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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File 001-14195
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AMERICAN TOWER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 65-0723837
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or organization)
116 Huntington Avenue
Boston, Massachusetts 02116
(Address of principal executive offices and Zip Code)
(617) 375-7500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Name of exchange on
(Title of Class) which registered)
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Class A Common Stock, New York Stock Exchange
$0.01 par value
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
None
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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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of March 25, 2002 was approximately
$951,059,506. As of March 25, 2002, 185,018,963 shares of Class A Common Stock,
8,001,769 shares of Class B Common Stock and 2,267,813 Shares of Class C Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement (the "Definitive Proxy
Statement") to be filed with the Securities and Exchange Commission relative to
the Company's 2002 Annual Meeting of Stockholders are incorporated by reference
into Part III of this Report.
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TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT FISCAL YEAR ENDED DECEMBER 31, 2001
Page
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PART I.
ITEM 1. Business............................................................................. 2
ITEM 2. Properties........................................................................... 18
ITEM 3. Legal Proceedings.................................................................... 19
ITEM 4. Submission of Matters to a Vote of Security Holders.................................. 19
PART II.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 19
ITEM 6. Selected Financial Data.............................................................. 20
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 41
ITEM 8. Financial Statements and Supplementary Data.......................................... 43
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 43
PART III.
ITEM 10. Directors and Executive Officers of the Registrant................................... 44
ITEM 11. Executive Compensation............................................................... 45
ITEM 12. Security Ownership of Certain Beneficial Owners and Management....................... 45
ITEM 13. Certain Relationships and Related Transactions....................................... 45
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 45
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements relating to our
goals, beliefs, plans or current expectations and other statements that are not
of historical facts. For example, when we use words such as "project,"
"believe," "anticipate," "plan," "expect," "estimate," "intend," "should,"
"would," "could" or "may," or other words that convey uncertainty of future
events or outcome, we are making forward-looking statements. These
forward-looking statements may be found under the headings "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," as well as in this annual report generally. They include, but are
not limited to, our statements regarding the following topics: (1) the
continued rise in the use and the number of subscribers of wireless
communication services; (2) our belief that wireless carriers will need to add
more cell sites to meet that demand and its impact on our revenues; (3) our
belief that we can utilize our existing tower portfolio to give us continued
organic revenues and cash flows growth; (4) our ability to continue to access
availability under our credit facilities to fund our business plan and to
comply with the covenants contained in our credit facilities; (5) the impact of
the slowdown in capital expenditures by wireless carriers on our future
financial performance, long-term growth rates, liquidity and free cash flow
position; and (6) our estimate that our operations will become free cash flow
positive during 2003. Certain important factors may cause actual results to
differ materially from those indicated by our forward-looking statements,
including those set forth under the caption "Business-Factors That May Affect
Future Results". Forward-looking statements represent management's current
expectations and are inherently uncertain. We do not undertake any obligation
to update forward-looking statements made by us.
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PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading wireless and broadcast communications infrastructure
company. Our primary business is leasing antenna space on multi-tenant
communication towers to wireless and broadcast companies. We operate the
largest portfolio of wireless communications towers in North America and are
the largest independent operator of broadcast towers in North America, based on
number of towers. Our tower portfolio provides us with a substantial recurring
base of leasing revenues from our existing customers, the additional capacity
to add more antennae to these towers, and the network of towers capable of
addressing the needs of wireless service providers on a national basis.
To complement our core business of leasing antennae space, we also provide a
full array of related services, including network design, radio frequency
engineering, site acquisition, zoning, tower construction, component parts,
antennae and line installation, maintenance and tower monitoring. These
capabilities enable us to provide a full service solution to our customers'
tower infrastructure needs and generate related revenues that are additive to
our core leasing business. In addition, our service capabilities enable us to
respond cost-effectively to demand for new towers by giving us the flexibility
to construct and operate our own towers at costs to us that are generally less
than acquiring towers.
Our goal is to capitalize on the increasing use of wireless communication
services by actively marketing space available for leasing on our existing
towers, providing related tower services to our leasing customers, and
selectively developing or acquiring new towers that meet our return on
investment criteria. We target as customers financially sound wireless service
providers that are improving or extending their infrastructure.
We operate our business in three segments: rental and management; network
development services; and satellite and fiber network access services. Our
operating revenues and divisional cash flows for the year ended December 31,
2001 were $1.1 billion and $300.5 million, respectively. Our three business
segments accounted for the following percentages of operating revenues and
divisional cash flows for the year ended December 31, 2001:
Operating Divisional
Business Segment Revenues Cash Flows*
---------------- --------- -----------
. Rental and management 39.2% 81.3%
. Network development services 40.0% 16.2%
. Satellite and fiber network access services 20.8% 2.5%
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* Divisional cash flows means (loss) income from operations before
depreciation and amortization and restructuring, development, and
corporate general and administrative expenses, plus interest income -
TV Azteca, net.
Our rental and management segment tower leasing activities generate the
highest profit margins. We believe those activities are likely to grow more
rapidly than our other segments because of increased utilization of our
existing towers. For more financial information about our business segments and
geographic information about our operating revenues and long-lived assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and note 15 to our consolidated financial statements included in
this annual report.
STRATEGY
Our strategy is to capitalize on the increasing use of wireless
communication services. From December 1995 to December 2000, the number of
wireless phone subscribers increased from 33.8 million to 109.5 million and the
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minutes of use of wireless phone services increased from 37.8 billion to 258.9
billion among major wireless carriers in the United States. During the same
period, the number of cell sites increased from 22,700 to 104,300 sites.* We
expect that the continued growth of wireless subscribers and minutes of use of
wireless phone services will further require wireless carriers to add a
significant number of additional cell sites to maintain the performance of
their networks in the areas in which they currently cover. In addition, we
believe that when data wireless services, such as email and internet access,
are deployed on a widespread basis they will require wireless carriers to
increase further the cell density of their existing networks, and require
geographical expansion of their network coverage. To meet this demand, we
believe wireless carriers will continue to outsource their tower infrastructure
needs as a means of speeding access to their markets and preserving capital,
rather than constructing and operating their own towers and maintaining their
own tower service and development capabilities.
We believe that our existing portfolio of towers, our tower related services
and network development capabilities, and our management team, position us to
benefit from these trends and to play an increasing role in addressing the
needs of wireless service providers and broadcasters. The key elements of our
strategy include:
. MAXIMIZE UTILIZATION OF OUR TOWER CAPACITY. We believe that our existing
portfolio of towers provides us with a significant base to continue our
organic growth in our rental and management business by leasing additional
antennae space on these towers. Organic same tower revenues and cash flows
growth in our rental and management segment for the 8,751 towers that we
owned both at the beginning of the fourth quarter 2000 and at the beginning
of the fourth quarter 2001 was 20% and 26%, respectively. We anticipate
continuing to grow our revenues and cash flows because many of our towers
have significant capacity available for additional antenna space rental that
we can utilize at low incremental costs to us. Because the costs of
operating a tower are largely fixed, increasing utilization significantly
improves tower operating margins. We will continue to use our targeted sales
and marketing techniques to increase utilization of, and investment return
on, our existing towers.
. LEVERAGE OUR EXTENSIVE TOWER SERVICE CAPABILITIES. We intend to use our
extensive service capabilities to generate related revenues that are
additive to our core leasing business and to minimize the cost of any new
tower sites we may add based on our return on investment criteria. Tenants
who lease antenna space on our towers need a variety of additional products
and services, including network design, radio frequency engineering, site
acquisition, zoning, tower construction, component parts, antennae and line
installation, maintenance and tower monitoring. Tenants often outsource some
or all of these services to third parties, including us. We believe our
ability to offer a full array of products and services and our preexisting
relationship with the tenants on our towers position us well to provide
these products and services and to capture more incremental revenues.
We also intend to take advantage of our extensive experience and
capabilities as a developer of new towers when responding to demand by
wireless carriers for new towers. We can construct and operate towers at
costs to us that are generally less than the cost related to acquiring
towers. This cost-efficiency enables us to reduce the average cost to own
and operate our towers. As a result, we plan to emphasize selective new
tower development for the foreseeable future in responding to demand by
wireless carriers.
. CONTINUE OUR FOCUS ON CUSTOMER SERVICE. Since speed to market and reliable
network performance are critical components to the success of wireless
service providers, our ability to assist our customers in meeting their
goals will ultimately define our success. To that end, we intend to continue
to focus on our customer service by, for example, reducing cycle time for
key functions, such as lease processing and antennae and line installations.
. BUILD ON STRONG RELATIONSHIP WITH MAJOR WIRELESS CARRIERS. Our
understanding of the network needs of our wireless carrier customers and our
ability to convey effectively how we can satisfy those needs is key
- --------
* Subscriber and use information includes only cellular, personal
communication services, and enhanced specialized mobile radio wireless
services. The term cell site above refers to the number of antennae and
related equipment in commercial operation, not the number of towers on which
that equipment is attached.
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to our efforts to add new antennae leases, cross-sell our services and win
desirable new tower development projects. We are building on our strong
relationship with our customers to gain more familiarity with their evolving
network plans so we can identify opportunities where our nationwide
portfolio of towers, extensive service offerings and seasoned construction
capabilities can be used to satisfy their needs. We believe that we are well
positioned to be a preferred partner to major wireless carriers in leasing
tower space and new tower development projects because of our proven
operating experience and the national scope of our tower portfolio and
services.
. EMPLOY SELECTIVE CRITERIA FOR NEW TOWER CONSTRUCTION AND ACQUISITIONS. We
believe that the unused capacity of our existing tower portfolio is capable
of addressing the current needs of many wireless service providers. Because
of this capacity and our desire to increase the near term returns on our
capital, we have adopted more selective criteria for new tower development
and acquisitions. We expect that the application of these new criteria will
increase our return on investments in new towers we build or acquire.
. ACTIVELY MANAGE OUR TOWER PORTFOLIO. We plan to pursue exchanges and sales
of towers or tower clusters with other tower operators and other entities.
Our goal is to enhance operating efficiencies by either acquiring towers in
regions where we have insufficient coverage or disposing or exchanging
towers in areas where we do not have operating economies of scale. If we are
successful in disposing of certain tower assets, we may redeploy proceeds
received in more productive tower assets.
OPERATIONAL INITIATIVES
In the latter half of 2001, the major wireless carriers reduced their
planned capital expenditures for geographic network expansion. In the near
term, we expect wireless carriers to make capital expenditures primarily to
increase the density of their current network coverage and improve the quality
of service to their existing subscribers, while selectively investing to expand
network coverage. We believe that the increasing minutes of use of wireless
phone service and number of wireless phone subscribers will continue to require
wireless carriers to add a significant number of additional cell sites to
maintain the performance of their networks in the areas which they currently
cover.
Because we believe that our existing tower portfolio has the scope and
available capacity to address a significant portion of these needs, we have
lowered our planned capital expenditures for 2002 on new tower development and
acquisitions. Our 2002 capital budget provides for total expenditures of
approximately $200.0 million to $225.0 million, which includes towers to be
built under existing build-to-suit agreements, compared to total capital
expenditures of approximately $568.0 million in 2001. In contrast to 2001,
during which we built approximately 1,300 towers, including five broadcast
towers, our 2002 plans call for the construction of between 400 and 500 towers,
including nine broadcast towers. In addition, we have adopted more selective
criteria for new tower development. We will not undertake new tower development
unless the project is likely to meet our heightened near term return on
investment criteria.
PRODUCTS AND SERVICES
We offer our products and services through three business segments:
. Rental and management;
. Network development services; and
. Satellite and fiber network access services.
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RENTAL AND MANAGEMENT
Leasing of Antennae Sites. Our primary business is renting antenna space to
wireless and broadcast companies on multi-tenant communications towers. We
operate a tower network of approximately 14,500 multi- user sites in the United
States, Mexico and Brazil, including more than 300 broadcast tower sites.
Approximately 13,600 of these towers are owned or leased sites and
approximately 900 are managed sites or lease/sublease sites under which we hold
a position as lessee that is co-terminus with a related sublease. Our networks
in the United States and Mexico are national in scope. Our U.S. network spans
49 states and the District of Columbia. In addition, 83% of our U.S. network
provides coverage in the top 100 markets or core areas such as high traffic
interstate corridors. Our Mexican network includes more than 1,100 sites in
highly populated areas, including Mexico City, Monterrey, Guadalajara and
Acapulco. Our Brazilian network is located in the high-growth southern part of
Brazil, as well as in certain northern and central-western cities that have a
total population of approximately 40.0 million.
We lease antenna space on our towers to tenants in a diverse range of
wireless communications and broadcast industries. Wireless industries we serve
include: personal communications services, cellular, enhanced specialized
mobile radio, specialized mobile radio, paging, fixed microwave and fixed
wireless. Our major customers include ALLTEL, AT&T Wireless Services, Cingular
Wireless, Nextel, Sprint PCS, Verizon and Voicestream.
The number of antennae that our towers can accommodate varies depending on
whether the tower is broadcast or non-broadcast, and on the tower's location,
height, and the loaded capacity at certain wind speeds. An antenna's height on
a tower and the tower's location determine the line-of-sight of the antenna
with the horizon and, consequently, the distance a signal can be transmitted.
Some of our customers, including paging companies and specialized mobile radio
providers in rural areas, need higher elevations for broader coverage. Other
customers, such as personal communications services, enhanced specialized
mobile radio and cellular companies in metropolitan areas, usually do not need
to place their equipment at the highest tower point. We believe that many well
engineered and well located towers built to serve the specifications of an
initial anchor tenant in the wireless communications sector will attract three
or more wireless tenants over time, thereby increasing revenue and enhancing
margins.
Lease Terms. Our leases, like most of those in the industry, generally vary
depending upon the region and the industry user. Television and radio
broadcasters prefer long-term leases, while wireless communications providers
favor leases in the range of five to ten years in duration. In both cases, the
leases often have multiple renewal terms at the option of the tenant.
Tenants tend to renew their leases because of the complications and costs
associated with moving antennae. For example, in the case of cellular, personal
communications services and other wireless users, moving one antennae might
necessitate moving or adjusting several others because of the interlocking
grid-like nature of wireless systems. Moreover, a move by a television or radio
broadcaster would necessitate FCC approval and could entail major dislocations
and the uncertainty associated with building antennae in new coverage areas. In
addition, the increasing difficulty of obtaining local zoning approvals, the
increasing environmental concerns of communities, and the restrictions imposed
by the Federal Aviation Administration and FCC tend to reduce the number of
choices available to a tower user.
Most of our leases have escalator provisions. These automatic increases are
most frequently based on a fixed amount. They are also sometimes based on
increases in the consumer price index.
Annual rental payments vary considerably depending upon:
. size of the transmission line and the number and weight of the antennae
on the tower;
. geographic location of the tower;
. existing capacity of the tower;
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. the placement of the customer's antenna on the tower;
. frequency spectrum;
. the location and height of the tower on which antenna space is rented;
and
. the competitive environment.
Tower Development. Historically, cellular and other wireless service
providers had constructed and owned a majority of the towers for their antennae
needs, rather than leasing space on towers from a third party. Beginning a few
years ago, wireless service providers expressed a growing interest in having
independent companies own and operate the towers for their antennae. This trend
resulted in our entering into agreements with a number of wireless carriers to
construct and subsequently lease space on towers in key areas identified as
optimal for their network expansion requirements. In most cases, because we own
the constructed towers, we are able to lease space on them to other tenants, as
well as to the anchor tenant.
Communications Site Management Business. We are a leading manager of
communications sites. A central aspect of this business is the development by
us of new sources of revenue for building owners by effectively managing all
aspects of rooftop and ground tower telecommunications, including rooftop
infrastructure construction services.
Our management contracts for these sites are generally for a period of five
years and contain automatic five-year renewal periods, subject to termination
by either party before renewal. Under these contracts, we are responsible for a
wide range of activities, including: marketing antennae sites on the tower,
reviewing existing and negotiating future license agreements with tenant users,
managing and enforcing those agreements, supervising repairs and maintenance
and installation of equipment by tenants and site billing, collections and
contract administration. For such services, we are entitled to a percentage of
lease payments, which is higher for new tenants than for existing tenants.
NETWORK DEVELOPMENT SERVICES
Through ATC Integrated Services, we provide comprehensive network
development services for both wireless service providers and broadcasters. We
offer full turnkey network development solutions to our customers, including
network design, radio frequency engineering, site acquisition, zoning, tower
construction, component parts, antennae and line installation, maintenance and
tower monitoring. We provide network development services to most of the major
wireless service providers. and have constructed or are constructing towers for
a variety of wireless and broadcast companies. We also construct towers for our
rental and management segment.
Our ability to provide this full range of services is an important component
in our business model because these services:
. enhance our overall returns as our costs for constructing towers for our
rental and management segment are generally lower than those we acquire;
. strengthen our existing customer relationships by increasing our
knowledge of their network needs, which we believe leads to greater
customer satisfaction and the opportunity to offer them other services;
. increase recurring revenues and cash flow from our towers; and
. make us a more attractive choice for turnkey projects since we believe
wireless carriers prefer to work with a national company, rather than
contract with multiple vendors, to address their tower-related needs.
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Construction and Antennae and Line Installation. We are one of the leading
builders of wireless and broadcast towers. Our ATC Tower Services unit has over
30 years of wireless tower construction and equipment installation experience.
We also own and operate Kline Iron & Steel, an experienced steel fabricator and
builder of broadcast towers. The following table shows the approximate number
of towers that we constructed, utilizing various areas of expertise within our
network development services segment, for our own account during 1999, 2000,
and 2001 and our projection for 2002:
Number of Towers
Year Constructed
---- ----------------
1999............................ 1,000
2000............................ 1,600
2001............................ 1,300
2002--Projection................ 400-500
For third party construction, we bill customers on a fixed price or time and
materials basis, and we may negotiate fees on individual sites or for groups of
sites. The cost of construction of a tower varies both by site location and
terrain, tower type and height, and any governmental or environmental
requirements. Non-broadcast towers, whether on a rooftop or the ground,
generally cost between $200,000 and $250,000. Broadcast towers are generally
much taller and are built to bear a greater load. The costs of broadcast towers
are significantly greater than non-broadcast towers and vary considerably based
on size, location and terrain.
As part of our construction services and as a separate service offering, we
provide antennae and line installation and maintenance services. These services
use not only our construction-related skills, but also our technical expertise
to ensure that new installations do not cause interference with other tenants.
We believe that in 2002 our antennae and line installation services and
maintenance capabilities will provide us with a significant opportunity to
capture incremental revenue on existing and newly built sites, as carriers
shift their focus from geographic network expansion to maximizing their
existing network capacity.
Kline Iron & Steel also performs non-tower related steel fabrication,
including its current work on a large office project pursuant to a multi-year
agreement.
Wireless Components. We sell tower related parts and equipment to wireless
and broadcast companies, including antennae fasteners and other mounting
components, waveguide bridge products, square support rail, tower lighting
systems, and tower safety products. We also manufacture wireless components for
several large wireless communications equipment vendors who market these
products under their own brand names.
Engineering Consulting Services and Network Design. We provide a number of
engineering services that enable our customers to plan new wireless networks,
modify existing tower networks, and improve the quality of their networks.
These engineering services include design of wireless broadband and data and
radio frequency networks, drive testing, performance engineering, and wireless
broadband and data network design and implementation, upgrading networks to the
next generation of broadcast technology, which is often referred to as "3G" or
third-generation technologies, transport engineering, and interconnection and
microwave services.
Site Acquisition and Zoning Services. We engage in site acquisition
services for our own account, in connection with tower development projects and
other proprietary construction, as well as for third parties. The site
selection and acquisition process begins with the network design. We identify
highway corridors, population centers and topographical features within the
carrier's existing or proposed network. We then select the most suitable sites,
based on demographics, traffic patterns and signal characteristics. Upon
customer approval of the site, we typically provide zoning related services,
working with the local zoning/planning board to obtain the necessary approval.
If we receive approval, our customer typically engages us to supervise the
construction of the towers or to construct the towers ourselves.
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SATELLITE AND FIBER NETWORK ACCESS SERVICES
Our Verestar subsidiary is a leading provider of integrated satellite and
fiber network access services for telecommunications companies, internet
service providers (ISP), broadcasters, maritime customers, and governmental
organizations, both domestic and international. We own and operate more than
175 satellite antennae at ten satellite network access points, which we refer
to as SNAPs, in Florida, California, Massachusetts, New Jersey, Texas,
Washington state, and the Washington, D.C. area and one in Switzerland. Our
satellite network access points in the U.S. and in Switzerland enable us to
access the majority of commercial satellites around the world. Our customers
include many of the major U.S. and foreign broadcasters. Our maritime customers
include a number of major cruise lines.
Verestar transmits Internet traffic and voice, video and other data through
the integration of the following services:
. Teleport Services. Verestar operates ten satellite network access
points. These SNAPs consist of over 175 satellite antennae, transmitting
and receiving electronics and connectivity to major terrestrial fiber
routes and the Internet. These SNAPs are capable of uplinking and
downlinking data, voice and video (both analog and digital) to
satellites in the Atlantic, Pacific and Indian Ocean regions. Some of
our SNAPs also provide telemetry, tracking and control and communication
systems for the launch and maintenance of satellites in orbit. Each SNAP
is operated 24 hours a day, 365 days a year.
. Satellite Services. Verestar is one of the largest independent lessees
of satellite capacity for the transmission of Internet and other data
around the world. Verestar sells capacity through contracts generally
with a minimum term of one year and also offers spot market capacity on
an as-needed basis to news networks in the United States.
. Network Access Services. Verestar offers customers connections to their
choice of leading Internet services and high-speed fiber backbone
providers. Certain services allow customers to select the fastest
available Internet connection on a per packet basis. Verestar also
offers long-haul fiber connectivity between select markets in the United
States and internationally.
. Switching Services. Verestar operates carrier-class voice switches in
New York, Miami, and Los Angeles, which enable international telephone
companies to connect their voice traffic to the U.S. public telephone
network and to exchange their traffic with other international long
distance carriers. These switches are connected to satellite and fiber
networks, which provide customers with end-to-end solutions from the
call origination to termination on the U.S. telephone network.
During 2001, Verestar refocused its business away from second and third tier
telecom carriers to global telecom providers, governmental organizations and
broadcast companies. In addition, during the later stages of 2001 and into
2002, Verestar is focusing on implementing cost reduction measures aimed at
reducing infrastructure costs, consolidating transponder space and
renegotiating certain transponder agreements. These initiatives are designed to
improve Verestar's operating margins and position Verestar for structural
independence.
