<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to _______________
COMMISSION FILE NUMBER 1-13272
OmniAmerica, Inc.
(formerly Specialty Teleconstructors, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 85-0421409
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2445 Alamo Street S.E. 87106
Albuquerque, New Mexico (Zip Code)
(Address of principal executive offices)
(505) 242-9800
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 15,287,860 on February 10, 1999.
1
<PAGE> 2
OmniAmerica, Inc. and Subsidiaries
(formerly Specialty Teleconstructors, Inc.)
INDEX
<TABLE>
<CAPTION>
Page
Part I - Financial Information
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of December 31, 1998 (Unaudited) and 3
June 30, 1998
Consolidated Statements of Operations for the three and six-month periods
ended December 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Cash Flows for the six-month periods
ended December 31, 1998 and 1997 (Unaudited) 5
Notes to Unaudited Consolidated Financial Statements as of
December 31, 1998 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
December 31,
1998 June 30,
(Unaudited) 1998
--------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .......................................... $ 95,371 $ 4,349,324
Contracts receivable, net of allowance for doubtful accounts of
$390,230 at December 31, 1998 and June 30,1998 ................... 21,276,836 17,349,853
Costs and estimated earnings in excess of billings on
uncompleted contracts ............................................ 5,646,829 3,747,671
Components inventory ............................................... 3,414,251 3,430,868
Prepaid income taxes ............................................... -- 287,849
Other current assets ............................................... 647,052 891,148
------------- -------------
Total current assets ........................................ 31,080,339 30,056,713
Property and equipment, net .......................................... 94,767,229 50,847,107
Goodwill, net of amortization of $3,426,993 at December 31, 1998
and $808,250 at June 30,1998 ...................................... 91,208,042 87,993,151
Investment in unconsolidated subsidiary .............................. 7,931,311 7,889,650
Other assets, net .................................................... 3,753,605 2,536,804
------------- -------------
$ 228,740,526 $ 179,323,425
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable ............................................. $ 9,668,568 $ 8,802,734
Note payable to stockholder ........................................ -- 80,000
Billings in excess of costs and estimated earnings
on uncompleted contracts ......................................... 456,911 758,932
Accrued expenses ................................................... 2,648,792 2,171,429
Current installments of notes and capital leases payable ........... 761,103 474,696
------------- -------------
Total current liabilities .............................. 13,535,374 12,287,791
Deferred income taxes ................................................ 380,123 213,378
Notes and capital leases payable, excluding current installments ..... 76,747,787 31,631,459
------------- -------------
Total liabilities ........................................... 90,663,284 44,132,628
------------- -------------
Stockholders' Equity:
Common stock, $.01 par value. Authorized 100,000,000 shares; issued
15,206,299 at December 31, 1998 and 15,070,294 at June 30, 1998 . 152,063 150,703
Additional paid-in capital ......................................... 131,931,279 129,131,297
Treasury stock, at cost, 100,000 shares ............................ (1,387,500) (1,387,500)
Note receivable from officer and director .......................... (600,000) (600,000)
Retained earnings .................................................. 7,981,400 7,896,297
------------- -------------
Total stockholders' equity .................................. 138,077,242 135,190,797
------------- -------------
$ 228,740,526 $ 179,323,425
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE> 4
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended For the three months ended
December 31, December 31,
1998 1997 1998 1997
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues earned:
Installation services ........................... $ 33,936,012 $ 26,051,645 $ 15,374,746 $ 14,585,420
Component sales ................................. 6,340,730 3,523,635 2,593,232 2,189,904
Tower leasing ................................... 4,824,509 -- 2,695,722 --
------------ ------------ ------------ ------------
Total revenues earned .................... 45,101,251 29,575,280 20,663,700 16,775,324
------------ ------------ ------------ ------------
Cost of revenues earned:
Cost of installation services ................... 26,760,970 21,479,825 11,268,369 12,170,801
Cost of component sales ......................... 5,588,579 2,047,508 2,513,467 1,073,829
Cost of tower leasing ........................... 3,080,463 -- 1,616,756 --
------------ ------------ ------------ ------------
Total cost of revenues earned ................ 35,430,012 23,527,333 15,398,592 13,244,630
------------ ------------ ------------ ------------
Gross profit on revenues earned .............. 9,671,239 6,047,947 5,265,108 3,530,694
Selling, general and administrative expenses ...... 6,891,398 2,158,899 3,493,915 948,523
------------ ------------ ------------ ------------
Earnings from operations ........................ 2,779,841 3,889,048 1,771,193 2,582,171
Other income (expenses):
Interest income ................................. 44,754 61,956 33,194 44,612
Interest expense ................................ (2,156,951) (150,563) (1,530,828) (71,868)
Acquisition costs ............................... (650,094) -- (650,094) --
Equity in earnings of unconsolidated subsidiary . 457,361 -- 300,000 --
Other, net ...................................... 85,192 61,712 71,978 10,241
------------ ------------ ------------ ------------
