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SBA COMMUNICATIONS CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) We are a leading independent owner and operator of wireless communications towers. Our principal operations are in the United States and its territories. In addition, we own and operate towers in Canada, Central America and South America. Our primary business line is our site leasing business, which contributed approximately 96.7% of our total segment operating profit for the year-to-date period ended March 31, 2013. In our site leasing business, we lease antenna space to wireless service providers on towers and other structures that we own, manage or lease from others. The towers that we own have been constructed by us at the request of a wireless service provider, constructed based on our own initiative or acquired. As of March 31, 2013, we owned 17,539 tower sites, the substantial majority of which have been built by us or built by other tower owners or operators who, like us, have built such towers to lease space to multiple wireless service providers. We also managed or leased approximately 4,900 actual or potential additional communications sites, approximately 500 of which were revenue producing as of March 31, 2013. Our other business line is our site development business, through which we assist wireless service providers in developing and maintaining their own wireless service networks. Site Leasing Our primary focus is the leasing of antenna space on our multi-tenant towers to a variety of wireless service providers under long-term lease contracts in the United States, Canada, Central America and South America. Site leasing revenues are received primarily from wireless service provider tenants, including AT&T, Sprint, Verizon Wireless, T-Mobile, Digicel, Claro, and Telefonica. Wireless service providers enter into numerous different tenant leases with us, each of which relates to the lease or use of space at an individual tower site. In the United States and Canada our tenant leases are generally for an initial term of five to ten years with five 5-year renewal periods at the option of the tenant. These tenant leases typically contain specific rent escalators, which average 3-4% per year, including the renewal option periods. Tenant leases in our Central and South America markets typically have an initial term of 10 years with 5-year renewal periods. In Central America, we have similar rent escalators to that of leases in the United States and Canada while our leases in South America typically escalate in accordance with a standard cost of living index. Cost of site leasing revenue primarily consists of: • Rental payments on ground and other underlying property leases; • Straight-line rent adjustment for the difference between rental payments made and the expense recorded as if the payments had been made evenly throughout the minimum lease term (which may include renewal terms) of the underlying property leases; • Property taxes; • Site maintenance and monitoring costs (exclusive of employee related costs); • Utilities; • Property insurance; and • Deferred lease origination cost amortization. Ground leases are generally for an initial term of five years or more with multiple renewal terms of five year periods at our option and provide for rent escalators which typically average 3-4% annually or provide for term 24-------------------------------------------------------------------------------- Table of Contents escalators of approximately 15%. Of the 17,539 tower sites we owned as of March 31, 2013, approximately 70% were located on parcels of land that we own, land subject to perpetual easements, or parcels of land in which we have a leasehold interest that extends beyond 20 years. For any given tower, costs are relatively fixed over a monthly or an annual time period. As such, operating costs for owned towers do not generally increase as a result of adding additional customers to the tower. The amount of direct costs associated with operating a tower varies from site to site depending on the taxing jurisdiction and the height and age of the tower. The ongoing maintenance requirements are typically minimal and include replacing lighting systems, painting a tower or upgrading or repairing an access road or fencing. As indicated in the table below, our site leasing business generates substantially all of our total segment operating profit. For information regarding our operating segments, please see Note 13 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report. Revenues For the three months ended March 31, 2013 2012 (dollars in thousands) Site leasing revenue $ 273,504 $ 172,923 Total revenues $ 313,071 $ 192,490 Site leasing revenue percentage of total revenues 87.4 % 89.8 % Segment Operating Profit For the three months ended March 31, 2013 2012 (dollars in thousands) Site leasing segment operating profit (1) $ 205,403 $ 137,516 Total segment operating profit (1) $ 212,376 $ 140,297 Site leasing segment operating profit percentage of total segment operating profit (1) 96.7 % 98.0 % (1) Site leasing segment operating profit and total segment operating profit are non-GAAP financial measures. We reconcile these measures and other Regulation G disclosures in this quarterly report in the section entitled Non-GAAP Financial Measures. We believe that over the long-term, site leasing revenues will continue to grow as wireless service providers lease additional antenna space on our towers due to increasing minutes of network use and data transfer, network expansion and network coverage requirements. We believe our site leasing business is characterized by stable and long-term recurring revenues, predictable operating costs and minimal non-discretionary capital expenditures. Due to the relatively young age and mix of our tower portfolio, we expect future expenditures required to maintain these towers to be minimal. Consequently, we expect to grow our cash flows by (1) adding tenants to our towers at minimal incremental costs by using existing tower capacity or requiring wireless service providers to bear all or a portion of the cost of tower modifications and (2) executing monetary amendments as wireless service providers upgrade their equipment. Furthermore, because our towers are strategically positioned and our customers typically do not relocate, we have historically experienced low tenant lease terminations as a percentage of revenue. 