SIGNIFICANT AGREEMENTS
We are a party to three agreements that we consider to be material to our
business:
ALLTEL transaction. In December 2000, we entered into an agreement with
ALLTEL to sublease up to 2,193 communications towers through a 15-year sublease
agreement for up to $657.9 million in cash. As of December 31, 2001, we had
subleased 1,748 towers and paid ALLTEL $524.4 million in cash. During the first
quarter of 2002, we closed on 28 towers and paid ALLTEL $8.4 million in cash.
As permitted by the agreement, we have decided not to sublease the remaining
417 towers. The ALLTEL towers are located primarily in the Southeast and, to a
lesser extent, in the Midwest region of the United States.
We are entitled to all income generated from leasing space on the towers and
are responsible for all expenses, including ground rent. ALLTEL has reserved
space on the towers for its antennae, for which it pays a site maintenance fee
of $1,200 per tower per month, escalating at a rate equal to the lower of 5%
per annum or the increase in Consumer Price Index plus 4% per annum.
8
We have an option to purchase the 1,776 towers subleased from ALLTEL at the
end of the 15-year sublease term. The purchase price per tower will, at
ALLTEL's option, be $27,500 plus interest accrued at 3% per annum, payable in
cash, or 769 shares of our Class A common stock.
As part of the transaction, we entered into a five-year exclusive
build-to-suit agreement that gives us the right but not the obligation to
develop towers for ALLTEL. We also entered into a separate master lease with
ALLTEL for the build-to-suit towers. The initial term is ten years, except for
our sites that were not constructed pursuant to the build-to-suit agreement,
for which it is for five years. ALLTEL has three five-year renewal options. The
rent for lease supplements entered into pursuant to the master lease agreement
is $1,200 per tower per month, escalating at a rate equal to the lower of 5%
per annum or the increase in Consumer Price Index plus 4% per annum.
AirTouch transaction. Pursuant to an August 1999 agreement, we leased on a
long-term basis (99 years) 1,862 towers from AirTouch Communications, which is
now a part of Verizon Wireless. We paid AirTouch $709.4 million in cash and
issued warrants for approximately 3.0 million shares of our Class A common
stock. These towers are located in all of AirTouch's major markets, other than
Los Angeles and San Diego, including Albuquerque, Atlanta, Cleveland, Denver,
Detroit, Minneapolis, Omaha, Phoenix, Portland, Sacramento and Seattle.
We are entitled to all income generated from leasing space on the towers and
are responsible for all tower expenses, including ground rent. AirTouch has
reserved space on the towers for its antennae, for which it has agreed to pay
us a site maintenance charge equal to $1,500 per month for each non-microwave
reserved space and $385 per month for each microwave reserved space, with 3%
annual increases.
We have also entered into an exclusive three-year build-to-suit agreement
with AirTouch expiring in 2002. Under that agreement, we have the right to
construct and own all of AirTouch's towers in all markets covered by the
agreement. AirTouch entered into a separate master lease covering all towers to
be constructed pursuant to the build-to-suit agreement. AirTouch will lease
space for a period of ten years and has the option to extend each lease for
five five-year periods. The rent is $1,500 per month for each non-microwave
antenna site and $385 per month for each microwave antenna site, with 3% annual
increases.
AT&T transaction. Pursuant to a September 1999 agreement, we purchased
1,931 towers from AT&T for an aggregate purchase price of approximately $258.2
million in cash. These towers are located throughout the United States and were
constructed by AT&T for its microwave operations.
AT&T entered into a master lease agreement with us covering 468 of these
towers on which it then conducted microwave operations. The aggregate annual
base rent payment is approximately $1.0 million, payable in January of each
lease year. The master lease agreements provides that we will adjust, but not
below the base rent, the rent payable by AT&T based on its actual usage of the
towers.
As part of this transaction, we entered into a build-to-suit agreement that
gives us the right but not the obligation to develop towers for AT&T Wireless
Services. We entered into a separate master lease with AT&T Wireless Services
for the build-to-suit towers. The initial term is ten years, and AT&T Wireless
Services has three five-year renewal options. The rent for lease supplements
entered into pursuant to the master lease agreement in the initial year was
$1,350 per month per antenna site, increasing annually by $50.00 per year for
lease supplements entered into in subsequent years. All rents are subject to 4%
annual increases.
YEAR 2001 TRANSACTIONS
During 2001, we consummated more than 30 transactions in the United States
involving the acquisition of approximately 2,270 communications sites and
related businesses and certain satellite and fiber network access service
assets for an aggregate purchase price of approximately $827.2 million. Of this
total purchase price,
9
$782.2 million related to the acquisition of tower assets, $36.8 million
related to our purchase of network development services business and $8.2
million related to Verestar. This total purchase price includes approximately
$809.6 million in cash and 377,394 shares of our Class A common stock. Other
than the ALLTEL transaction described above, none of these acquisitions was
material.
In May 2001, we expanded our tower network into Brazil as ATC Brazil our
Brazilian subsidiary, entered into arrangements with Global Village Telecom
Ltd. ("GVT") for the acquisition of the rights to approximately 156
communications towers from GVT for an aggregate purchase price of approximately
$29.2 million. As part of those arrangements, we entered into a build-to-suit
agreement and a master lease agreement providing for the leasing of space to
GVT on the towers we own or control in Brazil. Under the arrangements, we are
entitled to all income generated by and responsible for all expenses of the
towers for a period of 35 years with an option to purchase the towers after
seven years.
MANAGEMENT ORGANIZATION
Our corporate headquarters is in Boston, Massachusetts. Our rental and
management segment is organized on a regional basis, with each region being
headed by a vice president who reports to our Executive Vice President of Tower
Operations who, in turn, reports to our President and Chief Operating Officer.
Our current regional centers are based in Boston, Atlanta, Chicago, Houston,
the San Francisco Bay area and Mexico City. Our regional centers are further
subdivided into 18 area operations centers. We are currently in the process of
completing a reorganization of our regional centers to consolidate lease
administration, accounting and various administrative and developmental
functions. Upon completion of this reorganization, our regional centers will be
focused on sales, operations, customer service, and tower development. We
believe our regional and area operations centers are capable of responding
effectively to the opportunities and customer needs of their defined geographic
areas. Our area operations centers are staffed with skilled engineering,
construction management and marketing personnel.
Our network development services segment has its headquarters in Waterbury,
Connecticut and is headed by President, ATC Integrated Services, who reports to
our President and Chief Operating Officer. Our satellite and fiber network
access services segment maintains its headquarters in Washington, D.C. and is
headed by its President who reports to our Chairman and Chief Executive Officer.
HISTORY
In early 1995, Steven B. Dodge, the then chairman of the board, president
and chief executive officer of American Radio Systems Corporation and other
members of its management, recognized the opportunity in the communications
site industry as a consequence of its ownership and operation of broadcast
towers. American Radio formed our company to capitalize on this opportunity.
American Radio distributed its stock in our company to its securityholders in
connection with its merger with CBS in June 1998.
REGULATORY MATTERS
Towers. Both the FCC and the FAA regulate towers used for wireless
communications and radio and television broadcasting. These regulations govern
the siting, lighting, marking and maintenance of towers. Depending on factors
such as height and proximity to public airfields, the construction of new
antenna structures or modifications to existing antenna structures must be
reviewed by the FAA prior to initiation to ensure that the structure will not
present a hazard to aircraft navigation. After the FAA issues a "No Hazard"
determination, the tower owner must register the antenna structure with the FCC
and paint and light the structure in accordance with the FAA determination. The
FAA review and the FCC registration processes are prerequisites to FCC
authorization of communications devices placed on the antenna structure.
The FCC separately regulates and licenses wireless communications devices
operating on towers based upon the particular frequency used. In addition, the
FCC separately licenses and regulates television and radio
10
stations broadcasting from towers. Tower owners bear the responsibility for
notifying the FAA of any tower lighting failures and the repair of those
lighting failures. Tower owners also must notify the FCC when the ownership of
a tower changes. We generally indemnify our customers against any failure to
comply with applicable standards. Failure to comply with applicable
tower-related requirements may lead to monetary penalties.
In January 2001, the FCC concluded investigations of several operators of
communications towers, including us. The FCC sent us a Notice of Apparent
Liability for Forfeiture ("NAL") preliminarily determining that we had failed
to file certain informational forms, had failed to properly post certain
information at various tower sites, and on one occasion had failed to properly
light a tower. The FCC also ordered an additional review of our overall
procedures for and degree of compliance with the FCC's regulations. We reached
a settlement with the FCC regarding the compliance issues arising out of the
NAL in the form of a Consent Decree. As part of the Consent Decree, the FCC has
rescinded the NAL and terminated the further investigation ordered in the NAL.
In September 2001 we made a voluntary contribution of $0.3 million to the U.S.
Treasury and agreed to maintain an active compliance plan. Failure to comply
with the Consent Decree may lead to monetary penalties and loss of the right to
hold our various registrations and licenses.
The Telecommunications Act of 1996 amended the Communications Act of 1934 by
limiting state and local zoning authorities' jurisdiction over the
construction, modification and placement of wireless communications towers. The
law preserves local zoning authority but prohibits any action that would
discriminate between different providers of wireless services or ban altogether
the construction, modification or placement of communications towers. It also
prohibits state or local restrictions based on the environmental effects of
radio frequency emissions to the extent the facilities comply with the FCC
regulations. The 1996 Telecom Act also requires the federal government to help
licensees of wireless communications services gain access to preferred sites
for their facilities. This may require that federal agencies and departments
work directly with licensees to make federal property available for tower
facilities.
Local regulations include city and other local ordinances, zoning
restrictions and restrictive covenants imposed by local authorities. These
regulations vary greatly, but typically require tower owners and/or licensees
to obtain approval from local officials or community standards organizations
prior to tower construction or collocations on existing towers. Local zoning
authorities generally have been hostile to construction in their communities
and these regulations can delay or prevent new tower construction, colocations
or site upgrade projects, thereby limiting our ability to respond to customer
demand. In addition, those regulations increase costs associated with new tower
construction and colocation. Existing regulatory policies may adversely affect
the timing or cost of new tower construction and colocations and additional
regulations may be adopted which increase delays or result in additional costs
to us. These factors could adversely affect our construction program and
operations.
Our tower operations in Mexico and Brazil are also subject to regulation. If
we pursue additional international opportunities, we will be subject to
regulations in additional foreign jurisdictions. In addition, our customers,
both domestic and foreign, also may be subject to new regulatory policies that
may adversely affect the demand for communications sites.
Verestar. We are required to obtain authorization from the FCC for our use
of radio frequencies to provide satellite and wireless services in the United
States. We are also required to obtain authorizations from foreign regulatory
agencies in connection with our provision of these services abroad. We hold a
number of point-to-point microwave radio licenses that are used to provide
telecommunications services. Additionally, we hold a number of satellite earth
station licenses in connection with our operation of satellite-based networks.
We are required to obtain consent from the FCC prior to assigning these
licenses or transferring control of any of our companies holding an FCC license.
We also provide maritime communications services pursuant to a Special
Temporary Authority from the FCC, but we have not been able to obtain a
permanent license from the FCC or any other sovereign nation holding the
registration of the vessels from which we operate. The FCC has issued a Notice
of Inquiry which
11
invites comments on possible licensing methods applicable to earth stations on
vessels operating within United States territory. It is possible that this
proceeding could lead to other FCC actions including, without limitation, a
Notice of Proposed Rulemaking, that could result in regulations that are
restrictive and costly to our operations. In addition, the Special Temporary
Authority currently being used may not be renewed for future terms.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state and local and foreign laws
relating to the management, use, storage, disposal, emission and remediation
of, and exposure to, hazardous and non-hazardous substances, materials, and
waste. As the owner and/or operator of real property and facilities, we may
have liability under those laws for the costs of investigation, removal or
remediation of soil and groundwater contaminated by hazardous substances or
wastes. Certain of these laws impose cleanup responsibility and liability
without regard to whether we, as the owner or operator, knew of or were
responsible for the contamination, and whether or not we have discontinued
operations or sold the property. We may also be subject to common law claims by
third parties based on damages and costs resulting from off-site migration of
contamination.
In addition, some environmental regulations affect the registration of
communications towers with the FCC. The FCC's decision to register a proposed
tower may be subject to environmental review under the National Environmental
Policy Act of 1969 ("NEPA"), which requires federal agencies to evaluate the
environmental impacts of their decisions under certain circumstances. The FCC
has issued regulations implementing NEPA as well as the National Historic
Preservation Act, the Endangered Species Act and the American Indian Religious
Freedom Act. These regulations place responsibility on each applicant to
investigate potential environmental and other effects of operations and to
disclose any significant effects in an environmental assessment prior to
constructing a tower. In the event the FCC determines the proposed tower would
have a significant environmental impact based on the standards the FCC has
developed, the FCC would be required to prepare an environmental impact
statement. This process could significantly delay the registration of a
particular tower. In January 2002, the FCC's Wireless Bureau dismissed, for
lack of standing, challenges to the registration of seven of our towers filed
by certain environmental groups. The challenges alleged that we had failed to
comply with NEPA and that the FCC's rules implementing NEPA are inadequate. The
petitioners have appealed the Bureau's decision to the FCC. If the Bureau's
decision is overturned, we could be subject to monetary penalties or increased
compliance obligations.
As previously disclosed, in October 2001, we entered into a settlement
agreement with a local district attorney in California. The county had filed a
civil suit against us alleging that we had failed to make certain filings and
maintain certain records relating to environmental compliance and hazardous
materials. As a result of the settlement agreement, we paid the county $0.2
million and agreed to maintain an active compliance plan. We have not received
any other written notice from any governmental authority or third party
asserting, and we are not otherwise aware of, any material environmental
non-compliance, liability or claim.
COMPETITION AND NEW TECHNOLOGIES
Rental and Management Segment Competition. We compete for antennae site
customers with other national independent tower companies, wireless carriers
that own and operate their own tower networks and lease tower space to other
carriers, site development companies that acquire space on existing towers for
wireless service providers and manage new tower construction, and traditional
local independent tower operators. We believe that tower location and capacity,
price and quality of service historically have been and will continue to be the
most significant competitive factors affecting owners, operators and managers
of communications sites. In January 2002, the United States Supreme Court
upheld the FCC's determination that wireless carriers are entitled to mandatory
access on utility poles and regulated rates for those attachments. While we do
not believe that utility poles are an adequate substitute for our towers, we
are unable to predict whether the Court's decision will cause a reduction in
our leasing business.
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Network Development Services Segment Competition. Our network development
services compete with a variety of companies offering individual, or
combinations of, competing services. The field of competitors includes site
acquisition consultants, zoning consultants, real estate firms, right-of-way
consulting firms, construction companies, tower owners/managers, radio
frequency engineering consultants, telecommunications equipment vendors, which
provide turnkey site development services through multiple subcontractors, and
carriers' internal staffs. We believe that carriers base their decisions on
network development services on various criteria, including a company's
experience, track record, local reputation, price, and time for completion of a
project. Various elements of our components business compete with numerous
other companies. Kline Iron & Steel competes with numerous other steel
fabricators, many of which have substantially greater financial and other
resources.
Satellite and Fiber Network Access Services Segment Competition. We compete
with other full service teleports in the United States, satellite
communications companies, and other communications service providers.
Competition is based primarily on reliability, price, transmission quality and
the ability to offer complete solutions. Some of Verestar's existing and
potential competitors consist of companies from whom Verestar currently leases
satellite and fiber network access in connection with its providing services to
its customers. Increased competition could result in Verestar being forced to
reduce its fees and may limit its ability to obtain, on economical terms,
services that are critical to its business. Verestar's competitors may develop
or acquire services that provide functionality similar to that provided by
Verestar's services and that those competitive services may be offered at
significantly lower prices or bundled with other services. Many of Verestar's
existing and potential competitors have financial and other resources
significantly greater than those available to it. In the maritime
telecommunications market, Verestar competes primarily with several companies,
certain of which have FCC licenses that are similar to Verestar's and own their
own satellites.
We believe that we compete favorably as to the key competitive factors
relating to each of our business segments.
New Technologies. The emergence of new technologies could reduce the need
for tower-based transmission and reception and may, thereby, have a negative
impact on our operations. For example, the development and implementation of
signal combining technologies, which permit one antenna to service two
different frequencies of transmission and, thereby, two customers, may reduce
the need for tower-based broadcast transmission and hence demand for tower
space. Technologies that enhance spectral capacity, such as beam forming or
"smart antennas" can increase the capacity at existing sites and can reduce the
number of additional sites a given carrier needs to serve any given subscriber
base. In addition, the emergence of new technologies could reduce the need for
tower-based transmission and reception and have an adverse effect on our
operations. Similarly, the growth in delivery of video services by direct
broadcast satellites could reduce the demand for tower space. Indoor
distribution systems relieve some capacity on existing networks and could have
an adverse effect on our operations. Capacity enhancing technologies such as
lower-rate vocoders and more spectrally efficient airlink standards potentially
relieve network capacity problems without adding sites and could adversely
effect our operations.
Any increase in the use of network sharing or roaming or resale arrangements
by wireless service providers could adversely affect the demand for tower
space. These arrangements enable a provider to serve customers outside its
license area, to give licensed providers the right to enter into arrangements
to serve overlapping license areas, and to permit non-licensed providers to
enter the wireless marketplace. Wireless service providers might consider such
sharing or roaming and resale arrangements superior to constructing their own
facilities or leasing our antenna space. Conversely, in some cases network
sharing arrangements may stimulate network development in areas where a single
carrier network is economically unattractive.
CONSTRUCTION, MANUFACTURING AND RAW MATERIALS
We build, maintain and install land based wireless communications and
broadcast transmitting and receiving facilities by obtaining sheet metal and
other raw material parts and components from a variety of vendors. We
13
also engage third party contract manufacturers to construct certain of these
facilities. We have historically obtained the majority of our sheet metal and
other raw materials parts and components, including for our components
business, from a limited number of suppliers. However, substantially all of
these items are available from numerous other suppliers. We have not, to date,
experienced any significant difficulties in obtaining the needed quantities of
materials from suppliers in a timely manner.
EMPLOYEES
As of December 31, 2001, we employed approximately 3,200 full time
individuals and consider our employee relations to be satisfactory.
FACTORS THAT MAY AFFECT FUTURE RESULTS
We operate in a rapidly changing environment that involves a number of
risks, some of which are beyond our control. The following discussion
highlights some of the risks that may affect future operating results.
DECREASE IN DEMAND FOR TOWER SPACE WOULD MATERIALLY AND ADVERSELY AFFECT OUR
OPERATING RESULTS AND WE CANNOT CONTROL THAT DEMAND.
Many of the factors affecting the demand for tower space, and to a lesser
extent our services business, materially affect our operating results. Those
factors include:
. consumer demand for wireless services;
. the financial condition of wireless service providers and their
preference for owning rather than leasing antenna sites;
. the ability and willingness of wireless service providers to maintain or
increase their capital expenditures;
. the growth rate of wireless communications or of a particular wireless
segment;
. the number of wireless service providers in a particular segment,
nationally or locally;
. governmental licensing of broadcast rights;
. mergers or consolidations among wireless service providers;
. increased use of network sharing arrangements or roaming and resale
arrangements by wireless service providers;
. delays or changes in the deployment of 3G or other technologies;
. zoning, environmental, health and other government regulations; and
. technological changes.
The demand for antenna space is dependent, to a significantly lesser extent, on
the needs of television and radio broadcasters. Among other things,
technological advances, including the development of satellite-delivered radio,
may reduce the need for tower-based broadcast transmission. We could also be
affected adversely should the development of digital television be delayed or
impaired, or if demand for it were to be less than anticipated because of
delays, disappointing technical performance or cost to the consumer.
CONTINUATION OF THE CURRENT U.S. ECONOMIC SLOWDOWN COULD MATERIALLY AND
ADVERSELY AFFECT OUR BUSINESS.
The existing slowdown in the economy has negatively affected the factors
described under the prior heading, influencing demand for tower space and tower
related services. For example, the slowdown, coupled with the deterioration of
the capital markets, has caused certain wireless service providers to delay
and, in certain
14
cases, abandon expansion and upgrading of wireless networks, implementation of
new systems, or introduction of new technologies. The economic slowdown has
also harmed, and may continue to harm, the financial condition of some wireless
service providers. Many wireless service providers operate with substantial
leverage and some wireless service providers, including customers of ours, have
filed for bankruptcy.
OUR SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS MAY ADVERSELY AFFECT OUR
CASH FLOW AND OUR ABILITY TO MAKE PAYMENTS ON OUR DEBT.
We have a substantial amount of outstanding indebtedness. As of December 31,
2001, we had approximately $3.6 billion of consolidated debt. We will be
required to borrow additional funds during 2002 to fund our construction
program, even at the significantly reduced activity level that we anticipate,
and other capital expenditures. We anticipate aggregate incremental borrowing
needs for 2002 and 2003 of under $200.0 million.
Our substantial leverage could have significant negative consequences,
including:
. our being unable to meet one or more of the financial ratios contained
in our debt agreements or to generate cash sufficient to pay interest or
principal, including periodic principal amortization payments, which
events could result in an acceleration of some or all of our outstanding
debt as a result of cross-default provisions;
. increasing our vulnerability to general adverse economic and industry
conditions;
. limiting our ability to obtain additional debt or equity financing;
. requiring the dedication of a substantial portion of our cash flow from
operations to service our debt, thereby reducing the amount of our cash
flow available for other purposes, including capital expenditures;
. requiring us to sell debt or equity securities or to sell some of our
core assets, possibly on unfavorable terms, to meet payment obligations;
. limiting our flexibility in planning for, or reacting to, changes in our
business and the industries in which we compete; and
. placing us at a possible competitive disadvantage with less leveraged
competitors and competitors that may have better access to capital
resources.
A significant portion of our outstanding debt bears interest at floating
rates. As a result, our interest payment obligations on that debt will increase
if interest rates increase.
RESTRICTIVE COVENANTS IN OUR CREDIT FACILITIES AND OUR SENIOR NOTES COULD
ADVERSELY AFFECT OUR BUSINESS BY LIMITING FLEXIBILITY AND CAUSING US TO BREACH
OUR TOWER DEVELOPMENT OBLIGATIONS.