(2,219,738) (26,895) (1,775,750) (17,015)
------------ ------------ ------------ ------------
Earnings (loss) before income taxes ............ 560,103 3,862,153 (4,557) 2,565,156
Income taxes ...................................... 475,000 1,493,349 165,000 984,449
------------ ------------ ------------ ------------
Net earnings (loss) ............................. $ 85,103 $ 2,368,804 $ (169,557) $ 1,580,707
============ ============ ============ ============
Shares of common stock used in computing
earnings per share:
Basic ......................................... 15,085,814 7,928,928 15,106,299 7,966,140
Diluted ....................................... 15,350,503 8,156,831 15,106,299 8,109,674
Net earnings (loss) per common shares:
Basic ......................................... $ 0.01 $ 0.30 $ (0.01) $ 0.20
------------ ------------ ------------ ------------
Diluted ....................................... $ 0.01 $ 0.29 $ (0.01) $ 0.19
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE> 5
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
December 31,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings .......................................................... $ 85,103 $ 2,368,804
Adjustments to reconcile net earnings to net cash (used in) provided by
operating activities:
Depreciation of property and equipment ................................ 1,732,234 878,277
Amortization .......................................................... 2,909,962 134,277
Equity in earnings of unconsolidated subsidiary, net .................. (41,661) --
Changes in operating assets and liabilities, net of acquisitions:
Contracts receivable .............................................. (3,551,983) (135,256)
Costs and estimated earnings in excess of billings on
uncompleted contracts .......................................... (1,899,158) (272,198)
Components inventory .............................................. 16,617 (588,696)
Prepaid income taxes .............................................. 287,849 145,702
Other current assets .............................................. 244,096 (35,067)
Trade accounts payable ............................................ 865,834 36,258
Billings in excess of costs and estimated earnings on
uncompleted contracts .......................................... (302,021) (488,228)
Accrued expenses .................................................. 477,363 44,027
Current income taxes .............................................. -- 1,009,316
Deferred income taxes ............................................. 166,745 (50,786)
------------ ------------
Net cash provided by operating activities ..................... 990,980 3,046,430
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment ................................... (44,380,413) (561,081)
Acquisition costs recorded as goodwill ................................ (2,916,028)
Cash expended in acquisition of Teleforce Communications, LLC .........
in 1998 and Ellis Tower Company Inc., net of cash of $ 151,701
acquired in acquisition, in 1997 .................................. (640,000) (297,704)
Available for sale securities ......................................... -- 719,850
------------ ------------
Net cash used in investing activities .......................... (47,936,441) (138,935)
------------ ------------
Cash flows from financing activities:
Lines of credit, net .................................................. -- 576,918
Deferred financing costs .............................................. (1,673,764) --
Principal payments on note payable to stockholder ..................... (80,000) (676,000)
Borrowings from notes payable ......................................... 44,593,007 --
Proceeds from sale of common stock, net ............................... 314,480 268,862
Principal payments on notes payable to banks .......................... (462,215) (547,702)
Acquisition of treasury stock ......................................... -- (1,387,500)
------------ ------------
Net cash provided by (used in) financing activities ............. 42,691,508 (1,765,422)
------------ ------------
Net increase (decrease) in cash and cash equivalents ............ (4,253,953) 1,142,073
Cash and cash equivalents:
Beginning of period ................................................... 4,349,324 989,720
------------ ------------
End of period ......................................................... $ 95,371 $ 2,131,793
============ ============
</TABLE>
5
<PAGE> 6
OMNIAMERICA, INC. AND SUBSIDIARIES
(FORMERLY SPECIALTY TELECONSTRUCTORS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
December 31,
1998 1997
----------- -----------
<S> <C> <C>
Aquisition of Teleforce Communications, LLC in fiscal 1998 and
Ellis Tower Company, Inc. in fiscal 1997
Cash $ -- $ 151,701
Contracts receivable 375,000 865,919
Components inventory -- 86,212
Other current assets -- 33,924
Property and equipment -- 267,915
Goodwill 2,751,862 1,729,280
Trade accounts payable -- (383,326)
Billings in excess of costs and estimated earnings on
uncompleted contracts -- (496,731)
Accrued expenses -- (7,871)
----------- -----------
$ 3,126,862 $ 2,247,023
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE> 7
OmniAmerica, Inc. and Subsidiaries
(formerly Specialty Teleconstructors, Inc.)
Notes to Unaudited Consolidated Financial Statements
December 31, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures normally required by generally accepted accounting principles for
complete financial statements or those normally reflected in the Company's
Annual Report on Form 10-KSB. The financial information included herein reflects
all adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary to a fair presentation of results for interim
periods. Results of interim periods are not necessarily indicative of the
results to be expected for a full year. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements for the year ended June 30, 1998 and the notes thereto included in
the Company's Form 10-KSB.