25 -------------------------------------------------------------------------------- Table of Contents Site Development Our site development business, which is conducted in the United States only, is complementary to our site leasing business and provides us the ability to keep in close contact with the wireless service providers who generate substantially all of our site leasing revenue and to capture ancillary revenues that are generated by our site leasing activities, such as antenna and equipment installation at our tower locations. Site development services revenues are received primarily from providing a full range of end to end services to wireless service providers or companies providing development or project management services to wireless service providers. Our services include: (1) network pre-design; (2) site audits; (3) identification of potential locations for towers and antennas; (4) support in buying or leasing of the location; (5) assistance in obtaining zoning approvals and permits; (6) tower and related site construction; (7) antenna installation; and (8) radio equipment installation, commissioning and maintenance. For information regarding our operating segments, see Note 13 of our Condensed Notes to Consolidated Financial Statements included in this quarterly report. International Operations As of March 31, 2013, we had operations in Canada, Costa Rica, El Salvador, Guatemala, Nicaragua, Panama, and Brazil. Our operations in these countries are solely in the site leasing business, and we expect to expand operations through new builds and acquisitions. Tenant leases in the Canadian market typically have similar terms and conditions as those in the United States, with an initial term of five years, and specific rent escalators. Tenant leases in Central America and Brazil typically have a ten year initial term. Tenant leases in Central America typically have similar renewal terms and rent escalators as those in the United States and Canada while those in Brazil are based on a standard cost of living index. In our Central American markets, significantly all of our revenue, expenses, and capital expenditures arising from our new build activities are denominated in U.S. dollars. Specifically, our ground leases, our tenant leases and most of our tower related expenses are due, and paid, in U.S. dollars. In our Central American markets, our local currency obligations are principally limited to (1) permitting and other local fees, (2) utilities and (3) taxes. In our Canadian and Brazilian operations, significantly all of our revenue, expenses and capital expenditures, including tenant leases, ground leases and other tower-related expenses, are denominated in local currency. CRITICAL ACCOUNTING POLICIES We have identified the policies and significant estimation processes listed in the Annual Report on Form 10-K as critical to our business operations and the understanding of our results of operations. The listing is not intended to be a comprehensive list. In many cases, the accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United States, with no need for management's judgment in their application. In other cases, management is required to exercise judgment in the application of accounting principles with respect to particular transactions. The impact and any associated risks related to these policies on our business operations is discussed throughout "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 of our Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2012. Our preparation of our financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates and such differences could be significant. 26 -------------------------------------------------------------------------------- Table of Contents KEY PERFORMANCE INDICATORS Non-GAAP Financial Measures This report contains certain non-GAAP measures, including Segment operating profit and Adjusted EBITDA information. We have provided below a description of such non-GAAP measures, a reconciliation of such non-GAAP measures to their most directly comparable GAAP measures and an explanation as to why management utilizes these measures. Segment Operating Profit: We believe that Segment operating profit is an indicator of the operating performance of our site leasing and site development segments and is used to provide management with the ability to monitor the operating results and margin of each segment, while excluding the impact of depreciation, accretion and amortization, which is largely fixed and non-cash in nature. Segment operating profit is not intended to be an alternative measure of revenue or segment gross profit as determined in accordance with GAAP. Site leasing segment For the three months ended March 31, Dollar 2013 2012 Change (in thousands) Segment revenue $ 273,504 $ 172,923 $ 100,581 Segment cost of revenues (excluding depreciation, accretion and amortization) (68,101 ) (35,407 ) (32,694 ) Segment operating profit $ 205,403 $ 137,516 $ 67,887 Site development segment For the three months ended March 31, Dollar 2013 2012 Change (in thousands) Segment revenue $ 39,567 $ 19,567 $ 20,000 Segment cost of revenues (excluding depreciation, accretion and amortization) (32,594 ) (16,786 ) (15,808 ) Segment operating profit $ 6,973 $ 2,781 $ 4,192 This increase in site leasing segment operating profit of $67.9 million for the three months ended March 31, 2013 is primarily due to additional profit generated by (1) the towers that we acquired in the Mobilitie acquisition in the second quarter of 2012 and the TowerCo and Vivo acquisitions in the fourth quarter of 2012 and partially from towers constructed subsequent to March 31, 2012, (2) organic site leasing growth from new leases, (3) contractual rent escalators and (4) lease amendments with current tenants which increased the related rent to reflect additional equipment added to our towers. The increase in site development segment operating profit of $4.2 million for the three months ended March 31, 2013 is primarily due to the higher volume of work performed compared to the prior year associated with the deployment of next generation networks by wireless carriers, in particular, Sprint's Network Vision initiative. 27 -------------------------------------------------------------------------------- Table of Contents Adjusted EBITDA: We define Adjusted EBITDA as net loss excluding the impact of net interest expenses, provision for taxes, depreciation, accretion and amortization, asset impairment and decommission costs, non-cash compensation, net loss from extinguishment of debt, other income and expenses, acquisition related expenses, non-cash straight-line leasing revenue and non-cash straight-line ground lease expense. We believe that Adjusted EBITDA is an indicator of the financial performance of our core businesses. Adjusted EBITDA is a component of the calculation that has been used by our lenders to determine compliance with certain covenants under our Senior Credit Agreement, 8.25% Notes, 5.625% Notes and 5.75% Notes. Adjusted EBITDA is not intended to be an alternative measure of operating income or gross profit margin as determined in accordance with GAAP. The reconciliation of Adjusted EBITDA is as follows: For the three months ended March 31, Dollar 2013 2012 Change (in thousands) Net loss $ (22,376 ) $ (22,651 ) $ 275 Interest income (641 ) (47 ) (594 ) Total interest expense(1) 80,433 61,672 18,762 Depreciation, accretion & amortization 125,636 82,100 43,536 Total provision (benefit) for income tax(2) (400 ) 1,760 (2,160 ) Loss from write-off of def financing fees and exting of debt 142 - 142 Asset impairment and decommission costs 3,722 349 3,373 Acquisition related costs 5,822 344 5,478 Non-cash compensation 3,874 3,057 817 Non-cash straight-line leasing revenue (16,783 ) (8,156 ) (8,627 ) Non-cash straight-line ground rent expense 8,443 3,073 5,370 Other income (152 ) (12 ) (140 ) Adjusted EBITDA $ 187,720 $ 121,489 $ 66,232 (1) Interest expense includes interest expense, non-cash interest expense and amortization of deferred financing fees. (2) Includes $241 and $433 of franchise taxes for the three months ended March 31, 2013 and 2012, respectively, reflected in selling, general, and administrative expenses in the Consolidated Statement of Operations. Adjusted EBITDA was $187.7 million for the three months ended March 31, 2013 compared to $121.5 million for the three months ended March 31, 2012. The increase of $66.2 million is primarily due to increased segment operating profit from our site leasing and site development segments partially offset by an increase in selling, general and administrative costs. 28-------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS Three months ended March 31, 2013 Compared to Three months ended March 31, 2012 For the three months Percentage ended March 31, Dollar Increase 2013 2012 Change (Decrease) (in thousands) Revenues: Site leasing $ 273,504 $ 172,923 $ 100,581 58.2 % Site development 39,567 19,567 20,000 102.2 % Total revenues 313,071 192,490 120,581 62.6 % Operating expenses: Cost of revenues (exclusive of depreciation, accretion and amortization shown below): Cost of site leasing 68,101 35,407 32,694 92.3 % Cost of site development 32,594 16,786 15,808 94.2 % Selling, general and administrative 20,431 17,215 3,216 18.7 % Asset impairment and decommission costs 3,722 349 3,373 966.5 % Acquisition related expenses 5,822 344 5,478 1592.4 % Depreciation, accretion and amortization 125,636 82,100 43,536 53.0 % Total operating expenses 256,306 152,201 104,105 68.4 % Operating income 56,765 40,289 16,476 40.9 % Other income (expense): Interest income 641 47 594 1263.8 % Interest expense (59,465 ) (42,248 ) (17,217 ) 40.8 % Non-cash interest expense (17,364 ) (16,991 ) (373 ) 2.2 % Amortization of deferred financing fees (3,604 ) (2,433 ) (1,171 ) 48.1 % Loss from extinguishment of debt, net (142 ) - (142 ) 100.0 % Other income 152 12 140 1166.7 % Total other expense (79,782 ) (61,613 ) (18,169 ) 29.5 % Loss before provision for income taxes (23,017 ) (21,324 ) (1,693 ) 7.9 % Benefit (provision) for income taxes 641 (1,327 ) 1,968 (148.3 %) Net loss (22,376 ) (22,651 ) 275 (1.2 %) Net loss attributable to the noncontrolling interest - 20 (20 ) (100.0 %) Net loss attributable to SBA Communications Corporation $ (22,376 ) $ (22,631 ) $ 255 (1.1 %) Revenues: Site leasing revenues increased $100.6 million for the three months ended March 31, 2013, as compared to the same period in the prior year, due largely to (i) revenues from the towers that we acquired, including $75.7 from the Mobilitie, TowerCo, and Vivo towers acquired in 2012, and towers that we constructed subsequent to March 31, 2012 (ii) organic site leasing growth from new leases, contractual rent escalators and lease amendments which increased the related rent to reflect additional equipment added to our towers and (iii) increased straight-line leasing revenue associated with the master lease amendment with T-Mobile. Site development revenues increased $20.0 million for the three months ended March 31, 2013, as compared to the same period in the prior year, as a result of a higher volume of work performed during the quarter as compared to the same period last year associated with the deployment of next generation networks by wireless carriers, in particular, Sprint's Network Vision initiative. 29-------------------------------------------------------------------------------- Table of Contents Operating Expenses: Site leasing cost of revenues increased $32.7 million for the three months ended March 31, 2013, as compared to the same period in the prior year, primarily as a result of the growth in the number of tower sites owned by us, including $31.3 million from the Mobilitie, TowerCo, and Vivo towers acquired during 2012, partially offset by the positive impact of our ground lease purchase program. Site development cost of revenues increased $15.8 million for the three months ended March 31, 2013, as compared to the same period in the prior year, as a result of a higher volume of work associated with the deployment of next generation networks by wireless carriers. Selling, general and administrative expenses increased $3.2 million for the three months ended March 31, 2013, as compared to the same period in the prior year, primarily as a result of an increase in personnel, salaries and benefits and non-cash compensation due in part to the Company's continued portfolio expansion. Asset impairment and decommission costs increased $3.4 million for the three months ended March 31, 2013, as compared to the same period in the prior year, primarily as a result of the write-off of assets and related costs associated with the decommissioning of 55 towers during the three months ended March 31, 2013. Acquisition related expenses increased $5.5 million for the three months ended March 31, 2013, as compared to the same period in the prior year, primarily as a result of an increase in acquisition and integration related expenses related to the Vivo tower acquisition which occurred at the end of the fourth quarter of 2012. Depreciation, accretion and amortization expense increased $43.5 million for the three months ended March 31, 2013, as compared to the same period in the prior year, due to an increase in the number of tower sites built and acquired by us, including the Mobilitie, TowerCo, and Vivo towers acquired during 2012. Depreciation, accretion, and amortization expense recorded for the three months ended March 31, 2013 includes $38.5 million related to the Mobilitie, TowerCo, and Vivo acquisitions. Operating Income: Operating income increased $16.5 million for the three months ended March 31, 2013 to $56.8 million compared to $40.3 million for the three months ended March 31, 2012, primarily due to higher segment operating profit in both the site leasing and site development segments offset by increases in acquisition related expenses, asset impairment and decommission costs, depreciation, accretion, and amortization expense, and selling, general and administrative expenses. Other Income (Expense): Interest expense increased $17.2 million from the three months ended March 31, 2012 due to the higher weighted average principal amount of cash-interest bearing debt outstanding for the three months ended March 31, 2013 compared to the three months ended March 31, 2012, primarily resulting from the issuance of the 2012-1 Term Loan, 2012-2 Term Loan, 2012-1 Tower Securities, 5.75% Notes and 5.625% Notes during 2012. These increases were offset by the full redemption of $375.0 million of principal balance of the 8.0% Notes and the redemption of the $131.3 million in aggregate principal balance of the 8.25% Notes. Amortization of deferred financing fees increased $1.2 million for the three months ended March 31, 2013 from the three months ended March 31, 2012, primarily resulting from the issuance of the 2012-1 Term Loan, 2012-2 Term Loan, 2012-1 Tower Securities, 5.75% Notes and 5.625% Notes during 2012 offset by the full repayment of the 8.0% Notes in the third quarter of 2012. 