The indenture for our senior notes and our credit facilities contain
restrictive covenants and, in the case of the credit facilities, requirements
of complying with certain leverage and other financial tests. These limit our
ability to take various actions, including the incurrence of additional debt,
and engage in various types of transactions, including mergers and sales of
assets. These covenants could have an adverse effect on our business by
limiting our ability to take advantage of financing, new tower development,
merger and acquisition or other opportunities.
We are a party to a number of build-to-suit agreements with wireless
carriers that obligate us to develop new tower sites at the direction of the
wireless carrier, subject to previously agreed upon approval criteria. We do
not expect to have the ability to fund our planned level of capital
expenditures with our operating cash flows until during 2003 and hence we will
need to borrow under our credit facilities until then. To do so, we must comply
with various financial tests. If we are not able to fund our capital
expenditures through this borrowing under our credit
15
facilities, we might have to attempt to raise money in the debt or equity
capital markets. Alternatively, we would be required to dispose of assets on
terms that might not be favorable to us or to curtail our construction
activities. That curtailment could adversely affect us if it caused us to
breach any of our build-to-suit agreements, because we could be subject to
penalties, damage claims, and contract terminations.
IF OUR WIRELESS SERVICE PROVIDER CUSTOMERS CONSOLIDATE OR MERGE WITH EACH OTHER
TO A SIGNIFICANT DEGREE, OUR GROWTH, OUR REVENUE AND OUR ABILITY TO GENERATE
POSITIVE CASH FLOWS COULD BE ADVERSELY AFFECTED.
Significant consolidation among our wireless service providers customers may
result in reduced capital expenditures in the aggregate because the existing
networks of many wireless carriers overlap, as do their expansion plans.
Similar consequences might occur if wireless service providers engage in
extensive sharing or roaming or resale arrangements as an alternative to
leasing our antennae space. In December 2001, the FCC announced that the
spectrum cap, which previously prohibited wireless carriers from owning more
than 45 MHz of spectrum in any given geographical area, would be removed in
January 2003. Some wireless carriers may be encouraged to consolidate with each
other as a result of this regulatory change and as a means to strengthen their
financial condition. Consolidation among wireless carriers would also increase
our risk that the loss of one or more of our major customers could materially
decrease revenues and cash flows.
DUE TO THE LONG-TERM EXPECTATIONS OF REVENUE FROM TENANT LEASES, THE TOWER
INDUSTRY IS SENSITIVE TO THE CREDITWORTHINESS OF ITS TENANTS.
Due to the long-term nature of our tenant leases, we, like others in the
tower industry, are dependent on the continued financial strength of our
tenants. During the past two years, several of our customers have filed for
bankruptcy, although to date these bankruptcies have not had a material adverse
effect on our business or revenues. Many wireless service providers operate
with substantial leverage. If one or more of our major lease customers
experienced financial difficulties, it could result in uncollectable accounts
receivable and our loss of significant customers and anticipated lease revenues.
INCREASING COMPETITION IN THE SATELLITE AND FIBER NETWORK ACCESS SERVICES
MARKET MAY ADVERSELY AFFECT VERESTAR'S BUSINESS.
Verestar competes with other satellite communications companies that provide
similar services, as well as other communications service providers. Some of
its existing and potential competitors are companies from whom Verestar
currently leases satellite and fiber network access in order to provide
services to its customers. Increased competition could force Verestar to reduce
its fees and may limit its ability to obtain, on economical terms, services
that are critical to its business. Verestar's competitors may develop or
acquire services that provide functionality similar to that provided by
Verestar's services and these competitive services may be offered at
significantly lower prices or bundled with other services. Many existing and
potential competitors have financial and other resources significantly greater
than those available to Verestar.
IF OUR CHIEF EXECUTIVE OFFICER LEFT, WE WOULD BE ADVERSELY AFFECTED BECAUSE WE
RELY ON HIS REPUTATION AND EXPERTISE.
The loss of our chief executive officer, Steven B. Dodge, has a greater
likelihood of having a material adverse effect upon us than it would on most
other companies of our size because of our reliance on Mr. Dodge's expertise.
Our growth strategy is highly dependent on the efforts of Mr. Dodge. Our
ability, even when capital markets are more receptive than they presently are,
to raise capital also depends significantly on the reputation of Mr. Dodge. You
should be aware that we do not have an employment agreement with Mr. Dodge.
OUR FOREIGN OPERATIONS COULD CREATE EXPROPRIATION, GOVERNMENTAL REGULATION,
FUNDS INACCESSIBILITY, FOREIGN EXCHANGE EXPOSURE AND MANAGEMENT PROBLEMS.
Our expansion into Mexico and Brazil, and any other possible foreign
operations in the future, could result in adverse financial consequences and
operational problems not experienced in the United States. We have made
16
a substantial loan to a Mexican company, own towers in Mexico and are committed
to construct a sizable number of towers in that country. We have also acquired
the rights to 156 communications towers in Brazil and entered into a
build-to-suit agreement to construct towers in that country. We may, should
economic and capital market conditions improve, also engage in comparable
transactions in other countries in the future. Among the risks of foreign
operations are governmental expropriation and regulation, inability to
repatriate earnings or other funds, currency fluctuations, difficulty in
recruiting trained personnel, and language and cultural differences, all of
which could adversely affect our operations.
NEW TECHNOLOGIES COULD MAKE OUR TOWER ANTENNA LEASING SERVICES LESS DESIRABLE
TO POTENTIAL TENANTS AND RESULT IN DECREASING REVENUES.
The development and implementation of signal combining technologies, which
permit one antenna to service two different transmission frequencies and,
thereby, two customers, may reduce the need for tower-based broadcast
transmission and hence demand for our antenna space. Technologies that enhance
spectral capacity, such as beam forming or "smart antennas" can increase the
capacity at existing sites and can reduce the number of additional sites a
given carrier needs to serve any given subscriber base.
In addition, the emergence of new technologies could reduce the need for
tower-based transmission and reception and have an adverse effect on our
operations. The growth in delivery of video services by direct broadcast
satellites could also adversely affect demand for our antenna space.
Indoor distribution systems relieve some capacity on existing networks and
could have an adverse effect on our operations. Capacity enhancing technologies
such as lower-rate vocoders and more spectrally efficient airlink standards
potentially relieve network capacity problems without adding sites and could
adversely effect our operations
WE COULD HAVE LIABILITY UNDER ENVIRONMENTAL LAWS.
Under various federal, state and local environmental laws, we, as an owner,
lessee or operator of more than 14,500 real estate sites may be liable for the
substantial costs of remediating soil and groundwater contaminated by hazardous
wastes. For a discussion of our risks relating to environmental matters, see
"Environmental Matters" above.
OUR BUSINESS IS SUBJECT TO GOVERNMENT REGULATIONS AND CHANGES IN CURRENT OR
FUTURE LAWS OR REGULATIONS COULD RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS
AS WE CURRENTLY DO.
We are subject to federal, state and local and foreign regulation of our
business. Both the FCC and the FAA regulate towers used for wireless
communications and radio and television antennae and, the FCC separately
regulates wireless communication devices operating on towers. Similar
regulations exist in Mexico, Brazil and other foreign countries regarding
wireless communications and the operation of communications towers. Local
zoning authorities generally have been hostile to construction in their
communities and these regulations can delay or prevent new tower construction,
colocations or site upgrade projects, thereby limiting our ability to respond
to customer demand. Existing regulatory policies may adversely affect the
timing or cost of new tower construction and locations and additional
regulations may be adopted which increase delays or result in additional costs
to us. These factors could adversely affect our construction program and
operations. For a more complete discussion of the regulatory risks affecting
the various aspects of our business, including the Consent Decree, see
"Regulatory Matters" above.
17
OUR COSTS COULD INCREASE AND OUR REVENUES COULD DECREASE DUE TO PERCEIVED
HEALTH RISKS FROM RADIO EMISSIONS, ESPECIALLY IF THESE PERCEIVED RISKS ARE
SUBSTANTIATED.
Public perception of possible health risks associated with cellular and
other wireless communications media could slow the growth of wireless
companies, which could in turn slow our growth. In particular, negative public
perception of, and regulations regarding, these perceived health risks could
slow the market acceptance of wireless communications services.
If a connection between radio emissions and possible negative health
effects, including cancer, were established, our operations, costs and revenues
would be materially and adversely affected. We do not maintain any significant
insurance with respect to these matters.
ITEM 2. PROPERTIES
Our corporate headquarters are at 116 Huntington Avenue, Boston,
Massachusetts, where we occupy approximately 41,000 square feet of office space
in a building that we own. A description of the principal properties of each of
our business segments is as follows:
. our rental and management segment owns an aggregate of approximately
171,000 square feet and leases an aggregate of approximately 82,000
square feet of office space in Atlanta, the Chicago metropolitan area,
Houston, the San Francisco Bay area, San Paulo and Mexico City;
. our network development services segment owns approximately 876,000
square feet and leases approximately 330,000 square feet of commercial
property in several cities around the United States. These properties
include an aggregate of approximately 472,000 square feet of space at
five locations that we use in our component part business to manufacture
and store inventory, and a 240,000 square foot steel fabrication
facility; and
. The primary properties of our satellite and fiber network access
services segment are the parcels of land on which the satellite dishes
and related facilities of our SNAPs are located. In the aggregate, our
SNAPs occupy over 310 acres of land, including 304 owned acres and six
leased acres. All of these properties are located throughout the United
States, except for one in Switzerland. The properties that the SNAPs
occupy range in size from two to one hundred-acre parcels.
Our interests in communications sites are comprised of a variety of fee and
leasehold interests created by long-term lease agreements, private easements
and easements, licenses or rights-of-way granted by government entities. In
rural areas, a communications site typically consists of a three-to-five-acre
tract, which supports towers, equipment shelters and guy wires to stabilize the
structure. Less than 2,500 square feet are required for a monopole or
self-supporting tower structure of the kind typically used in metropolitan
areas. Land leases generally have 20 to 25-year terms, with three five-year
renewals, or are for five-year terms with automatic renewals.
Pursuant to our credit facilities, the lenders have liens on, among other
things, all towers, leasehold interests, tenant leases, contracts relating to
the management of towers for others, cash, accounts receivable, the stock and
other equity interests of virtually all of our subsidiaries and all
inter-company debt, fixtures, inventory and other personal property, including
intellectual property, certain fee interests, and the proceeds of the foregoing.
We believe that our owned and leased facilities are suitable and adequate to
meet our anticipated needs.
18
ITEM 3. LEGAL PROCEEDINGS
As previously disclosed in our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2001, on April 23, 2001 the District Attorney for the County of
Santa Clara, California filed a civil complaint against us in the Superior
Court of California. The complaint alleged record keeping, registration,
hazardous materials management and filing violations under California
environmental laws. The complaint did not allege any contamination of the
environment occurred as a result of the alleged violations. We have taken
measures to ensure that these sites are in compliance with applicable
California environmental laws and believe that we are currently in compliance
with such laws. On December 5, 2001 a judgment was entered ending the lawsuit
and incorporating the terms of an agreement we negotiated previously with the
District Attorney's office. Under the judgment, we paid civil penalties of
$150,000, reimbursed the County for more than $25,000 in costs and attorney's
fees, and agreed to operate our facilities in the County in compliance with the
relevant environmental requirements in the future.
In addition, we periodically become involved in various claims and lawsuits
that are incidental to our business. We believe that no matters currently
pending would, in the event of an adverse outcome, have a material impact on
our consolidated financial position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our security holders in the fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Class A common stock commenced trading on the New York Stock Exchange on
June 5, 1998, the day after we separated from American Radio. The following
table presents reported high and low sale prices of our Class A common stock on
the Composite Tape of the NYSE for the years 2000 and 2001.
2000 High Low
---- ------ ------
Quarter ended March 31.... $55.50 $28.56
Quarter ended June 30..... 50.44 36.31
Quarter ended September 30 47.63 27.63
Quarter ended December 31. 42.44 28.75
2001
----
Quarter ended March 31.... 41.00 18.50
Quarter ended June 30..... 28.00 14.45
Quarter ended September 30 20.24 11.00
Quarter ended December 31. 16.27 5.98
On March 25, 2002, the closing price of our Class A common stock was $5.35
as reported on the NYSE.
The outstanding shares of common stock and number of registered holders as
of December 31, 2001 were as follows:
Class
-------------------------------
A B C
----------- --------- ---------
Outstanding shares 185,018,034 8,001,769 2,267,813
Registered holders 881 65 1
19
DIVIDENDS
We have never paid a dividend on any class of common stock. We anticipate
that we will retain future earnings, if any, to fund the development and growth
of our business. We do not anticipate paying cash dividends on shares of common
stock in the foreseeable future. Our credit facilities and our senior note
indenture restrict the payment of cash dividends by us and our subsidiaries.
ITEM 6. SELECTED FINANCIAL DATA
The financial data set forth below has been derived from our audited
consolidated financial statements, certain of which are included in this Annual
Report on Form 10-K. The data should be read in conjunction with our audited
consolidated financial statements and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Prior to June 4,
1998, we operated as a subsidiary of American Radio and not as an independent
public company. Therefore, the results of operations and the financial
conditions shown below for such periods may be different from what they might
have been had we operated as a separate, independent public company.
We do not consider divisional cash flow and EBITDA as a substitute for other
measures of operating results or cash flow from operating activities or as a
measure of our profitability or liquidity. Divisional cash flow and EBITDA are
not calculated in accordance with generally accepted accounting principles.
However, we have included them because they are generally used in the
communications site industry as a measure of a company's operating performance.
More specifically, we believe they are a useful indicator of our ability to
meet debt service and capital expenditure requirements and can also assist in
comparing company performances on a consistent basis without regard to
depreciation and amortization. Our concern is that depreciation and
amortization can vary significantly among companies depending on accounting
methods, particularly where acquisitions are involved, or non-operating factors
such as historical cost bases. We believe divisional cash flow is useful
because it enables you to compare divisional performance before the effect of
depreciation and amortization, and restructuring, development, corporate
general and administrative, and tower separation expenses that do not relate
directly to such performance.
20
Year Ended December 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands)
Statements of Operations Data:
Operating revenues................................... $1,134,191 $ 735,275 $ 258,081 $ 103,544 $ 17,508
---------- ---------- ---------- ---------- --------
Operating expenses:
Operating expenses (1)............................ 848,042 524,074 155,857 61,751 8,713
Depreciation and amortization..................... 440,371 283,360 132,539 52,064 6,326
Restructuring expense............................. 69,174
Development expense (2)........................... 8,630 14,517 1,607
Corporate general and administrative expense...... 26,478 14,958 9,136 5,099 1,536
Tower separation expense (3)...................... 12,772
---------- ---------- ---------- ---------- --------
Total operating expenses...................... 1,392,695 836,909 299,139 131,686 16,575
---------- ---------- ---------- ---------- --------
(Loss) income from operations........................ (258,504) (101,634) (41,058) (28,142) 933
Interest expense..................................... (282,291) (156,839) (27,492) (23,229) (3,040)
Interest income and other, net....................... 26,742 15,556 17,442 9,217 251
Interest income--TV Azteca, net (4).................. 14,377 12,679 1,856
(Loss) gain on investments........................... (40,551) (2,538) 253
Note conversion expense (5).......................... (26,336) (16,968)
Minority interest in net earnings of subsidiaries (6) (318) (202) (142) (287) (193)
---------- ---------- ---------- ---------- --------
Loss before income taxes and extraordinary losses.... (566,881) (249,946) (49,141) (42,441) (2,049)
Benefit (provision) for income taxes................. 116,787 59,656 (214) 4,491 473
---------- ---------- ---------- ---------- --------
Loss before extraordinary losses..................... $ (450,094) $ (190,290) $ (49,355) $ (37,950) $ (1,576)
========== ========== ========== ========== ========
Basic and diluted loss per common share before
extraordinary losses (7)........................... $ (2.35) $ (1.13) $ (0.33) $ (0.48) $ (0.03)
========== ========== ========== ========== ========
Weighted average common shares outstanding (7)....... 191,586 168,715 149,749 79,786 48,732
========== ========== ========== ========== ========
Other Operating Data:
Divisional cash flow (8)............................. $ 300,526 $ 223,880 $ 102,224 $ 41,793 $ 8,795
EBITDA (9)........................................... 274,048 208,922 93,088 36,694 7,259
EBITDA margin (9).................................... 24.2% 28.4% 36.1% 35.4% 41.5%
December 31,
--------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- --------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents (including restricted
cash)........................................... $ 130,029 $ 128,074 $ 25,212 $ 186,175 $ 4,596
Property and equipment, net....................... 3,287,573 2,296,670 1,092,346 449,476 117,618
Total assets...................................... 6,829,723 5,660,679 3,018,866 1,502,343 255,357
Long-term obligations, including current
portion......................................... 3,561,960 2,468,223 740,822 281,129 90,176
Total stockholders' equity........................ 2,869,196 2,877,030 2,145,083 1,091,746 153,208
- --------
(1) Consists of operating expenses other than depreciation and amortization,
restructuring, development, corporate general and administrative, and tower
separation expenses.
21
(2) Development expense includes uncapitalized acquisition costs, costs to
integrate acquisitions, costs associated with new business initiatives,
abandoned acquisition costs and costs associated with tower site
inspections and related data gathering which are not capitalized in
accordance with generally accepted accounting principles. Development
expenses prior to 1999 were not material.
(3) Tower separation expense refers to the one-time expense incurred as a
result of our separation from American Radio.
(4) Interest income--TV Azteca, net of interest expense of $1.2 million in 2001
and $1.0 million in 2000.
(5) Note conversion expense represents the fair value of incremental stock
issued to encourage noteholders to convert their holdings prior to the
first scheduled redemption date.
(6) Represents the minority interest in net earnings of our non-wholly-owned
subsidiaries.
(7) We computed basic and diluted loss per common share before extraordinary
losses using the weighted average number of shares outstanding during each
period presented. Shares outstanding following the separation from American
Radio are assumed to be outstanding for all periods presented prior to June
4, 1998. We have excluded shares issuable upon exercise of options and
other common stock equivalents from the computations as their effect is
anti-dilutive.
(8) Divisional cash flow means (loss) income from operations before
depreciation and amortization and restructuring, development, corporate
general and administrative, and tower separation expenses, plus interest
income--TV Azteca, net for the years ended December 31, 2001 and 2000.
(9) EBITDA means (loss) income from operations before depreciation and
amortization and restructuring, development, and tower separation expenses,
plus interest income--TV Azteca, net for the years ended December 31, 2001
and 2000. EBITDA margin, as used above, means EBITDA divided by operating
revenues.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of
operations that follows are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets and liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities at the date of our financial
statements. Actual results may differ significantly from these estimates under
different assumptions or conditions. This discussion should be read in
conjunction with our consolidated financial statements and the accompanying
notes and the information set forth under the heading "Critical Accounting
Policies" on page 37.
During the years ended December 31, 2001, 2000, and 1999, we acquired
various communications sites, service businesses and satellite and fiber
network access related businesses for aggregate purchase prices of
approximately $827.2 million, $1.8 billion, and $1.2 billion, respectively. Our
results of operations only reflect the acquired towers and businesses in the
periods following their respective dates of acquisition. As such, our results
of operations for the year ended December 31, 2001 are not comparable to the
year ended December 31, 2000, and the results for the year ended December 31,
2000 are not comparable to the year ended December 31, 1999.
23
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2001 AND 2000
As of December 31, 2001, we owned or operated approximately 14,500
communications sites, as compared to approximately 11,000 communications sites
as of December 31, 2000. The acquisitions and construction completed in 2001
and 2000 have significantly affected operations for the year ended December 31,
2001, as compared to the year ended December 31, 2000.
Year Ended December 31, Amount of Percent
---------------------- Increase Increase
2001 2000 (Decrease) (Decrease)
---------- --------- ---------- ----------
(in thousands)
Revenues:
Rental and management........................................ $ 444,560 $ 278,153 $166,407 60%
Network development services................................. 454,238 311,921 142,317 46
Satellite and fiber network access services.................. 235,393 145,201 90,192 62
---------- --------- --------
Total operating revenues.................................. 1,134,191 735,275 398,916 54
---------- --------- --------
Operating Expenses:
Rental and management........................................ 214,506 139,240 75,266 54
Network development services................................. 405,582 274,769 130,813 48
Satellite and fiber network access services.................. 227,954 110,065 117,889 107
---------- --------- --------
Total operating expenses excluding depreciation and
amortization, restructuring, development and corporate
general and administrative expenses..................... 848,042 524,074 323,968 62
---------- --------- --------
Depreciation and amortization................................ 440,371 283,360 157,011 55
Restructuring expense........................................ 69,174 69,174 N/A
Development expense.......................................... 8,630 14,517 (5,887) (41)
Corporate general and administrative expense................. 26,478 14,958 11,520 77
Interest expense............................................. 282,291 156,839 125,452 80
Interest income and other, net............................... 26,742 15,556 11,186 72
Interest income--TV Azteca, net of interest expense of $1,160
and $1,047 in 2001 and 2000, respectively.................. 14,377 12,679 1,698 13
Loss on investments.......................................... 40,551 2,538 38,013 1,498
Note conversion expense...................................... 26,336 16,968 9,368 55
Minority interest in net earnings of subsidiaries............ 318 202 116 57
Benefit for income taxes..................................... 116,787 59,656 57,131 96
Extraordinary losses on extinguishment of debt, net.......... 4,338 (4,338) N/A
---------- --------- --------
Net loss..................................................... $ (450,094) $(194,628) $255,466 131%
========== ========= ========
Rental and Management Revenue
Rental and management revenue for the year ended December 31, 2001 was
$444.6 million, an increase of $166.4 million from the year ended December 31,
2000. The increase is primarily attributable to several factors: the leasing
activity on towers acquired and constructed during 2001, the leasing activity
on towers acquired and constructed in 2000 for a full year in 2001, and an
increase in same tower revenue on towers that existed as of January 1, 2000.
Our acquisition, construction and leasing activity in 2001 has significantly
increased revenue, and the scope, depth and strength of our national and
international tower footprint, providing us with a much larger base of tower
revenue in 2001 as compared to 2000. Specifically, during 2001, we acquired
more than 2,400 towers and constructed more than 1,300 towers. Additionally,
during 2001, we added more than 4,600 broadband equivalent tenants to both
newly acquired/constructed and existing towers. We anticipate that the majority
of our leasing activity during 2002 will continue to come from broadband type
customers.
