Is American Tower profitable on a GAAP basis, and what is driving the losses?

No. The company posted a 1999 net loss of $50.7 million ($0.34 per share), compared with a $46.8 million loss in 1998. The main driver is depreciation and amortization of $132.5 million, of which roughly $50 million of the increase came from amortizing goodwill and other intangibles tied to acquisitions. Interest expense was $27.5 million, partially offset by $19.6 million of interest and other income. Management emphasizes tower cash flow and EBITDA, which are positive and growing, but these are non-GAAP measures.

How concentrated is the customer base, and what are the risks?

Concentration is meaningful. Sprint represented about 17% of 1999 revenue, and the five largest customers together represented about 37%. Build-to-suit contracts with AirTouch, AT&T Wireless, and others add dependence on single customers, and these agreements often include lease terms more favorable to the tenant. The company acknowledges that it may not find enough additional tenants to fill newly built towers.

How will the company fund its large acquisition and construction pipeline?

Management says it has sufficient resources under its new $2.0 billion credit facility (with about $492 million available as of March 9, 2000) and cash flow from operations. In February 2000 it also issued $450 million of 5% convertible notes, with net proceeds of about $438.7 million. Management expects construction to weigh on liquidity initially, and the 2000 capital expenditure plan is about $415 million. Credit facilities are subject to borrowing-base limits tied to cash flow, construction costs, and tower counts, and they include covenants and restrictions on the parent's debt.

What are the main strategic and regulatory risks for investors to monitor?

The filing highlights several risks: competition for towers being divested by wireless carriers, which may push prices higher; the possibility that carriers prefer roaming or resale arrangements over leasing; technology shifts such as direct broadcast satellite and low-earth-orbit systems that could reduce tower demand; slower digital television rollout; and local zoning and FCC/FAA restrictions that can delay construction. The company also has ongoing tax indemnification obligations to CBS Corporation related to its 1998 separation from American Radio.

What is the company's dividend policy and how does the equity structure look?

American Tower has never paid a cash dividend and does not expect to in the foreseeable future, intending to retain earnings for growth. Its credit facilities also restrict subsidiary dividends. The equity structure includes Class A common stock (NYSE: AMT, about 146 million shares as of March 2000), Class B shares carrying ten votes each (about 8.4 million shares, concentrated with founder Steven Dodge), and non-voting Class C shares (about 2.4 million). Insider ownership is high: directors and executive officers as a group held about 21% of common stock and about 45% of total voting power.

AMT 10-K FY1999 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 29, 2000. Cited figures are marked; the original filing is the authoritative source.

American Tower Corporation (NYSE: AMT) reported its fiscal 1999 10-K as a rapidly scaling wireless and broadcast tower operator that is still deeply loss-making on a GAAP basis.

Revenue rose 149% to $258.1 million^a, driven by a string of acquisitions (more than 60 transactions in 1999 alone, roughly $1.2 billion of purchase price), and the company reported a net loss of $50.7 million, or $0.34 per share. Tower cash flow grew to $102.2 million and EBITDA to $91.5 million, but both are non-GAAP measures, and depreciation and amortization of $132.5 million (largely goodwill amortization) drove the operating loss of $41.1 million. Management's stated long-term thesis rests on high-margin leasing revenue, which accounted for 52% of 1999 revenue, plus build-to-suit construction and tenant co-location trends.

The balance sheet expanded sharply, with total assets reaching $3.02 billion^b and stockholders' equity $2.15 billion, largely from equity issued for acquisitions and a February 1999 public offering. Long-term debt was $740.8 million at year-end, including $602.3 million of convertible notes. Cash flow from operations was $97.0 million, but investing outflows of $1.14 billion meant the company relied on external capital to fund growth.

Subsequent to year-end, management disclosed a large commitment pipeline: the AirTouch and AT&T tower transactions (both partly closed in early 2000), the UNIsite merger, a new $2.0 billion^c credit facility, and a $450 million 5% convertible note issue. Investors should weigh the strong top-line momentum against the significant execution, leverage, and customer-concentration risks, since Sprint accounted for about 17% of revenue.