On September 14, 1998, Specialty Teleconstructors, Inc. ("STI"), through a
merger with a wholly-owned subsidiary of STI, changed its name from STI to
OmniAmerica, Inc ("OmniAmerica" or the "Company"), changed its state of
incorporation from Nevada to Delaware, and changed its symbol from SCTR to XMIT.
On November 16, 1998, the Company entered into an Agreement and Plan of Merger
pursuant to which OmniAmerica, Inc. will merge with and into American Towers,
Inc. ("ATI"), a wholly-owned subsidiary of American Tower Corporation ("AMT")
in a stock for stock transaction. Each OmniAmerica, Inc. stockholder will
exchange each share of their existing common stock for 1.1 shares of AMT shares
of common stock. A total of approximately 17.7 million shares of existing AMT
shares will be exchanged for all of OmniAmerica, Inc. shares. The transaction
will be accounted for as a purchase.
New Accounting Standards
Effective July 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income and SFAS No. 131, Financial Reporting for Segments of
Business Enterprise. Under the provisions of SFAS No. 130, there are currently
no items other than net income which would be classified as part of
comprehensive income. Under the provisions of SFAS No. 131, there are no
requirements for interim financial statements in the initial year of
application.
Principles of Consolidation
Investment in a 33 1/3% owned affiliated company is accounted for on the equity
basis of accounting and accordingly, the statement of earnings includes the
Company's proportionate share of the affiliate's income since its date of
acquisition during fiscal year 1998.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year
presentation.
7
<PAGE> 8
OmniAmerica, Inc. and Subsidiaries
(formerly Specialty Teleconstructors, Inc.)
Notes to Unaudited Consolidated Financial Statements
December 31, 1998
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Estimated
useful December 31, June 30,
lives (years) 1998 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tower assets 30 $ 77,950,049 $ 34,918,139
Land 3,528,681 3,528,681
Buildings 15-40 4,968,817 4,932,786
Vehicles 3-7 7,322,546 6,406,562
Furniture and fixtures 3-10 2,542,523 1,794,439
Equipment 3-10 5,134,490 4,556,502
Leasehold improvements 5 200,026 156,053
------------ ------------
101,647,132 56,293,162
Less accumulated depreciation (6,879,903) (5,446,055)
------------ ------------
$ 94,767,229 $ 50,847,107
============ ============
</TABLE>
(3) ACQUISITIONS
During the first six months of fiscal year 1999, the Company consummated the
following transactions (see the Form 10-KSB for additional information on these
transactions) which were accounted for by the purchase method of accounting, and
accordingly, the operating results of the acquired entities have been included
in the consolidated operating results since the date of acquisition.
On July 9, 1998, the Company paid $640,000 and issued 81,270 shares of
restricted common stock of the Company at a price of $30.60 per share,
determined by the closing price on or about July 9, 1998, in exchange for
substantially all of the assets and liabilities of Teleforce Communications,
LLC. ("Teleforce"). Teleforce provides site acquisition services for the
wireless communications industry.
On August 26, 1998, the Company acquired three towers for approximately
$2,400,000.
On September 29, 1998, pursuant to an asset purchase and sale agreement with
certain wholly-owned subsidiaries of Arch Communications Group, the Company
acquired 70 towers on 68 sites for approximately $20,400,000 financed primarily
with proceeds from the Chase Manhattan senior secured revolving credit facility
(see Form 10-KSB for additional information on this credit facility).
On February 3, 1999, the Company acquired 10 towers and the option to acquire
six additional towers from Robert J. Fetterman d/b/a RF Communications for
approximately $4,700,000.
On February 12, 1999, the Company acquired three additional towers from
affiliates of Arch Communications Group for approximately $665,000.
The results of operations for the periods presented would not have been
materially different had these transactions taken place at the beginning of the
periods.
As a result of the pending merger with ATI, the Company incurred costs of
$650,094, primarily consisting of filing fees, legal fees and underwriters fees.
8
<PAGE> 9
OmniAmerica, Inc. and Subsidiaries
(formerly Specialty Teleconstructors, Inc.)
Notes to Unaudited Consolidated Financial Statements
December 31, 1998
(4) INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
As a result of the Company's April 1998 merger with OmniAmerica Holdings
described in Form 10-KSB, the Company holds a 33 1/3% interest in Kline Iron and
Steel Co., Inc. ("Kline"), a company which fabricates structural and tower steel
products, domestically and internationally, and is accounted for under the
equity method. Summarized historical financial information of Kline for the
six-month period ended December 31, 1998 is as follows:
<TABLE>
<S> <C>
Revenues $ 38,000,000
Gross margin 6,645,000
Net income 1,300,000
</TABLE>
During the period, the Company received $300,000 in cash as a return of equity.