24
We continue to believe that leasing revenues from the rental of space on our
towers, which comprises our core business, are likely to grow at a more rapid
rate than revenues from our other segments because of increasing utilization of
existing tower capacity.
Network Development Services Revenue
Network development services revenue for the year ended December 31, 2001
was $454.2 million, an increase of $142.3 million from revenue for the year
ended December 31, 2000. The significant growth in revenues during 2001
resulted primarily from increased volume related to construction management,
antennae and line installation and related colocation services, and tower site
maintenance. The increase was also driven by a full year of revenue in 2001
related to acquisitions consummated in 2000. These acquisitions helped increase
revenue in 2001 related to component part sales and steel fabrication. These
increases were partially offset by decreases in revenue related to radio
frequency engineering services.
Satellite and Fiber Network Access Services Revenue
Satellite and fiber network access services revenue for the year ended
December 31, 2001 was $235.4 million, an increase of $90.2 million from revenue
for the year ended December 31, 2000. The majority of the increase resulted
from the consummation of several key acquisitions that occurred in 2001 and
2000 including: General Telecom, U.S. Electrodynamics, Publicom, Interpacket
Networks and a SNAP facility in Switzerland. These acquisitions significantly
increased our service capabilities, revenue base, and geographical scope of
customers, leading to significant incremental revenues in 2001. This increase
in revenue was partially offset by the loss of many of its second and third
tier telecom customers and a decrease in demand for services in Latin America,
which we believe are attributable, at least in part, to the general worldwide
economic slowdown and the significant decrease in the activity of international
ISPs.
Rental and Management Expense
Rental and management expense for the year ended December 31, 2001 was
$214.5 million, an increase of $75.3 million from the year ended December 31,
2000. The majority of the increase resulted from incremental operating expenses
incurred in 2001 for the more than 3,700 towers that were acquired or
constructed during 2001 as discussed above. The remaining increase reflects
higher operating expenses related to towers that existed as of December 31,
2000 (due to a full year of inclusion in our results of operations in 2001).
Network Development Services Expense
Network development services expense for the year ended December 31, 2001
was $405.6 million, an increase of $130.8 million from the year ended December
31, 2000. The majority of the increase is due to overall increases in the
volume of services work performed, incremental expenses related to the
consummation of strategic acquisitions and increases in the overhead costs
necessary to support both internal construction and external sales.
Satellite and Fiber Network Access Services Expense
Satellite and fiber network access services expense for the year ended
December 31, 2001 was $228.0 million, an increase of $117.9 million from the
year ended December 31, 2000. The majority of the increase is due to
incremental expenses related to the consummation of the strategic acquisitions
discussed above. Other components of the increase include increased personnel
and infrastructure costs to help manage the growth of this segment, increased
overhead related to the development and marketing of new product lines and, to
a lesser extent, increased bad debt expense.
During the later stages of 2001 and into 2002, our satellite and fiber
network access services segment is focusing on implementing cost reduction
measures aimed at reducing infrastructure costs, consolidating
25
transponder space and renegotiating certain transponder agreements. These
inititives are designed to improve operating margins and position Verestar for
structural independence. Such initiatives could result in us recording a
restructuring charge in 2002 of between $5.0 million and $15.0 million.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2001 was
$440.4 million, an increase of $157.0 million from the year ended December 31,
2000. The principal component of the increase is an increase in depreciation
expense of $104.0 million. This is primarily a result of our purchase,
construction and acquisition of approximately $1.4 billion of property and
equipment during 2001 and a full year of depreciation on aquisitions and
additions made in 2000. The other component of the increase is increased
amortization of $53.0 million, resulting from our recording and amortizing
approximately $184.1 million of goodwill and other intangible assets related to
acquisitions consummated during 2001, and a full year of amortization on
goodwill and other intangible assets related to acquisitions made in 2000.
Restructuring Expense
On November 6, 2001, we announced a restructuring of the organization to
include a reduction in the scope of our tower development activities and the
centralization of certain operating functions. As part of that operational
initiative, we are applying more selective criteria for evaluating construction
and acquisitions of towers. As a result, we abandoned a number of tower
construction sites, resulting in a non-cash charge in the fourth quarter of
2001 of approximately $62.6 million. In addition, we implemented an initiative
to consolidate operations in each of our business segments and, as a
consequence, incurred employee separation and office closing costs. As a result
of this initiative, we recorded approximately $6.6 million of restructuring
charges in the fourth quarter of 2001 and expect we will record approximately
$3.0 million of additional restructuring costs in the first quarter of 2002. No
similar charges were incurred in 2000.
Development Expense
Development expense for the year ended December 31, 2001 was $8.6 million, a
decrease of $5.9 million from the year ended December 31, 2000. This decrease
resulted primarily from reduced expenses related to tower site inspections,
data gathering and acquisition integration in 2001.
Corporate General and Administrative Expense
Corporate general and administrative expense for the year ended December 31,
2001 was $26.5 million, an increase of $11.5 million from the year ended
December 31, 2000. The majority of the increase is a result of increased
personnel and information technology costs to support our overall growth,
coupled with expenses incurred to implement a new company-wide Enterprise
Resource Planning (ERP) system.
Interest Expense
Interest expense for the year ended December 31, 2001 was $282.3 million, an
increase of $125.5 million from the year ended December 31, 2000. The majority
of the increase, $113.0 million, resulted primarily from increased borrowings
outstanding under our credit facilities and the issue of $1.0 billion of senior
notes in January 2001, offset by a decrease in interest rates under our credit
facilities. The remaining component of the increase represents increases in
interest on capital leases and other notes payable and incremental deferred
financing amortization.
Interest Income and Other, Net
Interest income and other, net for the year ended December 31, 2001 was
$26.7 million, an increase of $11.2 million from the year ended December 31,
2000. The increase resulted primarily from an increase in interest earned on
invested cash on hand, resulting principally from the sale of our senior notes
in January 2001, partially offset by losses on the fair value of certain
derivative instruments.
26
Interest Income--TV Azteca, Net
Interest income--TV Azteca, net for the year ended December 31, 2001 was
$14.4 million, an increase of $1.7 million from the year ended December 31,
2000. The increase resulted from interest earned on the entire principal amount
of the note, $119.8 million, during 2001 as compared to 2000 when less than the
entire principal amount of the note was outstanding for the year.
Loss on Investments
Loss on investments for the year ended December 31, 2001 was $40.6 million,
an increase of $38.0 million from the year ended December 31, 2000. The
increase resulted primarily from the write off of our investment in US Wireless
of $23.4 million, coupled with additional investment impairment losses of $8.2
million and losses on equity investments of $9.0 million.
Note Conversion Expense
During the year ended December 31, 2001, we acquired a portion of our 2.25%
convertible notes in exchange for shares of our Class A common stock. As a
consequence of those negotiated exchanges with certain of our noteholders, we
recorded a non-cash charge of $26.3 million. In similar transactions during the
year ended December 31, 2000, we acquired a portion of our 6.25% and 2.25%
convertible notes in exchange for shares of our Class A common stock. As a
result, we recorded a non-cash charge of $17.0 million during that year. These
charges represent the fair value of incremental stock issued to noteholders to
encourage them to convert their holdings prior to the first scheduled
redemption date.
Benefit for Income Taxes
The income tax benefit for the year ended December 31, 2001 was $116.8
million, an increase of $57.1 million from the year ended December 31, 2000.
The primary reason for the increase is a result of an increase in our loss
before income taxes and extraordinary losses, partially offset by an increase
in amortization of non-deductible intangible assets arising from stock
acquisitions, non-deductible note conversion expense, and the valuation
allowance primarily related to our state net operating loss carryforwards. The
effective tax rate differs in both periods from the statutory rate due to state
and international taxes, the valuation allowance and the effect of
non-deductible items, principally the amortization of goodwill on certain stock
acquisitions and non-deductible note conversion expense.
Financial Accounting Standards Board (FASB) Statement No. 109, "Accounting
for Income Taxes," requires that we record a valuation allowance when it is
"more likely than not that some portion or all of the deferred tax assets will
not be realized." At December 31, 2001, we provided a valuation allowance
primarily related to our state net operating loss carryforwards of
approximately $56.3 million. We have not provided a valuation allowance for the
remaining deferred tax assets, primarily our federal net operating loss
carryforwards, as management believes that we will have sufficient time to
realize these assets during the carryforward period.
Extraordinary Losses on Extinguishment of Debt, Net
We incurred extraordinary losses on the extinguishment of debt, net in 2000
of $4.3 million. The losses were incurred as a result of an amendment and
restatement of our primary credit facilities ($3.0 million, net of a tax
benefit of $2.0 million) and our early retirement of debt assumed in the
UNISite, Inc. merger ($1.3 million, net of a tax benefit of $0.9 million). No
comparable losses were recorded in 2001.
27
YEARS ENDED DECEMBER 31, 2000 AND 1999
As of December 31, 2000, we owned or operated approximately 11,000
communications sites, as compared to approximately 5,100 communications sites
as of December 31, 1999. The acquisitions and construction completed in 2000
and 1999 have significantly affected operations for the year ended December 31,
2000, as compared to the year ended December 31, 1999.
Year Ended December 31, Amount of Percent
---------------------- Increase Increase
2000 1999 (Decrease) (Decrease)
--------- -------- ---------- ----------
(in thousands)
Revenues:
Rental and management........................................... $ 278,153 $135,303 $142,850 106%
Network development services.................................... 311,921 90,416 221,505 245
Satellite and fiber network access services..................... 145,201 32,362 112,839 349
--------- -------- --------
Total operating revenues................................. 735,275 258,081 477,194 185
--------- -------- --------
Operating Expenses:
Rental and management........................................... 139,240 62,441 76,799 123
Network development services.................................... 274,769 69,318 205,451 296
Satellite and fiber network access services..................... 110,065 24,098 85,967 357
--------- -------- --------
Total operating expenses excluding depreciation and
amortization, development and corporate general
and administrative expenses............................ 524,074 155,857 368,217 236
--------- -------- --------
Depreciation and amortization................................... 283,360 132,539 150,821 114
Development expense............................................. 14,517 1,607 12,910 803
Corporate general and administrative expense.................... 14,958 9,136 5,822 64
Interest expense................................................ 156,839 27,492 129,347 470
Interest income and other, net.................................. 15,556 17,442 (1,886) (11)
Interest income--TV Azteca, net of interest expense of $1,047 in
2000.......................................................... 12,679 1,856 10,823 583
(Loss) gain on investments...................................... (2,538) 253 (2,791) (1,103)
Note conversion expense......................................... 16,968 16,968 N/A
Minority interest in net earnings of subsidiaries............... 202 142 60 42
Benefit (provision) for income taxes............................ 59,656 (214) 59,870 27,977
Extraordinary losses on extinguishment of debt, net............. 4,338 1,372 2,966 216
--------- -------- --------
Net loss........................................................ $(194,628) $(50,727) $143,901 284%
========= ======== ========
Rental and Management Revenue
Rental and management revenue for the year ended December 31, 2000 was
$278.2 million, an increase of $142.9 million from the year ended December 31,
1999. The increase is primarily attributable to two factors: the acquisition
and construction of towers in 2000 and the latter part of 1999 and increased
lease-ups (utilization) of new and existing towers. During 2000, we continued
to implement our growth strategy by aggressively acquiring and building new
towers. With the consummation of the AirTouch, AT&T and other transactions, we
acquired more than 4,600 towers in 2000. This coupled with the construction of
over 1,600 towers in 2000, increased the scope, depth and strength of our
national and international tower footprint providing us with a much larger base
of towers generating revenue in 2000 as compared to 1999.
During 2000, we also focused on implementing an area management structure
that enhances sales and marketing, enabling us to increase the utilization of
both previously existing (prior to January 2000) and newly acquired/constructed
towers. Increased utilization resulted in increases in revenue in 2000 for
towers that were in our portfolio as of January 1, 2000.
28
Network Development Services Revenue
Network development services revenue for the year ended December 31, 2000
was $311.9 million, an increase of $221.5 million from revenue for the year
ended December 31, 1999. The significant growth in revenues during 2000
resulted from strategic acquisitions and increased demand for installation work
and component parts from major wireless carriers.
During 2000, we acquired several key services companies that added
additional revenue and expanded our in-house services capabilities. Among the
acquisitions were Galaxy Engineering Services, which enables us to perform an
array of radio frequency engineering and network design services, such as drive
testing, voice quality analysis and transport engineering, and Kline Iron &
Steel Co., a steel fabrication company with expertise in broadcast towers. In
addition, increased demand for some of our network development services, such
as equipment installation, maintenance and sales of component parts, also
created additional revenue in 2000. Much of this increased demand was a result
of aggressive network expansion programs initiated by major wireless
communications carriers during the year. In contrast, our revenues from site
acquisition and construction work for others, which are also part of our
network development services segment, have declined. This decline is
attributable to the trend in the wireless communications industry to outsource
tower infrastructure needs. This trend means we are increasingly applying our
site acquisition and construction capabilities to our build-to-suit projects
and for other construction for our own account.
Satellite and Fiber Network Access Services Revenue
Satellite and fiber network access services revenue for the year ended
December 31, 2000 was $145.2 million, an increase of $112.8 million from
revenue for the year ended December 31, 1999. The majority of the increase can
be attributed to the consummation of several key acquisitions that occurred in
2000 and the fourth quarter of 1999 including: ICG Satellite Services, General
Telecom, U.S. Electrodynamics, and Publicom. These acquisitions significantly
increased our service capabilities, revenue base, and geographical scope of our
customers as well as providing significant incremental revenues in 2000. We
also experienced an increase in demand of the Internet and data requirements of
our Internet service provider customers in 2000.
Rental and Management Expense
Rental and management expense for the year ended December 31, 2000 was
$139.2 million, an increase of $76.8 million from the year ended December 31,
1999. A significant portion of the increase is attributable to incremental
operating expenses incurred in 2000 for towers that were acquired or
constructed during 2000 and the latter part of 1999 as discussed above. The
remaining component of the increase is primarily related to additional expenses
incurred by us in 2000 to implement our area management structure together
with, to a lesser extent, increases in operating expenses on towers that
existed prior to January 1, 2000.
Network Development Services Expense
Network development services expense for the year ended December 31, 2000
was $274.8 million, an increase of $205.5 million from the year ended December
31, 1999. The significant increase in expense is primarily due to the strategic
acquisitions consummated in 2000 as discussed above. In addition, we incurred
expenses in 2000 to transition a portion of our construction services unit from
tower construction work to equipment installation and other services. This
transition was related, in part, to an ongoing process to decentralize some of
our tower construction capabilities and develop some of those capabilities at
our regional and area locations. Remaining increases in expense are directly
related to a charge for a bad debt reserve of approximately $7.0 million
recorded in the fourth quarter and overall increases in the amount of services
and component sales to customers.
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Satellite and Fiber Network Access Services Expense
Satellite and fiber network access services expense for the year ended
December 31, 2000 was $110.1 million, an increase of $86.0 million from the
year ended December 31, 1999. Substantially all of the increase can be
attributed to the strategic acquisitions discussed above, together with
additional expenses related to integrating those acquisitions. Remaining
increases are related to the building of infrastructure to help manage the
growth of this segment and overall increases in volume.
Depreciation and Amortization
Depreciation and amortization for the year ended December 31, 2000 was
$283.4 million, an increase of $150.8 million from the year ended December 31,
1999. One component of the increase is attributable to an increase in
depreciation expense of $74.8 million. This is a direct result of our purchase,
construction and acquisition of approximately $1.3 billion of property and
equipment during 2000 and a full year of depreciation on acquisitions and
additions made in 1999. The remaining component of the increase is an increase
in amortization of $76.0 million, resulting from our recording and amortizing
approximately $1.3 billion of goodwill and other intangible assets related to
acquisitions consummated during 2000, and a full year of amortizaton on
goodwill and other intangible assets related to acquisitions made in 1999.
Development Expense
Development expense for the year ended December 31, 2000 was $14.5 million,
an increase of $12.9 million from the year ended December 31, 1999. The
majority of the increase represents costs related to tower site inspections,
related data gathering and certain integration expenses related to acquisitions
consummated in 2000. The remaining component of the increase represents
expenses incurred in connection with abandoned acquisitions and other
acquisition related costs which are not capitalized in accordance with
generally accepted accounting principles.
Corporate General and Administrative Expense
Corporate general and administrative expense for the year ended December 31,
2000 was $15.0 million, an increase of $5.8 million from the year ended
December 31, 1999. The majority of the increase is a result of higher
personnel, marketing, professional services and information technology costs
associated with supporting our increasing number of towers, the growth of our
other businesses, our expanding revenue base and our growth strategy.
Interest Expense
Interest expense for the year ended December 31, 2000 was $156.8 million, an
increase of $129.3 million from the year ended December 31, 1999. This increase
is primarily related to increased borrowings to finance acquisitions and
construction. The net change, specifically, is attributable to increases in
interest incurred on our outstanding debt obligations of $131.7 million and
deferred financing amortization of $5.6 million. These interest increases were
offset by an increase in capitalized interest related to construction projects
of $8.0 million.
Interest Income and Other, Net
Interest income and other, net for the year ended December 31, 2000 was
$15.6 million, a decrease of $1.9 million from the year ended December 31,
1999. The decrease is primarily attributable to a decrease in interest earned
on invested cash on hand as a consequence of such cash being used to finance
acquisitions and construction.
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Interest Income--TV Azteca, Net
Interest income--TV Azteca, net for the year ended December 31, 2000 was
$12.7 million, an increase of $10.8 million for the year ended December 31,
1999. Amounts included within this caption at December 31, 2000 represent
interest earned on our note receivable from TV Azteca of $13.7 million offset
by interest expense of $1.0 million.
(Loss) Gain on Investments
Loss on investments for the year ended December 31, 2000 was $2.5 million,
an increase of $2.8 million from the year ended December 31, 1999. The increase
resulted primarily from losses on equity investments made in 2000.
Note Conversion Expense
During the year ended December 31, 2000, we acquired a portion of our 6.25%
and 2.25% convertible notes in exchange for shares of our Class A common stock.
As a consequence of those negotiated exchanges with certain of our noteholders,
we recorded an expense of approximately $17.0 million during the second quarter
of 2000, which represents the fair value of incremental stock issued to
noteholders to encourage them to convert their holdings prior to the first
scheduled redemption date.
Benefit (Provision) for Income Taxes
The income tax benefit for the year ended December 31, 2000 was $59.7
million, an increase of $59.9 million from the year ended December 31, 1999.
The primary reason for the increase is a result of an increase in our loss
before income taxes and extraordinary losses, partially offset by an increase
in amortization of non-deductible intangible assets arising from stock
acquisitions, non-deductible note conversion expense and the valuation
allowance primarily related to certain state net operating loss carryforwards.
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 year ended December 31, 2000, the
non-deductible note conversion expense on which we have recorded no tax benefit.
FASB Statement No. 109, Accounting for Income Taxes, requires that we record
a valuation allowance when it is "more likely than not that some portion or all
of the deferred tax assets will not be realized". At December 31, 2001, we
provided a valuation allowance of approximately $6.0 million. We have not
provided a valuation allowance for the remaining deferred tax assets, primarily
our federal net operating loss carryforwards, as management believes that we
will have sufficient time to realize these assets during the twenty-year
carryforward period.
Extraordinary Losses on Extinguishment of Debt, Net
We incurred extraordinary losses on the extinguishment of debt in 2000 of
$4.3 million. The losses were incurred as a result of an amendment and
restatement of our primary credit facilities ($3.0 million, net of a tax
benefit of $2.0 million) and our early retirement of debt assumed in the
UNISite, Inc. merger ($1.3 million, net of a tax benefit of $0.9 million).
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
We plan to fund our current business plan with cash generated from our
operations and by borrowing under our credit facilities. Historically, we have
met our operational liquidity needs and interest expense related to our debt
obligations primarily with internally generated funds. We have financed our
tower acquisitions and construction activities with a combination of capital
funds from sales of our equity and debt securities and bank borrowings.
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In the latter half of 2001, major wireless carriers reduced their planned
capital expenditures for geographic network expansion. We expect that wireless
carriers will make capital expenditures in 2002 primarily to increase the
density of their current network coverage and improve the quality of service to
existing subscribers while selectively investing to expand network coverage.
During the later part of the year we began to reduce our tower construction
program, and in November 2001 we announced new operational initiatives to
reduce significantly our tower development activities and to consolidate
operations in each of our business segments.
We expect that during 2003 we will become free cash flow positive, meaning
that our operating cash flows will be sufficient to meet our operational needs,
interest expense and capital expenditures. We believe we will have sufficient
liquidity and capital resources from our operating cash flows and borrowings
under our credit facilities to support our business plan until that occurs.
USES OF LIQUIDITY
Our uses of liquidity include: operational needs; capital expenditures for
tower construction and acquisitions; and debt service.
Tower Construction and Acquisition Needs. We have significantly reduced our
planned level of tower construction and acquisitions for 2002. As a result, we
anticipate that our liquidity needs for new tower development and acquisitions
in 2002 will be significantly less than in previous years.
. Tower Construction. Our 2002 capital budget provides for total capital
expenditures of approximately $200.0 million to $225.0 million, which
includes towers to be built under existing build-to-suit agreements. In
contrast, we spent $568.0 million on total capital expenditures in
2001. We plan to build in 2002 between 400 and 500 towers, including
nine broadcast towers. In contrast, we built approximately 1,300
towers, including five broadcast towers, in 2001.
. Tower Acquisitions. As of December 31, 2001, we were committed to make
capital expenditures of approximately $30.0 million for pending
acquisitions, including $8.4 million for ALLTEL, which we closed in
January and February 2002. We spent approximately $809.6 million in
cash in 2001 for acquisitions.