30-------------------------------------------------------------------------------- Table of Contents Net Loss Net loss decreased $0.3 million to $22.4 million for the three months ended March 31, 2013 from the three months ended March 31, 2012. The decrease is primarily due to an increase in our site leasing and site development segments operating profit, as well as an income tax benefit realized during the three months ended March 31, 2013. These items were partially offset by increases in selling, general, and administrative expenses, asset impairment and decommission costs, acquisition related expenses, depreciation, amortization, and accretion, interest expense, and other expenses. LIQUIDITY AND CAPITAL RESOURCES SBA Communications Corporation is a holding company with no business operations of its own. SBA Communications' only significant asset is the outstanding capital stock of SBA Telecommunications, LLC (formerly known as Telecommunications, Inc.) ("Telecommunications"), which is also a holding company that owns equity interests in entities that directly or indirectly own all of our domestic and international towers and assets. We conduct all of our business operations through Telecommunications' subsidiaries. Accordingly, our only source of cash to pay our obligations, other than financings, is distributions with respect to our ownership interest in our subsidiaries from the net earnings and cash flow generated by these subsidiaries. A summary of our cash flows is as follows: For the three months ended March 31, 2013 March 31, 2012 (in thousands) Summary cash flow information: Cash provided by operating activities $ 94,228 $ 66,040 Cash used in investing activities (244,657 ) (75,890 ) Cash provided by financing activities 37,801 488,091 Increase (decrease) in cash and cash equivalents (112,869 ) 478,241 Effect of exchange rate changes on cash and cash equivalents 1,759 (3 ) Cash and cash equivalents, beginning of the period 233,099 47,316 Cash and cash equivalents, end of the period $ 122,230 $ 525,554 Sources of Liquidity We fund our growth, including our tower portfolio growth, through cash flows from operations, long-term indebtedness and equity issuances. With respect to our debt financing, we have issued secured and unsecured debt instruments at various levels of our organizational structure to minimize our financing costs while maximizing our operational flexibility. Cash provided by operating activities was $94.2 million for the three months ended March 31, 2013 as compared to $66.0 million for the three months ended March 31, 2012. This increase was primarily due to an increase in segment operating profit from the site leasing and site development operating segments partially offset by increased cash interest payments relating to the higher average amount of cash-interest bearing debt outstanding for the three months ended March 31, 2013 compared to the three months ended March 31, 2012. During the three months ended March 31, 2013, we did not borrow any amounts under the Revolving Credit Facility. As of March 31, 2013, the availability under the Revolving Credit Facility was $670 million, subject to compliance with financial ratios. 31 -------------------------------------------------------------------------------- Table of Contents On April 18, 2013, we issued $1.33 billion of 2013 Tower Securities (as defined below) which have a blended coupon interest rate of 3.218% per annum, payable monthly and a weighted average life through the anticipated repayment date of 7.2 years . The proceeds from this issuance were used to settle a portion of our obligations under our 1.875% Notes, pay down the outstanding balance under our Revolving Credit Facility and pay down an aggregate $500.0 million under our 2011 and 2012-2 Term Loans. Registration Statements We have on file with the Commission a shelf registration statement on Form S-4 registering shares of Class A common stock that we may issue in connection with the acquisition of wireless communication towers or antenna sites and related assets or companies who own wireless communication towers, antenna sites or related assets. During the three months ended March 31, 2013, we did not issue any shares of Class A common stock under this registration statement. As of March 31, 2013, we had approximately 1.7 million shares of Class A common stock remaining under this shelf registration statement. On February 27, 2012, we filed with the Commission an automatic shelf registration statement for well-known seasoned issuers on Form S-3ASR. This registration statement enables us to issue shares of our Class A common stock, preferred stock or debt securities either separately or represented by warrants, or depositary shares as well as units that include any of these securities. Under the rules governing automatic shelf registration statements, we will file a prospectus supplement and advise the Commission of the amount and type of securities each time we issue securities under this registration statement. During the three months ended March 31, 2013, we did not issue any shares of our Class A common stock under the automatic shelf registration statement and the prospectus supplement related thereto. Uses of Liquidity We believe that our principal use of liquidity will be to fund tower portfolio growth and, secondarily, to fund our stock repurchase program. In the future, we may repurchase, for cash or equity, our outstanding indebtedness in privately-negotiated or open market transactions in order to optimize our liquidity and leverage and take advantage of market opportunities. In order to manage our leverage and liquidity positions, take advantage of market opportunities and ensure continued compliance with our financial covenants, we may from time to time repurchase our outstanding indebtedness for cash or equity. If we undertake debt repurchases or exchanges, these actions could materially impact the amount and composition of indebtedness outstanding or dilute our existing shareholders. 