<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-Q
----------------
(Mark One):
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. For the quarterly period ended September 30, 2000.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number: 001-14195
----------------
American Tower Corporation
(Exact name of registrant as specified in its charter)
Delaware 65-0723837
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices)
Telephone Number (617) 375-7500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes [X] No [_]
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock November 1, 2000
--------------------- ------------------
<S> <C>
Class A Common Stock......................................... 168,404,818 shares
Class B Common Stock......................................... 8,253,975 shares
Class C Common Stock......................................... 2,267,813 shares
------------------
Total...................................................... 178,926,606 shares
==================
</TABLE>
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<PAGE>
AMERICAN TOWER CORPORATION
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets September 30, 2000 and
December 31, 1999................................................. 1
Condensed Consolidated Statements of Operations Three and Nine
Months Ended September 30, 2000 and 1999.......................... 2
Condensed Consolidated Statements of Cash Flows Nine Months Ended
September 30, 2000 and 1999....................................... 3
Notes to Condensed Consolidated Financial Statements............... 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk..... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 20
Item 6. Exhibits and Reports on Form 8-K............................... 20
Signatures............................................................. 21
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Unaudited
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 6)................ $ 206,470 $ 25,212
Accounts receivable, net of allowance for doubtful
accounts of $7,397 and $3,386, respectively...... 154,993 58,482
Prepaid and other current assets.................. 40,828 13,835
Inventories....................................... 33,127 11,262
Cost in excess of billings on uncompleted
contracts and unbilled receivables............... 37,734 13,363
Deferred income taxes............................. 1,829 1,718
Due from CBS Corporation.......................... 7,937 15,535
----------- -----------
Total current assets.............................. 482,918 139,407
----------- -----------
Property and equipment, net........................ 2,002,900 1,092,346
Goodwill and other intangible assets, net.......... 2,272,183 1,403,897
Notes receivable (related party: $108,900 and
$60,000, respectively)............................ 118,307 118,802
Deposits and other long-term assets................ 65,949 134,568
Investments........................................ 51,915 15,594
Deferred income taxes.............................. 154,351 114,252
----------- -----------
Total............................................ $ 5,148,523 $ 3,018,866
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt................. $ 7,834 $ 4,736
Accounts payable.................................. 46,662 25,564
Accrued expenses.................................. 63,455 32,732
Accrued tower construction costs.................. 37,606 37,671
Accrued interest.................................. 29,690 6,769
Billings in excess of costs on uncompleted
contracts and unearned revenue................... 42,446 17,515
----------- -----------
Total current liabilities......................... 227,693 124,987
----------- -----------
Long-term debt:
Credit facilities................................. 1,032,500 90,000
Convertible notes................................. 918,893 602,259
Other............................................. 92,293 43,827
Other long-term liabilities....................... 8,293 4,057
----------- -----------
Total liabilities................................. 2,279,672 865,130
----------- -----------
Minority interest in subsidiaries.................. 32,158 8,653
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock; $0.01 par value; 20,000,000
shares authorized; no shares issued or
outstanding......................................
Class A Common Stock; $.01 par value; 500,000,000
shares authorized; 167,734,330 and 144,965,623
shares issued and 167,591,207 and 144,889,220
outstanding, respectively........................ 1,677 1,450
Class B Common Stock; $.01 par value; 50,000,000
shares authorized; 8,253,975 and 8,387,910 shares
issued and outstanding, respectively............. 83 84
Class C Common Stock; $.01 par value; 10,000,000
shares authorized; 2,267,813 and 2,422,804 shares
issued and outstanding, respectively............. 23 24
Additional paid-in capital........................ 3,079,776 2,245,482
Accumulated deficit............................... (240,586) (100,429)
Less: Treasury stock (143,123 and 76,403 shares at
cost, respectively).............................. (4,280) (1,528)
----------- -----------
Total stockholders' equity........................ 2,836,693 2,145,083
----------- -----------
Total............................................ $ 5,148,523 $ 3,018,866
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS--Unaudited
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months
Ended September Nine Months Ended
30, September 30,
------------------ -------------------
2000 1999 2000 1999
-------- -------- --------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rental and management............... $ 75,535 $ 37,768 $ 192,475 $ 94,640
Services............................ 91,185 22,710 203,363 54,948
Internet, voice, data and video
transmission services.............. 42,238 7,061 95,684 19,512
-------- -------- --------- --------
Total operating revenues........ 208,958 67,539 491,522 169,100
-------- -------- --------- --------
OPERATING EXPENSES:
Operating expenses excluding
depreciation and amortization,
development and corporate general
and administrative expenses:
Rental and management............. 37,335 17,603 97,117 42,946
Services.......................... 75,741 16,737 173,068 41,300
Internet, voice, data and video
transmission services............ 32,060 5,421 74,318 14,045
Depreciation and amortization....... 75,973 35,111 198,264 92,919
Development expense................. 5,311 744 10,495 1,302
Corporate general and administrative
expense............................ 3,442 2,255 9,957 6,327
-------- -------- --------- --------
Total operating expenses........ 229,862 77,871 563,219 198,839
-------- -------- --------- --------
LOSS FROM OPERATIONS.................. (20,904) (10,332) (71,697) (29,739)
-------- -------- --------- --------
OTHER (EXPENSE) INCOME:
Interest expense.................... (41,752) (5,958) (112,339) (17,497)
Interest income and other, net...... 6,560 3,162 12,997 13,899
Interest income, TV Azteca, net of
interest expense of $296 and $753,
respectively (related party)
(Note 7)........................... 3,607 9,070
Note conversion expense............. (16,968)
Minority interest in net losses
(earnings) of subsidiaries......... 140 (158) 82 (79)
-------- -------- --------- --------
TOTAL OTHER (EXPENSE) INCOME.......... (31,445) (2,954) (107,158) (3,677)
-------- -------- --------- --------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY LOSSES................. (52,349) (13,286) (178,855) (33,416)
INCOME TAX BENEFIT.................... 12,822 195 43,036 942
-------- -------- --------- --------
LOSS BEFORE EXTRAORDINARY LOSSES...... (39,527) (13,091) (135,819) (32,474)
EXTRAORDINARY LOSSES ON EXTINGUISHMENT
OF DEBT, NET OF INCOME TAX BENEFIT OF
$2,892............................... (4,338)
-------- -------- --------- --------
NET LOSS.............................. $(39,527) $(13,091) $(140,157) $(32,474)
======== ======== ========= ========
BASIC AND DILUTED NET LOSS PER COMMON
SHARE AMOUNTS
Loss before extraordinary losses.... $ (0.22) $ (0.08) $ (0.82) $ (0.22)
Extraordinary losses................ (0.03)
-------- -------- --------- --------
NET LOSS.............................. $ (0.22) $ (0.08) $ (0.85) $ (0.22)
======== ======== ========= ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING.......................... 178,056 155,625 165,244 147,588
======== ======== ========= ========
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Unaudited
(In Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
----------- ---------
<S> <C> <C>
CASH FLOWS (USED FOR) PROVIDED BY OPERATING ACTIVITIES:
Net loss............................................. $ (140,157) $ (32,474)
Non-cash items reflected in statement of operations.. 190,862 94,123
Increase in current assets........................... (114,837) (10,324)
Increase in current liabilities...................... 26,351 5,236
----------- ---------
Cash (used for) provided by operating activities....... (37,781) 56,561
----------- ---------
CASH FLOWS USED FOR INVESTING ACTIVITIES:
Payments for purchase of property and equipment and
construction activities............................. (346,161) (173,864)
Payments for acquisitions, net of cash acquired...... (1,163,281) (361,256)
Advances of notes receivable......................... (73,575) (64,488)
Repayment of notes receivable........................ 2,678 538
Deposits and other long-term assets.................. (26,538) (137,693)
----------- ---------
Cash used for investing activities..................... (1,606,877) (736,763)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable and credit
facilities.......................................... 1,377,500 95,357
Proceeds from convertible notes offering............. 450,000
Repayment of notes payable and credit facilities..... (496,729) (143,233)
Net proceeds from equity offerings and stock
options............................................. 532,548 634,293
Cash payments from (to) CBS Corporation.............. 7,598 (50,000)
Distributions to minority interest................... (244) (315)
Deferred financing costs............................. (44,757) (364)
----------- ---------
Cash provided by financing activities.................. 1,825,916 535,738
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... 181,258 (144,464)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD......... 25,212 186,175
----------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD............... $ 206,470 $ 41,711
=========== =========
CASH PAID FOR INCOME TAXES............................. $ 2,772 $ 1,401
=========== =========
CASH PAID FOR INTEREST................................. $ 93,848 $ 18,789
=========== =========
NON-CASH TRANSACTIONS:
Issuance of common stock, warrants and assumption of
options for acquisitions............................ $ 145,852 $ 448,037
Decrease in due to CBS Corporation from estimated
remaining tax liabilities........................... $ 7,813
Treasury stock transactions.......................... $ 2,752 $ 1,528
Note conversion transaction.......................... $ 136,400
TV Azteca transaction................................ $ 25,819
Capital leases....................................... $ 38,529
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited
1. Basis of Presentation and Accounting Policies
The accompanying condensed consolidated financial statements have been
prepared by American Tower Corporation (the Company or American Tower)
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). The financial information included herein is unaudited;
however, the Company believes such information and the disclosures are
adequate to make the information presented not misleading. In addition, the
Company believes such information reflects all adjustments (consisting only of
normal recurring adjustments) that are necessary for a fair presentation of
financial position and results of operations for the periods presented.