Debt Service. We use a significant portion of our liquidity to service our
outstanding indebtedness. As of December 31, 2001, we had outstanding total
long-term debt of about $3.6 billion, consisting primarily of the following:
. our credit facilities-$1.45 billion;
. our senior notes-$1.0 billion; and
. our convertible notes, net of discount-$866.9 million
Our credit facilities, senior notes and convertible notes require us to make
significant principal payments at their respective maturity dates. In addition,
in the case of our credit facilities, we must make scheduled amortization
payments of principal prior to maturity. Beginning March 31, 2003, our credit
facilities require amortization of the term loans in increasing annual amounts
designed to repay the loans by maturity. Interest on our senior notes is
payable semiannually on February 1 and August 1. Under our credit facilities,
we are required to maintain an interest reserve for our senior notes through
the August 2002 interest payment. These funds can only be used to make
scheduled interest payments on those notes. As of December 31, 2001, we had
approximately $94.1 million of restricted cash related to that interest
reserve. Interest on our convertible notes is payable semi-annually. Prior to
maturity, there are no mandatory redemption provisions for cash in the senior
notes or the convertible notes. The holders of the convertible notes, however,
have the right to require us to repurchase their notes on specified dates prior
to maturity, but we may pay the repurchase price by issuing shares of our Class
A common stock. For a more complete description of our outstanding
indebtedness, see "Contractual Commitments" below and note 6 to our
consolidated financial statements.
32
SOURCES OF LIQUIDITY
Our primary sources of liquidity historically have been internally generated
funds from operations, borrowings under our credit facilities, proceeds from
equity and debt offerings and cash on hand.
Internally Generated Funds. Our operating revenues, divisional cash flow
and EBITDA for the year ended December 31, 2001 were $1.1 billion, $300.5
million and $274.0 million, respectively. Our tower leasing activities generate
the highest profit margins. We believe those activities are likely to grow more
rapidly than our other segments because of increased utilization of our
existing towers.
Credit Facilities. As of December 31, 2001, we had not drawn on the $650.0
million revolving line of credit under our credit facilities. As of December
31, 2001, based on financial covenants and giving effect to the repayment of
our Mexican credit facility described below, we had the ability to draw $555.0
million on this revolving line of credit. Because of existing cash on hand, our
anticipated borrowing needs and the unused capacity in our credit facilities,
in January 2002, we chose to cancel our incremental $250.0 million Term C Loan.
As a result, our maximum borrowing capacity under the credit facilities was
reduced from $2.25 billion to $2.0 billion.
Proceeds from Equity and Debt Offerings. Historically, we have been
successful at raising funds in the capital markets through equity and debt
offerings. We have used these proceeds mostly to fund new tower development and
acquisitions. For example, in January 2001, we completed a public offering of
10.0 million shares of our Class A common stock for total net proceeds of
approximately $360.8 million. We also completed in that month a private
placement of $1.0 billion of our senior notes for total net proceeds of $969.0
million.
Cash On Hand. As of December 31, 2001, we had approximately $130.0 million
in cash and cash equivalents. Approximately $94.1 million is restricted under
our credit facilities and can only be used to make scheduled interest payments
on the senior notes. As of December 31, 2001, we had approximately $179.5
million of working capital.
PLANS TO FUND OUR LIQUIDITY NEEDS
We plan to fund our operational liquidity needs through internally generated
funds from operations. We plan to fund our capital expenditures for new tower
construction and acquisitions and our interest expense through a combination of
internally generated funds and borrowings under our credit facilities. We
anticipate aggregate incremental borrowing needs for 2002 and 2003 of under
$200.0 million. During 2003, we expect that our operating cash flows will
become sufficient to fund both our capital expenditures for new tower
construction and acquisitions and the interest expense on our outstanding debt.
We may, in the future, need to raise cash from external sources to meet our
debt service obligations and to pay the principal amounts of our indebtedness
when due.
CONTRACTUAL COMMITMENTS
Below is a summary of our credit facilities, senior notes, convertible notes
and certain other contractual obligations. It is qualified in its entirety by
the terms of the actual agreements which are summarized. Also see note 6 and
note 8 of our consolidated financial statements for more information about the
terms of our indebtedness and our commitments and contingencies.
Credit Facilities. Our credit facilities provide us with a borrowing
capacity of up to $2.0 billion, with the option, subject to lender approval, to
increase the capacity up to an additional $500.0 million. Our principal
operating subsidiaries are the borrowers under our credit facilities.
Borrowings under the credit facilities are subject to compliance with certain
financial ratios as described below. Our credit facilities currently include:
33
. a $650.0 million revolving credit facility which was fully available,
subject to compliance with those financial ratios, on December 31,
2001, maturing on June 30, 2007;
. an $850.0 million multi-draw Term Loan A, which was fully drawn on
December 31, 2001, maturing on June 30, 2007; and
. a $500.0 million Term Loan B, which was fully drawn on December 31,
2001, maturing on December 31, 2007.
The credit facilities are scheduled to amortize quarterly commencing in
March 2003. In January 2002, we terminated a $250.0 million multi-draw Term
Loan C facility, none of which facility had been drawn. As a result of this
termination, we will record a non-cash charge of $7.5 million to "other
expense" in the first quarter of 2002 related to the write-off of certain
deferred financing fees. We believe the $650.0 million revolving credit
facility remaining under the $2.0 billion of credit facilities will be
sufficient to finance our business plan.
Our credit facilities contain certain financial ratios and operational
covenants and other restrictions with which the borrower subsidiaries and the
restricted subsidiaries must comply. Any failure to comply with these covenants
would not only prevent us from being able to borrow more funds, but would also
constitute a default. For more information about these covenants, see "Factors
Affecting Sources of Liquidity - Credit Facilities". They also restrict our
ability, as the parent company of the borrower subsidiaries, to incur any debt
other than that presently outstanding and refinancings of that debt. We and our
restricted subsidiaries have guaranteed all of the loans. We have secured the
loans by liens on substantially all assets of the borrower subsidiaries and the
restricted subsidiaries and substantially all outstanding capital stock and
other debt and equity interests of all of our direct and indirect subsidiaries.
Under our credit facilities, we are also required to maintain an interest
reserve for our senior notes through the August 2002 interest payment. These
funds can only be used to make scheduled interest payments on those notes. As
of December 31, 2001 we had approximately $94.1 million of restricted cash
related to that interest reserve.
In February 2001, our Mexican subsidiary and two of its subsidiaries
consummated a loan agreement with a group of banks providing a credit facility
of an initial aggregate amount of $95.0 million. As of December 31, 2001, an
aggregate of $95.0 million was outstanding under this loan agreement. In
February 2002 we repaid all of the loans with borrowings under our credit
facilities, and our Mexican subsidiaries became restricted subsidiaries under
our credit facilities. As a result of such repayment, we will recognize an
extraordinary loss on extinguishment of debt in the first quarter of 2002 of
approximately $1.3 million (net of an income tax benefit of $0.7 million).
9 3/8% Senior Notes. As of December 31, 2001, we had outstanding an
aggregate principal amount of $1.0 billion of 9 3/8 % senior notes. The senior
notes mature on February 1, 2009. Interest on the senior notes is payable
semiannually on February 1 and August 1. The indenture governing the senior
notes contains certain restrictive covenants, including restrictions on our
ability to incur more debt, guarantee debt, pay dividends and make certain
investments. For more information about these covenants, see "Factors Affecting
Sources of Liquidity - Senior Notes".
October 1999 Convertible Notes. In October 1999, we 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. The difference
between the issue price and the principal amount at maturity of the 2.25%
convertible notes will be accreted each year as interest expense in our
consolidated financial statements. The 6.25% convertible notes are convertible
into shares of Class A common stock at a conversion price of $24.40 per share.
The 2.25% convertible notes are convertible into shares of Class A common stock
at a conversion price of $24.00 per share. The indentures under which the
convertible notes are outstanding do not contain any restrictions on the
payment of dividends, the incurrence of debt or liens or the repurchase of our
equity securities or any financial covenants.
34
We may not redeem the 6.25% convertible notes prior to October 22, 2002.
Thereafter, we can redeem the 6.25% convertible notes, at our option, in whole
or in part at a redemption price initially of 103.125% of the principal amount.
The redemption price declines ratably immediately after October 15 of each
following year to 100% of the principal amount in 2005. We may not redeem the
2.25% convertible notes prior to October 22, 2003. Thereafter, we can redeem
the 2.25% convertible notes, at our option, in whole or in part at increasing
redemption prices designed to reflect the original issue discount. We are also
required to pay accrued and unpaid interest in all redemptions of notes.
Holders may require us to repurchase all or any of their 6.25% convertible
notes on October 22, 2006 at their principal amount, together with accrued and
unpaid interest. Holders may require us to repurchase all or any of their 2.25%
convertible notes on October 22, 2003 at $802.93, which is its issue price plus
accreted original issue discount, together with accrued and unpaid interest. We
may, at our option, elect to pay the repurchase price of each series in cash or
shares of Class A common stock, or any combination thereof. Our credit
facilities restrict our ability to repurchase the convertible notes for cash.
In the third quarter of 2001, we acquired a portion of our outstanding
convertible notes. During this period, approximately $82.5 million in face
amount ($61.6 million carrying amount) of our 2.25% convertible notes was
converted into shares of Class A common stock. All of these conversions were
pursuant to exchange agreements that we negotiated with a limited number of
noteholders. Pursuant to these exchange agreements, we issued an aggregate of
approximately 2.4 million shares of Class A common stock that these noteholders
were entitled to receive based on the conversion price set forth in the
applicable indenture, plus an additional approximately 1.5 million shares of
Class A common stock to induce them to convert their holdings prior to the
first scheduled redemption date. As a result of these transactions, in the
third quarter of 2001 we recorded a non-cash charge of $26.3 million, which
represents the fair market value of the inducement shares. We may negotiate
similar exchanges for our outstanding convertible notes from time to time in
the future, subject to market conditions. To the extent that we issue
inducement shares as part of any future exchanges, we expect to record
additional non-cash charges.
As of December 31, 2001, the total amount outstanding under the 2.25%
convertible notes was $204.1 million and $212.8 million for the 6.25%
convertible notes.
February 2000 Convertible Notes. In February 2000, we issued 5.0%
convertible notes due 2010 in an aggregate principal amount of $450.0 million.
The 5.0% convertible notes are convertible into shares of our Class A common
stock at a conversion price of $51.50 per share. The indenture under which the
5.0% convertible notes are outstanding does not contain any restrictions on the
payment of dividends, the incurrence of debt or the repurchase of our equity
securities or any financial covenants.
We may not redeem the 5.0% convertible notes prior to February 20, 2003.
Thereafter, we can redeem the 5.0% convertible notes, at our option, in whole
or in part, at a redemption price initially of 102.50% of the principal amount.
The redemption price declines ratably immediately after February 15 of each
following year to 100% of the principal amount in 2006. We are also required to
pay accrued and unpaid interest in all redemptions of notes.
Holders may require us to repurchase all or any of the 5.0% convertible
notes on February 20, 2007 at their principal amount, together with accrued and
unpaid interest. We may, at our option, elect to pay the repurchase price in
cash or shares of Class A common stock or any combination thereof. Our credit
facilities restrict our ability to repurchase the notes for cash.
The total amount outstanding under the 5.0% convertible notes as of December
31, 2001 was $450.0 million.
Other Long-Term Debt. As of December 31, 2001, we had approximately $250.1
million of other long-term debt, including capital lease obligations and
mortgage indebtedness. See note 6 to our consolidated financial statements.
35
Liquidity Table For Contractual Obligations. The following table sets forth
information with respect to our long-term obligations payable in cash as of
December 31, 2001 (in thousands):
Cash Payments Due by Period
-------------------------------------------------------------
Contractual Obligations Less than 1 year 1-3 years 4-5 years After 5 years Total
----------------------- ---------------- --------- --------- ------------- ----------
Long-term debt*....................... $ 1,579 $345,450 $567,758 $2,470,201 $3,384,988
Capital lease obligations............. 11,006 22,458 22,204 121,304 176,972
Operating leases...................... 163,178 235,688 136,706 383,610 919,182
Pending acquisitions.................. 30,000 -- -- -- 30,000
--------- -------- -------- ---------- ----------
Total contractual cash obligations. $205,763 $603,596 $726,668 $2,975,115 $4,511,142
========= ======== ======== ========== ==========
- --------
* The holders of our convertible notes have the the right to require us to
repurchase their notes on specified dates prior to their maturity dates in
2009 and 2010, but we may pay the purchase price by issuing shares of our
Class A common stock.
In addition, as of December 31, 2001, we were party to various arrangements
relating to the construction of tower sites under existing build-to-suit
agreements. We expect that for the foreseeable future we will have substantial
leverage from our bank borrowings, other debt and capitalized leases.
FACTORS AFFECTING SOURCES OF LIQUIDITY
Internally Generated Funds. The key factors affecting our internally
generated funds are the demand for antennae space on wireless communication
towers and for related services, our ability to maximize the utilization of our
existing towers and our ability to minimize costs and fully realize our
operating efficiencies.
Credit Facilities. Our credit facilities contain borrowing ratio covenants
that limit our ability to borrow funds. Our credit facilities contain four
financial tests:
. a leverage ratio (Total Debt to Annualized Operating Cash Flow). As of
December 31, 2001, we were required to maintain a ratio of not greater
than 7.75 to 1.00, decreasing to 7.50 to 1.00 on January 1, 2002, to
7.00 to 1.00 on April 1, 2002, to 6.75 to 1.00 on July 1, 2002, to 6.50
to 1.00 at October 1, 2002, and with additional reductions every six
months thereafter;
. a pro forma debt service test (Annualized Operating Cash Flow to Pro
Forma Debt Service) requires us to maintain a ratio of not greater than
1.10 to 1.00;
. an interest coverage test (Annualized Operating Cash Flow to Interest
Expense). As of December 31, 2001, we were required to maintain a ratio
of not less than 1.50 to 1.00 through June 30, 2002, increasing by 0.25
on July 1, 2002 and October 1, 2002, and by 0.50 on January 1, 2003 and
January 1, 2004; and
. a fixed charge coverage test (Annualized Operating Cash Flow to Fixed
Charges) which begins in 2003 and requires us to maintain a ratio of
not less than 1.0 to 1.0.
Since our credit facilities are with certain of our subsidiaries, our parent
company debt (the senior notes and the convertible notes) is not included in
the computations of any of the tests, except in the case of the pro forma debt
service test in which case interest includes the amount of funds that we will
require to be distributed by our subsidiaries to pay interest on our senior
notes and our convertible notes. Annualized Operating Cash Flow is based, among
other things, on four times the Operating Cash Flow for the most recent quarter
of our tower rental and management business and trailing 12 months for our
other businesses and corporate general and administrative expenses. In the case
of the leverage ratio, we may include the Operating Cash Flow from Brazil and
Mexico only to the extent of 10% of Annualized Operating Cash Flow and we
receive credit for only 75% of Annualized Operating Cash Flow from our services
and Verestar businesses.
36
As of December 31, 2001, we were in compliance with these borrowing ratio
covenants.
Senior Notes. Our senior note indenture restricts us from incurring
additional debt or issuing certain types of preferred stock unless our
Consolidated Debt is not greater than 7.5 times our Adjusted Consolidated Cash
Flow. However, we are permitted, even if we are not in compliance with the
ratio, to incur debt under our credit facilities, or renewals, refundings,
replacements or refinancings of them, up to the greater of $2.65 billion or a
formula based on the number of towers we own and our Non-Tower Cash Flow. Even
if not in compliance with the ratio, we are also permitted to, among other
things, have certain types of capital leases and to refund our convertible
notes. For these purposes, Consolidated Debt means all debt, including
guarantees, of our parent company and all of our restricted subsidiaries, which
presently include all of them, other than Verestar and its subsidiaries, and
the aggregate liquidation value of Disqualified Stock. Disqualified Stock means
capital stock maturing, mandatorily redeemable, or redeemable at the holder's
option, prior to 91 days after the maturity of the senior notes. Adjusted
Consolidated Cash Flow is substantially similar to the definition of Annualized
Operating Cash Flow, as defined in the credit facilities, except it applies to
our parent company and our restricted subsidiaries.
Capital Markets. Our ability to raise additional funds in the capital
markets depends on, among other things, general economic conditions, the
condition of the wireless industry, our financial performance and the state of
the capital markets.
CASH FLOWS SUMMARY
For the year ended December 31, 2001, cash flows provided by operating
activities were $26.1 million, as compared to $37.1 million used for operating
activities for the year ended December 31, 2000. This change is primarily
related to an overall reduction in our investment in working capital.
For the year ended December 31, 2001, cash flows used for investing
activities were $1.4 billion, as compared to $2.0 billion for the year ended
December 31, 2000. The decrease is primarily due to a decrease in cash expended
for mergers and acquisitions.
For the year ended December 31, 2001, cash flows provided by financing
activities were $1.4 billion, as compared to $2.1 billion for the year ended
December 31, 2000. The decrease is primarily related to a reduction in the
aggregate net cash inflows from bank borrowings and equity offerings, offset by
an increase in proceeds from the issue of debt securities.
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants disclose their most
"critical accounting policies" in "Management's Discussion and Analysis of
Financial Condition and Results of Operations". The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.
Further, "critical accounting policies" are those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions.
We believe that our accounting policies described below fit the definition
of "critical accounting policies".
. Revenue Recognition. A portion of our network development services
revenue is derived under contracts or arrangements with customers that
provide for billings on a fixed price basis. Revenues under these
contracts are recognized using the percentage-of-completion methodology.
Under the percentage-of-completion methodology, revenues are recognized
in accordance with the percentage of contract costs incurred to date
compared to the estimated total contract costs. Due to uncertainties and
estimates inherent within percentage-of-completion accounting it is
possible that estimates will be
37
revised as project work progresses. Changes to total estimated contract
costs or losses, if any, are recognized in the period in which they are
determined.
. Income Taxes. The company records a valuation allowance to reduce its
net deferred tax asset to the amount that management believes is more
likely than not to be realized. At December 31, 2001, we provided a
valuation allowance primarily related to our state operating loss
carryforwards of approximately $56.3 million. We have not provided a
valuation allowance for the remaining deferred tax assets, primarily our
federal net operating loss carryforwards, as management believes that we
will have sufficient time to realize these assets during the
carryforward period.
The ultimate realization of these deferred tax assets depends on our
ability to generate sufficient taxable income in the future. Based on
our current outlook of future taxable income during the carryforward
period, we believe our net deferred tax asset will be realized. If we
are unable to generate sufficient taxable income in the future, we will
be required to reduce our net deferred tax asset through a charge to
income tax expense, which would result in a corresponding decrease in
stockholders' equity.
. Impairment of Assets. We review long-lived assets, including
intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. We
assess recoverability by determining whether the net book value of the
related assets will be recovered through projected undiscounted cash
flows. If we determine that the carrying value of an asset may not be
recoverable, we will measure any impairment based on the projected
future discounted cash flows to be provided from the asset as compared
to its carrying value. We record any related impairment losses in the
period in which we identify such impairment.
During the year ended December 31, 2001, we recorded impairment charges
relating to our long-lived assets of approximately $11.6 million. Those
charges are reflected in depreciation and amortization in our 2001
consolidated statement of operations.
. Investment Impairment Charges. Investments in those entities where we
own less than twenty percent of the voting stock of the individual
entity and do not exercise significant influence over operating and
financial policies of the entity are accounted for using the cost
method. Investments in entities where we own less than twenty percent
but have the ability to exercise significant influence over operating
and financial policies of the entity or where we own more than twenty
percent of the voting stock of the individual entity, but not in excess
of fifty percent, are accounted for using the equity method. As of
December 31, 2001, all of our investments were in companies that are not
publicly traded, and, therefore, no established market for their
securities exists. We have a policy in place to review the fair value of
our investments on a regular basis to evaluate the carrying value of the
investments in these companies. If we believe that the carrying value of
an investment is carried at an amount in excess of fair value, it is our
policy to record an impairment charge to adjust the carrying value to
the market value.
38
During the year ended December 31, 2001, we recorded impairment charges
on our investments of $31.6 million. These charges are reflected in loss
(gain) on investments in our consolidated statement of operations.
The above listing is not intended to be a comprehensive list of all of our
accounting policies. See our audited consolidated financial statements and
notes thereto which begin on page F-1 of this annual report where our
significant accounting policies are discussed.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2001, we adopted the provisions of Statement of Financial
Accounting Standard (SFAS) No. 133 "Accounting for Derivative Instruments and
Hedging Activities," as amended. Our 2001 consolidated financial statements
were prepared in accordance with the provisions of SFAS No. 133. The 2000 and
1999 consolidated financial statements were prepared in accordance with the
applicable literature for derivatives and hedging instruments in effect at that
time. The cumulative effect of adopting this statement resulted in a charge to
other comprehensive loss of $7.9 million (net of a tax benefit of $4.2 million)
In June 2001, the FASB issued SFAS No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 supersedes
Accounting Principles Board (APB) Opinion No. 16 "Business Combinations" and
SFAS No. 38 "Accounting for Pre-acquisition Contingencies" and eliminates
pooling-of-interest accounting for business combinations. SFAS No. 141 also
includes enhanced criteria for identifying intangible assets separately from
goodwill. The requirements of SFAS No. 141 were effective for any business
combination consummated by us subsequent to June 30, 2001. We did not
consummate any acquisitions subsequent to June 30, 2001 that gave rise to
goodwill.
SFAS No. 142 supersedes APB Opinion No. 17, "Intangible Assets", and
requires that goodwill and intangible assets with indefinite lives will no
longer be amortized, but reviewed for impairment at least annually. Intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives.
The adoption of SFAS No. 142 is expected to reduce our annual amortization
of goodwill by approximately $90.0 million. We are in the process of assessing
the transitional impairment test and the related valuation of goodwill under
SFAS No. 142 for our company. However, upon completion of the transitional
impairment test, it is likely we will record a non-cash impairment charge in
our statement of operations related to Verestar. Although the amount of the
charge has not been determined, goodwill related to Verestar was approximately
$185.0 million as of December 31, 2001. We will reflect this charge, if
necessary, as a cumulative effect of a change in accounting principle in our
2002 statement of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. We
implemented SFAS No. 144 on January 1, 2002. The adoption of this statement was
not material to our consolidated financial position or results of operations.
39
INFORMATION PRESENTED PURSUANT TO THE INDENTURE FOR OUR 9 3/8% SENIOR NOTES
The following table sets forth information that is presented solely to
address certain reporting requirements contained in our senior note indenture.
This information presents certain financial data for us on a consolidated basis
and on a restricted group basis, as defined in the senior note indenture. All
of our subsidiaries are part of this restricted group, except our wholly-owned
subsidiary, Verestar, and its subsidiaries.