(5) NOTES AND CAPITAL LEASES PAYABLE
Notes and capital leases payable consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1998 1998
------------ --------
<S> <C> <C>
Variable rate term note payable
to Chase Manhattan Bank, interest
at LIBOR plus 2% (7.5% and 7.675%
at December 31, 1998 (unaudited)
and June 30, 1998, respectively)
payable monthly, matures June 30,
2001; secured by substantially all
assets of the Company $74,593,007 $30,000,000
Note payable in monthly installments
of $6,675, including interest at U.S.
Treasury Index plus 3.5% (9.125% at
December 31, 1998 (unaudited) and
June 30, 1998) with balance due
March 2005; secured by a building
and guaranteed by a principal
stockholder of the Company $ 770,914 776,410
7.3% capital lease payable in monthly
installments of $56,297 with the
balance due September 2001, secured
by vehicles $ 1,636,877 697,937
8.5% note payable in monthly
installments of $12,068, including
interest, with the balance due July
1999, secured by vehicles 323,267 350,177
Other $ 184,825 $ 281,631
----------- ----------
Total notes and capital leases
payable $77,508,890 $32,106,155
Less current installments $ 761,103 $ 474,696
----------- -----------
Notes and capital leases payable,
excluding current installments $76,747,787 $31,631,459
=========== ===========
</TABLE>
Effective November 16, 1998, the Company amended its senior secured credit
facility with Chase Manhattan Bank to increase the amount of available credit to
$150,000,000 from $75,000,000. All other provisions remain consistent including
mandatory prepayment provisions upon consummation of the merger with ATI.
(6) INCOME TAXES
The Company's effective tax rate for the three and six month periods ended
December 31, 1998 are substantially higher than the federal statutory rate of
34% primarily due to the non-deductible amortization expense for goodwill
recognized in the Company's acquisition of OmniAmerica Holdings Corporation on
April 23, 1998.
(7) CONTINGENCIES
The Company is, and from time to time may be, a party to routine legal
proceedings incidental to its business. The outcome of these legal proceedings
is not expected to have a material adverse effect on the Company's business,
results of operations or financial condition, based on the Company's current
understanding of the relevant facts and law. The Company maintains general
liability insurance against risks arising out of the normal course of business.
(8) EARNINGS PER SHARE
The following is the reconciliation of the numerators and denominators of the
basic and diluted EPS computations for net income and other related disclosures
required by Statement of Financial Accounting Standards No. 128, Earnings Per
Share.
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the six months ended December 31, 1998:
Basic earnings per share:
Income available to common stockholders ....... $ 85,103 15,085,814 $ 0.01
Effect of dilutive shares:
Options ........................................ -- 264,689
---------- ----------
Dilutive earnings per shares:
Income available to common stockholders plus
assumed conversions ........................ $ 85,103 15,350,503 $ 0.01
========== ========== =======
For the three months ended December 31, 1998:
Basic earnings per share:
Income (loss) available to common stockholders $ (169,557) 15,106,299 $ (0.01)
Effect of dilutive shares:
Options ........................................ -- --
---------- ----------
Dilutive earnings per shares:
Income (loss) available to common stockholders
plus assumed conversions ................... $ (169,557) 15,106,299 $ (0.01)
========== ========== =======
</TABLE>
9
<PAGE> 10
OmniAmerica, Inc. and Subsidiaries
(formerly Specialty Teleconstructors, Inc.)
Notes to Unaudited Consolidated Financial Statements
December 31, 1998
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the six months ended December 31, 1997:
Basic earnings per share:
Income available to common stockholders ..... $2,368,804 7,928,928 $0.30
Effect of dilutive shares:
Options ..................................... -- 227,903
---------- ---------
Dilutive earnings per shares:
Income available to common stockholders plus
assumed conversions ...................... $2,368,804 8,156,831 $0.29
========== ========== =====
For the three months ended December 31, 1997:
Basic earnings per share:
Income available to common stockholders ..... $1,580,707 7,966,140 $0.20
Effect of dilutive shares:
Options ..................................... -- 143,534
---------- ---------
Dilutive earnings per shares:
Income available to common stockholders plus
assumed conversions ...................... $1,580,707 8,109,674 $0.19
========== ========== =====
</TABLE>
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
FORWARD-LOOKING STATEMENTS
Statements contained herein that are not historical facts are forward-looking
statements ("forward-looking statements") within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created by those sections. In addition, such forward-looking statements
may be contained in filings made by the Company with the Securities and Exchange
Commission, or press releases or oral statements made from time to time by or
with the approval of an authorized executive officer of the Company. Such
forward-looking statements are necessarily estimates reflecting the best
judgment of the Company's management based upon current information and involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such risks,
uncertainties and other factors include, but are not limited to, those set forth
in the Company's Annual Report on Form 10-KSB for the fiscal year ended June 30,
1998 under the caption "ITEM 6, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Cautionary Statements" and
elsewhere therein and appearing from time to time in filings made by the Company
with the Securities and Exchange Commission. These risks, uncertainties and
other factors should not be construed as exhaustive and the Company does not
undertake, and specifically disclaims any obligation, to update any
forward-looking statements to reflect occurrences or unanticipated events or
circumstances after the date of such statements.