Results of interim periods may not be indicative of results for the full year.
These condensed consolidated financial statements and related notes should be
read in conjunction with the Company's 1999 Annual Report on Form 10-K filed
with the SEC on March 29, 2000 and quarterly reports on Form 10-Q filed on May
15, 2000 and August 14, 2000.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results may differ from
those estimates, and such differences could be material to the accompanying
condensed consolidated financial statements.
Loss Per Common Share--Basic and diluted income or loss per common share
have been determined in accordance with Statement of Financial Accounting
Standards (FAS) No. 128, "Earnings Per Share," whereby basic income or loss
per common share is computed by dividing net income or loss by the weighted
average number of common shares outstanding during the period. Diluted per
share amounts are computed by adjusting the weighted average number of common
shares for dilutive potential common shares outstanding during the period, if
any. In computing diluted per share amounts, the Company uses the treasury
stock method, whereby unexercised options and warrants are assumed to be
exercised at the beginning of the period or at issuance, if later. The assumed
proceeds are then used to purchase common shares at the average market price
during the period. Shares issuable upon exercise of options, warrants and
other dilutive securities have been excluded from the computation of diluted
income or loss per common share as the effect is anti-dilutive. Had options,
warrants and other dilutive securities been included in the computation,
shares for the diluted computation would have increased by approximately 38.4
million and 5.0 million for the three months ended September 30, 2000 and
1999, respectively, and 40.3 million and 4.4 million for the nine months ended
September 30, 2000 and 1999, respectively.
Recent Accounting Pronouncement--In June 1998, the Financial Accounting
Standards Board (FASB) issued FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" as amended in May 1999 by FAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities--Deferral of the
Effective Date of FASB Statement No. 133--An Amendment of FASB Statement No.
133." This Statement establishes accounting and reporting standards for
derivative instruments. It requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position, and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative (that is, gains and losses) will depend on the
entity's intended use of the derivative and its resulting designation (as
defined in the statement). FAS No. 133, as amended, will be effective for the
Company on January 1, 2001. The Company is currently in the process of
evaluating the impact FAS No. 133 will have on the Company and its
consolidated financial statements.
The SEC has issued Staff Accounting Bulletin (SAB) No. 101 "Revenue
Recognition," which provides the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB No.
101 will be effective for the Company on October 1, 2000. The Company does not
believe the adoption of SAB No. 101 will be material to its consolidated
financial statements.
4
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited--(Continued)
Reclassifications--Certain reclassifications have been made to the 1999
condensed consolidated financial statements to conform to the 2000
presentation.
2. Income Taxes
The Company provides for income taxes at the end of each interim period
based on the estimated effective tax rate for the full fiscal year. Cumulative
adjustments to the Company's estimate are recorded in the interim period in
which a change in the estimated annual effective rate is determined.
3. Inventories
Inventories, which consist primarily of finished goods and raw material
component parts, are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) basis. The components of
inventories are as follows (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Raw materials.............................. $15,563 $ 859
Work in process............................ 933 303
Finished goods............................. 16,631 10,100
------- -------
Total.................................... $33,127 $11,262
======= =======
</TABLE>
4. Acquisitions
General--The acquisitions consummated during the nine month period ended
September 30, 2000 have been accounted for by the purchase method of
accounting. The purchase prices have been allocated to the net assets
acquired, principally intangible and tangible assets, and the liabilities
assumed based on their estimated fair values at the date of acquisition. The
excess of purchase price over the estimated fair value of the net assets
acquired has been recorded as goodwill and other intangible assets. For
certain acquisitions, the condensed consolidated financial statements reflect
the preliminary allocations of purchase price, as the appraisals of assets
acquired have not been finalized. The Company does not expect any changes in
depreciation and amortization as a result of such appraisals to be material to
the Company's consolidated results of operations.
During the nine month period ended September 30, 2000, the Company acquired
various communication sites, teleports and related businesses for an aggregate
preliminary purchase price of approximately $1.5 billion. The total purchase
price includes the payment of $1.3 billion in cash, the issuance of 2.4
million shares of Class A common stock, warrants to purchase 3.0 million
shares of Class A common stock and the assumption of $59.2 million of debt.
Significant transactions consummated during this period include the following:
AirTouch transaction--In August 1999, the Company agreed to lease on a long-
term basis up to 2,100 towers located throughout the United States from
AirTouch Communications, Inc. (AirTouch). The Company's cumulative lease
payments, based on 2,100 towers, aggregate $800.0 million in cash payable in
part upon each closing and five-year warrants to purchase 3.0 million shares
of Class A common stock at $22.00 per share. At the six closings in 2000, the
Company leased 1,778 towers, paid AirTouch $677.3 million in cash and issued
warrants for 3.0 million shares of Class A common stock. It is expected that
the Company will not close on approximately 150 of the towers included in the
initial agreement. The remaining closings are expected to occur in the fourth
quarter of 2000 and the first quarter of 2001, as the initial term of the
agreement was extended through January 2001.
AT&T transaction--In September 1999, the Company agreed to purchase up to
1,942 towers from AT&T. These towers are located throughout the United States
and were constructed by AT&T for its microwave
5
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited--(Continued)
operations. The purchase price is $260.0 million in cash, subject to
adjustment if all towers are not purchased. At the five closings in 2000, the
Company acquired 1,918 towers and paid AT&T $258.7 million. It is expected
that the Company will close on any remaining towers in the fourth quarter of
2000 and the first quarter of 2001.
