Is American Tower profitable, and why does it report a net loss?

No, not on a GAAP basis in 1998. The company reported a net loss of $46.8 million, or $0.59 per share. The loss reflects large non-cash depreciation and amortization ($52.1 million) tied to acquisitions, $23.2 million of interest expense, $12.8 million of one-time spin-off costs, and a $7.5 million extraordinary loss on redeeming preferred stock. Management emphasizes EBITDA and tower cash flow, which were positive at $36.7 million and $41.8 million respectively.

How is the company funding its growth?

Mainly through equity. The July 1998 offering raised about $625 million net, and the February 1999 offering raised about $619 million net. Debt is comparatively modest at $281 million, drawn from $925 million of credit facilities. Management says it does not expect to need significant additional equity unless it completes more than a limited number of very large transactions.

What are the biggest risks to investors?

Key risks include execution on a construction program far larger than the company's past experience, possible shortages of skilled personnel, rising prices and competition for towers being divested by wireless carriers, dependence on a few large wireless customers in build-to-suit deals, regulatory and zoning delays, and obligations to reimburse CBS for tax liabilities tied to the spin-off. Year 2000 issues affecting tower lighting and embedded systems are also flagged.

Does the company pay dividends?

No. The company has never paid a dividend on any class of common stock and expects to retain earnings for growth. Its credit facilities also restrict dividend payments by subsidiaries and by the parent, so shareholder returns depend on share price appreciation.

Who are the company's customers and how concentrated is revenue?

Customers include most major wireless carriers such as AT&T Wireless, Sprint PCS, Nextel, BellSouth and Southwestern Bell, along with major broadcasters including CBS, Fox, NBC and ABC. No single customer accounted for more than 10% of 1998 revenue, and the five largest customers accounted for less than 30%. PCS represented about 24% of run-rate revenue, with paging at about 20%.

AMT 10-K FY1998 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 19, 1999. Cited figures are marked; the original filing is the authoritative source.

American Tower Corporation (AMT) reported its 1998 annual results as a newly independent company, having been spun off from American Radio Systems on June 4, 1998.

The company is a leading independent owner, operator and developer of wireless and broadcast towers in the U.S., with more than 3,200 towers pro forma for pending transactions. Revenue grew sharply to $103.5 million^a in 1998 from $17.5 million in 1997, driven mainly by acquisitions. However, the company posted a net loss of $46.8 million, or $0.59 per share, reflecting heavy depreciation and amortization ($52.1 million), $12.8 million of one-time tower separation expenses, and $23.2 million of interest expense.

Tower cash flow was $41.8 million^b and EBITDA was $36.7 million, with a 35.4% EBITDA margin. The balance sheet was substantially strengthened in 1998 through an equity-heavy capital raise. Total assets rose to $1.50 billion, stockholders' equity reached $1.09 billion, and long-term debt was $281.1 million, with $186.2 million in cash at year-end.

The July 1998 public offering netted roughly $625 million^c, and a February 1999 offering netted about $619 million, both used to fund acquisitions and construction. The company's strategy centers on building towers (a 1999 plan calls for 1,200 to 1,600 towers costing $216 million to $304 million) and making large acquisitions, which investors should weigh against the heavy reliance on external capital, customer concentration risk among major wireless carriers, and the possibility of higher prices as competition for towers intensifies.

Key uncertainties include the execution risk of a construction program far larger than past efforts, potential personnel shortages, ongoing tax reimbursement obligations to CBS (including about $19.1 million^d on unconverted securities), and Year 2000 readiness for embedded systems, including tower lighting. The company paid no dividends and does not anticipate paying any, so returns to shareholders depend entirely on share price appreciation.

02—Key points

Key Highlights

Revenue grew to $103.5 million in 1998 from $17.5 million in 1997, mostly from acquisitions; tower rental and management made up 58.4% of operating revenue.
Net loss of $46.8 million ($0.59 per share) included $12.8 million of one-time tower separation costs and $52.1 million of depreciation and amortization.
EBITDA of $36.7 million (35.4% margin) and tower cash flow of $41.8 million, versus $7.3 million and $8.8 million in 1997.
Total assets of $1.50 billion and stockholders' equity of $1.09 billion, supported by roughly $625 million from the July 1998 offering and $619 million from the February 1999 offering.
Long-term debt of $281.1 million against $925 million of available credit facilities, with $186.2 million in cash at year-end 1998.
Aggressive 1999 plan to build 1,200 to 1,600 towers at a cost of $216 million to $304 million, plus additional acquisitions totaling about $746 million since January 1, 1999.
Diversified customer base of about 3,900 with no customer above 10% of 1998 revenue, though the company faces risks from build-to-suit dependence on single carriers and rising acquisition prices.

03—Questions

Frequently Asked Questions

Is American Tower profitable, and why does it report a net loss?
No, not on a GAAP basis in 1998. The company reported a net loss of $46.8 million, or $0.59 per share. The loss reflects large non-cash depreciation and amortization ($52.1 million) tied to acquisitions, $23.2 million of interest expense, $12.8 million of one-time spin-off costs, and a $7.5 million extraordinary loss on redeeming preferred stock. Management emphasizes EBITDA and tower cash flow, which were positive at $36.7 million and $41.8 million respectively.
How is the company funding its growth?
Mainly through equity. The July 1998 offering raised about $625 million net, and the February 1999 offering raised about $619 million net. Debt is comparatively modest at $281 million, drawn from $925 million of credit facilities. Management says it does not expect to need significant additional equity unless it completes more than a limited number of very large transactions.
What are the biggest risks to investors?
Key risks include execution on a construction program far larger than the company's past experience, possible shortages of skilled personnel, rising prices and competition for towers being divested by wireless carriers, dependence on a few large wireless customers in build-to-suit deals, regulatory and zoning delays, and obligations to reimburse CBS for tax liabilities tied to the spin-off. Year 2000 issues affecting tower lighting and embedded systems are also flagged.
Does the company pay dividends?
No. The company has never paid a dividend on any class of common stock and expects to retain earnings for growth. Its credit facilities also restrict dividend payments by subsidiaries and by the parent, so shareholder returns depend on share price appreciation.
Who are the company's customers and how concentrated is revenue?
Customers include most major wireless carriers such as AT&T Wireless, Sprint PCS, Nextel, BellSouth and Southwestern Bell, along with major broadcasters including CBS, Fox, NBC and ABC. No single customer accounted for more than 10% of 1998 revenue, and the five largest customers accounted for less than 30%. PCS represented about 24% of run-rate revenue, with paging at about 20%.

04—Continue

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