PLAN OF OPERATIONS
Historically, the Company principally has been engaged in building sites for
wireless carriers, who have traditionally owned and operated their own
transmission tower assets. While the Company continues to provide infrastructure
building and implementation services to wireless carriers, since the April
Merger (as defined in the June 30, 1998 Form 10-KSB), the Company's focus has
been directed increasingly toward developing sources of recurring revenues,
specifically building towers for its own account, acquiring towers from carriers
and other owners, maximizing lease revenues from existing towers, and entering
into long-term maintenance contracts with other tower owners. The Company's
focus on sources of recurring revenues is intended, in part, to capitalize on
recent trends by several carriers who have begun to evaluate opportunities to
outsource the ownership and operation of their wireless infrastructure either by
selling their existing tower sites to independent third party tower owners and
operators, who would then lease tower space back to the carriers and/or entering
into build-to-suit arrangements, whereby an independent third party builds, owns
and leases tower sites to the wireless carriers, often with multiple tenants on
any given site. The Company believes that its historical competency of tower
construction coupled with the ownership and leasing operations of OmniAmerica
Holdings, Inc. and its subsidiaries makes the Company one of the leading
candidates for carrier outsourcing.
The Company believes owning towers and leasing tower space to the wireless
carriers will provide more stable long-term recurring revenues. In addition to
the Company's plans to pursue opportunities to acquire existing sites and towers
from carriers seeking to outsource their wireless infrastructure, the Company
believes that, at the present time, utilizing its infrastructure building and
implementation resources to construct towers for its own account is a more cost
effective method of expanding its portfolio of owned towers. As part of its
efforts to develop sources of recurring revenues, late in the second fiscal
quarter of 1998, the Company began focusing on opportunities to provide
build-to-suit services to wireless carriers. The Company's build-to-suit program
offers an end-to-end solution to wireless carriers and is designed to reduce
carriers' capital expenditures and overhead associated with the traditional
methods of acquiring and owning their wireless networks. As of February 8, 1999,
approximately 430 sites were under written or oral commitments from 5 wireless
carriers. In addition to the sites subject to build-to-suit commitments, as of
February 8, 1999, the Company was conducting site acquisition or construction
related activities with respect to approximately 311 towers and/or rooftop
transmission facilities for its own account. There can be no assurance that the
Company will successfully enter into additional significant build-to-suit
agreements with any wireless carrier or group of carriers or that it will be
able to
11
<PAGE> 12
reach definitive agreements with the owners of sites not currently under written
contract or develop the sites in a cost-effective manner, that implementation of
its existing build-to-suit agreements will result in the Company's ownership of
all of the towers originally contemplated by those agreements or that the
Company will complete the development of any of the towers or rooftop
transmission facilities currently being developed for its own account. As the
Company focuses its resources increasingly on tower ownership, revenues from its
infrastructure building and implementation services operations are likely to
decline. Management believes that the decline in revenues from its
infrastructure building and implementation services operations will be offset
over time by the recurring revenue stream expected from tower ownership,
including revenues from towers owned acquired in the April Merger, revenues from
future tower acquisitions by the Company, revenues from towers the Company is
currently developing and building for its own account and revenues form the
towers the Company will develop and build for its own account in the future.
RESULTS OF OPERATIONS
For the Six-Month Periods Ended December 31, 1998 and 1997
Revenues. The Company's revenues for the six-month period ended December 31,
1998 increased approximately 52% to $ 45,101,251 from $29,575,280 for the same
six-month period in the prior year. Management believes the increase in revenues
was due primarily to an increased rollout of wireless infrastructure building
and implementation activity that began in the third and fourth quarters of the
last fiscal year end and continued into this six-month period, a commensurate
increase in component sales for the same reason and income derived from tower
leasing in the amount of $4,824,509 that did not exist in the previous six
months.