Management has determined that a portion of the towers acquired in the AT&T
transaction will not be marketable for wireless co-location. Accordingly, the
Company has committed to a plan to dispose of or sell these towers which was
finalized in the third quarter of 2000. During the second quarter of 2000 the
Company had initially estimated its liability to dispose of such towers to
include the cost of dismantling the towers. In finalizing its plan in the
third quarter, the Company determined that dismantling of the towers would not
be necessary. As a result, the Company has reduced its liability (with a
corresponding reduction to goodwill) associated with the disposal of these
towers from approximately $11.0 million at June 30, 2000 to approximately $2.0
million as of September 30, 2000. Such liability has been recorded as current
in the accompanying September 30, 2000 consolidated balance sheet.
UNIsite merger--In January 2000, the Company consummated its merger with
UNIsite, Inc. (UNIsite). The purchase price was approximately $196.4 million,
which included a payment of $147.7 million in cash and the assumption of $48.7
million of debt. In February 2000, the Company repaid the debt assumed in
connection with the UNIsite transaction. Such repayment was at a premium of
the outstanding principal balance. Accordingly, the Company recognized an
extraordinary loss of $1.3 million (net of an income tax benefit of
$1.0 million) from the extinguishment of this debt in the first quarter of
2000.
USEI merger--In June 2000, the Company consummated its merger with U.S.
Electrodynamics, Inc. (USEI). The purchase price consisted of approximately
1.1 million shares of Class A common stock, $25.7 million in cash and options
to purchase 0.4 million shares of Class A common stock. The acquisition
involved around-the-clock teleport facilities in the Pacific Northwest, the
Southwest and the Northeast with a total of 52 antennas that access satellites
covering the continental United States and Pacific ocean region.
General Telecom acquisition--In June 2000, the Company consummated the stock
purchase of General Telecom, Inc. (General Telecom). The purchase price
consisted of $28.8 million in cash. The Company's acquisition of General
Telecom provides it with independent partition voice switching capabilities
and network management services at three major voice communications gateways
in New York, Miami and Los Angeles.
The following unaudited pro forma summary for the nine months ended
September 30, 2000 and 1999 presents the condensed consolidated results of
operations as if all of the 2000 acquisitions had occurred as of January 1,
1999 after giving effect to certain adjustments, including depreciation and
amortization of assets and interest expense on any debt incurred to fund the
acquisitions. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisitions been made as of January 1, 1999 or of
results that may occur in the future.
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, September 30,
2000 1999
------------- -------------
In thousands, except
per share data:
<S> <C> <C>
Revenues..................................... $ 545,175 $ 315,631
Net loss before extraordinary losses......... $(165,686) $(122,480)
Net loss..................................... $(170,024) $(122,480)
Basic and diluted loss per common share be-
fore
extraordinary losses........................ $ (1.00) $ (0.82)
Basic and diluted loss per common share...... $ (1.02) $ (0.82)
</TABLE>
Since October 1, 2000, the Company has consummated several acquisitions
(including Publicom, Inc., consummated by its wholly owned subsidiary
Verestar, Inc., formerly known as ATC Teleports, Inc.) for an aggregate
preliminary purchase price of approximately $157.2 million.
6
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited--(Continued)
In addition, the Company is party to various agreements relating to the
acquisition of assets and businesses from third parties, (including the
remaining portions of the AirTouch and AT&T transactions and two acquisitions
expected to be consummated by Verestar, Inc.), for an estimated aggregate cost
of approximately $113.3 million. Such transactions are subject to the
satisfaction of customary closing conditions which are expected to be met in
the fourth quarter of 2000 and in the first quarter of 2001. The Company is
also pursuing the acquisition of other properties and businesses in new and
existing locations, although no definitive material agreements have been
agreed to with respect to any such acquisitions.
5. Business Segments
The Company operates in three business segments: rental and management (RM),
services (Services), and Internet, voice, data and video transmission services
(IVDV). The RM segment provides for leasing and subleasing of antennae sites
on multi-tenant towers for a diverse range of wireless communication
industries, including personal communication services, paging, cellular,
enhanced specialized mobile radio, specialized mobile radio and fixed
microwave, as well as radio and television broadcasters. The Services segment
offers a broad range of network development services, including radio
frequency engineering, network design, site acquisition and construction,
zoning and other regulatory approvals, tower construction, and antennae
installation. This segment also offers a complete line of wireless
infrastructure components and fabricates steel used for broadcast towers and
other structures. The IVDV segment offers both domestic and international
satellite and Internet protocol network transmission services to Internet,
voice and data providers, as well as television networks, broadcasters, cable
programmers, major cruise lines and the U.S. military.
The accounting policies applied in compiling segment information below are
similar to those described in the Company's 1999 Annual Report on Form 10-K.
In evaluating financial performance, management focuses on segment operating
profit (loss) excluding depreciation and amortization, development and
corporate general and administrative expenses. This measure of operating
profit (loss) is also before interest income and other, net, interest income,
TV Azteca, interest expense, note conversion expense, minority interest in net
earnings of subsidiaries, income taxes and extraordinary losses.
The Company's reportable segments are strategic business units that offer
different services. They are managed separately because each segment requires
different resources and marketing strategies. In addition, all reported
segment revenues are generated from external customers.
Summarized financial information concerning the Company's reportable
segments as of and for the three and nine months ended September 30, 2000 and
1999 is shown in the following table (in thousands). The "Other" column below
represents amounts excluded from specific segments such as income taxes,
extraordinary losses, corporate general and administrative expense,
development expense, depreciation and amortization and interest. In addition,
"Other" also includes corporate assets such as cash and cash equivalents,
tangible and intangible assets and income tax accounts which have not been
allocated to specific segments.
7
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited--(Continued)
<TABLE>
<CAPTION>
Three Months Ended
September 30, RM Services IVDV Other Total
-------------------------- ---------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
2000
Revenues................ $ 75,535 $ 91,185 $ 42,238 $ 208,958
Operating profit
(loss)................. 38,200 15,444 10,178 $(103,349) (39,527)
Assets.................. 3,600,576 566,411 386,072 595,464 5,148,523
1999
Revenues................ $ 37,768 $ 22,710 $ 7,061 $ 67,539
Operating profit (loss)
....................... 20,165 5,973 1,640 $ (40,869) (13,091)
Assets.................. 1,630,886 489,207 92,229 408,236 2,620,558
<CAPTION>
Nine Months Ended
September 30, RM Services IVDV Other Total
-------------------------- ---------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
2000
Revenues................ $ 192,475 $203,363 $ 95,684 $ 491,522
Operating profit
(loss)................. 95,358 30,295 21,366 $(287,176) (140,157)
Assets.................. 3,600,576 566,411 386,072 595,464 5,148,523
<CAPTION>
1999
<S> <C> <C> <C> <C> <C>
Revenues................ $ 94,640 $ 54,948 $ 19,512 $ 169,100
Operating profit
(loss)................. 51,694 13,648 5,467 $(103,283) (32,474)
Assets.................. 1,630,886 489,207 92,229 408,236 2,620,558
</TABLE>
6. Financing Transactions
Credit Facilities--In January 2000, the Company completed its amended and
restated credit facilities (the New Credit Facilities) with its senior
lenders. The New Credit Facilities increased the borrowing capacity of the
Company and its Subsidiaries (Borrowers) to $2.0 billion, subject to certain
borrowing base restrictions, such as operating cash flow and construction cost
levels. The New Credit Facilities provide for a $650.0 million revolving
credit facility maturing on June 30, 2007, an $850.0 million multi-draw term
loan maturing on June 30, 2007 and a $500.0 million term loan maturing on
December 31, 2007. Subject to lender approval, the Borrowers may request the
New Credit Facilities to be increased up to an additional $500.0 million.
