10-QPeriod: Q2 FY2011

AMERICAN TOWER CORP /MA/ Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 4, 2011For Securities:AMT

Summary

American Tower Corporation (AMT) has filed its 10-Q for the period ending June 29, 2011. The filing highlights significant risks related to demand for its communication sites, tenant consolidation, technological changes, and international operations. A substantial portion of the company's revenue comes from a few key customers, making it sensitive to their financial health. Notably, the company is preparing to elect REIT status effective January 1, 2012, which introduces a complex set of new risks and considerations, including potential corporate taxes, limitations on business activities, and strict distribution requirements. Despite these risks, AMT is actively repurchasing its shares, having bought back nearly 2 million shares in the second quarter of 2011 under its existing authorization and announcing a new $1.5 billion repurchase program. The company's international operations account for approximately 25% of its consolidated revenue, exposing it to currency fluctuations and varying political and economic conditions. The significant leverage, with approximately $5.7 billion in consolidated debt as of June 30, 2011, is also a key concern, potentially limiting financial flexibility and increasing vulnerability to economic downturns. The upcoming transition to a REIT structure, while intended to provide tax benefits, introduces considerable execution risk and operational complexities that investors should monitor closely.

Financial Highlights

49 data points
Beta

Revenue

$597.24M

Net Income

$115.21M

19.3% Net Margin

EPS (Diluted)

$0.29

Total Assets

$10.97B

Cash & Equivalents

$332.54M

Free Cash Flow

$275.52M

Financial Statements
Beta
Revenue$597.24M
SG&A Expenses$72.32M
Operating Expenses$371.45M
Operating Income$225.79M
Interest Expense$74.51M
Net Income$115.21M
EPS (Basic)$0.29
EPS (Diluted)$0.29
Shares Outstanding (Basic)396.60M
Shares Outstanding (Diluted)400.25M

Key Highlights

  • 1The company is undergoing a significant structural change by electing REIT status effective January 1, 2012, which introduces new compliance requirements and potential tax liabilities.
  • 2A substantial portion of AMT's revenue is concentrated among a few large customers, posing a risk if any of these tenants face financial difficulties or reduce their spending.
  • 3International operations represented approximately 25% of consolidated revenue for the six months ended June 30, 2011, exposing the company to foreign currency fluctuations and geopolitical risks.
  • 4AMT's substantial debt level of $5.7 billion as of June 30, 2011, increases financial risk and limits flexibility for future growth and debt servicing.
  • 5The company repurchased approximately 2 million shares of common stock in the second quarter of 2011 and authorized a new $1.5 billion stock repurchase program, indicating a commitment to returning capital to shareholders.
  • 6Demand for communication sites is sensitive to economic conditions, the financial health of wireless service providers, and technological advancements, all of which could adversely affect operating results.
  • 7The company faces risks related to potential tenant consolidation, which could lead to network rationalization and lease terminations.

Frequently Asked Questions

The primary risks include a decrease in demand for communication sites due to economic downturns or changes in wireless service provider spending, significant revenue concentration from a few large tenants, potential adverse impacts from tenant consolidation, risks associated with international operations (including currency fluctuations and political/economic instability), and the ongoing risk of technological changes making tower leasing less desirable. Additionally, the company carries substantial debt, which increases its financial risk.

The planned conversion to a Real Estate Investment Trust (REIT) effective January 1, 2012, is a major event. While intended to offer tax advantages by allowing pass-through income and avoiding corporate-level tax on distributed earnings, it introduces significant complexities and risks. These include the strict requirement to distribute at least 90% of taxable income annually, potential corporate-level taxes on certain gains, limitations on business activities (often requiring them to be conducted through taxable subsidiaries called TRSs), and the operational risk of failing to qualify or maintain REIT status, which could lead to substantial tax liabilities. Investors should monitor the company's ability to meet distribution requirements and comply with REIT regulations.

American Tower is actively repurchasing its shares. In the second quarter of 2011, it repurchased approximately 2 million shares for about $102 million. Furthermore, a new stock repurchase program authorizing up to $1.5 billion in additional repurchases was approved in March 2011. While the company has substantial debt, it believes its cash flow from operations is sufficient for 2011 needs. The upcoming REIT conversion will shift the focus towards distributions to shareholders, with plans to commence quarterly distributions in early 2012.

International operations accounted for approximately 25% of American Tower's consolidated revenue for the first six months of 2011. The risks associated with these operations include exposure to economic and political instability in specific countries, changes in foreign laws and regulations (including those related to taxation and repatriation of earnings), potential expropriation, compliance with anti-bribery laws, and significant risks from foreign currency exchange rate fluctuations. A weakening of foreign currencies against the U.S. Dollar negatively impacts reported revenues and operating profits.