Consolidated Restricted Group(1)
---------------------- ----------------------
Year Ended December 31, Year Ended December 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- --------- ---------- ---------
(in thousands)
Statement of Operations Data:
Operating revenues............................... $1,134,191 $ 735,275 $ 898,798 $ 590,074
---------- --------- ---------- ---------
Operating expenses:
Operating expenses excluding depreciation and
amortization and restructuring, development and
corporate general and administrative expenses.. 848,042 524,074 620,088 414,009
Depreciation and amortization.................... 440,371 283,360 377,138 256,286
Restructuring expense............................ 69,174 67,992
Development expense.............................. 8,630 14,517 7,895 14,433
Corporate general and administrative expense..... 26,478 14,958 26,478 14,958
---------- --------- ---------- ---------
Total operating expenses......................... 1,392,695 836,909 1,099,591 699,686
---------- --------- ---------- ---------
Loss from operations............................. (258,504) (101,634) (200,793) (109,612)
Interest expense................................. (282,291) (156,839) (271,098) (155,006)
Interest income and other, net................... 26,742 15,556 26,125 15,199
Interest income--TV Azteca, net.................. 14,377 12,679 14,377 12,679
Loss on investments.............................. (40,551) (2,538) (36,797) (2,538)
Note conversion expense.......................... (26,336) (16,968) (26,336) (16,968)
Minority interest in net earnings of subsidiaries (318) (202) (318) (202)
---------- --------- ---------- ---------
Loss before income taxes and extraordinary losses $ (566,881) $(249,946) $ (494,840) $(256,448)
========== ========= ========== =========
December 31, 2001
-----------------------
Restricted
Consolidated Group
------------ ----------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents....................... $ 35,958 $ 33,113
Restricted cash................................. 94,071 94,071
Property and equipment, net..................... 3,287,573 2,980,031
Total assets.................................... 6,829,723 6,194,397
Long-term obligations, including current portion 3,561,960 3,436,324
Net debt(2)..................................... 3,431,931 3,309,140
Total stockholders' equity...................... 2,869,196 2,869,196
- --------
(1) Corporate overhead allocable to Verestar and interest expense related to
intercompany borrowings to Verestar (unrestricted subsidiary) have not been
excluded from results shown for the restricted group.
(2) Net debt represents long-term obligations, including current portion, less
cash and cash equivalents and restricted cash.
40
Tower Cash Flow, Adjusted Consolidated Cash Flow and Non-Tower Cash Flow for the Company
and its restricted subsidiaries, as defined in our senior note indenture, are as follows:
Tower Cash Flow, for the three months ended December 31, 2001.......................... $ 71,690
=========
Consolidated Cash Flow, for the twelve months ended December 31, 2001.................. $ 287,292
Less: Tower Cash Flow, for the twelve months ended December 31, 2001............... (244,431)
Plus: four times Tower Cash Flow, for the three months ended December 31, 2001..... 286,760
---------
Adjusted Consolidated Cash Flow, for the twelve months ended December 31, 2001......... $ 329,621
=========
Non-Tower Cash Flow, for the twelve months ended December 31, 2001..................... $ 34,966
=========
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates on long-term
debt obligations. We attempt to reduce these risks by utilizing derivative
financial instruments, namely interest rate caps, swaps, and collars pursuant
to our policies. All derivative financial instruments are for purposes other
than trading. For the year ended December 31, 2001, we increased our borrowings
under our credit facilities by approximately $95.0 million. In addition, we
completed a private placement of $1.0 billion of our senior notes issued at
100% of their face amount. The proceeds from the above were used to finance
capital expenditures and acquisitions. In the short-term, we invested any
unused proceeds in marketable debt securities, commercial paper and cash and
cash equivalents. In June 2001 we entered into an interest rate collar
agreement with a total notional amount of $47.5 million expiring in June 2003.
In August 2001 we acquired an aggregate of $82.5 million face amount ($61.6
million carrying amount) of our 2.25% convertible notes for shares of our Class
A common stock. Lastly, in November 2001, we terminated an interest rate collar
agreement with a total notional amount of $185.0 million originally expiring in
May 2002, and simultaneously entered into an interest rate swap agreement with
a total notional amount of $185.0 million expiring in November 2003.
The following tables provide information as of December 31, 2001 and 2000
about our market risk exposure associated with changing interest rates. For
long-term debt obligations, the tables present principal cash flows by maturity
date and average interest rates related to outstanding obligations. For
interest rate caps, swaps, collars and swaptions, the tables present notional
principal amounts and weighted-average interest rates by contractual maturity
dates.
As of December 31, 2001
Principal Payments and Interest Rate Detail by Contractual Maturity Dates (In
thousands)
Long-Term Debt 2002 2003 2004 2005 2006 Thereafter Total Fair Value
- -------------- ------- -------- -------- -------- -------- ---------- ---------- ----------
Fixed Rate Debt(a)...... $12,585 $ 12,133 $ 12,775 $ 64,860 $ 26,352 $1,988,255 $2,116,960 $1,654,718
Average Interest Rate(a) 7.83% 7.82% 7.81% 7.78% 7.78% 7.78%
Variable Rate Debt(a)... $151,000 $192,000 $243,000 $255,750 $ 603,250 $1,445,000 $1,445,000
Average Interest Rate(a)
41
Aggregate Notional Amounts Associated with Interest Rate Caps, Swaps and
Collars in Place
As of December 31, 2001 and Interest Rate Detail by Contractual Maturity Dates
(In thousands)
Interest Rate CAPS 2002 2003 2004 2005 2006 Thereafter Total Fair Value
- ------------------ ---- ---- ---- ---- ---- ---------- ----- ----------
Notional Amount.................. $ 364,980(c)
Cap Rate......................... 9.00%
Interest Rate SWAPS
- -------------------
Notional Amount.................. $ 580,000(d) $ 550,000(e) $(21,601)
Weighted-Average Fixed Rate
Payable(b)...................... 5.86% 5.80%
Interest Rate COLLARS
- ---------------------
Notional Amount.................. $ 327,500(f) $ 232,500(g) $(13,579)
Weighted-Average Below Floor Rate
Payable, Above Cap
Rate Receivable(b).............. 5.96%, 8.27% 5.96%, 8.18%
As of December 31, 2000
Principal Payments and Interest Rate Detail by Contractual Maturity Dates (In
thousands)
Long-Term Debt 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- -------------- ---- ---- ---- ---- ---- ---------- ----- ----------
Fixed Rate Debt(a)....... $11,178 $11,474 $10,493 $ 10,900 $ 46,953 $1,027,225 $1,118,223 $1,385,971
Average Interest Rate(a). 6.29% 6.26% 6.22% 6.19% 6.07% 6.07%
Variable Rate Debt (a)... $56,000 $192,000 $243,000 $ 859,000 $1,350,000 $1,350,000
Average Interest Rate (a)
Aggregate Notional Amounts Associated with Interest Rate Caps, Swaps, Collars
and Swaptions in Place
As of December 31, 2000 and Interest Rate Detail by Contractual Maturity Dates
(In thousands)
Interest Rate CAPS 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ------------------ ---- ---- ---- ---- ---- ---------- ----- ----------
Notional Amount....... $ 364,980 $ 364,980(c)
Cap Rate.............. 9.00% 9.00%
Interest Rate SWAPS
- -------------------
Notional Amount....... $ 395,000 $ 395,000(d) $ 365,000(h) $(7,680)
Weighted-Average Fixed
Rate
Payable (b).......... 6.69% 6.69% 6.67%
Interest Rate COLLARS
- ---------------------
Notional Amount....... $ 465,000 $ 465,000(i) $ 185,000(j) $(6,107)
Weighted-Average Below
Floor Rate Payable,
Above Cap Rate
Receivable (b)....... 6.35%,8.90% 6.35%,8.90% 6.46%,9.00%
Interest Rate SWAPTIONS
- -----------------------
Notional Amount....... $ 290,000(k) $ 1,707
Weighted-Average
Swaption Rate(b)..... 6.56%
- --------
(a) December 31, 2001 variable rate debt consists of our credit facilities
(including our Mexican credit facility) ($1.45 billion) and fixed rate debt
consists of the 2.25% convertible notes ($204.1 million), the 6.25%
convertible notes ($212.8 million), the 5.0% convertible notes ($450.0
million), the 9 3/8% senior notes ($1.0 billion), and other debt of $250.1
million. Interest on the credit facilities is payable in accordance with
the applicable London Interbank Offering Rate (LIBOR) agreement or
quarterly and accrues at our option either at LIBOR plus margin (as
defined) or the Base Rate plus margin (as defined). The average interest
rate in effect at December 31, 2001 for the credit facilities was 4.76%.
For the year ended December 31, 2001, the weighted average interest rate
42
under the credit facilities was 7.26%. The 2.25% and 6.25% convertible notes
each bear interest (after giving effect to the accretion of the original
discount on the 2.25% convertible notes) at 6.25% per annum, which is
payable semiannually on April 15 and October 15 of each year beginning April
15, 2000. The 5.0% convertible notes bear interest at 5.0% per annum, which
is payable semiannually on February 15 and August 15 of each year, beginning
August 15, 2000. The 9 3/8% senior notes bear interest at 9 3/8% per annum,
which is payable semiannually on February 1 and August 1 of each year
beginning August 1, 2001. Other debt consists of notes payable, capital
leases and other obligations bearing interest at rates ranging from 7.09% to
14.25%, payable monthly.
December 31, 2000 variable rate debt consists of our credit facilities
($1.35 billion) and fixed rate debt consists of the 2.25% and 6.25%
convertible notes ($470.9 million), the 5.0% convertible notes ($450.0
million), and other debt of $197.3 million. The average interest rate in
effect at December 31, 2000 for the credit facilities was 9.65%. For the
year ended December 31, 2000, the weighted average interest rate under the
credit facilities was 9.56%. Other debt consists of notes payable, capital
leases and other obligations bearing interest at rates ranging from 7.93%
to 14.25%, payable monthly.
(b) Represents the weighted-average fixed rate or range of interest based on
contract notional amount as a percentage of total notional amounts in a
given year.
(c) Includes notional amount of $364,980 that expired in February 2002.
(d) Includes notional amount of $30,000 that expired in March 2002.
(e) Includes notional amounts of $75,000, $290,000 and $185,000 that will
expire in January, February and November 2003, respectively.
(f) Includes notional amount of $95,000 that will expire in July 2002.
(g) Includes notional amounts of $185,000 and $47,500 that will expire in May
and June 2003, respectively.
(h) Includes notional amounts of $75,000 and $290,000 that will expire in
January and February 2003, respectively.
(i) Includes notional amounts of $185,000 and $95,000 that will expire in May
and July 2002, respectively.
(j) Includes notional amount of $185,000 that will expire in May 2003.
(k) Includes notional amount of $290,000 that expired in August 2001.
We maintain a portion of our cash and cash equivalents in short-term
financial instruments that are subject to interest rate risks. Due to the
relatively short duration of such instruments, we believe fluctuations in
interest rates with respect to those investments will not materially affect our
financial condition or results of operations.
Our foreign operations in 2001 and 2000 were not significant. Accordingly,
foreign currency risk has not been material for the years ended December 31,
2001 and 2000.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers, and their respective ages and positions, as of March
1, 2002 are set forth below:
Name Age Position
---- --- ---------------------------------------------------------------------
Steven B. Dodge.... .... 56 Chairman of the Board and Chief Executive Officer
Justin D. Benincasa .... 40 Senior Vice President and Corporate Controller
James S. Eisenstein .... 43 Executive Vice President--Corporate Development
J. Michael Gearon, Jr... 37 Vice Chairman, Director and President of American Tower International
Steven J. Moskowitz..... 38 Executive Vice President--Tower Division
David J. Porte.......... 38 Executive Vice President--Technology and Strategy
Bradley E. Singer....... 35 Chief Financial Officer and Treasurer
James D. Taiclet, Jr.... 41 President and Chief Operating Officer
Joseph L. Winn.......... 50 Vice Chairman
Steven B. Dodge has served as our Chairman of the Board and Chief Executive
Officer since our separation from American Radio in June 1998 (the "ATC
Separation"). He also served as our President until September 2001. Mr. Dodge
was the Chairman of the Board of Directors, President and Chief Executive
Officer of American Radio from its founding in November 1993 until the ATC
Separation. In 1988, Mr. Dodge founded Atlantic Radio, one of the predecessor
entities of American Radio. Mr. Dodge currently serves as a director of
Citizens Financial Group, Inc., Nextel Partners, Inc., and Sothebys Holdings,
Inc.
Justin D. Benincasa is our Senior Vice President and Corporate Controller.
Mr. Benincasa was a Vice President and Corporate Controller of American Radio
from its founding in 1993 until the ATC Separation.
James S. Eisenstein is our Executive Vice President--Corporate Development.
Mr. Eisenstein helped form our company in the summer of 1995. From 1990 to
1995, he was Chief Operating Officer for Amaturo Group Ltd., a broadcast
company operating 11 radio stations and four broadcasting towers, several of
which were purchased by American Radio. Mr. Eisenstein is a director of U.S.
Wireless Corporation.
J. Michael Gearon, Jr. is one of our Vice Chairmen and the President of
American Tower International, and has been a director since our acquisition of
Gearon Communications in January 1998. From January 1998 until January 2002,
Mr. Gearon served as an Executive Vice President. Prior to joining us, Mr.
Gearon had been the founder and Chief Executive Officer of Gearon
Communications since September 1991.
Steven J. Moskowitz is our Executive Vice President--Tower Division. Mr.
Moskowitz joined us in January 1998, initially as a Vice President and General
Manager of our Northeast Region, and was Executive Vice President--Marketing
from March 1999 until his appointment to his present position in January 2002.
From 1989 until 1998, Mr. Moskowitz served as a Vice President of The Katz
Media Group, the largest broadcast media representation firm in the United
States.
David J. Porte is our Executive Vice President--Technology and Strategy. Mr.
Porte joined us in July 2001, prior to which time he had served as Chairman and
Chief Executive Officer of Telicor, a company providing operations and business
support systems solutions to the telecommunications industry. Prior to
organizing Telicor in 2000, Mr. Porte had been a Vice President and General
Manager of the Internet service group of General Communications, a regional
integrated communications provider in the Pacific Northwest, since 1997 when it
acquired Astrolabe of which he had been President.
44
Bradley E. Singer is our Chief Financial Officer and Treasurer. Mr. Singer
joined us in September 2000 as Executive Vice President--Strategy, and was
appointed Vice President and General Manager of the Southeast region in
November 2000, positions he held until July 2001. He was appointed Executive
Vice President--Finance in July 2001. Prior to joining us, Mr. Singer was an
investment banker with Goldman, Sachs & Co. focusing on the telecommunications
industry.
James D. Taiclet, Jr. is our President and Chief Operating Officer. Prior to
joining us in that capacity in September 2001, Mr. Taiclet had been President
of Honeywell Aerospace Services, a part of Honeywell International since March
1999. Mr. Taiclet was with United Technologies from March 1996 until March
1999, serving as a Vice President of Pratt & Whitney Engine Services and of
Military Programs, Pratt & Whitney Eagle Services.
Joseph L. Winn is one of our Vice Chairmen, a position he assumed in January
2002. Prior to that time he was our Chief Financial Officer and Treasurer. Mr.
Winn was Treasurer, Chief Financial Officer and a director of American Radio
from its founding in 1993 until the ATC Separation.
The information under "Election of Directors" and "Section 16(a) Beneficial
Ownership Reporting Compliance" from the Definitive Proxy Statement is hereby
incorporated by reference herein.
ITEM 11. EXECUTIVE COMPENSATION
The information under "Compensation and Other Information Concerning
Directors and Officers" from the Definitive Proxy Statement is hereby
incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under "Securities Ownership of Certain Beneficial Owners and
Management" from the Definitive Proxy Statement is hereby incorporated by
reference herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under "Certain Relationships and Related Transactions" from
the Definitive Proxy Statement is hereby incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules. See index to Financial Statements,
which appears on page F-1 hereof.
(b) Reports on Form 8-K.
Form 8-K (Item 2) filed on October 4, 2001.
Form 8-K (Item 2) filed on December 13, 2001.
(c) Exhibits. The exhibits listed on the Exhibit Index hereof are filed
herewith in response to this Item.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 1st day of
April 2002.
AMERICAN TOWER CORPORATION
(Registrant)
/s/ STEVEN B. DODGE
By: _______________________________
Steven B. Dodge
Chief Executive Officer
and Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ STEVEN B. DODGE Chief Executive Officer and April 1, 2002
- ----------------------------- Chairman (Principal
Steven B. Dodge Executive Officer)
/s/ BRADLEY E. SINGER Chief Financial Officer and April 1, 2002
- ----------------------------- Treasurer (Principal
Bradley E. Singer Financial Officer)
/s/ JUSTIN D. BENINCASA Senior Vice President and April 1, 2002
- ----------------------------- Corporate Controller
Justin D. Benincasa (Principal Accounting
Officer)
/s/ ALAN L. BOX Director April 1, 2002
- -----------------------------
Alan L. Box
/s/ ARNOLD L. CHAVKIN Director April 1, 2002
- -----------------------------
Arnold L. Chavkin
/s/ DAVID W. GARRISON Director April 1, 2002
- -----------------------------
David W. Garrison
/s/ J. MICHAEL GEARON, JR Director April 1, 2002
- -----------------------------
J. Michael Gearon, Jr.
/s/ FRED R. LUMMIS Director April 1, 2002
- -----------------------------
Fred R. Lummis
/S/ PAMELA D. A. REEVE Director April 1, 2002
- -----------------------------
Pamela D. A. Reeve
/s/ THOMAS H. STONER Director April 1, 2002
- -----------------------------
Thomas H. Stoner
/s/ MAGGIE WILDEROTTER Director April 1, 2002
- -----------------------------
Maggie Wilderotter
46
AMERICAN TOWER CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report............................................................... F-2
Consolidated Balance Sheets as of December 31, 2001 and 2000............................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999. F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000
and 1999................................................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999. F-6
Notes to Consolidated Financial Statements................................................. F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
American Tower Corporation:
We have audited the accompanying consolidated balance sheets of American Tower
Corporation and subsidiaries (the "Company") as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
2001 and 2000, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
As discussed in notes 1 and 7 to the consolidated financial statements, in 2001
the Company adopted the provisions of Statement of Financial Accounting
Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
February 25, 2002
F-2
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
(In thousands, except share data)
2001 2000
---------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 35,958 $ 82,038
Restricted cash................................... 94,071 46,036
Accounts receivable, net.......................... 182,612 194,011
Prepaid and other current assets.................. 89,645 42,377
Inventories....................................... 49,332 47,872
Costs and earnings in excess of billings on
uncompleted contracts and unbilled receivables... 46,453 43,652
Deferred income taxes............................. 24,136 15,166
---------- ----------
Total current assets............................ 522,207 471,152
---------- ----------
PROPERTY AND EQUIPMENT, net.......................... 3,287,573 2,296,670
GOODWILL AND OTHER INTANGIBLE ASSETS, net............ 2,507,911 2,505,681
DEFERRED INCOME TAXES................................ 245,215 140,395
NOTES RECEIVABLE..................................... 120,554 123,945
DEPOSITS AND OTHER LONG-TERM ASSETS.................. 110,598 73,298
INVESTMENTS.......................................... 35,665 49,538
---------- ----------
TOTAL................................................ $6,829,723 $5,660,679
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations.......... $ 12,585 $ 11,178
Accrued tower construction costs.................. 39,618 45,315
Accounts payable.................................. 50,125 74,046
Accrued expenses.................................. 124,796 87,291
Billings in excess of costs and earnings on
uncompleted contracts and unearned revenue....... 56,098 48,248
Accrued interest.................................. 59,492 31,708
---------- ----------
Total current liabilities....................... 342,714 297,786
---------- ----------
LONG-TERM OBLIGATIONS................................ 3,549,375 2,457,045
OTHER LONG-TERM LIABILITIES.......................... 54,501 12,472
---------- ----------
Total liabilities............................... 3,946,590 2,767,303
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 8)
MINORITY INTEREST IN SUBSIDIARIES.................... 13,937 16,346
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock: $.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; 185,162,631
and 170,180,549 shares issued, 185,018,034
and 170,035,952 shares outstanding,
respectively..................................... 1,851 1,701
Class B Common Stock: $.01 par value;
50,000,000 shares authorized; 8,001,769 and
8,095,005 shares issued and outstanding,
respectively..................................... 80 81
Class C Common Stock: $.01 par value;
10,000,000 shares authorized; 2,267,813
shares issued and outstanding, respectively...... 23 23
Note receivable................................... (6,720)
Additional paid-in capital........................ 3,639,510 3,174,622
Accumulated other comprehensive loss.............. (16,057)
Accumulated deficit............................... (745,151) (295,057)
Less: treasury stock (144,597 shares at cost)... (4,340) (4,340)
---------- ----------
Total stockholders' equity...................... 2,869,196 2,877,030
---------- ----------
TOTAL................................................ $6,829,723 $5,660,679
========== ==========
See notes to consolidated financial statements.
F-3
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001, 2000, and 1999
(In thousands, except per share data)
2001 2000 1999
---------- --------- --------
REVENUES:
Rental and management................................................ $ 444,560 $ 278,153 $135,303
Network development services......................................... 454,238 311,921 90,416
Satellite and fiber network access services.......................... 235,393 145,201 32,362
---------- --------- --------
Total operating revenues......................................... 1,134,191 735,275 258,081
---------- --------- --------
OPERATING EXPENSES:
Operating expenses excluding depreciation and amortization,
restructuring, development and corporate general and administrative
expenses:
Rental and management.............................................. 214,506 139,240 62,441
Network development services....................................... 405,582 274,769 69,318
Satellite and fiber network access services........................ 227,954 110,065 24,098
Depreciation and amortization........................................ 440,371 283,360 132,539
Restructuring expense................................................ 69,174
Development expense.................................................. 8,630 14,517 1,607
Corporate general and administrative expense......................... 26,478 14,958 9,136
---------- --------- --------
Total operating expenses......................................... 1,392,695 836,909 299,139
---------- --------- --------
LOSS FROM OPERATIONS.................................................. (258,504) (101,634) (41,058)
---------- --------- --------
OTHER INCOME (EXPENSE):
Interest expense..................................................... (282,291) (156,839) (27,492)
Interest income and other, net....................................... 26,742 15,556 17,442
Interest income--TV Azteca, net of interest expense of $1,160 in 2001
and $1,047 in 2000................................................. 14,377 12,679 1,856
(Loss) gain on investments........................................... (40,551) (2,538) 253
Note conversion expense.............................................. (26,336) (16,968)
Minority interest in net earnings of subsidiaries.................... (318) (202) (142)
---------- --------- --------
TOTAL OTHER EXPENSE................................................... (308,377) (148,312) (8,083)
---------- --------- --------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY LOSSES..................... (566,881) (249,946) (49,141)
BENEFIT (PROVISION) FOR INCOME TAXES.................................. 116,787 59,656 (214)
---------- --------- --------
LOSS BEFORE EXTRAORDINARY LOSSES...................................... (450,094) (190,290) (49,355)
EXTRAORDINARY LOSSES ON EXTINGUISHMENT OF DEBT, NET
OF INCOME TAX BENEFIT OF $2,892 IN 2000, and $914 IN 1999........... (4,338) (1,372)
---------- --------- --------
NET LOSS.............................................................. $ (450,094) $(194,628) $(50,727)
========== ========= ========
BASIC AND DILUTED LOSS PER COMMON SHARE AMOUNTS:
Loss before extraordinary losses..................................... $ (2.35) $ (1.13) $ (0.33)
Extraordinary losses................................................. (0.02) (0.01)
---------- --------- --------
Net loss............................................................. $ (2.35) $ (1.15) $ (0.34)
========== ========= ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING............................ 191,586 168,715 149,749
========== ========= ========
See notes to consolidated financial statements.