Gross Profit. Gross profit for the six-month period ended December 31, 1998
increased approximately 60% to $9,671,239 from $6,047,947 for the same six-month
period in the prior year. Gross profit as a percentage of revenues increased to
21.4% for the six-month period ended December 31, 1998 from 20.4% for the same
six-month period in the prior year. Management believes the increase in gross
profit was primarily due to the increase in revenues generated for the period,
as noted above. Management believes the increase in gross profit percentage is
due to margins realized on the tower leasing operation (36% for the six month
period ended December 31, 1998) and enhancements in operations improving
installation services margins.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses were
$6,891,398 (15% of revenues) for the six-month period ended December 31, 1998 as
compared to $2,158,899 (7% of revenues) for the same period last year. This
increase was primarily due to the increased administrative requirements of the
Company for the build-to-suit program and tower leasing, both of which did not
exist in the previous six months of fiscal 1998 along with the increase in
goodwill amortization for the acquisition of OmniAmerica Holdings, Inc.
effective April 23, 1998.
Interest Expense. Due to the acquisition of towers and sites primarily from Arch
Communications Group, Inc. in the aggregate amount of approximately $33.5
million and the financing of the build-to-suit program, interest expense
increased to $2,156,951 for the six-month period ended December 31, 1998 from
$150,563 for the same six-month period in the prior year.
Acquisition Costs. The Company expensed costs of $650,094 pertaining to the
pending merger with American Tower Corporation (see Note 1 above) that are
expensed as incurred. Costs were primarily filing fees, legal representation and
underwriters fees.
Equity in Earnings of Unconsolidated Subsidiary. As a result of the April
Merger, the Company holds a 33 1/3% interest in Kline. For the six months ended
December 31, 1998, the Company recognized $457,361 in earnings from this
unconsolidated subsidiary. For the six months ended December 31, 1997, no
amounts were recognized as the Company did not hold the equity investment
during that period. The Company received $300,000 in cash during the period as
a return of equity.
12
<PAGE> 13
Income Tax Provision. The Company's effective tax rate was 84.8% for the six
months ended December 31, 1998 compared to 38.7% for the six months ended
December 31, 1997. This increase is primarily the result of non-deductible
amortization expense for goodwill recognized in the Company's acquisition of
OmniAmerica Holdings Corporation on April 23, 1998.
For the Three-Month Periods Ended December 31, 1998 and 1997
Revenues. The Company's revenues for the three-month period ended December 31,
1998 increased approximately 23% to $ 20,663,700 from $16,775,324 for the same
three-month period in the prior year. Management believes the increase in
revenues was due primarily to an increased rollout of wireless infrastructure
building and implementation activity that began in the third and fourth quarters
of the last fiscal year end and continued into the first two quarters of this
year, a commensurate increase in component sales for the same reason and income
derived from tower leasing in the amount of $2,695,722 that did not exist in the
previous fiscal quarter.
Gross Profit. Gross profit for the three-month period ended December 31, 1998
increased approximately 49% to $5,265,108 from $3,530,694 for the same
three-month period in the prior year. Gross profit as a percentage of revenues
increased to 25% for the three-month period ended December 31, 1998 compared to
21% for the same three-month period in the prior year. Management believes the
increase in gross profit was primarily due to the increase in revenues generated
for the period, as noted above. Management believes the increase in gross profit
percentage is due to margins realized on the tower leasing operation (40% for
the three month period ended December 31, 1998) and enhancements in operations
improving installation services margins.
Selling, General and Administrative ("SG&A") Expenses. SG&A expenses were
$3,493,915 (17% of revenues) for the three-month period ended December 31, 1998
as compared to $948,523 (6% of revenues) for the same period last year. This
increase was primarily due to the increased administrative requirements of the
Company for the build-to-suit program and tower leasing, both of which did not
exist in the previous quarter of fiscal 1998, along with the increase in
goodwill amortization for the acquisition of OmniAmerica Holdings, Inc.
effective April 23, 1998.
Interest Expense. Due to the acquisition of towers and sites primarily from Arch
Communications Group, Inc. in the aggregate amount of approximately $33.5
million and the financing of the build-to-suit program, interest expense
increased to $1,530,828 for the three-month period ended December 31, 1998 from
$71,868 for the same three-month period in the prior year.
Acquisition Costs. The Company expensed costs of $650,094 pertaining to the
pending merger with American Tower Corporation (see Note 1 above) that are
expensed as incurred. Costs were primarily filing fees, legal representation and
underwriters fees.
Equity in Earnings of Unconsolidated Subsidiary. As a result of the April
Merger, the Company holds a 33 1/3% interest in Kline. For the three months
ended December 31, 1998, the Company received $300,000 in cash for earnings from
this unconsolidated subsidiary. For the three months ended December 31, 1997, no
amounts were recognized as the Company did not hold the equity investment during
that period.
Income Tax Provision. The Company's effective tax rate for the three month
period ended December 31, 1998 is substantially higher than the Federal
statutory rate of 34% primarily for the non-deductible amortization expense for
goodwill recognized in the Company's acquisition of OmniAmerica Holdings
Corporation on April 23, 1998. The effective tax rate for the three month period
ended December 31, 1997 was 38%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal requirements for cash are to finance tower
acquisition-related activities, capital expenditures, working capital and debt
service. The Company's present focus is on developing additional recurring
revenue through leasing revenues from towers built for its own account and
acquired towers
13
<PAGE> 14
from carriers and other owners, as well as maximizing lease revenues from
existing towers, and entering into long-term maintenance contracts with other
tower owners. The Company has relied primarily on available bank borrowings to
finance this initiative.