32-------------------------------------------------------------------------------- Table of Contents A detail of our cash capital expenditures is as follows: For the three months ended March 31, 2013 2012 (in thousands) Acquisitions and related earnouts(1) $ 196,154 $45,477 Construction and related costs on new tower builds 23,368 17,639 Augmentation and tower upgrades 8,322 4,423 Ground lease purchases(2) 13,388 5,671 Tower maintenance 3,046 2,099 General corporate 1,687 691 Total cash capital expenditures $ 245,965 $ 76,000 (1) Included in our cash capital expenditures for the three months ended March 31, 2013 is $175.9 million related to our acquisition of 800 towers from Vivo in the fourth quarter of 2012. (2) Excludes $1.7 million and $1.5 million spent to extend ground lease terms as of March 31, 2013 and 2012, respectively. On April 24, 2013 we prepaid $310.7 million of principal balance of our 2011 Term Loan and $189.3 million of principal balance of our 2012-2 Term Loan. On April 25, 2013 we repaid the $100.0 million outstanding balance under our revolving credit facility. On May 1, 2013 we settled the converted notes related to our 1.875% Notes with $794.8 million in cash. We also paid the remaining principal and accrued interest related to the 142 notes that were not converted. We settled $18.1 million of early conversions of our 1.875% Notes with 437,134 shares of SBA class A common stock during the first and second quarters of 2013. Concurrent with the settlement of our conversion obligation we settled our convertible note hedges and received $182.9 million, $45.2 million of which was received during the three months ended March 31, 2013 and $137.7 million received in the second quarter of 2013. During the remainder of 2013, we expect to incur non-discretionary cash capital expenditures associated with tower maintenance and general corporate expenditures of $11 million to $16 million. We expect to have discretionary cash capital expenditures during the remainder of 2013 primarily associated with new tower construction, additional tower acquisitions, tower augmentations and ground lease purchases. We expect to fund these additional cash capital expenditures from cash on hand, cash flow from operations and borrowings under the Revolving Credit Facility. The exact amount of our future cash capital expenditures will depend on a number of factors including amounts necessary to support our tower portfolio, our new tower build and tower acquisition programs, and our ground lease purchase program. Subsequent to March 31, 2013, we acquired 7 towers for an aggregate consideration paid of $2.8 million in cash. During the three months ended March 31, 2013 we did not repurchase any shares of our Class A common stock under our stock repurchase program. As of March 31, 2013, we had a remaining authorization to repurchase $150 million of Class A common stock under our current $300.0 million stock repurchase program. 33-------------------------------------------------------------------------------- Table of Contents Debt Instruments and Debt Service Requirements Revolving Credit Facility under the Senior Credit Agreement The Revolving Credit Facility is governed by the Senior Credit Agreement. On January 28, 2013, SBA Senior Finance II LLC entered into a Revolving Credit Commitment Increase Supplement, with Deutsche Bank Trust Company Americas, Toronto Dominion (Texas) LLC, as administrative agent, and The Toronto-Dominion Bank, New York Branch, as issuing lender, pursuant to which SBA Senior Finance II exercised its right to upsize the aggregate principal amount of its Revolving Credit Facility from $700 million to $730 million. All other terms of the Senior Credit Agreement remained the same. On March 14, 2013, SBA Senior Finance II LLC entered into a Revolving Credit Commitment Increase Supplement, with Citibank, Toronto Dominion (Texas) LLC, as administrative agent, and The Toronto-Dominion Bank, New York Branch, as issuing lender, pursuant to which SBA Senior Finance II exercised its right to upsize the aggregate principal amount of its Revolving Credit Facility from $730 million to $770 million effective March 28, 2013. All other terms of the Senior Credit Agreement remained the same. As of March 31, 2013, the Revolving Credit Facility consists of a revolving loan under which up to $770.0 million aggregate principal amount may be borrowed, repaid and redrawn, subject to compliance with specific financial ratios and the satisfaction of other customary conditions to borrowing. Amounts borrowed under the Revolving Credit Facility accrue interest at the Eurodollar Rate plus a margin that ranges from 187.5 basis points to 237.5 basis points or at a Base Rate plus a margin that ranges from 87.5 basis points to 137.5 basis points, in each case based on the ratio of Consolidated Total Debt to Annualized Borrower EBITDA, calculated in accordance with the Senior Credit Agreement. If not earlier terminated by SBA Senior Finance II, the Revolving Credit Facility will terminate on, and SBA Senior Finance II will repay all amounts outstanding on or before, May 9, 2017. The proceeds available under the Revolving Credit Facility may be used for general corporate purposes. A per annum commitment fee of 0.375% to 0.5% of the unused commitments under the Revolving Credit Facility is charged based on the ratio of Consolidated Total Debt to Annualized Borrower EBITDA (calculated in accordance with the Senior Credit Agreement). SBA Senior Finance II may, from time to time, borrow from and repay the Revolving Credit Facility. Consequently, the amount outstanding under the Revolving Credit Facility at the end of a period may not be reflective of the total amounts outstanding during such period. As of March 31, 2013, the amount outstanding under the Revolving Credit Facility of $100 million was accruing interest at 2.335% per annum. During the three months ended March 31, 2013, we did not borrow any additional amounts under the Revolving Credit Facility. As of March 31, 2013, the availability under the Revolving Credit Facility was $670.0 million, subject to compliance with specified financial ratios, and satisfaction of customary conditions to borrowing. On April 25, 2013, we paid off the $100 million outstanding balance on the Revolving Credit Facility using proceeds from the 2013 Tower Securities (defined below). Term Loans under the Senior Credit Agreement 2011 Term Loan The 2011 Term Loan consists of a senior secured term loan in an initial aggregate principal amount of $500.0 million and matures on June 30, 2018. The 2011 Term Loan accrues interest, at SBA Senior Finance II's election, at either the Base Rate plus a margin of 175 basis points (with a Base Rate floor of 2%) or Eurodollar Rate plus a margin of 275 basis points (with a Eurodollar Rate floor of 1%). As of March 31, 2013, the 