The New Credit Facilities are scheduled to amortize quarterly commencing on
March 31, 2003 through 2007 based on defined percentages of outstanding
commitment and principal balances. Interest rates for the revolving credit
facility and the multi-draw term loan are determined, at the option of the
Borrowers, at either 1.5% to 2.75% above LIBOR or 0.5% to 1.75% above the
defined base rate. Interest rates for the term loan are determined at either
3.0% to 3.25% above LIBOR or 2.0% to 2.25% above the defined base rate. The
Borrowers are required to pay quarterly commitment fees equal to 0.5% to 1.0%
per annum, depending on the level of facility usage. In addition, the New
Credit Facilities require maintenance of various financial covenants and
ratios and are cross-guaranteed and cross-collateralized by substantially all
of the assets of the Company. In connection with the repayment of existing
borrowings with proceeds from the New Credit Facilities, in January 2000 the
Company recognized an extraordinary loss on extinguishment of debt of
approximately $3.0 million, net of a tax benefit of $2.0 million. The total
amount outstanding under the New Credit Facilities as of September 30, 2000
was approximately $1.0 billion.
Under the terms of the New Credit Facilities, the Company is required to
maintain restricted funds in an interest reserve escrow account through 2001.
Such funds can only be used to make scheduled interest payments on the
Company's outstanding convertible notes. As of September 30, 2000, such
restricted funds were approximately $56.0 million and are included in cash and
cash equivalents in the accompanying September 30, 2000 balance sheet.
Convertible Note Issue--In February 2000, the Company completed a private
placement of $450.0 million 5% Convertible Notes (5% Notes), issued at 100% of
their face amount. The 5% Notes mature on February 15, 2010. Interest on the
5% Notes is payable semiannually on February 15 and August 15, commencing
August 15, 2000. The indenture governing the 5% Notes does not contain any
restrictions on the payment of dividends, the incurrence of debt or the
repurchase of the Company's equity securities or any financial covenants.
8
<PAGE>
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--Unaudited--(Continued)
The 5% Notes are convertible by the holders at any time into shares of the
Company's Class A common stock at a conversion price of $51.50 per share. The
Company cannot redeem the 5% Notes prior to February 20, 2003 and the Company
may be required to repurchase all or any of the 5% Notes on February 20, 2007
at their principal amount, together with accrued and unpaid interest. The
Company may, at its option, elect to pay the repurchase price in cash or
shares of Class A common stock or any combination thereof. Total net proceeds
from the 5% Notes were approximately $438.7 million. A portion of the proceeds
was used to pay off amounts outstanding under the New Credit Facilities. The
remaining proceeds were used to finance acquisitions and construction. The
total amount outstanding under the 5% Notes as of September 30, 2000 was
$450.0 million.
Convertible Notes Exchanges--In October 1999, the Company issued 6.25%
convertible notes due 2009 in an aggregate principal amount of $300.0 million
and 2.25% convertible notes due 2009 at an issue price of $300.1 million
representing 70.52% of their principal amount at maturity of $425.5 million.
During the second quarter of 2000, the Company acquired an aggregate of $87.3
million of its 6.25% convertible notes and $73.1 million of its 2.25%
convertible notes for an aggregate of 5,724,184 shares of Class A common
stock. As an inducement to the noteholders to convert all or a portion of
their holdings, the Company issued an aggregate of 402,416 shares of Class A
common stock to such holders in addition to the amounts issuable upon
conversion of those notes as provided in the applicable indentures. The
Company made these exchanges pursuant to negotiated transactions with a
limited number of noteholders. As a consequence of those exchanges, the
Company recorded note conversion expense of approximately $17.0 million during
the second quarter of 2000 which represents the fair value of incremental
stock issued to noteholders to induce them to convert their holdings prior to
the first scheduled redemption date. The Company may negotiate similar
exchanges from time to time in the future, subject to favorable market
conditions.
June Stock Offering--In June 2000, the Company completed a public offering
of 12,500,000 shares of its Class A common stock, $.01 par value per share at
$41.125 per share. The Company's net proceeds of the offering (after deduction
of the offering expenses) were approximately $513.6 million. The Company used
the proceeds to reduce borrowings under the New Credit Facilities and to
finance acquisitions and the construction of towers, as well as for general
working capital purposes. Certain selling stockholders sold an additional
1,182,000 shares in the offering of which the Company did not receive any
proceeds.
7. Note Receivable--TV Azteca (Related Party)
In December 1999, the Company signed definitive agreements to loan up to
$120.0 million to TV Azteca S.A. de C.V. (TV Azteca), the owner of a major
national television broadcast network in Mexico. The loan which earns interest
at 12.87%, payable quarterly, has been discounted by the Company, as the fair
value of the interest rate has been determined to be 14.25%. As of September
30, 2000, approximately $119.8 million undiscounted ($108.9 million
discounted) of the loan was outstanding. During 2000, the Company also assumed
marketing responsibility for approximately 190 broadcasting towers owned by TV
Azteca. Under the terms of the marketing agreement, the Company is entitled to
receive 100% of the revenues generated by third party leases and is
responsible for any incremental operating expenses associated with those
leases during the term of the loan. The initial term of the loan, twenty
years, may be extended by TV Azteca for an additional fifty years.
An executive officer and director of the Company became a director of TV
Azteca in December 1999.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
This discussion contains forward-looking statements, including statements
concerning projections, goals, plans, objectives, future events or performance
and underlying assumptions and other statements which are other than
statements of historical fact. Various factors affect the Company's results
and could cause the Company's actual results to differ materially from those
expressed in any forward-looking statement. Such factors include among other
things, statements concerning:
. the outcome of our growth strategy,
. future results of operations,
. liquidity and capital expenditures,
. construction and acquisition activities,
. debt levels and the ability to obtain financing and make payments on our
debt,
. regulatory developments and competitive conditions in the communications
site and wireless carrier industries,
. projected growth of the wireless communications and wireless carrier
industries,
. dependence on demand for satellites for internet data transmission and
. general economic conditions.
The Company is a wireless communications and broadcast infrastructure
company operating in three business segments:
. We operate a leading network of communications towers and are the
largest independent operator of broadcast towers in North America, based
upon numbers of towers owned and/or managed.
. We provide comprehensive network development services and components for
wireless service providers and broadcasters. We offer full turnkey
network development solutions to our customers, consisting of radio
frequency engineering, network design, site acquisition, zoning and
other regulatory approvals, construction management, tower construction,
and antenna installation. We also offer a complete line of wireless
infrastructure components, including lighting systems, and we fabricate
steel used for broadcast towers and other structures.
. We are a leading provider of domestic and international satellite and
Internet protocol network transmission services worldwide, based upon
numbers of teleport antennas and facilities. We own and operate more
than 160 antennas accessing most major satellite systems from U.S.
teleport locations in Arizona, California, Massachusetts, New Jersey,
Texas, Washington state and Washington, D.C.
During the nine month period ended September 30, 2000, we acquired various
communications sites, related businesses and teleports (and related
businesses) for an aggregate preliminary purchase price of approximately $1.5
billion. Management expects that acquisitions consummated to date will have a
material impact on future revenues, expenses and income from operations.
Results of Operations
As of September 30, 2000, the Company owned and/or operated approximately
10,300 communications sites, as compared to approximately 4,600 communications
sites as of September 30, 1999. The acquisitions consummated in 2000 and 1999
have significantly affected operations for the three and nine months ended
September 30, 2000, as compared to the three and nine months ended September
30, 1999. See the notes to the condensed consolidated financial statements and
the Company's Annual Report on Form 10-K for a description of the acquisitions
consummated in 2000 and 1999.
