary, division or segment of the
Parent. The financial statements of the Tower Operations business have been
derived from the financial statements of the Parent and have been prepared to
present the financial position, results of operations, and cash flows on a
stand-alone basis. All revenues and expenses specifically identifiable to tower
ownership are included. Additionally, the accompanying financial statements
include certain costs and expenses that have been allocated to the tower
business from the Parent. These costs have been allocated on a pro rata basis
primarily on either revenues or total costs of infrastructure operations,
depending upon the nature of the cost. Management believes this allocation
methodology is reasonable.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Credit Risk
The owned tower site lease receivables potentially subject the business to
credit risk, as collateral is generally not required. The business risk of loss
is limited due to the significant number of leases with affiliated companies
and the superior credit ratings of non-affiliated lessees. The carrying amount
of the Company's receivables approximates fair value.
Property and Equipment
Towers are recorded at cost and include certain capitalized overhead costs
(primarily engineering). Depreciation is computed using the straight-line
method over the estimated useful lives of its towers, which are 20 years.
Long-Lived Assets
The business periodically reviews the values assigned to long-lived assets
to determine whether any impairments are other than temporary. Management
believes that the long-lived assets in the accompanying balance sheets are
appropriately valued.
Income Taxes
The Company is not in itself a taxable entity, and no provision or benefit
for United States federal or state income taxes has been recorded.
F-6
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Revenue Recognition
The Company earns revenues by leasing space on its towers to customers in
the broadcast and communication industries or to customers that have internal
communication systems. Lease revenues are recognized on a straight-line basis
over the noncancelable lease term.
2. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases land for certain tower sites under long-term operating
leases. The majority of these leases contain renewal provisions which generally
require renewals to be exercised at market rates. Rental expense for the years
ended December 31, 1997 and 1996 totaled $228,688 and $195,075, respectively,
and are included in Operations Expense in the accompanying statements of
operations.
Future minimum rental payments required under the operating leases that have
initial or remaining noncancelable lease terms in excess of one year as of
December 31, 1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 240,320
1999.............................................................. 240,320
2000.............................................................. 218,840
2001.............................................................. 203,544
2002 and thereafter............................................... 854,096
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Total............................................................. $1,757,120
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</TABLE>
3. RELATED-PARTY TRANSACTIONS
Certain specialized services are performed for the Company by Southern
Company Services, Inc., an affiliate. Services provided include support in
major functional areas, such as engineering, site acquisition, site leasing,
benefits, cash management, legal, risk management, accounting, payroll, and
taxes. These services are provided at cost and totaled $38,994 and $37,054 in
1997 and 1996, respectively.
The Company purchases electrical power and leases land for towers from
affiliated companies. The costs of these services were $117,061 and $112,623 in
1997 and 1996, respectively.
The Company leases space on towers to certain of its affiliates. Revenues
for these sales and services were $371,936 and $169,995 in 1997 and 1996,
respectively.
At December 31, 1997 and December 31, 1996, the Company owed approximately
$26,574 and $71,267, respectively, to its affiliates for amounts due under the
agreements discussed above.
F-7
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SOUTHERN COMMUNICATIONS SERVICES, INC.
TOWER OPERATIONS
(A carve-out entity of Southern Communications Services, Inc.)
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. SALE AND LEASEBACK OF TOWER ASSETS
On January 9, 1998, the Parent entered into a definitive agreement to sell
201 towers and 90 parcels of land to Pinnacle for a purchase price of
$83,500,000 and received $6,000,000 from Pinnacle as a nonrefundable deposit
for the transaction. The transaction also includes the assignment of leases and
related lease payments for 111 land leases related to towers included in the
sale. The transaction is expected to close on March 4, 1998. The sale price
will be adjusted proportionately to the average price per tower site if the
Parent or Pinnacle elect not to include certain sites in the transaction for
certain casualty, title, or lease defects.
In connection with the transaction, the Parent and Pinnacle have entered
into a lease agreement in which the Parent will lease space on each tower
included in the transaction for a period of 10 years at a cost of $1,500 per
month per site. Five five-year option periods are included in the lease
agreement.
The Parent and Pinnacle have also entered into an option agreement, in which
at the sole option of the Parent, Pinnacle may be used to construct up to 80
additional towers for the purpose of permitting the Parent to place thereon
communications antenna and related equipment.
F-8