2011 Term Loan was accruing interest at 3.75% per annum. Principal on the 2011 Term Loan is repaid in quarterly installments of $1.25 million on the last day of each March, June, September and December, which commenced on September 30, 2011. The remaining principal balance of the 2011 Term Loan will be due and payable on the maturity date. SBA Senior Finance 34 -------------------------------------------------------------------------------- Table of Contents II has the ability to prepay any or all amounts under the 2011 Term Loan without premium or penalty. The 2011 Term Loan was issued at 99.75% of par value. As of March 31, 2013, we had deferred financing fees of $4.9 million associated with this transaction which are being amortized through the maturity date. During the three months ended March 31, 2013, we made repayments totaling $1.3 million on the 2011 Term Loan. As of March 31, 2013, the 2011 Term Loan had a principal balance of $491.3 million. On April 24, 2013, we paid off $310.7 million of the 2011 Term Loan using proceeds from the 2013 Tower Securities (defined below) and wrote off $0.8 million of deferred financing fees and $0.6 million of discount related to the debt. As a result of the prepayment, no further scheduled quarterly principal payments are required until the maturity date. 2012-1 Term Loan The 2012-1 Term Loan consists of a senior secured term loan in an initial aggregate principal amount of $200.0 million and matures on May 9, 2017. The 2012-1 Term Loan accrues interest, at SBA Senior Finance II's election, at either the Base Rate plus a margin that ranges from 100 to 150 basis points or the Eurodollar Rate plus a margin that ranges from 200 to 250 basis points, in each case based on the ratio of Consolidated Total Debt to Annualized Borrower EBITDA (calculated in accordance with the Senior Credit Agreement). As of March 31, 2013, the 2012-1 Term Loan was accruing interest at 2.460% per annum. Having commenced on September 30, 2012, principal of the 2012-1 Term Loan is being repaid in quarterly installments on the last day of each March, June, September and December, in an amount equal to $2.5 million for each of the first eight quarters, $3.75 million for the next four quarters and $5.0 million for each quarter thereafter. SBA Senior Finance II has the ability to prepay any or all amounts under the 2012-1 Term Loan without premium or penalty. To the extent not previously paid, the 2012-1 Term Loan will be due and payable on the maturity date. The 2012-1 Term Loan was issued at par. As of March 31, 2013, we had deferred financing fees of $2.7 million in relation to this transaction which are being amortized through the maturity date. During the three months ended March 31, 2013, we made repayments totaling $2.5 million on the 2012-1 Term Loan. As of March 31, 2013, the 2012-1 Term Loan had a principal balance of $192.5 million. 2012-2 Term Loan The 2012-2 Term Loan consists of a senior secured term loan in an initial aggregate principal amount of $300.0 million and matures on September 28, 2019. The 2012-2 Term Loan accrues interest, at SBA Senior Finance II's election, at either the Base Rate plus 175 basis points (with a Base Rate floor of 2%) or Eurodollar Rate plus 275 basis points (with a Eurodollar Rate floor of 1%). As of March 31, 2013, the 2012-2 Term Loan was accruing interest at 3.75% per annum. Principal of the 2012-2 Term Loan is to be repaid in equal quarterly installments on the last day of each March, June, September and December, commencing in March 2013, in an aggregate amount equal to $3.0 million per year. SBA Senior Finance II has the ability to prepay any or all amounts under the 2012-2 Term Loan without premium or penalty, with the exception of a 1% premium if prepayment occurs during the first year of the loan with proceeds from certain refinancing or repricing transactions. To the extent not previously paid, the 2012-2 Term Loan will be due and payable on the maturity date. The 2012-2 Term Loan was issued at 99.75% of par value. As of March 31, 2013, we had deferred financing fees of approximately $3.5 million in relation to this transaction which are being amortized through the maturity date. During the three months ended March 31, 2013, we made repayments totaling $0.8 million on the 2012-2 Term Loan. As of March 31, 2013, the 2012-2 Term Loan had a principal balance of $299.3 million. On April 24, 2013, we paid off $189.3 million of the 2012-2 Term Loan using proceeds from the 2013 Tower Securities (defined below) and wrote off $0.2 million of deferred financing fees and $0.4 million of discount related to the debt. As a result of the prepayment, no further scheduled quarterly principal payments are required until the maturity date. 35 -------------------------------------------------------------------------------- Table of Contents Secured Tower Revenue Securities 2010 Tower Securities On April 16, 2010, a New York common law trust (the "Trust") issued $680.0 million of 2010-1 Tower Securities and $550.0 million of 2010-2 Tower Securities (together the "2010 Tower Securities"). The 2010-1 Tower Securities have an annual interest rate of 4.254% and the 2010-2 Tower Securities have an annual interest rate of 5.101%. The weighted average annual fixed coupon interest rate of the 2010 Tower Securities is 4.7%, including borrowers' fees, payable monthly. The anticipated repayment date and the final maturity date for the 2010-1 Tower Securities is April 15, 2015 and April 16, 2040, respectively. The anticipated repayment date and the final maturity date for the 2010-2 Tower Securities is April 17, 2017 and April 15, 2042, respectively. The sole asset of the Trust consists of a non-recourse mortgage loan made in favor of the Borrowers (as defined in the Annual Report on Form 10-K). As of March 31, 2013, we had deferred financing fees of approximately $18.0 million in relation to this transaction which are being amortized through the anticipated repayment date of each of the 2010 Tower Securities. 2012-1 Tower Securities On August 9, 2012, we, through the Trust, issued $610 million of Secured Tower Revenue Securities Series 2012-1 (the "2012-1 Tower Securities") which have an anticipated repayment date of December 15, 2017 and a final maturity date of December 15, 2042. The fixed coupon interest rate of the 2012-1 Tower Securities is 2.933% per annum, payable monthly. As of March 31, 2013, we had deferred financing fees of approximately $14.8 million in relation to this transaction which are being amortized through the anticipated repayment date of the 2012-1 Tower Securities. As of March 31, 2013, we met the required Debt Service Coverage Ratio and were in compliance with all other covenants as set forth in the mortgage loan agreement. 