02—Key points

Key Highlights

Revenue grew 149% to $258.1 million in 1999, with rental and management at $135.3 million (52% of revenue), services at $90.4 million (35%), and IVDV at $32.4 million (13%).
Net loss narrowed in percentage terms but widened in dollars to $50.7 million ($0.34 per share) from $46.8 million in 1998, as D&A rose to $132.5 million on acquisition-related goodwill amortization.
Tower cash flow of $102.2 million and EBITDA of $91.5 million (35.4% margin), both non-GAAP measures, reflect improving operating economics as the site count grew from about 2,300 to about 5,100.
Total assets reached $3.02 billion, with goodwill and intangibles of $1.40 billion and net property and equipment of $1.09 billion, while stockholders' equity was $2.15 billion.
Long-term debt rose to $740.8 million, including $602.3 million of 2.25% and 6.25% convertible notes issued in October 1999 at a combined net proceeds of about $584 million.
Post year-end pipeline included the AirTouch (up to 2,100 towers, $800 million) and AT&T (up to 1,942 towers, $260 million) transactions, the UNIsite merger ($196.4 million), a $2.0 billion credit facility, and a $450 million 5% convertible note offering.
Customer concentration is significant: Sprint accounted for about 17% of 1999 revenue and the top five customers for about 37%, and the company disclosed that PCS represented more than 30% of revenue.

03—Questions

Frequently Asked Questions

Is American Tower profitable on a GAAP basis, and what is driving the losses?
No. The company posted a 1999 net loss of $50.7 million ($0.34 per share), compared with a $46.8 million loss in 1998. The main driver is depreciation and amortization of $132.5 million, of which roughly $50 million of the increase came from amortizing goodwill and other intangibles tied to acquisitions. Interest expense was $27.5 million, partially offset by $19.6 million of interest and other income. Management emphasizes tower cash flow and EBITDA, which are positive and growing, but these are non-GAAP measures.
How concentrated is the customer base, and what are the risks?
Concentration is meaningful. Sprint represented about 17% of 1999 revenue, and the five largest customers together represented about 37%. Build-to-suit contracts with AirTouch, AT&T Wireless, and others add dependence on single customers, and these agreements often include lease terms more favorable to the tenant. The company acknowledges that it may not find enough additional tenants to fill newly built towers.
How will the company fund its large acquisition and construction pipeline?
Management says it has sufficient resources under its new $2.0 billion credit facility (with about $492 million available as of March 9, 2000) and cash flow from operations. In February 2000 it also issued $450 million of 5% convertible notes, with net proceeds of about $438.7 million. Management expects construction to weigh on liquidity initially, and the 2000 capital expenditure plan is about $415 million. Credit facilities are subject to borrowing-base limits tied to cash flow, construction costs, and tower counts, and they include covenants and restrictions on the parent's debt.
What are the main strategic and regulatory risks for investors to monitor?
The filing highlights several risks: competition for towers being divested by wireless carriers, which may push prices higher; the possibility that carriers prefer roaming or resale arrangements over leasing; technology shifts such as direct broadcast satellite and low-earth-orbit systems that could reduce tower demand; slower digital television rollout; and local zoning and FCC/FAA restrictions that can delay construction. The company also has ongoing tax indemnification obligations to CBS Corporation related to its 1998 separation from American Radio.
What is the company's dividend policy and how does the equity structure look?
American Tower has never paid a cash dividend and does not expect to in the foreseeable future, intending to retain earnings for growth. Its credit facilities also restrict subsidiary dividends. The equity structure includes Class A common stock (NYSE: AMT, about 146 million shares as of March 2000), Class B shares carrying ten votes each (about 8.4 million shares, concentrated with founder Steven Dodge), and non-voting Class C shares (about 2.4 million). Insider ownership is high: directors and executive officers as a group held about 21% of common stock and about 45% of total voting power.

04—Continue

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