10
<PAGE>
Three Months Ended September 30, 2000 and 1999 (dollars in thousands)--
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
September 30, Amount of Percentage
-------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental and management.............. $ 75,535 $ 37,768 $ 37,767 100 %
Services........................... 91,185 22,710 68,475 302 %
Internet, voice, data and video
transmission services............. 42,238 7,061 35,177 498 %
--------- --------- --------
Total operating revenues........... 208,958 67,539 141,419 209 %
--------- --------- --------
Operating Expenses:
Rental and management.............. 37,335 17,603 19,732 112 %
Services........................... 75,741 16,737 59,004 353 %
Internet, voice, data and video
transmission services............. 32,060 5,421 26,639 491 %
--------- --------- --------
Total operating expenses excluding
depreciation and amortization,
development and corporate general
and administrative expenses....... 145,136 39,761 105,375 265 %
--------- --------- --------
Depreciation and amortization...... 75,973 35,111 40,862 116 %
Development expense................ 5,311 744 4,567 614 %
Corporate general and administra-
tive expense...................... 3,442 2,255 1,187 53 %
Interest expense................... 41,752 5,958 35,794 601 %
Interest income and other, net..... 6,560 3,162 3,398 107 %
Interest income, TV Azteca, net of
$296 of interest expense
(related party)................... 3,607 3,607 N/A
Minority interest in net losses
(earnings) of subsidiaries........ 140 (158) (298) (189)%
Income tax benefit................. 12,822 195 12,627 6,475 %
--------- --------- --------
Net loss........................... $ (39,527) $ (13,091) $ 26,436 202 %
========= ========= ========
</TABLE>
Rental and Management Revenue
Rental and management revenue for the three months ended September 30, 2000
was $75.5 million, an increase of $37.8 million from the three months ended
September 30, 1999. The majority of the increase is attributable to revenue
generated from tower acquisitions consummated and towers constructed
subsequent to September 30, 1999. The remaining factor contributing to the
increase is an increase in comparable tower revenue due to tower lease-ups for
towers that existed as of September 30, 1999.
Services Revenue
Services revenue for the three months ended September 30, 2000 was $91.2
million, an increase of $68.5 million from the three months ended September
30, 1999. The primary reasons for the increase are revenue generated from
acquisitions consummated in 2000 of approximately $32.0 million coupled with
an increase in revenue of approximately $36.5 million generated from our own
turn-key services business that existed as of September 30, 1999.
Internet, Voice, Data and Video Transmission Revenue
Internet, voice, data and video transmission (IVDV) revenue for the three
months ended September 30, 2000 was $42.2 million, an increase of $35.2
million from the three months ended September 30, 1999. The primary reason for
the increase is attributed to revenue of $32.1 million generated from
acquisitions consummated subsequent to the three months ended September 30,
1999. The remaining component of the increase, $3.1 million, is due to growth
in the overall IVDV business existing at September 30, 1999.
Rental and Management Expense
Rental and management expense for the three months ended September 30, 2000
was $37.3 million, an increase of $19.7 million from the three months ended
September 30, 1999. The majority of the increase is
11
<PAGE>
attributable to expenses from towers acquired or constructed subsequent to
September 30, 1999. The remaining factor contributing to the increase is an
increase in comparable tower expenses in the third quarter 2000 for towers
that existed as of September 30, 1999.
Services Expense
Services expense for the three months ended September 30, 2000 was $75.7
million, an increase of $59.0 million from the three months ended September
30, 1999. Approximately $28.0 million of the increase is due to acquisitions
consummated in 2000. The remaining component of the increase is attributable
to growth in the turn-key services business that existed as of September 30,
1999. The decline in margins of the services business as a whole was primarily
due to the acquisition of a lower margin business during 2000.
IVDV Expenses
IVDV expenses for the three months ended September 30, 2000 were $32.1
million, an increase of $26.6 million from the three months ended September
30, 1999. Approximately $22.0 million of the increase is attributable to
acquisitions consummated subsequent to the three months ended September 30,
1999. The remaining component of the increase is due to the growth in the
overall IVDV business existing at September 30, 1999 coupled with an increase
in overhead costs associated with supporting the segment's expanding business
and revenue base, and growth strategy.
Depreciation and Amortization
Depreciation and amortization for the three months ended September 30, 2000
was $76.0 million, an increase of $40.9 million from the three months ended
September 30, 1999. A component of the increase is attributable to an increase
in depreciation expense of $21.5 million. This is a direct result of the
Company's construction and acquisition of approximately $1.2 billion of
property and equipment from October 1, 1999 to September 30, 2000. The other
component of the increase is attributable to an increase in amortization
expense of $19.4 million, resulting from the Company's recording and
amortizing of approximately $1.2 billion of goodwill and other intangible
assets related to acquisitions consummated from October 1, 1999 to September
30, 2000.
Development Expense
Development expense for the three months ended September 30, 2000 was $5.3
million, an increase of $4.6 million from the three months ended September 30,
1999. The majority of the increase, $2.8 million, represents costs related to
tower site inspections and related data gathering. The remainder of the
increase, $1.8 million, represents integration expenses related to
acquisitions consummated from October 1, 1999 to September 30, 2000 and, to a
lesser extent, abandoned acquisitions and acquisition personnel costs. It is
expected that the Company will continue to incur these expenses as it
implements its growth strategy.
Corporate General and Administrative Expenses
Corporate general and administrative expenses for the three months ended
September 30, 2000 were $3.4 million, an increase of $1.2 million from the
three months ended September 30, 1999. The majority of the increase is a
result of higher personnel, marketing, professional services and information
technology costs associated with supporting the Company's increasing number of
towers, the growth of its other businesses, expanding revenue base, and growth
strategy.
Interest Expense
Interest expense for the three months ended September 30, 2000 was $41.8
million, an increase of $35.8 million from the three months ended September
30, 1999. The increase is attributable to an increase in interest expense
incurred on the Company's credit facilities of $21.6 million, convertible
notes of $12.9 million, and other notes payable of $1.6 million, and an
increase in deferred financing amortization of $1.5 million. These increases
were offset by an increase in capitalized interest related to construction
projects of $1.8 million.
12
<PAGE>
Interest Income and Other, Net
Interest income and other, net for the three months ended September 30, 2000
was $6.6 million, an increase of $3.4 million from the three months ended
September 30, 1999. The increase is primarily attributable to an increase in
interest earned on invested cash on hand of approximately $4.1 million, offset
by a decrease in interest earned on deposits for acquisitions and advances to
acquirees of $0.5 million, and an increase in losses on disposals of fixed
assets of approximately $0.2 million.
Interest Income-TV Azteca, Net (Related Party)
Interest income TV Azteca, net for the three months ended September 30, 2000
was $3.6 million. Amounts included within this caption represent interest
earned on the Company's notes receivable from TV Azteca of $3.9 million offset
by interest expense of $0.3 million. An officer and director of the Company
became a director of TV Azteca in December 1999.
Income Tax Benefit
The income tax benefit for the three months ended September 30, 2000 was
$12.8 million, an increase of $12.6 million from the three months ended
September 30, 1999. The primary reason for the increase is a result of the
Company's increase in its loss before income taxes and extraordinary losses
offset by an increase in amortization of non-deductible goodwill arising from
stock acquisitions consummated in the nine month period ended September 30,
2000 and the year ended 1999. The effective tax rate differs in both periods
from the statutory rate due to the effect of non-deductible items, principally
the amortization of goodwill on certain stock acquisitions and, for the three
months ended September 30, 2000, the non-deductible note conversion expense
from the second quarter of 2000, on which the Company has recorded no tax
benefit.
In assessing the realizability of the deferred tax asset, the Company
analyzed its forecast of future taxable income and concluded that
recoverability of the net deferred tax asset is more likely than not. The
realization of the deferred tax asset is not dependent upon significant
changes in the current relationship between income reported for financial and
tax purposes, or material asset sales or other transactions not in the
ordinary course of business.