2013 Tower Securities On April 18, 2013, we, through our existing SBA Tower Trust, sold $425 million of 2.240% Secured Tower Revenue Securities Series 2013-1C which have an anticipated repayment date of April 2018 and a final maturity date of April 2043, $575 million of 3.722% Secured Tower Revenue Securities Series 2013-2C which have an anticipated repayment date of April 2023 and a final maturity date of April 2048, and $330 million of 3.598% Secured Tower Revenue Securities Series 2013-1D which have an anticipated repayment date of April 2018 and a final maturity date of April 2043 (the "2013 Tower Securities"). The aggregate $1.33 billion of 2013 Tower Securities have a blended interest rate of 3.218% and a weighted average life through the anticipated repayment date of 7.2 years. Net proceeds from this offering were used to repay the $100 million outstanding balance under our Revolving Credit Facility, $310.7 million of the 2011 Term Loan, and $189.3 million of the 2012-2 Term Loan under the Senior Credit Agreement. The rest of the net proceeds was used to satisfy unhedged obligations in connection with the conversion or May 1, 2013 maturity of the 1.875% Convertible Senior Notes due 2013. 1.875% Convertible Senior Notes due 2013 On May 16, 2008, we issued $550.0 million of our 1.875% Convertible Senior Notes (the "1.875% Notes"). Interest is payable semi-annually on May 1 and November 1, and the Notes matured on May 1, 2013. The Notes were convertible, at the holder's option, into shares of our Class A common stock, at an initial conversion rate of 24.1196 shares of Class A common stock per $1,000 principal amount of 1.875% Notes (subject to certain customary adjustments), which is equivalent to an initial conversion price of approximately $41.46 per share or a 20% conversion premium based on the last reported sale price of $34.55 per share of Class A common stock on the Nasdaq Global Select Market on May 12, 2008, the purchase agreement date. 36 -------------------------------------------------------------------------------- Table of Contents Prior to the final settlement period, which began on February 22, 2013, we received conversion notices with respect to $18.1 million in principal of the 1.875% Notes of which $5.3 million were settled during the first quarter of 2013. These notes were converted and settled with the issuance of 437,134 shares of SBA common stock of which 128,332 shares related to the first quarter of 2013. In connection with these conversions, the convertible note hedges on the notes converted and the related common stock warrants were automatically exercised. As a result, the Company received a net 71,054 shares of SBA common stock of which 20,616 shares were received during the first quarter of 2013. On February 1, 2013, we provided notice to the trustee and holders of its 1.875% Notes that we elected to settle 100% of our future conversion obligations pursuant to the Indenture governing the 1.875% Notes in cash, effective February 4, 2013. From February 4, 2013 to April 29, 2013, we received additional conversion notices from holders of an aggregate of $450.6 million in principal of our 1.875% notes (excluding $81.2 million in principal of the Notes held by a subsidiary of ours which were also converted). Pursuant to the terms of the Indenture, these notes were converted at a price of $1,764.02 per $1,000 of principal or an aggregate of $794.8 million. The remaining $142,000 aggregate principal amount of 1.875% Notes that was not converted matured on May 1, 2013 and were settled in cash at principal plus accrued interest. Concurrently with the settlement of our conversion obligation, we settled the convertible note hedges that we had initially purchased at the time the outstanding 1.875% Notes were issued. In connection with the settlement of these options, we received an aggregate of $182.7 million in cash of which $45.3 million was received during the three months ended March 31, 2013. As of May 1, 2013, common stock warrants remain outstanding with respect to 13,156,497 underlying shares of our Class A common stock. These warrants have a strike price of $67.37 per share and expire evenly over a 60 day trading period beginning August 1, 2013. 4.0% Convertible Senior Notes due 2014 On April 24, 2009, we issued $500.0 million of our 4.0% Convertible Senior Notes ("4.0% Notes") in a private placement transaction. Interest on the 4.0% Notes is payable semi-annually on April 1 and October 1. The maturity date of the 4.0% Notes is October 1, 2014. We incurred fees of $11.7 million with the issuance of the 4.0% Notes of which $7.7 million was recorded as deferred financing fees and $4.0 million was recorded as a reduction to shareholders' equity. The 4.0% Notes are convertible, at the holder's option, into shares of our Class A common stock, at an initial conversion rate of 32.9164 shares of our Class A common stock per $1,000 principal amount of 4.0% Notes (subject to certain customary adjustments), which is equivalent to an initial conversion price of approximately $30.38 per share or a 22.5% conversion premium based on the last reported sale price of $24.80 per share of our Class A common stock on the Nasdaq Global Select Market on April 20, 2009, the purchase agreement date. Concurrently with the pricing of the 4.0% Notes, we entered into convertible note hedge and warrant transactions with affiliates of certain of the initial purchasers of the convertible notes. The initial strike price of the convertible note hedge transactions relating to the 4.0% Notes is $30.38 per share of our Class A common stock (the same as the initial conversion price of the 4.0% Notes) and the upper strike price of the warrant transactions is $44.64 per share. We are amortizing the debt discount on the 4.0% Notes utilizing the effective interest method over the life of the 4.0% Notes which increases the effective interest rate of the 4.0% Notes from its coupon rate of 4.0% to 12.9%. As of March 31, 2013 and December 31, 2012, the carrying amount of the equity component related to the 4.0% Notes was $169.0 million. 