Why did the auditor raise a going-concern concern?

The auditor's opinion calls attention to substantial doubt about the company's ability to continue as a going concern through 2003, because the company expects it will not comply with one or more financial covenants of its senior credit facility during 2003. The going-concern qualification, if not remedied by April 30, 2003, would itself be an event of default under the senior credit facility.

What is the AAT Transaction and how is it expected to help?

On March 17, 2003, certain subsidiaries agreed to sell 679 towers, or 801 towers if AAT Communications buys an additional 122, for anticipated gross proceeds of $160.0 million or $203.0 million. The company intends to use substantially all net proceeds, after about $5.0 million of transaction costs, to reduce indebtedness. The sale is conditioned on an amendment to the senior credit facility that would waive going-concern-related defaults and modify the financial covenants.

What happens to the debt if the covenants are breached?

If an event of default occurs, lenders can stop additional borrowings and, by majority vote, accelerate the principal and accrued interest under the senior credit facility. That acceleration would cross-default the 10 1/4% senior notes ($500.0 million) and the 12% senior discount notes. The filing states that current assets would not be sufficient to repay the indebtedness in full, and substantially all assets are pledged as collateral.

Is the company profitable, and what is the outlook for 2003?

No. The company reported net losses in 2002, 2001 and 2000 and expects significant losses to continue in 2003, with interest and depreciation remaining substantial. Management expects site development revenues and margins to keep declining in 2003, while site leasing revenue growth on remaining towers is expected to continue. Management says it expects positive free cash flow after the AAT sale and the credit facility amendment, but it does not guarantee this.

How much cash does the company expect to spend on capital expenditures in 2003?

The company plans total cash capital expenditures of $10.0 million to $15.0 million for 2003, compared with $103.4 million in cash capital expenditures in 2002, and expects to fund them from cash on hand and operating cash flow. It also does not anticipate making material additions to its tower portfolio in 2003.

SBAC 10-K FY2002 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 2003. Cited figures are marked; the original filing is the authoritative source.

SBA Communications Corporation (Boca Raton, Florida; Nasdaq: SBAC) reported a net loss of $273.2 million^a for 2002, up from $125.1 million in 2001, and its auditors, Ernst & Young, included a going-concern qualification in their opinion.

The company expects to fall out of compliance with one or more financial covenants of its senior credit facility in 2003. Total revenues rose to $264.7 million^b from $242.9 million, driven by site leasing revenue of $139.6 million (up from $103.2 million), while site development revenue declined to $125.0 million from $139.7 million, and management expects that decline to continue in 2003. To address this, certain subsidiaries agreed on March 17, 2003 to sell 679 towers (or 801 if AAT Communications elects to buy an additional 122) to AAT Communications Corp. for gross proceeds of $160.0 million or $203.0 million, with closing expected in stages from May 9, 2003 through September 30, 2003.

The company intends to use substantially all net proceeds to reduce debt, and the sale is conditioned on an amendment to the senior credit facility. Total debt was $1,024.3 million^c at December 31, 2002, against stockholders' equity of $185.5 million, and cash and equivalents were $61.1 million.

For investors, the central issues are the covenant risk, the $189.4 million^d of debt reclassified as current, and whether the AAT Transaction and a credit facility amendment are completed. The company states that, if both occur, it expects to reach positive free cash flow, but it cannot assure that either will happen.

02—Key points

Key Highlights

Net loss of $273.2 million in 2002 versus $125.1 million in 2001, including an $80.6 million cumulative effect charge for goodwill and $77.6 million of restructuring and other charges.
Going-concern qualification in the auditor's opinion on 2002 financial statements; the company expects non-compliance with senior credit facility financial covenants in 2003.
Agreement to sell 679 to 801 towers to AAT Communications for $160.0 million to $203.0 million in gross proceeds, with proceeds intended to reduce indebtedness.
Site leasing revenue rose to $139.6 million from $103.2 million, while site development revenue fell to $125.0 million from $139.7 million.
Total debt of $1,024.3 million at year-end 2002, including $189.4 million classified as current, against stockholders' equity of $185.5 million.
Operating cash flow was only $1.6 million in 2002, and the company estimated $92.3 million of cash flow would be needed to cover 2003 cash interest and principal obligations.
Class B shares controlled by Chairman Steven E. Bernstein represent roughly 55% of total voting power.

03—Questions

Frequently Asked Questions

Why did the auditor raise a going-concern concern?
The auditor's opinion calls attention to substantial doubt about the company's ability to continue as a going concern through 2003, because the company expects it will not comply with one or more financial covenants of its senior credit facility during 2003. The going-concern qualification, if not remedied by April 30, 2003, would itself be an event of default under the senior credit facility.
What is the AAT Transaction and how is it expected to help?
On March 17, 2003, certain subsidiaries agreed to sell 679 towers, or 801 towers if AAT Communications buys an additional 122, for anticipated gross proceeds of $160.0 million or $203.0 million. The company intends to use substantially all net proceeds, after about $5.0 million of transaction costs, to reduce indebtedness. The sale is conditioned on an amendment to the senior credit facility that would waive going-concern-related defaults and modify the financial covenants.
What happens to the debt if the covenants are breached?
If an event of default occurs, lenders can stop additional borrowings and, by majority vote, accelerate the principal and accrued interest under the senior credit facility. That acceleration would cross-default the 10 1/4% senior notes ($500.0 million) and the 12% senior discount notes. The filing states that current assets would not be sufficient to repay the indebtedness in full, and substantially all assets are pledged as collateral.
Is the company profitable, and what is the outlook for 2003?
No. The company reported net losses in 2002, 2001 and 2000 and expects significant losses to continue in 2003, with interest and depreciation remaining substantial. Management expects site development revenues and margins to keep declining in 2003, while site leasing revenue growth on remaining towers is expected to continue. Management says it expects positive free cash flow after the AAT sale and the credit facility amendment, but it does not guarantee this.
How much cash does the company expect to spend on capital expenditures in 2003?
The company plans total cash capital expenditures of $10.0 million to $15.0 million for 2003, compared with $103.4 million in cash capital expenditures in 2002, and expects to fund them from cash on hand and operating cash flow. It also does not anticipate making material additions to its tower portfolio in 2003.

04—Continue

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