13
<PAGE>
Nine Months ended September 30, 2000 and 1999 (Dollars in thousands)--
Unaudited
<TABLE>
<CAPTION>
Amount of Percentage
Nine Months Ended Increase Increase
September 30, (Decrease) (Decrease)
------------------- ---------- ----------
2000 1999
---- ----
<S> <C> <C> <C> <C>
Revenues:
Rental and management............... $ 192,475 $ 94,640 $ 97,835 103 %
Services............................ 203,363 54,948 148,415 270 %
Internet, voice, data and video
transmission services.............. 95,684 19,512 76,172 390 %
--------- -------- --------
Total operating revenues............ 491,522 169,100 322,422 191 %
--------- -------- --------
Operating Expenses:
Rental and management............... 97,117 42,946 54,171 126 %
Services............................ 173,068 41,300 131,768 319 %
Internet, voice, data and video
transmission services.............. 74,318 14,045 60,273 429 %
--------- -------- --------
Total operating expenses excluding
depreciation and amortization,
development, and corporate general
and administrative expenses........ 344,503 98,291 246,212 250 %
--------- -------- --------
Depreciation and amortization....... 198,264 92,919 105,345 113 %
Development expense................. 10,495 1,302 9,193 706 %
Corporate general and administrative
expense............................ 9,957 6,327 3,630 57 %
Interest expense.................... 112,339 17,497 94,842 542 %
Interest income and other, net...... 12,997 13,899 (902) (6)%
Interest income, TV Azteca, net of
$753 of interest expense (related
party)............................. 9,070 9,070 N/A
Note conversion expense............. 16,968 16,968 N/A
Minority interest in net losses
(earnings) of subsidiaries......... 82 (79) (161) (204)%
Income tax benefit.................. 43,036 942 42,094 4,469 %
Extraordinary losses on
extinguishment of debt............. 4,338 4,338 N/A
--------- -------- --------
Net loss............................ $(140,157) $(32,474) $107,683 332 %
========= ======== ========
</TABLE>
Rental and Management Revenue
Rental and management revenue for the nine months ended September 30, 2000
was $192.5 million, an increase of $97.8 million from the nine months ended
September 30, 1999. The majority of the increase is attributable to revenue
generated from tower acquisitions consummated and towers constructed
subsequent to September 30, 1999. The remaining factor contributing to the
additional revenue is an increase in comparable tower revenue due to tower
lease-ups for towers that existed as of September 30, 1999.
Services Revenue
Services revenue for the nine months ended September 30, 2000 was $203.4
million, an increase of $148.4 million from revenues for the nine months ended
September 30, 1999. The primary reasons for the increase are revenues
generated from acquisitions consummated in 2000 of approximately $68.0 million
coupled with an increase in revenue of $80.4 million generated from our turn-
key services business that existed as of September 30, 1999.
Internet, Voice, Data and Video Transmission Revenue
IVDV revenue for the nine months ended September 30, 2000 was $95.7 million,
an increase of $76.2 million from revenues for the nine months ended September
30, 1999. The primary reason for the increase
14
<PAGE>
is attributed to revenue of $66.3 million generated from acquisitions
consummated subsequent to September 30, 1999. The remaining component of the
increase, $9.9 million, is due to growth in the overall IVDV business existing
at September 30, 1999.
Rental and Management Expense
Rental and management expense for the nine months ended September 30, 2000
was $97.1 million, an increase of $54.2 million from the nine months ended
September 30, 1999. The majority of the increase is attributable to expenses
from towers acquired or constructed subsequent to September 30, 1999. The
remaining factor contributing to the increase is an increase in comparable
tower expenses in the nine month period ended September 30, 2000 for towers
that existed as of September 30, 1999.
Services Expense
Services expense for the nine months ended September 30, 2000 was $173.1
million, an increase of $131.8 million from the nine months ended September
30, 1999. Approximately $59.6 million of the increase is due to acquisitions
consummated in 2000. The remaining component of the increase is attributable
to growth in the turn-key services business that existed as of September 30,
1999. The decline in margins of the services business as a whole were due to
the acquisition of a lower margin business during 2000, coupled with
additional expenses incurred to shift the focus of the Company's construction
division from tower construction to antennae installation.
IVDV Expenses
IVDV expenses for the nine months ended September 30, 2000 were $74.3
million, an increase of $60.3 million from the nine months ended September 30,
1999. Approximately $45.6 million of the increase is attributable to
acquisitions consummated subsequent to September 30, 1999. The remaining
component of the increase is due to the growth in the overall IVDV business
existing at September 30, 1999 coupled with additional overhead costs
associated with supporting the segment's expanding business and revenue base,
and growth strategy.
Depreciation and Amortization
Depreciation and amortization for the nine months ended September 30, 2000,
was $198.3 million, an increase of $105.3 million from the nine months ended
September 30, 1999. A component of the increase is attributable to an increase
in depreciation expense of $51.5 million. This is a direct result of the
Company's purchase, construction and acquisition of approximately $1.2 billion
of property and equipment from October 1, 1999 to September 30, 2000. The
remaining component of the increase is attributable to an increase in
amortization of $53.9 million, resulting from the Company's recording and
amortizing of approximately $1.2 billion of goodwill and other intangible
assets related to acquisitions consummated from October 1, 1999 to September
30, 2000.
Development Expense
Development expense for the nine months ended September 30, 2000 was
$10.5 million, an increase of $9.2 million from the nine months ended
September 30, 1999. The majority of the increase, $5.8 million, represents
integration expenses related to acquisitions consummated from October 1, 1999
to September 30, 2000 and, to a lesser extent, abandoned acquisitions and
acquisition personnel costs. The remaining component of the increase,
$3.4 million, represents costs related to tower site inspections and related
data gathering. It is expected that the Company will continue to incur these
expenses as it implements its growth strategy.
Corporate General and Administrative Expense
Corporate general and administrative expense for the nine months ended
September 30, 2000, was $10.0 million, an increase of $3.6 million from the
nine months ended September 30, 1999. The majority of the
15
<PAGE>
increase is a result of higher personnel, marketing, professional services and
information technology costs associated with supporting the Company's
increasing number of towers, the growth of its other businesses, expanding
revenue base and growth strategy.
Interest Expense
Interest expense for the nine months ended September 30, 2000 was $112.3
million, an increase of $94.8 million from the nine months ended September 30,
1999. The net increase is attributable to an increase in the amount of
interest incurred on the Company's credit facilities of $52.5 million,
convertible notes of $39.3 million, other notes payable of $4.3 million and an
increase in deferred financing amortization of $4.4 million. These increases
were offset by an increase in capitalized interest related to construction
projects of $5.7 million.
Interest Income and Other, Net
Interest income and other, net for the nine months ended September 30, 2000
was $13.0 million, a decrease of $0.9 million from the nine months ended
September 30, 1999. The decrease is primarily attributable to a decrease in
interest earned on invested cash on hand of $2.5 million and an increase in
losses on disposals of fixed assets of $0.7 million, offset by an increase in
interest earned on deposits for acquisitions and advances to acquirees of
$2.3 million.
Interest Income-TV Azteca, Net (Related Party)
Interest income TV Azteca, net for the nine months ended September 30, 2000
was $9.1 million. Amounts included within this caption represent interest
earned on the Company's notes receivable from TV Azteca of $9.8 million offset
by interest expense of $0.7 million. An officer and director of the Company
became a director of TV Azteca in December 1999.