37-------------------------------------------------------------------------------- Table of Contents The 4.0 % Notes are reflected in long-term debt in our Consolidated Balance Sheets at carrying value. The following table summarizes the balances for the 4.0% Notes: As of As of March 31, 2013 December 31, 2012 (in thousands) Principal balance $ 499,983 $ 499,987 Debt discount (60,260 ) (69,236 ) Carrying value $ 439,723 $ 430,751 The 4.0% Notes are convertible only under the following circumstances: • during any calendar quarter, if the last reported sale price of our Class A common stock for at least 20 trading days in the 30 consecutive trading day period ending on the last trading day of the preceding calendar quarter is more than 130% of the applicable conversion price per share of Class A common stock on the last day of such preceding calendar quarter, • during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of the Notes for each day in the measurement period was less than 95% of the product of the last reported sale price of Class A common stock and the applicable conversion rate, • if specified distributions to holders of Class A common stock are made or specified corporate transactions occur, and • at any time on or after July 22, 2014. As of March 31, 2013, the 4.0% Notes were convertible by the noteholders. Upon conversion, we have the right to settle our conversion obligation in cash, shares of Class A common stock or a combination of cash and shares of our Class A common stock. From time to time, upon notice to the holders of the Notes, we may change our election regarding the form of consideration that we will use to settle our conversion obligation; provided, however, that we are not permitted to change our settlement election after July 21, 2014 for the 4.0% Notes. During the three months ended March 31, 2013, 3 notes valued at $1,000 per note for the 4.0% Notes were settled in shares of our Class A common stock and cash for fractional shares. In connection with the conversion, we received the applicable shares of stock due under the associated proportionate bond hedges. In addition, we received 3 conversion notices for the 4.0% Notes totaling 10 notes valued at $1,000 per note during the first quarter of 2013. These notes will be settled in shares of our Class A common stock and cash for fractional shares during the second quarter of 2013. Senior Notes 8.0% Senior Notes and 8.25% Senior Notes On July 24, 2009, our wholly-owned subsidiary, SBA Telecommunications, LLC, issued $750.0 million of unsecured senior notes (the "Senior Notes"), $375.0 million of which were due August 15, 2016 (the "8.0% Notes") and $375.0 million of which were due August 15, 2019 (the "8.25% Notes"). The 8.0% Notes had an interest rate of 8.00% per annum and were issued at a price of 99.330% of their face value. The 8.25% Notes have an interest rate of 8.25% per annum and were issued at a price of 99.152% of their face value. Interest on each of the Senior Notes was due semi-annually on February 15 and August 15 of each year beginning on February 15, 2010. We incurred deferred financing fees of approximately $16.5 million in relation to this transaction which are being amortized through the anticipated repayment date of each of the Senior Notes. Net proceeds of this offering were $727.8 million after deducting expenses and the original issue discount. We are amortizing the debt discount on the Senior Notes utilizing the effective interest method over the life of the 8.0% Notes and 8.25% Notes. 38-------------------------------------------------------------------------------- Table of Contents On April 13, 2012, we used the proceeds of an equity offering to redeem $131.3 million in aggregate principal amount of our 8.0% Notes and $131.3 million in aggregate principal amount of our 8.25% Notes and to pay $21.3 million as a premium on the redemption of the notes. Additionally, we wrote off $1.5 million and $4.3 million of debt discount and deferred financing fees, respectively, related to the redemption of the notes. On August 29, 2012, we redeemed the remaining $243.8 million principal balance of the 8.0% Notes plus paid $14.6 million in applicable premium on the redemption of the notes. Additionally, we wrote off $1.0 million and $3.4 million of debt discount and deferred financing fees, respectively, related to the redemption of the notes. As of March 31, 2013, the principal balance of the 8.25% Notes was $243.8 million and the carrying value was $242.2 million. 5.75% Senior Notes On July 13, 2012, Telecommunications issued $800.0 million of unsecured senior notes (the "5.75% Notes") due July 15, 2020. The Notes accrue interest at a rate of 5.75% and were issued at par. Interest on the 5.75% Notes is due semi-annually on July 15 and January 15 of each year beginning on January 15, 2013. We incurred deferred financing fees of approximately $13.9 million in relation to this transaction which are being amortized through the maturity date. We used the net proceeds from this offering to (1) repay all amounts outstanding under the Mobilitie Bridge Loan and (2) repay all amounts outstanding under our Revolving Credit Facility. The remaining proceeds were used for general corporate purposes. In connection with the issuance of the 5.75% Notes, we entered into a Registration Rights Agreement with J.P. Morgan Securities LLC, as representative of the Initial Purchasers. Pursuant to the terms of the Registration Rights Agreement, we and Telecommunications agreed to use our respective reasonable best efforts to file and have declared effective a registration statement with respect to an offer to exchange the 5.75% Notes for new notes guaranteed by us registered under the Securities Act of 1933, as amended (the "Securities Act"), on or prior to July 8, 2013. If we fail to satisfy certain filing and other obligations with respect to the exchange, we will be obligated to pay additional interest of 0.25% per annum for the first 90-day period and an additional 0.25% per annum with respect to each subsequent 90-day period thereafter, until our registration obligations are fulfilled, up to a maximum of 1.00% per annum. 5.625% Senior Notes On September 28, 2012, we issued $500.0 million of unsecured senior notes (the "5.625% Notes") due October 1, 2019. The 5.625% Notes accrue interest at a rate of 5.625% per annum and were issued at par. Interest on the 5.625% Notes is due semi-annually on October 1 and April 1 of each year beginning on April 1, 2013. We incurred deferred financing fees of approximately $8.4 million in relation to this transaction which are being amortized through the maturity date. We used the proceeds from the issuance of the 5.625% Notes to pay a portion of the cash consideration in the TowerCo II Holdings LLC acquisition. In connection with the issuance of the 5.625% Notes, we entered into a Registration Rights Agreement with J.P. Morgan Securities LLC, as representative of the Initial Purchasers. Pursuant to the terms of the Registration Rights Agreement, we agreed to use our reasonable best efforts to file and have declared effective a registration statement with respect to an offer to exchange the 5.625% Notes for new notes registered under the Securities Act of 1933, as amended (the "Securities Act"), on or prior to September 23, 2013. If we fail to satisfy certain filing and other obligations with respect to the exchange, we will be obligated to pay additional interest of 0.25% per annum for the first 90-day period and an additional 0.25% per annum with respect to each subsequent 90-day period thereafter, until our registration obligations are fulfilled, up to a maximum of 1.00% per annum. 39-------------------------------------------------------------------------------- Table of Contents |