American Tower Corporation — FY2009 Form 10-K
Business context and reporting period. This is the annual report for the year ended December 31, 2009, not a standalone fourth-quarter filing. American Tower owns and operates wireless and broadcast communications sites and DAS networks in the U.S., Mexico, Brazil and India. About 97% of FY2009 revenue came from rental and management, primarily leasing antenna space. The portfolio comprised approximately 27,200 sites.
Financial performance and liquidity
| Metric | FY2009 | FY2008 |
|---|---|---|
| Total revenue | $1.724 billion | $1.594 billion |
| Operating income | $672.3 million | $606.8 million |
| Operating margin | 39.0% | 38.1% |
| Income from continuing operations | $238.9 million | $236.4 million |
| Net income attributable to American Tower | $246.6 million | $347.2 million |
| Diluted EPS from continuing operations | $0.59 | $0.58 |
| Cash provided by operating activities | $842.1 million | $773.3 million |
- Revenue increased 8%. Rental and management revenue rose 8% to $1.668 billion; network development services revenue rose 20% to $55.7 million.
- Rental and management segment operating profit was $1.212 billion, up from $1.130 billion. Management cited added tenants and equipment on existing sites, contractual rent escalations and newly acquired or built sites.
- Net income fell 29%, chiefly because FY2008 included a $110.1 million tax benefit related to discontinued Verestar operations. Continuing-operations income increased about 1%.
- Cash used for investing was $543.1 million, including $295.6 million for acquisitions and $250.3 million for property, equipment and construction. Cash used for financing was $194.9 million. Cash and cash equivalents at year-end were $247.3 million; separately, $47.8 million was restricted cash.
- Year-end debt was $4.212 billion. The company reported total liquidity of approximately $943.1 million, including $695.8 million available under its revolving facility. The current portion of long-term obligations was $70.5 million.
- FY2009 fourth-quarter revenue was $448.0 million, operating income $176.4 million, and net income attributable to American Tower $64.4 million, or $0.16 per diluted share. Fourth-quarter 2008 figures were $408.3 million, $152.7 million, and $85.8 million, respectively.
Material changes and notable items
- Revenue growth was partly offset by lease cancellations, foreign-exchange effects and lower straight-line revenue recognition. Leases representing about 2% of rental and management revenue were cancelled in 2009.
- The company acquired and constructed 3,529 towers and added 20 in-building DAS networks and one outdoor DAS network during 2009. Expansion included acquisitions in India and Brazil and 196 towers from Cincinnati Bell.
- In 2009, it issued $300 million of 7.25% notes due 2019 and $600 million of 4.625% notes due 2015, and repurchased or redeemed approximately $725.1 million face amount of debt. Debt retirement produced an $18.2 million charge.
- The company repurchased 6.6 million shares for $214.7 million in 2009. It had $718.4 million remaining under the authorized $1.5 billion buyback as of February 12, 2010.
- The effective tax rate increased to 43.3% from 36.4%, reflecting foreign-currency tax effects, IRS audit adjustments and valuation allowances. The 2008 change in estimated tower useful lives from 15 to 20 years reduced that year’s depreciation and amortization by approximately $121.2 million, limiting comparability.
- Goodwill impairment testing identified no impairment in 2009. The company recorded approximately $12.4 million of long-lived-asset write-downs.
Outlook, risks and contingencies
- Management expected operating cash flow to cover 2010 operating needs, capital expenditures and cash debt service. It forecast 2010 capital expenditures of $300–$350 million, including about $50 million for ground-lease purchases and $165–$205 million for discretionary projects, including 1,200–1,600 new sites. No specific revenue or EPS guidance is provided in the filing text.
- In February 2010, the company announced a proposed acquisition of approximately 4,450 Indian tower sites for an estimated $430 million, subject to approvals and other closing conditions; closing was expected by the end of the second quarter of 2010.
- Customer concentration is significant: four customers generated about 61% of revenue; AT&T Mobility, Sprint Nextel and Verizon Wireless represented approximately 19%, 18% and 15%, respectively. Wireless-carrier consolidation, lower network spending, tenant credit deterioration and alternative technologies could reduce demand.
- Grupo Iusacell, about 5% of revenue, had suspended debt service on its U.S.-dollar debt while restructuring. American Tower reported $28.2 million of net receivables and $33.5 million of other related assets at year-end; it continued to receive partial payments.
- Other principal risks include approximately $4.2 billion of debt and restrictive covenants, foreign-currency and political exposure, zoning and environmental requirements, ground-lease renewal risk, and possible damage to sites from natural disasters. Approximately 83% of sites were on land the company did not own.
- A Mexican lawsuit involving a former subsidiary remained pending; the company could not estimate its potential liability. SEC, U.S. Attorney and IRS inquiries into historical stock-option practices remained ongoing. The related securities class action and derivative suits had been resolved or dismissed as described in the filing.
- The company reported compliance with its revolving-credit financial covenants at year-end. The securitized towers’ debt-service coverage ratio was 3.10x; a covenant trigger could trap cash otherwise distributable to the parent. The 5.0% convertible notes matured in February 2010 and were repaid with cash on hand.
- Management and the independent auditor concluded internal control over financial reporting was effective at December 31, 2009; the auditor gave an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether 2010 site additions and leasing on existing sites deliver the forecast growth and capital returns.
- Customer concentration, renewal and cancellation trends, and collection of Grupo Iusacell balances.
- Debt maturities, refinancing needs, covenant headroom and the availability of securitization cash distributions.
- The final cost, financing, approvals and integration results of the proposed Indian acquisition.
- Potential outcomes of the Mexican litigation and outstanding government inquiries concerning stock-option practices.
- Tax-asset recoverability, foreign-exchange impacts, and the effect of the useful-life estimate change on comparisons with prior periods.