Note Conversion Expense
During the nine months ended September 30, 2000, the Company acquired a
portion of its 6.25% and 2.25% convertible notes in exchange for shares of
Class A common stock. As a consequence of those negotiated exchanges with
certain of its noteholders, the Company recorded note conversion expense of
$17.0 million during the second quarter of 2000, which represents the fair
value of incremental stock issued to noteholders to induce them to convert
their holdings prior to the first scheduled redemption date.
Income Tax Benefit
The income tax benefit for the nine months ended September 30, 2000 was
$43.0 million, an increase of $42.1 million from the nine months ended
September 30, 1999. The primary reason for the increase is a result of the
Company's increase in its loss before income taxes and extraordinary losses
offset by an increase in amortization of non-deductible goodwill arising from
stock acquisitions consummated in the nine month period ended September 30,
2000 and the year ended 1999. The effective tax rate differs in both periods
from the statutory rate due to the effect of non-deductible items, principally
the amortization of goodwill on certain stock acquisitions and for the nine
months ended September 30, 2000, the non deductible note conversion expense on
which the Company has recorded no tax benefit.
In assessing the realizability of the deferred tax asset, the Company
analyzed its forecast of future taxable income and concluded that
recoverability of the net deferred tax asset is more likely than not. The
realization of the deferred tax asset is not dependent upon significant
changes in the current relationship between income reported for financial and
tax purposes, or material asset sales or other transactions not in the
ordinary course of business.
Extraordinary Loss on Extinguishment of Debt
The Company incurred extraordinary losses on the extinguishment of debt, net
in the first quarter 2000 of $4.3 million. The losses were incurred as a
result of an amendment and restatement of our primary credit facility
16
<PAGE>
($3.0 million, net of a tax benefit of $2.0 million) and the Company's early
retirement of debt assumed as part of the UNIsite, Inc. merger ($1.3 million,
net of a tax benefit of $1.0 million).
Liquidity and Capital Resources
For the nine months ended September 30, 2000, cash flows used for operating
activities were $37.8 million, as compared to cash flows provided by operating
activities of $56.6 million for the nine months ended September 30, 1999. The
primary reasons for the decrease is due to increased interest payments, the
paydown of current liabilities assumed through acquisition and an increase in
current assets.
For the nine months ended September 30, 2000, cash flows used for investing
activities were $1.6 billion, as compared to $736.8 million for the nine
months ended September 30, 1999. The increase in 2000 is primarily due to an
increase in property and equipment expenditures of approximately $172.3
million coupled with a net increase in cash expended for mergers and
acquisitions, including related escrow deposits, notes receivable and
investments of approximately $697.8 million.
For the nine months ended September 30, 2000, cash flows provided by
financing activities were $1.8 billion, as compared to $535.7 million for the
nine months ended September 30, 1999. The increase is primarily related to
increased net borrowings under the Company's New Credit Facilities of $1.0
billion and the issuance of $450.0 million of convertible notes, offset by a
decrease in proceeds from the issuance of common stock.
The Company's liquidity needs arise from its acquisition-related activities,
debt service, working capital and capital expenditures associated principally
with its construction program. As of September 30, 2000, the Company
maintained approximately $206.5 million in cash and cash equivalents
(including restricted cash, see note 6), working capital of approximately
$255.2 million, and had approximately $650.0 million available under its New
Credit Facilities. During the fourth quarter of 2000, the Company has begun to
utilize availability under its New Credit Facilities to fund acquisitions.
Historically, the Company has met its operational liquidity needs with
internally generated funds and has financed its acquisitions and its
construction program, including related working capital needs, with a
combination of capital funds from sales of its equity and debt securities and
bank borrowings.
Credit Facilities--In January 2000, the Company completed its New Credit
Facilities with its senior lenders. The New Credit Facilities increased the
borrowing capacity of the Borrowers to $2.0 billion, subject to certain
borrowing base restrictions, such as operating cash flow and construction cost
levels. The New Credit Facilities provide for a $650.0 million revolving
credit facility maturing on June 30, 2007, an $850.0 million multi-draw term
loan maturing on June 30, 2007 and a $500.0 million term loan maturing on
December 31, 2007. Subject to lender approval, the Borrowers may request the
New Credit Facilities to be increased up to an additional $500.0 million.
The New Credit Facilities are scheduled to amortize quarterly commencing on
March 31, 2003 through 2007 based on defined percentages of outstanding
commitment and principal balances. Interest rates for the revolving credit
facility and the multi-draw term loan are determined, at the option of the
Borrowers, at either 1.5% to 2.75% above LIBOR or 0.5% to 1.75% above the
Defined Base Rate. Interest rates for the term loan are determined at either
3.0% to 3.25% above LIBOR or 2.0% to 2.25% above the defined Base Rate. The
Borrowers are required to pay quarterly commitment fees equal to 0.5% to 1.0%
per annum, depending on the level of facility usage. In addition, the New
Credit Facilities require maintenance of various financial covenants and
ratios and are cross-guaranteed and cross-collateralized by substantially all
of the assets of the Company. In connection with the repayment of existing
borrowings with proceeds from the New Credit Facilities, the Company
recognized an extraordinary loss on extinguishment of debt of approximately
$3.0 million, net of a tax benefit of $2.0 million, in the first quarter 2000.
Under the terms of the New Credit Facilities, the Company is required to
maintain restricted funds in an interest reserve escrow account through 2001.
Such funds can only be used to make scheduled interest payments on the
Company's outstanding convertible notes. As of September 30, 2000, such
restricted funds were approximately $56.0 million and are included in cash and
cash equivalents in the accompanying September 30, 2000 balance sheet.
February 2000 Convertible Note Issue--In February 2000, the Company
completed a private placement of $450.0 million 5% Convertible Notes, issued
at 100% of their face amount. The 5% Notes mature on February 15, 2010.
Interest on the 5% Notes is payable semiannually on February 15 and August 15,
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commencing August 15, 2000. The indenture governing the 5% Notes does not
contain any restrictions on the payment of dividends, the incurrence of debt
or the repurchase of the Company's equity securities or any financial
covenants.
The 5% Notes are convertible by the holders at any time into shares of the
Company's Class A common stock at a conversion price of $51.50 per share. The
Company cannot redeem the 5% Notes prior to February 20, 2003 and the Company
may be required to repurchase all or any of the 5% Notes on February 20, 2007
at their principal amount, together with accrued and unpaid interest. The
Company may, at its option, elect to pay the repurchase price in cash or
shares of Class A common stock or any combination thereof. Total net proceeds
from the 5% Notes were approximately $438.7 million. A portion of the proceeds
was used to pay off amounts outstanding under the Company's New Credit
Facilities. The remaining proceeds were used to finance acquisitions and
construction.
Convertible Notes Exchanges--During 2000, the Company acquired an aggregate
of $87.3 million of its 6.25% convertible notes and $73.1 million of its 2.25%
convertible notes for an aggregate of 5,724,184 shares of Class A common
stock. As an inducement to the noteholders to convert all or a portion of
their holdings, the Company issued an aggregate of 402,416 shares of Class A
common stock to such holders in addition to the amount issuable upon
conversion of the notes as provided in the applicable indentures. The Company
made these exchanges pursuant to negotiated transactions with a limited number
of noteholders. As a consequence of those exchanges, the Company recorded note
conversion expense of $17.0 million during the second quarter of 2000. The
Company may negotiate similar exchanges from time to time in the future,
subject to favorable market conditions.
June Stock Offering--In June 2000, the Company completed a public offering
of 12,500,000 shares of its Class A common stock, $.01 par value per share at
$41.125 per share. The Company's net proceeds of the offering (after deduction
of offering expenses) were approximately $513.6 million. The Company used a
portion of the proceeds to reduce borrowings under the New Credit Facilities
and to finance acquisitions and the construction of towers, as well as for
general working capital purposes. Certain selling stockholders sold an
additional 1,182,000 shares in the offering of which the Company did not
receive any proceeds.