F-4
AMERICAN TOWER CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2001, 2000, and 1999
(In thousands, except share data)
Common Stock Common Stock Common Stock Treasury Stock
------------------ ---------------- ---------------- -----------------
Class A Class B Class C
------------------ ---------------- ----------------
Issued Issued Issued
Shares Amount Shares Amount Shares Amount Shares Amount
----------- ------ --------- ------ --------- ------ -------- -------
BALANCE, JANUARY 1, 1999.......................... 96,291,111 $ 963 9,001,060 $90 3,002,008 $30
Cash contributions from ARS.......................
Adjustment to ATC separation tax liability........
Transfers/payments to ARS/CBS.....................
Issuance of common stock and options-mergers...... 20,691,428 207
Wauka escrow release--treasury stock.............. (76,403) $(1,528)
Issuance of common stock--February offerings...... 26,200,000 262
Expiration of redeemable common stock............. 336,250 3
Issuance of options--acquisition..................
Exercise of options............................... 254,480 3
Share class exchanges............................. 1,192,354 12 (613,150) (6) (579,204) (6)
Tax benefit of stock options......................
Net loss..........................................
Total comprehensive loss.........................
----------- ------ --------- --- --------- --- -------- -------
BALANCE, DECEMBER 31, 1999........................ 144,965,623 $1,450 8,387,910 $84 2,422,804 $24 (76,403) $(1,528)
----------- ------ --------- --- --------- --- -------- -------
6.25% and 2.25% convertible notes exchanged for
common stock..................................... 6,126,594 61
Issuance of common stock--June offering........... 12,500,000 125
Issuance of common stock, options and warrants--
mergers.......................................... 4,522,692 45
Issuance of common stock--Employee Stock
Purchase Plan.................................... 33,794
Exercise of options............................... 1,418,560 14 165,390 2
Share class exchanges............................. 613,286 6 (458,295) (5) (154,991) (1)
Treasury stock.................................... (68,194) (2,812)
Tax benefit of stock options......................
Net loss..........................................
Total comprehensive loss.........................
----------- ------ --------- --- --------- --- -------- -------
BALANCE, DECEMBER 31, 2000........................ 170,180,549 $1,701 8,095,005 $81 2,267,813 $23 (144,597) $(4,340)
----------- ------ --------- --- --------- --- -------- -------
2.25% convertible notes exchanged for common
stock............................................ 3,962,537 40
Issuance of common stock--January offering........ 10,000,000 100
Issuance of common stock, options and warrants--
mergers.......................................... 377,394 4
Issuance of common stock--Equity investment....... 100,000 1
Issuance of common stock--Employee Stock
Purchase Plan.................................... 231,257 2
Issuance of note to executive officer (secured by
Class A common stock)............................
Exercise of options............................... 217,658 2
Share class exchanges............................. 93,236 1 (93,236) (1)
Net change in fair value of cash flow hedges, net
of tax...........................................
Reclassification adjustment for realized losses on
derivative instruments, net of tax...............
Cumulative effect adjustment recorded upon
adoption of SFAS No. 133, net of tax.............
Foreign currency translation adjustment...........
Tax benefit of stock options......................
Net loss..........................................
Total comprehensive loss.........................
----------- ------ --------- --- --------- --- -------- -------
BALANCE, DECEMBER 31, 2001........................ 185,162,631 $1,851 8,001,769 $80 2,267,813 $23 (144,597) $(4,340)
----------- ------ --------- --- --------- --- -------- -------
Accumulated
Additional Other Total Total
Note Paid-in Comprehensive Accumulated Stockholders' Comprehensive
Receivable Capital Loss Deficit Equity Loss
---------- ---------- ------------- ----------- ------------- -------------
BALANCE, JANUARY 1, 1999.......................... $1,140,365 $ (49,702) $1,091,746
Cash contributions from ARS....................... 507 507
Adjustment to ATC separation tax liability........ 12,003 12,003
Transfers/payments to ARS/CBS..................... (1,070) (1,070)
Issuance of common stock and options-mergers...... 446,035 446,242
Wauka escrow release--treasury stock.............. (1,528)
Issuance of common stock--February offerings...... 630,889 631,151
Expiration of redeemable common stock............. 9,937 9,940
Issuance of options--acquisition.................. 1,794 1,794
Exercise of options............................... 3,573 3,576
Share class exchanges.............................
Tax benefit of stock options...................... 1,449 1,449
Net loss.......................................... (50,727) (50,727) $ (50,727)
---------
Total comprehensive loss......................... $ (50,727)
------- ---------- -------- --------- ---------- =========
BALANCE, DECEMBER 31, 1999........................ $2,245,482 $(100,429) $2,145,083
------- ---------- -------- --------- ----------
6.25% and 2.25% convertible notes exchanged for
common stock..................................... 153,306 153,367
Issuance of common stock--June offering........... 513,780 513,905
Issuance of common stock, options and warrants--
mergers.......................................... 227,462 227,507
Issuance of common stock--Employee Stock
Purchase Plan.................................... 865 865
Exercise of options............................... 23,461 23,477
Share class exchanges.............................
Treasury stock.................................... (2,812)
Tax benefit of stock options...................... 10,266 10,266
Net loss.......................................... (194,628) (194,628) $(194,628)
---------
Total comprehensive loss......................... $(194,628)
------- ---------- -------- --------- ---------- =========
BALANCE, DECEMBER 31, 2000........................ $3,174,622 $(295,057) $2,877,030
------- ---------- -------- --------- ----------
2.25% convertible notes exchanged for common
stock............................................ 86,403 86,443
Issuance of common stock--January offering........ 360,687 360,787
Issuance of common stock, options and warrants--
mergers.......................................... 8,454 8,458
Issuance of common stock--Equity investment....... 2,463 2,464
Issuance of common stock--Employee Stock
Purchase Plan.................................... 2,750 2,752
Issuance of note to executive officer (secured by
Class A common stock)............................ $(6,720) (6,720)
Exercise of options............................... 3,130 3,132
Share class exchanges.............................
Net change in fair value of cash flow hedges, net
of tax........................................... $(17,506) (17,506) $ (17,506)
Reclassification adjustment for realized losses on
derivative instruments, net of tax............... 9,405 9,405 9,405
Cumulative effect adjustment recorded upon
adoption of SFAS No. 133, net of tax............. (7,852) (7,852) (7,852)
Foreign currency translation adjustment........... (104) (104) (104)
Tax benefit of stock options...................... 1,001 1,001
Net loss.......................................... (450,094) (450,094) (450,094)
---------
Total comprehensive loss......................... $(466,151)
------- ---------- -------- --------- ---------- =========
BALANCE, DECEMBER 31, 2001........................ $(6,720) $3,639,510 $(16,057) $(745,151) $2,869,196
------- ---------- -------- --------- ----------
See notes to consolidated financial statements.
F-5
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001, 2000, and 1999
(In thousands)
2001 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (450,094) $ (194,628) $ (50,727)
Adjustments to reconcile net loss to cash provided by (used for)
operating activities:
Depreciation and amortization................................... 440,371 283,360 132,539
Minority interest in net earnings of subsidiaries............... 318 202 142
Note conversion expense......................................... 26,336 16,968
Loss (gain) on investments...................................... 40,551 2,538 (253)
Restructuring expense--asset write down......................... 62,550
Amortization of deferred financing costs........................ 11,959 6,945 1,466
Provision for losses on accounts receivable..................... 25,146 16,737 2,639
Extraordinary losses, net....................................... 4,338 1,372
Amortization of debt and note receivable discount............... 7,286 8,712 2,642
Deferred income taxes........................................... (120,411) (60,876) (1,140)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable............................................. (11,132) (108,473) (17,368)
Costs and earnings in excess of billings on uncompleted.........
contracts and unbilled receivables............................ (2,801) (26,153) (5,919)
Prepaid and other assets........................................ (48,110) (31,017) (9,497)
Inventories..................................................... 788 (18,643) (6,210)
Accounts payable and accrued expenses........................... 1,793 23,637 9,944
Accrued interest................................................ 27,784 24,631 5,436
Billings in excess of costs and earnings on uncompleted.........
contracts and unearned revenue................................ (3,291) 9,135 3,981
Other long-term liabilities..................................... 17,027 5,413 2,145
----------- ----------- -----------
Cash provided by (used for) operating activities.................... 26,070 (37,174) 71,192
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment and...............
construction activities.......................................... (568,158) (541,347) (272,670)
Payments for acquisitions, (net of cash acquired)................. (812,782) (1,368,024) (588,384)
Advances of notes receivable...................................... (10,179) (76,116) (119,282)
Proceeds from notes receivable.................................... 255 2,749 1,587
Proceeds from sale of 8.7% of Mexican subsidiary.................. 1,680
Distributions to minority interest................................ (763) (667) (396)
Deposits, investments and other long-term assets.................. (55,356) (15,809) (133,132)
----------- ----------- -----------
Cash used for investing activities.................................. (1,445,303) (1,999,214) (1,112,277)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under notes payable and credit facilities.............. 181,500 1,777,000 224,779
Repayments of notes payable, credit facilities and capital leases. (81,133) (584,155) (512,856)
Proceeds from issuance of debt securities......................... 1,000,000 450,000 600,063
Net proceeds from equity offerings, stock options and employee....
stock purchase plan.............................................. 366,671 535,435 634,727
Restricted cash................................................... (48,035) (46,036)
Cash payments from (to) CBS....................................... 5,735 (48,752)
Contributions from ARS............................................ 507
Deferred financing costs.......................................... (45,850) (44,765) (18,346)
----------- ----------- -----------
Cash provided by financing activities............................... 1,373,153 2,093,214 880,122
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................ (46,080) 56,826 (160,963)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........................ 82,038 25,212 186,175
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR.............................. $ 35,958 $ 82,038 $ 25,212
=========== =========== ===========
See notes to consolidated financial statements.
F-6
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business--American Tower Corporation and subsidiaries (collectively, ATC or the
Company), is an independent owner, operator and developer of wireless and
broadcast communications sites in North America, Mexico and Brazil. The
Company's primary businesses, as discussed in note 15, are the leasing of
antenna space to a diverse range of wireless communications and broadcast
industries, providing network development services and components to wireless
service providers and broadcasters and providing satellite and fiber network
access services to telecommunication companies, internet service providers,
governmental organizations, broadcasters and maritime customers worldwide.
Principles of Consolidation and Basis of Presentation--The accompanying
consolidated financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated. The Company consolidates those entities in which it owns greater
than fifty percent of the entity's voting stock.
Use of Estimates--The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results may
differ from those estimates, and such differences could be material to the
accompanying consolidated financial statements. The significant estimates in
the accompanying consolidated financial statements include revenue recognition
under the percentage of completion method, impairment of investments,
impairment of long-lived assets and valuation allowances related to deferred
tax assets.
Revenue Recognition--Rental and management revenues are recognized on a monthly
basis under lease or management agreements when earned. Escalation clauses,
excluding those tied to the Consumer Price Index (CPI), and other incentives
present in lease agreements with the Company's customers are recognized on a
straight-line basis over the term of the lease. Amounts billed or received
prior to being earned are deferred until such time as the earnings process is
complete.
Network development service revenues are derived under service contracts or
arrangements with customers that provide for billings on a time and materials,
cost plus profit or fixed price basis. Revenues are recognized as services are
performed with respect to the time and materials and cost plus profit
contracts. Revenues are recognized using the percentage-of-completion method
for fixed price contracts. Under the percentage-of-completion methodology,
revenues are recognized in accordance with the percentage of contract costs
incurred to date compared to estimated total contract costs. Costs and earnings
in excess of billings on uncompleted contracts represent revenues recognized in
excess of amounts billed. Billings in excess of costs and earnings on
uncompleted contracts represent billings in excess of revenues recognized.
Changes to total estimated contract costs or losses, if any, are recognized in
the period in which they are determined.
Revenue from the sale of component parts is reflected within network
development service revenue in the accompanying consolidated statements of
operations. Revenue from the sale of these components is recognized when
products are shipped. Provisions are recorded for estimated sales returns and
allowances at the time of shipment.
Satellite and fiber network access service revenues are recognized as such
services are provided. Amounts billed or received prior to services being
performed are deferred until such time as the earnings process is complete.
Development Expense--Development expense consists of uncapitalized acquisition
costs, costs to integrate acquisitions, costs associated with new business
initiatives, abandoned acquisition costs and costs associated with tower site
inspections and related data gathering. Such costs are expensed as incurred.
F-7
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Corporate General and Administrative Expense--Corporate general and
administrative expense consists of corporate overhead costs not specifically
allocable to any of the Company's individual business segments.
Note Conversion Expense--Note conversion expense represents the fair value of
incremental stock issued to induce convertible noteholders to convert their
holdings prior to the first scheduled redemption date. Such amounts were
expensed as incurred in accordance with Statement of Financial Accounting
Standard (SFAS) No. 84 "Induced Conversions of Convertible Debt." (See note 6).
Concentrations of Credit Risk--Financial instruments that potentially subject
the Company to concentrations of credit risk are primarily cash and cash
equivalents, restricted cash, notes receivable, trade receivables and
derivative instruments. The Company mitigates its risk with respect to cash and
cash equivalents, restricted cash and derivative instruments by maintaining its
deposits and contracts at high quality financial institutions and monitoring
the credit ratings of those institutions.
The Company mitigates its concentrations of credit risk with respect to notes
and trade receivables by actively monitoring the creditworthiness of its
borrowers and customers. Accounts receivable are reported net of allowances for
doubtful accounts of $23,804,000, $19,809,000 and $3,386,000 as of December 31,
2001, 2000 and 1999, respectively. Amounts charged against the allowance for
doubtful accounts for the years ended December 31, 2001, 2000, and 1999
approximated $23,613,000, $3,112,000 and $721,000, respectively. Bad debt
recoveries for the years ended December 31, 2001, 2000 and 1999 approximated
$2,462,000, $2,798,000 and $238,000, respectively.
Discount on Convertible Notes--The Company amortizes the discount on its
convertible notes using the effective interest method over the term of the
obligation. Such amortization is recorded as interest expense in the
accompanying consolidated statements of operations.
Derivative Financial Instruments--As part of the overall strategy to manage the
level of exposure to the risk of interest rate fluctuations under its variable
rate credit facilities, the Company utilizes interest rate swaps, caps, collars
and swaptions. The Company does not hold derivative financial instruments for
trading purposes. (See note 7).
Foreign Currency Translation--The Company's foreign subsidiaries in Mexico and
Brazil have designated the U.S. dollar as their functional currency. Monetary
assets and liabilities related to the Company's Mexican and Brazilian
operations are remeasured from the local currency into U.S. dollars at the rate
of currency exchange at the end of the applicable fiscal period. Non-monetary
assets and liabilities are remeasured at historical exchange rates. Revenues
and expenses are remeasured at average monthly exchange rates. All
remeasurement gains and losses are included in the Company's consolidated
statement of operations within the caption interest income and other, net. Such
amounts were not material for the years ended December 31, 2001, 2000 and 1999.
The Company also operates a teleport business within its satellite and fiber
network access services segment in Switzerland and has designated the Swiss
franc as its functional currency. Accordingly, assets and liabilities are
translated from the Swiss franc into U.S. dollars at the end of period exchange
rate, and revenues and expenses are translated at average monthly exchange
rates. Translation gains and losses are recorded in stockholders' equity and
reflected as a component of other comprehensive loss.
Cash and Cash Equivalents--Cash and cash equivalents include cash on hand,
demand deposits and short-term investments with remaining maturities (when
purchased) of three months or less.
Restricted Cash--Restricted cash represents amounts required to be held in
escrow under the Company's Amended Credit Facilities to pay interest on its
convertible and senior note obligations. The requirement to hold funds in
escrow expires in August 2002.
F-8
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 as of December 31, 2001 and 2000 are as follows (in thousands):
2001 2000
------- -------
Raw materials.................................... $37,387 $20,887
Finished goods................................... 11,300 25,947
Work in process.................................. 645 1,038
------- -------
Total......................................... $49,332 $47,872
======= =======
Property and Equipment--Property and equipment are recorded at cost or at
estimated fair value (in the case of acquired properties). Cost for
self-constructed towers includes direct materials and labor, indirect costs
associated with construction and capitalized interest. Approximately
$15,321,000, $11,365,000 and $3,379,000 of interest was capitalized for the
years ended December 31, 2001, 2000 and 1999, respectively.
Depreciation is provided using the straight-line method over the assets'
estimated useful lives. Property and equipment acquired through capitalized
leases are amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the asset. Asset useful lives are as
follows:
Equipment........................................ 3-15 years
Towers........................................... 15 years
Buildings........................................ 32 years
Building improvements and land improvements...... 15-32 years
Expenditures for repairs and maintenance are expensed as incurred. Betterments
and improvements that extend an asset's useful life or enhance capacity are
capitalized.
Goodwill and Other Intangible Assets--The consolidated financial statements
reflect the preliminary allocation of purchase prices for certain transactions
consummated in 2001, as certain appraisals for these acquisitions have not been
finalized. Goodwill represents the excess of purchase price over the estimated
fair value of net assets acquired. The Company amortizes goodwill over an
estimated useful life of fifteen years. Other intangible assets primarily
represent acquired customer base, workforce, network locations, licenses,
non-competition agreements and deferred financing costs. The Company amortizes
these other intangible assets over periods ranging from two to fifteen years.
(See note 4).
Income Taxes--The consolidated financial statements reflect provisions for
federal, state, local and foreign income taxes. The Company recognizes deferred
tax assets and liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases, as well as operating loss and
tax credit carryforwards. The Company measures deferred tax assets and
liabilities using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences and carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The Company provides valuation allowances if, based on the
weight of available evidence, it is more likely than not that some or all of
the deferred tax assets will not be realized. (See note 11).
Loss Per Common Share--Basic and diluted income or loss per common share has
been computed by dividing the Company's net loss by the weighted average number
of common shares outstanding during the period. For the years ended December
31, 2001, 2000 and 1999, potential common shares, including options, warrants
and shares issuable upon conversion of the Company's convertible notes, have
been excluded from the computation of diluted
F-9
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
loss per common share, as the effect is anti-dilutive. Potential common shares
excluded from the calculation of loss per share were approximately 46.4
million, 52.4 million and 41.5 million for the years ended December 31, 2001,
2000 and 1999, respectively.
Impairment of Long-Lived Assets-- The Company reviews long-lived assets,
including intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company assesses recoverability by determining whether the net
book value of the related assets will be recovered through projected
undiscounted future cash flows. If the Company determines that the carrying
value on an asset may not be recoverable, it measures any impairment based on
the projected future discounted cash flows to be provided from the asset as
compared to its carrying value. The Company records impairment losses in the
period in which it identifies such impairment.
During the year ended December 31, 2001, the Company recorded impairment
charges related to its long-lived assets of approximately $11.6 million. Such
charges are reflected in depreciation and amortization in the accompanying 2001
consolidated statement of operations.
Investments--Investments in those entities where the Company owns less than
twenty percent of the voting stock of the individual entity and does not
exercise significant influence over operating and financial policies of the
entity are accounted for using the cost method. Investments in entities where
the Company owns less than twenty percent but has the ability to exercise
significant influence over operating and financial policies of the entity or
where the Company owns more than twenty percent of the voting stock of the
individual entity, but not in excess of fifty percent, are accounted for using
the equity method. As of December 31, 2001, all of the Company's investments
were in companies that are not publicly traded, and, therefore, no established
market for their securities exists. The Company has a policy in place to review
the fair value of its investments on a regular basis to evaluate the carrying
value of the investments in these companies. If the Company believes that the
carrying value of an investment is carried at an amount in excess of fair
market value, it is the Company's policy to record an impairment charge to
adjust the carrying value to fair market value.
During the year ended December 31, 2001, the Company recorded impairment
charges on its cost and equity investments of approximately $31.6 million. In
addition, during the years ended December 31, 2001, 2000 and 1999, the Company
recorded losses (gains) on equity method investments of approximately $9.0
million, $2.5 million and $(0.3) million, respectively. Losses on equity method
investments are recorded in accordance with Emerging Issues Task Force No.
99-10 "Percentage Used to Determine the Amount of Equity Method Losses."
Stock-Based Compensation--The Company accounts for equity grants and awards to
employees, officers and directors using the intrinsic value method prescribed
by Accounting Principles Board Opinion (APB) No. 25 "Accounting For Stock
Issued To Employees," and related interpretations. In addition, the Company
also provides the required disclosures under SFAS No. 123, "Accounting For
Stock Based Compensation," as if the fair-value based method (defined in SFAS
No. 123) had been applied. (See note 12).
Fair Value of Financial Instruments--As of December 31, 2001, the carrying
amount of the Company's 5.0% convertible notes, the 2.25% and 6.25% convertible
notes and the senior notes was approximately $450.0 million, $416.9 million and
$1.0 billion, respectively, and the fair value of such notes was $268.3
million, $331.3 million and $805.0 million, respectively. Fair values were
determined based on quoted market prices. The carrying values of all other
financial instruments reasonably approximate the related fair values as of
December 31, 2001.
