American Tower Corporation — Q3 2010 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2010. Unaudited consolidated financial statements; dollar figures below are in millions unless otherwise noted.
Business context
American Tower owns and operates communications sites and primarily leases antenna space to wireless and broadcast customers. At quarter-end it reported approximately 20,500 U.S. towers, 12,600 international towers, and 200 in-building DAS networks. Rental and management generated about 97% of revenue.
Financial performance and liquidity
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Revenue | $513.3 | $444.1 | $1,437.7 | $1,276.1 |
| Operating income | $213.4 | $179.1 | $580.9 | $495.8 |
| Income from continuing operations | $93.6 | $67.6 | $289.9 | $174.7 |
| Net income attributable to American Tower | $93.4 | $67.4 | $289.4 | $182.2 |
| Diluted EPS | $0.23 | $0.17 | $0.71 | $0.45 |
| Cash provided by operating activities | Not separately reported | Not separately reported | $774.6 | $649.4 |
- Q3 revenue rose 16%; nine-month revenue rose 13%. Rental and management revenue increased 16% and 14%, respectively, while network development services revenue declined 1% and 12%.
- Operating margin, calculated as operating income divided by revenue, was about 41.6% for Q3 2010 versus 40.3% in Q3 2009; nine-month margin was about 40.4% versus 38.9%.
- Cash used in investing was $859.2 for the first nine months, including $584.3 for acquisitions and $228.5 for property, equipment and construction. Cash provided by financing was $200.0. Cash and cash equivalents ended the period at $371.9.
- Total debt was approximately $4.8 billion; balance-sheet long-term obligations, including current portion, were $4.8 billion. The filing reports fair value of those obligations of $5.1 billion. Total liquidity was approximately $1.22 billion, including $846.9 of borrowing capacity under the revolving facility.
- Current assets were $944.3 million and current liabilities $614.9 million. Total assets were $9.45 billion and stockholders’ equity $3.45 billion.
- The company reported $10.7 million of net interest income from TV Azteca for the first nine months, on a net note receivable balance of $107.2 million.
Material changes and notable transactions
- Q3 rental and management revenue increased by $69.3 million: $38.7 million came from legacy sites and about $30.6 million from sites acquired or built since July 2009. For the first nine months, the respective contributions were $92.2 million and $74.7 million.
- Operating expense growth reflected the larger site portfolio, higher depreciation and amortization, and increased selling, general and administrative costs. Interest expense declined year over year, principally due to a lower average borrowing rate.
- During 2010, American Tower acquired ETIPL in India for approximately $425.4 million, adding 4,629 towers plus sites under construction. It also acquired towers in the U.S., Chile and Peru, and exclusive tower-use rights in Colombia. Additional closings were pending at quarter-end.
- The company issued $700 million of 5.05% senior notes due 2020 and used $575 million of proceeds to repay revolving-credit borrowings. ETIPL debt of about $144.6 million outstanding at quarter-end was repaid on October 20, 2010.
- The company repurchased 7.8 million shares for $346.2 million during the first nine months. Through October 22, it had repurchased 28.9 million shares for $1.1 billion under its buyback program, with about $0.4 million of authorization remaining.
Outlook, risks and contingencies
- Management expected 2010 capital expenditures of approximately $300–$320 million and about $600 million of acquisition spending during the remainder of 2010. It believed operating cash flow would cover the next 12 months’ capital expenditures and cash debt service.
- Management cited tenant additions, equipment upgrades, contractual escalators and selective site development and acquisitions as growth drivers. It was considering, but had made no decision on, conversion to a real estate investment trust.
- Tax items benefited the nine-month results: a $32.6 million reversal of accrued tax liabilities following a Latin American financing reorganization and recognition of $26.3 million of previously unrecognized net operating losses. The nine-month effective tax rate was 30.9%, compared with 44.5% in 2009.
- Customer concentration is material: four U.S. customers represented about 60% of nine-month revenue. Grupo Iusacell, about 4% of revenue, had restructured its debt; the company converted certain receivables into a five-year interest-bearing receivable and reported related assets of $47.6 million.
- Debt covenants were met at September 30. The securitization debt-service coverage ratio was 3.24x; a decline could trap cash otherwise distributable to the parent. The company also warned that leverage, financing access, acquisitions, foreign currency, customer credit, regulation, competition and ground-lease renewals could affect results and liquidity.
- Pending matters include a Mexican tower-contract case with approximately $6.7 million of assessed damages under appeal, and an XCEL seller dispute involving escrow funds and a claim for punitive damages exceeding $69 million. The company disputed the claims; outcomes were unresolved.
- Subsequent to quarter-end, American Tower agreed to acquire up to approximately 1,400 existing towers and up to 1,800 additional towers in South Africa for up to about $430 million, subject to conditions.
Investor verification priorities
- Review acquisition completion, purchase-price allocations, integration, and expected returns—particularly ETIPL and the announced Latin American and South African transactions.
- Assess whether organic tenant growth and lease escalations continue to offset cancellations, customer concentration and customer financial stress.
- Verify debt maturities, revolving-facility availability, covenant headroom, and the effect of acquisition funding and share repurchases on leverage and liquidity.
- Distinguish recurring earnings from favorable tax adjustments and foreign-currency gains; monitor realizability of tax attributes and the $79.0 million of unrecognized tax benefits.
- Track the Mexican and XCEL litigation, including potential exposure and any changes in management’s ability to estimate outcomes.
- Compare actual 2010 capital expenditures and acquisitions with management’s stated ranges; the filing provides expectations, not a formal earnings or revenue forecast.