As of September 30, 2000, the Company had approximately $2.0 billion of
long-term debt, of which $1.0 billion was outstanding under its credit
facilities and $918.9 million was outstanding in the form of convertible
notes. Debt service requires a substantial portion of the Company's cash flow
from operations. Accordingly, the Company's leverage could make it vulnerable
to a downturn in the operating performance of its operations or in economic
conditions. The Company believes that its cash flows from operations will be
sufficient to meet its debt service requirements for interest on all of its
outstanding debt and scheduled payments of principal under the New Credit
Facilities. If such cash flow were not sufficient to meet such debt service
requirements, the Company might sell equity securities, refinance its
obligations or dispose of one or more of its properties in order to make such
scheduled payments. The Company may not be able to effect any of these
transactions on favorable terms. The Company believes that is has sufficient
financial resources available to it, including borrowings under its credit
facilities, to finance operations for the foreseeable future.
During the nine months ended September 30, 2000, the Company had capital
expenditures of approximately $346.2 million primarily related to construction
activities and completed the construction of approximately 1,100 towers. The
Company's 2000 business plan calls for total capital expenditures of
approximately $504.6 million. Included in that plan (exclusive of broadcast
towers, but inclusive of the Company's commitment under build-to-suit
agreements) is the construction of approximately 1,500 towers for its own
account at a cost of between $247.5 million and $300.0 million. In addition,
the plan includes the construction of approximately 12 broadcast towers at an
estimated cost of $48.0 million to $60.0 million. Remaining capital
expenditures relate to enhancements in information technology, infrastructure,
and structural improvements. Management believes that the Company has
sufficient funds available to finance current construction plans and pending
acquisitions.
Management expects that the consummated acquisitions and current and future
construction activities will have a material impact on liquidity. Management
believes that the acquisition activities, once integrated, will have a
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favorable impact on liquidity and will offset the initial effects of the
funding requirements. Management also believes that the construction
activities may initially have an adverse effect on the future liquidity of the
Company as newly constructed towers will initially decrease overall liquidity.
However, as such sites become fully operational and achieve higher
utilization, they should generate tower cash flow, and, in the long-term,
increase liquidity.
ATC Separation--The Company continues to be obligated under the ATC
Separation agreement for certain tax liabilities to CBS Corporation and
American Radio Systems. As of September 30, 2000, no matters covered under
this indemnification have been brought to the Company's attention.
Acquisitions--As of September 30, 2000, the Company was a party to various
agreements relating to the acquisition of assets or businesses from various
third parties. See note 4 of the condensed consolidated financial statements.
Recent Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (FAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended in May 1999 by FAS
No. 137 "Accounting for Derivative Instruments and Hedging Activities--
Deferral of the Effective Date of FASB Statement No. 133--An Amendment of FASB
Statement No. 133." This Statement establishes accounting and reporting
standards for derivative instruments. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position, and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative (that is, gains and losses) will
depend on the entity's intended use of the derivative and its resulting
designation (as defined in the statement). FAS No. 133, as amended, will be
effective for the Company on January 1, 2001. The Company is currently in the
process of evaluating the impact FAS No. 133 will have on the Company and its
consolidated financial statements.
The SEC has issued Staff Accounting Bulletin (SAB) No. 101 "Revenue
Recognition," which provides the SEC staff's views in applying generally
accepted accounting principles to selected revenue recognition issues. SAB No.
101 will be effective for the Company on October 1, 2000. The Company does not
believe the adoption of SAB No. 101 will be material to its consolidated
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on its
long-term debt obligations. The Company attempts to reduce these risks by
utilizing derivative financial instruments, namely interest rate caps, swaps
and floortions pursuant to Company policies. All derivative financial
instruments are for purposes other than trading.
The Company did not increase its borrowings under its credit facility or
enter into any interest rate hedge agreements during the three months ended
September 30, 2000.
The Company maintains a portion of its cash and cash equivalents in short-
term financial instruments which are subject to interest rate risks. Due to
the relatively short duration of such instruments and the Company's
expectation that such investments will not be significant on an ongoing basis,
fluctuations in interest rates with respect to such investments should not
materially affect its financial condition or results of operations.
The Company's potential loss in future earnings over the next twelve months
as a result of a 10% increase in interest rates related to its long term debt
obligations (with variable interest rates) (using a weighted average interest
rate of 9.5% at September 30, 2000) would be approximately $9.8 million.
For the three month period ended September 30, 2000, the Company has not
incurred any material changes with respect to the interest rates, long-term
debt and interest rate caps and swaps disclosed
under this section in its quarterly reports on Form 10-Q for the three month
periods ended June 30, 2000 and March 31, 2000 and its Annual Report on Form
10-K. Accordingly, refer to those reports for a more detailed discussion.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company periodically becomes involved in various claims and lawsuits
that are incidental to its business. In the opinion of management, after
consultation with counsel, there are no matters currently pending that would
have a material impact on the Company's consolidated financial position, the
results of its operations or liquidity.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Listed below are the exhibits which are filed as part of this Form 10-Q
(according to the number assigned to them in Item 601 of Regulation S-K).
<TABLE>
<CAPTION>
Exhibit
No. Description of Document Exhibit File No.
------- ----------------------- ----------------
<C> <S> <C>
3(i) Restated Certificate of
Incorporation, as amended,
of the Incorporated by reference to
Company as filed with the Exhibit 3(i) from Company's
Secretary of State of the Quarterly Report on Form 10-Q
State (File No. 001-14195) filed on
of Delaware on June 4, August 16, 1999.
1999.......................
3(ii) Bylaws, as amended, of the Incorporated by reference to Exhibit 3.2
Company.................... from Company's Registration Statement
on Form S-3 (File No. 333-37988) filed
on May 26, 2000.
10.1 First Amendment and Waiver
Agreement, dated as of
February 9, 2000, by and
among American Tower, L.P.,
American Towers, Inc. and
ATC Teleports, Inc., as
Borrowers and Toronto
Dominion (Texas) Inc., as
Administrative Agent, and
the Bank Parties thereto... Filed herewith as Exhibit 10.1
10.2 Second Amendment to Amended
and Restated Loan
Agreement, dated as of May
11, 2000, by and among
American Tower, L.P.,
American Towers, Inc. and
ATC Teleports, Inc., as
Borrowers and Toronto
Dominion (Texas) Inc., as
Administrative Agent, and
the Bank Parties thereto... FIled herewith as Exhibit 10.2
10.3 Waiver and Third Amendment
to Amended and Restated
Loan Agreement, dated as of
October 13, 2000, among
American Tower, L.P.,
American Towers, Inc. and
ATC Teleports, Inc., as
Borrowers and Toronto
Dominion (Texas) Inc., as
Administrative Agent, and
the Bank Parties thereto... Filed herewith as Exhibit 10.3
27 Financial Data Schedule.... Filed herewith as Exhibit 27
</TABLE>
(b) Reports on Form 8-K.
1. Form 8-K (Items 2) filed on July 28, 2000.
2. Form 8-K (Item 5) filed on August 1, 2000.
3. Form 8-K (Item 7) filed on August 14, 2000.
4. Form 8-K (Item 2) filed on September 11, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
American Tower Corporation
By: /s/ Joseph L. Winn
Date: November 13, 2000 ----------------------------------
Joseph L. Winn
Treasurer & Chief Financial
Officer
(Duly Authorized Officer)
Date: November 13, 2000 By: /s/ Justin D. Benincasa
----------------------------------
Justin D. Benincasa
Senior Vice President & Corporate
Controller
(Duly Authorized Officer)
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