Why did American Tower report a larger net loss in 2001 despite strong revenue growth?

Revenue growth came from acquisitions and construction, but those assets brought heavy depreciation and amortization of $440.4 million, interest expense rose to $282.3 million, and the company took a $69.2 million restructuring charge and $40.6 million of investment losses. Note conversion expense of $26.3 million and a $116.8 million tax benefit partly offset these items, leaving a net loss of $450.1 million.

How much debt does American Tower carry and when does it come due?

Consolidated debt was about $3.6 billion at December 31, 2001. It includes $1.45 billion under credit facilities (maturing 2007 and 2008 with amortization starting in 2003), $1.0 billion of 9 3/8% senior notes due 2009, and about $867 million of convertible notes due 2009 and 2010 that holders can put to the company in 2003, 2006, and 2007. Holders can also require repurchase of some convertibles in cash or stock, at the company's option.

Is American Tower at risk of breaching its debt covenants?

The company reported compliance with its credit facility ratios at year-end 2001. Covenants tighten through 2002 and 2003, including a leverage ratio that falls from 7.75x toward 6.50x by October 2002 and an interest coverage test that rises over time. Management has said it will need to keep borrowing under its credit facilities until operating cash flow covers capital needs in 2003, so covenant headroom is a key factor for investors to watch.

What does the reduced 2002 capital budget mean for the company's growth outlook?

Management has cut the 2002 capital budget to $200–225 million, down from $568 million in 2001, and plans to build 400–500 towers versus roughly 1,300 in 2001. The company is betting that its existing portfolio of about 14,500 sites has enough unused capacity to drive organic growth, with same-tower revenue growth of 26% cited for towers owned since 2000. Slower construction lowers future revenue potential from new towers, but it also reduces cash burn.

AMT 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 1, 2002. Cited figures are marked; the original filing is the authoritative source.

American Tower (AMT) reported a sharply worse 2001 as the wireless tower boom turned into a bust.

Operating revenues rose 54% to $1.13 billion^a, driven by acquisitions and construction, but the company posted a net loss of $450.1 million, or $(2.35) per share, versus $194.6 million in 2000. Divisional cash flow was $300.5 million and EBITDA was $274.0 million, with EBITDA margin falling to 24.2% from 28.4%. Management reports that wireless carriers cut geographic network expansion capex in late 2001, so American Tower slashed its 2002 capital budget to $200–225 million from $568 million in 2001, and plans to build only 400–500 towers versus about 1,300 in 2001.

The balance sheet carries significant leverage. Consolidated debt was about $3.6 billion^b at year-end, with $1.45 billion drawn on credit facilities, a $1.0 billion 9 3/8% senior note, and roughly $867 million of convertible notes. Net debt was about $3.43 billion against stockholders' equity of $2.87 billion.

Operating cash flow was only $26.1 million^c, and management does not expect the company to be free cash flow positive until 2003. It expects only under $200 million of incremental borrowing in 2002–2003, and the company was in compliance with its credit facility covenants at year-end. The stock traded at $5.35 on March 25, 2002, down from a 2000 high of $55.50.

Key risks include tenant bankruptcies, carrier consolidation, a possible goodwill impairment at Verestar on SFAS 142 adoption, build-to-suit commitments of up to 500 towers that the company is trying to renegotiate, and the satellite segment's margin pressure. The company also reported a $69.2 million^d restructuring charge in Q4 2001, largely a $62.6 million non-cash write-off of abandoned tower construction sites.

02—Key points

Key Highlights

Revenue grew 54% to $1.13 billion in 2001, but the net loss widened to $450.1 million ($2.35 per share) from $194.6 million, reflecting high depreciation, interest, and restructuring costs.
EBITDA of $274.0 million fell to a 24.2% margin from 28.4%, and operating cash flow was just $26.1 million.
Capital spending is being cut from $568 million in 2001 to a 2002 budget of $200–225 million, with tower construction falling from roughly 1,300 to 400–500 towers.
Total debt of about $3.6 billion, including $1.45 billion of credit facility borrowings, a $1.0 billion senior note, and about $867 million of convertible notes, leaves the company highly leveraged.
Management expects to become free cash flow positive in 2003 and projects only under $200 million of incremental borrowing for 2002–2003.
Rental and management, the highest-margin segment, produced 81.3% of divisional cash flow on 39.2% of revenue, while the network development and satellite segments carry lower margins.
A $69.2 million Q4 2001 restructuring charge, mostly non-cash tower write-offs, and a likely Verestar goodwill impairment under SFAS 142 add near-term earnings risk.

03—Questions

Frequently Asked Questions

Why did American Tower report a larger net loss in 2001 despite strong revenue growth?
Revenue growth came from acquisitions and construction, but those assets brought heavy depreciation and amortization of $440.4 million, interest expense rose to $282.3 million, and the company took a $69.2 million restructuring charge and $40.6 million of investment losses. Note conversion expense of $26.3 million and a $116.8 million tax benefit partly offset these items, leaving a net loss of $450.1 million.
How much debt does American Tower carry and when does it come due?
Consolidated debt was about $3.6 billion at December 31, 2001. It includes $1.45 billion under credit facilities (maturing 2007 and 2008 with amortization starting in 2003), $1.0 billion of 9 3/8% senior notes due 2009, and about $867 million of convertible notes due 2009 and 2010 that holders can put to the company in 2003, 2006, and 2007. Holders can also require repurchase of some convertibles in cash or stock, at the company's option.
Is American Tower at risk of breaching its debt covenants?
The company reported compliance with its credit facility ratios at year-end 2001. Covenants tighten through 2002 and 2003, including a leverage ratio that falls from 7.75x toward 6.50x by October 2002 and an interest coverage test that rises over time. Management has said it will need to keep borrowing under its credit facilities until operating cash flow covers capital needs in 2003, so covenant headroom is a key factor for investors to watch.
What does the reduced 2002 capital budget mean for the company's growth outlook?
Management has cut the 2002 capital budget to $200–225 million, down from $568 million in 2001, and plans to build 400–500 towers versus roughly 1,300 in 2001. The company is betting that its existing portfolio of about 14,500 sites has enough unused capacity to drive organic growth, with same-tower revenue growth of 26% cited for towers owned since 2000. Slower construction lowers future revenue potential from new towers, but it also reduces cash burn.

04—Continue

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