For the six months ended December 31, 1998, cash flows provided by operating
activities were $990,980, as compared to $3,046,430 for the same period in the
prior year. This difference is primarily attributable to working capital
investments related to the Company's build-to-suit program and the change in
the level of contracts receivable and costs and estimated earnings in excess of
billings on uncompleted contracts associated with installation services
partially offset by increases in accounts payable and depreciation and
amortization charged to earnings.
Cash flows used for investing activities were $47,936,441 for the first six
months of fiscal 1999 as compared to $138,935 for the same period in fiscal
1998. The increase in fiscal 1999 is primarily due to the Company's tower
acquisition activity and build-to suit program.
For the first six months, cash flows provided by financing activities were
$42,691,508 in fiscal 1999 as compared to cash flows used in financing
activities of $1,765,422 in 1998. This change is primarily attributable to the
impact of borrowings under the Chase Manhattan credit facilities for fiscal 1999
as compared to reduction in debt in fiscal 1998. During the six months ended
December 31, 1998, the Company has used available bank financing from Chase
Manhattan in the approximate amount of $44,600,000, since June 30, 1998. The
increase is directly attributed to the purchase of existing towers and sites
primarily from Arch Communications Group, Inc. and the Company's build-to-suit
program. Total availability under the existing credit facilities was
approximately $75,400,000 at December 31, 1998, subject to certain ratios and
other criteria. Effective November 16, 1998, the Company amended its senior
secured credit facility with Chase Manhattan Bank to increase the amount of
available credit to $150,000,000 from $75,000,000. All other provisions remain
consistent including mandatory prepayment provisions upon consummation of the
merger with ATI.
A substantial portion of the Company's cash flow from operations will be
required for debt service, which will increase significantly due to the increase
in debt in the fist six months resulting in a substantial increase in interest
expense. Accordingly, the Company's leverage could make it vulnerable to a
downturn in the operating performance of its tower leasing and installation
services or in economic conditions. Management believes that its cash flows from
operations along with additional financing sources will be sufficient to meet
its debt service requirements for interest and scheduled principal payments. If
such cash flow were not sufficient to meet its debt service requirements, the
Company may be required to sell equity securities, refinance its obligations, or
dispose of one or more of its properties in order to make such scheduled
payments. There can be no assurance that the Company would be able to effect any
of such transactions on favorable terms.
As a result of the current commitments of the Company and the limited
availability of funds under the existing credit facilities, the Company expects
that it will be required to seek additional sources of funding. The Company
believes that it will be able to obtain sufficient financial resources,
including borrowings from its credit facilities with Chase Manhattan as
described in the June 30, 1998 Form 10-KSB, to finance operations for the
foreseeable future. The Company intends to finance its obligations under pending
build-to-suit commitments out of borrowings from its credit facilities and will
consider the issuance of debt or equity securities to finance any future tower
site acquisitions or build-to-suit commitments.
YEAR 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. Failure by the Company and/or material third parties, such as power
utility providers, financial institutions and other critical suppliers and major
customers to complete Year 2000 readiness activities in a timely manner could
have a material adverse effect on the Company's business and results of
operations.
14
<PAGE> 15
The Company is engaged in a company-wide effort to achieve Year 2000 readiness
for both information technology and non-information technology systems. The
Company expects to achieve company-wide Year 2000 readiness by mid-1999. The
Company has formed a committee consisting of senior management and information
technology staff and consultants to assess, remediate, test and implement
processes to meet Year 2000 readiness.
To date, the Company is nearly complete in its assessment of all systems that
could be significantly affected by the Year 2000. The near completed assessment
indicated that most of the Company's significant information technology systems
could be affected, particularly the general ledgers, billing, inventory, and
payment systems. The Company has determined that most of the products it has
sold and will continue to sell do not require remediation to be Year 2000
compliant. Accordingly, the Company does not believe that the Year 2000 presents
material exposure as it relates to the Company's products. In addition, the
Company is gathering information about the Year 2000 compliance status of its
significant suppliers and subcontractors and will continue to monitor their
compliance.
The Company's systems are at various stages of readiness. The assessment stage
is approximately 90% complete, which includes non-information technology such as
embedded microprocessors. Remediation, testing and implementation has not begun
as of the present quarter, but will be expected to be completed by mid-1999.
The Company began inquiries of its significant suppliers, subcontractors and
other third-party support services (i.e. banking services) and customers to
assess their Year 2000 readiness efforts. Letters of compliance were requested
from such third parties in the second fiscal quarter. To date, the Company is
not aware of any external agent with a Year 2000 issue that would materially
impact the Company's results of operations, liquidity, or capital resources.
However, the Company has no means of ensuring that external agents will be Year
2000 ready. A combination of telephone interviews and on-site visits will be
considered to assure there will be no interruption in operations. Contingency
plans to choose alternative third-party agents will be formalized in the third
fiscal quarter.
The Company will utilize mostly internal resources to replace, test, and
implement the software and operating equipment and outside consultants where
necessary for Year 2000 modifications. The total cost of the Year 2000 project
is not expected to exceed $75,000 for the entire effort. Because the Company's
readiness program is not yet fully implemented, and is subject to certain risks
and uncertainties, including the readiness efforts of material third parties,
there can be no assurance that the Company will not incur material costs beyond
the anticipated costs described above. The cost of the Year 2000 project and the
dates by which the Company believes it will be Year 2000 ready are based on
management's current best estimates, which were derived based on numerous
assumptions of future events, including the continued availability of certain
resources, third-party modification plans and other factors. There can be no
guarantee, however, that these estimates will be achieved, and actual results
could differ materially from those anticipated.
INFLATION
Historically, inflation has not been a significant factor to the Company as
labor is the primary cost of operations and its contracts are typically
short-term in nature. On an ongoing basis, the Company attempts to minimize any
effects of inflation on its operating results by controlling operating costs
and, whenever possible, seeking to ensure that contract prices reflect increases
in costs due to inflation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1998, the Company maintains a portion of its cash and cash
equivalents in short-term financial instruments which are subject to interest
rate risks and, accordingly, will decline in value if interest rates decline.
Due to the relatively small investment in such instruments and the short
duration of such instruments, fluctuations in interest rates with respect to
such instruments would not materially affect the Company's financial condition.
15
<PAGE> 16
The Company's outstanding long-term debt at December 31, 1998 bears interest at
variable rates and, accordingly, will be affected by interest rate changes. As
of December 31, 1998, the Company had approximately $75,400,000 of long-term
debt subject to variable interest rates. For illustration purposes, an increase
of 1.0% in interest rates with respect to the Company's long-term debt, based on
June 30, 1998 positions, would have increased interest expense for the six
months ended December 31, 1998 by approximately $377,000.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 16, 1998, the holders of a majority of the Company's
outstanding Common Stock executed a written consent approving the Agreement and
Plan of Merger, dated as of November 16, 1998, by and among the Company,
American Tower Corporation and American Towers, Inc. ("ATI"), pursuant to which
the Company will, subject to the receipt of necessary governmental consents and
the fulfillment of other customary closing conditions, be merged with and into
ATI. As of February 16, 1999, all such government consents have been obtained.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 Financial Data Schedule*
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on October 14, 1998
relating to the September 29, 1998 acquisition of 70 transmission towers on 61
telecommunications sites and the exclusive right to manage an additional 7 sites
from Arch Communications Group, Inc. ("Arch") pursuant to a second closing under
that certain Asset Purchase and Sale Agreement, dated as of April 10, 1998, by
and between the Company and Arch.
- ----------------
* Filed herewith.
16
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
OmniAmerica, Inc.
(Registrant)
Date: February 16, 1999 By: /s/ Anthony S. Ocepek
------------------------------------
Anthony S. Ocepek, Chief Financial
Officer (Chief Financial Officer of
the Registrant, thereunto duly
authorized)
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------
<S> <C>
27.1 Financial Data Schedule *
</TABLE>
- -----------------------
*Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 95,371
<SECURITIES> 0
<RECEIVABLES> 27,313,895
<ALLOWANCES> 390,230
<INVENTORY> 3,414,251
<CURRENT-ASSETS> 31,080,339
<PP&E> 101,647,132
<DEPRECIATION> 6,879,903
<TOTAL-ASSETS> 228,740,526
<CURRENT-LIABILITIES> 13,535,374
<BONDS> 76,747,787
0
0
<COMMON> 152,063
<OTHER-SE> 137,925,179<F1>
<TOTAL-LIABILITY-AND-EQUITY> 228,740,526
<SALES> 45,101,251
<TOTAL-REVENUES> 45,688,558
<CGS> 35,430,012
<TOTAL-COSTS> 42,321,410
<OTHER-EXPENSES> 650,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,156,951
<INCOME-PRETAX> 560,103
<INCOME-TAX> 475,000
<INCOME-CONTINUING> 85,103
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,103
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<FN>
<F1>Other equity of $137,925,179 is comprised of Additional paid-in Capital of
$131,931,279, Treasury Stock of $(1,387,500), Note receivable from officer and
director of $(600,000) and Retained Earnings for $7,981,400.
</FN>
</TABLE>