F-10
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Retirement Plan--The Company has a 401(k) plan covering substantially all
employees who meet certain age and employment requirements. Under the plan, the
Company matched 35% in 2001 and 2000 and 30% in 1999 of participants'
contributions up to a maximum 5% of a participant's compensation. The Company
contributed approximately $2,289,000, $1,875,000 and $461,000 to the plans for
the years ended December 31, 2001, 2000 and 1999, respectively.
Recent Accounting Pronouncements--On January 1, 2001, the Company adopted the
provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. The 2001 consolidated financial statements were
prepared in accordance with the provisions of SFAS No. 133. The 2000 and 1999
consolidated financial statements were prepared in accordance with the
applicable professional literature for derivatives and hedging instruments in
effect at that time. (See note 7).
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 supersedes Accounting Principles Board ("APB") Opinion
No. 16 "Business Combinations" and SFAS No. 38 "Accounting for Pre-acquisition
Contingencies" and eliminates the pooling-of-interests method of accounting for
business combinations. SFAS No. 141 also includes enhanced criteria for
identifying intangible assets separately from goodwill. The requirements of
SFAS No. 141 were effective for any business combination consummated by the
Company subsequent to June 30, 2001. The Company did not consummate any
acquisitions subsequent to June 30, 2001 that gave rise to goodwill.
SFAS No. 142, supersedes APB Opinion No. 17, "Intangible Assets," and requires
that goodwill and intangible assets with indefinite lives no longer be
amortized, but reviewed for impairment at least annually. Intangible assets
that are not deemed to have an indefinite life will continue to be amortized
over their useful lives.
The Company adopted SFAS No. 142 on January 1, 2002. The adoption of SFAS No.
142 is expected to reduce the Company's annual amortization of goodwill by
approximately $90.0 million. The Company is in the process of assessing the
transitional impariment test and the related valuation of goodwill under SFAS
No. 142 for the Company. However, upon completion of the transitional
impairment test, it is likely the Company will record a non-cash impairment
charge in its statement of operations related to its wholly owned subsidiary,
Verestar, Inc. (Verestar). Although the amount of the charge has not been
determined, goodwill related to Verestar was approximately $185.0 million as of
December 31, 2001. This charge, if necessary, will be reflected as a cumulative
effect of a change in accounting principle in the Company's 2002 statement of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." The statement retains the previously existing accounting
requirements related to the recognition and measurement of the impairment of
long-lived assets to be held and used while expanding the measurement
requirements of long-lived assets to be disposed of by sale to include
discontinued operations. It also expands the previously existing reporting
requirements for discontinued operations to include a component of an entity
that either has been disposed of or is classified as held for sale. The Company
implemented SFAS No. 144 on January 1, 2002. The adoption of this statement did
not have a material impact on the Company's consolidated financial position or
results of operations.
Reclassifications--Certain reclassifications have been made to the 2000 and
1999 financial statements to conform with the 2001 presentation.
F-11
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. COSTS AND EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS AND
UNBILLED RECEIVABLES
The Company derives a portion of its network development services revenue from
customer contracts that provide for billing only after certain milestones
within contracts have been achieved. As the Company recognizes revenue on these
contracts using the percentage-of-completion, cost plus profit and time and
materials methodologies, such contracts give rise to revenue which has been
earned, but, as of a certain point in time, remains unbilled. Such amounts
(along with unbilled rental revenue) are included in costs and earnings in
excess of billings on uncompleted contracts and unbilled receivables in the
accompanying consolidated balance sheets.
The Company also enters into contracts within its network development services
segment that provide for progress billings as the Company fulfills its
obligation under the related contracts. These contracts may give rise to
billings that are in excess of amounts actually earned as of a certain point in
time. The excess of amounts billed over the amount earned on these contracts is
reflected (along with customer rent received in advance) in billings in excess
of costs and earnings on uncompleted contracts and unearned revenue in the
accompanying consolidated balance sheets.
The following are the components of costs and earnings in excess of billings on
uncompleted contracts and unbilled receivables and billings in excess of costs
and earnings on uncompleted contracts and unearned revenue as of December 31,
(in thousands):
2001 2000
--------- ---------
Costs incurred on uncompleted contracts.................................. $ 275,663 $ 165,982
Estimated earnings....................................................... 82,112 67,222
Unbilled receivables..................................................... 7,311 10,113
Billings to date......................................................... (374,731) (247,913)
--------- ---------
$ (9,645) $ (4,596)
========= =========
Included in the accompanying consolidated balance sheets:
Costs and earnings in excess of billings on uncompleted contracts and
unbilled receivables................................................ $ 46,453 $ 43,652
Billings in excess of costs and earnings on uncompleted contracts and
unearned revenue.................................................... (56,098) (48,248)
--------- ---------
$ (9,645) $ (4,596)
========= =========
3. PROPERTY AND EQUIPMENT
Property and equipment (including assets held under capital leases) consist of
the following as of December 31, (in thousands):
2001 2000
---------- ----------
Towers................................................ $2,588,616 $1,579,616
Equipment............................................. 459,369 366,343
Buildings and improvements............................ 287,732 224,836
Land and improvements................................. 182,260 115,151
Construction in progress.............................. 180,042 206,069
---------- ----------
Total.............................................. 3,698,019 2,492,015
Less accumulated depreciation and amortization........ (410,446) (195,345)
---------- ----------
Property and equipment, net........................... $3,287,573 $2,296,670
========== ==========
F-12
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
The Company's goodwill and other intangible assets consist of the following as
of December 31, (in thousands):
2001 2000
---------- ----------
Goodwill........................................................ $1,402,432 $1,372,399
Acquired customer base and network location intangibles......... 1,437,799 1,292,631
Deferred financing costs........................................ 104,957 60,996
Acquired workforce, licenses and other intangibles.............. 78,187 68,398
---------- ----------
Total........................................................ 3,023,375 2,794,424
Less accumulated amortization................................... (515,464) (288,743)
---------- ----------
Goodwill and other intangible assets, net....................... $2,507,911 $2,505,681
========== ==========
5. NOTES RECEIVABLE
In December 1999, the Company signed 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. In 2000, the Company loaned TV Azteca $119.8
million. The loan, which bears interest at 12.87%, payable quarterly, was
discounted by the Company, as the fair value interest rate at the date of the
loan was determined to be 14.25%. As of December 31, 2001, approximately $119.8
million undiscounted ($108.2 million discounted) was outstanding. The term of
the loan is seventy years. The loan may be prepaid by TV Azteca without penalty
during the last fifty years of the agreement. The discount recorded on the note
is being amortized to interest income-TV Azteca using the effective interest
method over the term of the loan.
Simultaneous with the signing of the loan agreement, the Company also entered
into an agreement with TV Azteca that entitles the Company to assume the
marketing responsibility and future economic rights for approximately 190
broadcasting towers owned by TV Azteca. Under the terms of the agreement the
Company pays TV Azteca $1.5 million annually and is entitled to receive 100% of
the revenues generated from leases with new tenants and is responsible for any
incremental operating expenses associated with those new leases during the term
of the loan.
In anticipation of the loan described above, the Company made an interim loan
of $60.0 million to TV Azteca in September 1999. The interim loan, which bore
interest at approximately 11%, matured at the closing of the loan described
above.
An executive officer and director of the Company became a director of TV Azteca
in December 1999.
As of December 31, 2001 and 2000, the Company also had several other notes
receivable outstanding totaling approximately $12.3 million and $15.0 million,
respectively. These notes bear interest at rates ranging from 7% to 14% and
mature in periods through 2011.
F-13
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. FINANCING ARRANGEMENTS
Outstanding amounts under the Company's long-term financing arrangements
consisted of the following as of December 31, (in thousands):
2001 2000
---------- ----------
Credit facilities................................ $1,445,000 $1,350,000
Senior notes..................................... 1,000,000
Convertible notes, net of discount............... 866,852 920,908
Notes payable and capital leases................. 250,108 197,315
---------- ----------
Total............................................ 3,561,960 2,468,223
Less current portion............................. (12,585) (11,178)
---------- ----------
Long-term debt................................... $3,549,375 $2,457,045
========== ==========
The following is a description of the Company's outstanding long-term debt as
of December 31, 2001:
Credit Facilities--In January 2000, the Company through certain of its
subsidiaries completed its amended and restated credit facilities (Amended
Credit Facilities). Under the Amended Credit Facilities, the borrowing capacity
of the Company, giving effect to the termination of the term loan C facility
discussed below, is up to $2.0 billion, with the option to increase the
capacity up to an additional $500.0 million subject to lender approval. All
borrowings under the Amended Credit Facilities are subject to borrowing base
restrictions based primarily on a multiple of operating cash flow.
As of December 31, 2001, components of the Amended Credit Facilities include:
. $650.0 million revolving credit facility maturing on June 30, 2007;
. $850.0 million multi-draw term loan A maturing on June 30, 2007;
. $500.0 million term loan B maturing December 31, 2007; and
. $250.0 million multi-draw term loan C maturing June 30, 2008.
In January 2002, the Company terminated the $250.0 million multi-draw term loan
C facility, none of which facility had been drawn. As a result of this
termination, the Company will record a charge of $7.5 million to "other
expense" in the first quarter of 2002 related to the write-off of certain
deferred financing fees associated with this facility.
In February 2001, the Company's Mexican subsidiary, American Tower Corporation
de Mexico, S. de R.L. de C.V. (ATC Mexico) and two of its subsidiaries
consummated a loan agreement with a group of banks providing a credit facility
of an initial aggregate amount of $95.0 million (the "Mexican Credit
Facility"). As of December 31, 2001, an aggregate of $95.0 million was
outstanding under this loan agreement. In February 2002, the Company repaid all
loans outstanding under the ATC Mexico loan agreement with borrowings under the
Amended Credit Facilities and substantially all of the Mexican subsidiaries
became restricted subsidiaries under the Amended Credit Facilities. As a result
of such repayment, the Company will recognize an extraordinary loss on
extinguishment of debt in the first quarter of 2002 of approximately $1.3
million (net of an income tax benefit of $0.7 million).
The Amended Credit Facilities are scheduled to amortize quarterly commencing on
March 31, 2003 based on defined percentages of outstanding commitment and
principal balances. The Company may also be required to make additional
principal payments should operating cash flows exceed certain amounts. As of
December 31, 2001, the Company had $850.0 million outstanding under the
multi-draw term loan A and $500.0 million
F-14
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
outstanding under the term loan B. Any amounts repaid under the multi-draw term
loan A and the term loan B will reduce future borrowing capacity under these
facilities to the extent of the amount repaid.
Interest rates for the revolving credit facility and the multi-draw term loan A
are determined at the option of the Company (at a margin based on leverage) at
either 1.5% to 2.75% above the LIBOR Rate or 0.5% to 1.75% above the defined
Base Rate. Interest rates for the term loan B are determined (at a margin based
on leverage) at either 3.0% to 3.25% above LIBOR or 2.0% to 2.25% above the
defined Base Rate. The Company is required to pay quarterly commitment fees on
the undrawn portion of the facility, ranging from 0.5% to 1.0% per annum,
depending on the level of facility usage. In addition, the Amended Credit
Facilities require compliance with financial coverage ratios that measure
operating cash flow against total debt, interest coverage, pro forma debt
service and fixed charges, as defined in the Amended Credit Facilities. The
Amended Credit Facilities also contain financial and operational covenants and
other restrictions which the Company must comply with, whether or not there are
borrowings outstanding. Such covenants and restrictions include restrictions on
certain types of acquisitions, indebtedness, liens, capital expenditures, and
the ability of the Company to pay dividends and make other distributions. The
borrowers under the Amended Credit Facilities include the Company's principal
domestic operating subsidiaries. The Company and the restricted subsidiaries
(as defined in the Amended Credit Facilities) have guaranteed all of the loans
under the Amended Credit Facilities. These loans are secured by liens on
substantially all assets of the Company, the borrowers and the restricted
subsidiaries. The Amended Credit Facilities also restrict the borrowers' and
the restricted subsidiaries' ability to transfer funds to the Company.
Substantially all assets of the Company are held by the borrowers and the
restricted subsidiaries, giving effect to the repayment of the Mexican Credit
Facility.
Availability at December 31, 2001 under the revolving credit facilities
contained in our Amended Credit Facilities, after giving effect to the payoff
of the Mexican Credit Facility, was $555.0 million.
Prior to the consummation of the Amended Credit Facilities described above, the
Company maintained credit facilities that provided for total capacity of $925.0
million. Interest rates under the prior credit facilities were determined at
the option of the Company as either LIBOR plus margin (as defined) or the Base
Rate plus margin (as defined). As of December 31, 1999, the Company had $90.0
million outstanding under the prior credit facilities. All amounts outstanding
under the prior credit facilities were repaid in January 2000 with proceeds
from the Amended Credit Facilities. In connection with the repayment of
borrowings under the Company's prior 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 January 2000.
For the years ended December 31, 2001, 2000 and 1999, the combined weighted
average interest rate related to the Company's credit facilities was 7.26%,
9.56% and 7.94%, respectively. Commitment fees incurred by the Company related
to the credit facilities aggregated approximately $7,478,000, $9,777,000 and
$1,504,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
As a result of a reduction in borrowing capacity under prior credit facilities
in October of 1999 associated with the issuance of the 2.25% and 6.25%
convertible notes, the Company recognized an extraordinary loss on
extinguishment of debt during the year ended December 31, 1999 of approximately
$1.4 million, net of an income tax benefit of $0.9 million.
9 3/8% Senior Notes--In January 2001, the Company completed a private notes
placement of $1.0 billion 9 3/8% senior notes (senior notes), issued at 100% of
their face amount. The senior notes mature on February 1, 2009. Interest on the
senior notes is payable semiannually on February 1 and August 1. The indenture
governing the senior notes contains certain restrictive covenants including
restrictions on the Company's ability to incur more debt, guarantee debt, pay
dividends and make certain investments. Proceeds from the senior notes
placement have and will be used to finance construction of towers, fund
acquisitions and for general corporate purposes. The senior notes rank equally
with the Company's 5%, 6.25% and 2.25% convertible notes and are structurally
and effectively junior to indebtedness outstanding under the Company's Amended
Credit Facilities.
F-15
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 31, 2001, the Company has $1.0 billion outstanding under the
senior notes.
5% Convertible Notes--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 of each year. The
indenture governing the 5% Notes does not contain any restrictive covenants.
The 5% Notes are convertible at any time into shares of the Company's Class A
common stock at a conversion price of $51.50 per share, subject to adjustment
in certain cases. 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. The
5% Notes rank equally with the 6.25% and 2.25% Notes described below and the
senior notes and are structurally and effectively junior to indebtedness
outstanding under the Amended Credit Facilities. Total net proceeds from the 5%
Notes were approximately $438.7 million.
As of December 31, 2001 and 2000, the Company had $450.0 million outstanding
under the 5% Notes.
2.25% and 6.25% Convertible Notes--In October 1999, the Company completed a
private placement of $300.0 million 6.25% Convertible Notes (6.25% Notes),
issued at 100% of their face amount and $425.5 million 2.25% Convertible Notes
(2.25% Notes), issued at 70.52% of their face amount (collectively, the
"Notes"). The yield to maturity on the 2.25% Notes is 6.25%, giving effect to
the original discount. The Notes mature on October 15, 2009. Interest on the
Notes is payable semiannually on April 15 and October 15 of each year.
The 6.25% Notes and 2.25% Notes are convertible at any time, at the option of
the holder, into the Company's Class A common stock at a conversion price of
$24.40 per share and $24.00 per share, respectively, subject to adjustment in
certain events. The Company may redeem the Notes at any time on or after
October 22, 2002. The initial redemption price on the 6.25% Notes is 103.125%
of the principal amount, subject to ratable declines immediately after October
15 of each following year to 100% of the principal amount in 2005. The 2.25%
Notes are redeemable incrementally at increasing prices designed to reflect the
accrued original issue discount. The holders have the option of requiring the
Company to repurchase all or a portion of the 6.25% Notes on October 22, 2006
at their principal amount, together with accrued and unpaid interest, and all
or a portion of the 2.25% Notes on October 22, 2003 at $802.93 (based on $1,000
face amount), plus accrued and unpaid interest. The Company may elect to pay
the repurchase price on the Notes in cash or shares of Class A common stock.
The Notes rank equally with one another, the 5% Notes and the senior notes and
are structurally and effectively junior to indebtedness outstanding under the
Amended Credit Facilities.
In August of 2001, the Company acquired an aggregate of $82.5 million face
amount ($61.6 million carrying amount) of the 2.25% Notes for an aggregate of
2,424,123 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 1,538,414 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 $26.3
million in the third quarter of 2001 which represents the fair market value of
the inducement shares.
In May 2000, the Company acquired an aggregate of $87.3 million of the 6.25%
Notes and $73.1 million face amount of the 2.25% Notes for an aggregate of
5,724,180 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 402,414 shares
F-16
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 market value of the inducement
shares.
As of December 31, 2001 and 2000, the Company had $416.9 million and $470.9
million outstanding respectively, under the Notes.
Capital Lease Obligations--The Company's capital lease obligations, which
approximate $177.0 and $139.9 million as of December 31, 2001 and 2000,
respectively, expire in periods ranging from less than one year to
approximately seventy years.
Notes Payable--Notes payable approximated $73.1 million and $57.4 million as of
December 31, 2001 and 2000, respectively. These obligations bear interest at
rates ranging from 7.0% to 12.0% and mature in periods ranging from less than
one year to approximately five years.
Maturities--As of December 31, 2001, aggregate principal payments of long-term
debt, including capital leases, for the next five years and thereafter are
estimated to be (in thousands):
Year Ending December 31,
2002............................................. $ 12,585
2003............................................. 163,133
2004............................................. 204,775
2005............................................. 307,860
2006............................................. 282,102
Thereafter....................................... 2,591,505
----------
Total......................................... $3,561,960
==========
7. DERIVATIVE FINANCIAL INSTRUMENTS
On January 1, 2001, the Company adopted the provisions of SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as amended.
This statement establishes accounting and reporting standards for derivative
instruments. Specifically, it requires that an entity recognize all derivatives
as either assets or liabilities on the balance sheet at fair value. The
accounting for changes in the fair market value of a derivative (that is
unrealized gains or losses) is recorded as a component of an entity's net
income or other comprehensive income, depending upon designation and
qualification as part of a hedging relationship. The cumulative effect of
adopting this statement resulted in a charge to other comprehensive loss of
$7.9 million (net of a tax benefit of $4.2 million).
The Company is exposed to interest rate risk relating to variable interest
rates on its credit facilities. As part of its overall strategy to manage the
level of exposure to the risk of interest rate fluctuations, the Company uses
interest rate swaps, caps and collars, which qualify and are designated as cash
flow hedges. The Company also used swaptions to manage interest rate risk,
which were not designated as cash flow hedges. For derivative instruments that
are designated and qualify as a cash flow hedge, the effective portion of the
gain or loss on the derivative instrument is initially reported as a component
of other comprehensive loss and subsequently reclassified into the statement of
operations when the hedged transaction affects operations. The ineffective
portion of the gain or loss on the derivative instrument is immediately
recognized in the statement of operations. For derivative instruments not
designated as hedging instruments, the gain or loss is recognized in the
statement of operations in the period of change.
F-17
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under the terms of the Amended Credit Facilities, the Company is required to
enter into interest rate protection agreements on at least 50% of its variable
rate debt. Under these agreements, the Company is exposed to credit risk to the
extent that a counterparty fails to meet the terms of a contract. Such exposure
is limited to the current value of the contract at the time the counterparty
fails to perform. The Company believes its contracts as of December 31, 2001
are with credit worthy institutions. As of December 31, 2001, the Company had
interest rate protection agreements outstanding as follows (in thousands):
Notional Fair
Derivative Amount Interest Range Term Value
- ---------- -------- -------------- -------------------------- --------
Interest rate swaps..... $580,000 4.09%-7.00% Expiring 2002 through 2003 $(21,601)
Interest rate collars... $327,500 4.00%-9.00% Expiring 2002 through 2003 (13,579)
Interest rate caps...... $364,980 9.00% Expiring 2002
--------
Total................................................................. $(35,180)
========
Liabilities related to these contracts, $35.2 million, are reflected in other
long-term liabilities in the accompanying December 31, 2001 consolidated
balance sheet.
During the year ended December 31, 2001, the Company recorded an unrealized
loss, excluding the charge for the cumulative effect of adopting SFAS No. 133,
of approximately $17.5 million (net of a tax benefit of approximately $9.4
million) in other comprehensive loss for the change in fair value of cash flow
hedges and reclassified $9.4 million (net of a tax benefit of approximately
$5.1 million) into results of operations. Hedge ineffectiveness resulted in a
loss of approximately $2.2 million for the year ended December 31, 2001 and was
recorded in "interest income and other, net." The Company records the changes
in fair value of its derivative instruments that are not accounted for as
hedges in "interest income and other, net." The Company estimates that
approximately $16.7 million of derivative losses (net of tax benefit) included
in other comprehensive loss will be reclassified into the statement of
operations within the next twelve months.
8. COMMITMENTS AND CONTINGENCIES
Lease Obligations--The Company leases certain land, office, tower and satellite
space under operating leases that expire over various terms. Many of the leases
also contain renewal options with specified increases in lease payments upon
exercise of the renewal option. Escalation clauses present in operating leases,
excluding those tied to CPI, are straight-lined over the initial term of the
lease.
Future minimum rental payments under noncancelable operating leases in effect
at December 31, 2001 are as follows (in thousands):
Year Ending December 31,
2002............................................. $163,178
2003............................................. 132,617
2004............................................. 103,071
2005............................................. 79,116
2006............................................. 57,590
Thereafter....................................... 383,610
---------
Total......................................... $ 919,182
=========
Aggregate rent expense under operating leases for the years ended December 31,
2001, 2000 and 1999 approximated $180,692,000, $99,060,000 and $23,211,000,
respectively.
F-18
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future minimum payments under capital leases (see note 6) in effect at December
31, 2001 are as follows (in thousands):
2002............................................. $ 26,062
2003............................................. 25,577
2004............................................. 24,906
2005............................................. 23,526
2006............................................. 22,487
Thereafter....................................... 331,504
---------
Total minimum lease payments..................... 454,062
Less amounts representing interest............... (277,090)
---------
Present value of capital lease obligations....... $ 176,972
=========
Customer Leases--The Company's lease agreements with its customers vary
depending upon the industry. Television and radio broadcasters prefer long-term
leases, while wireless communications providers favor leases in the range of
five to ten years. Most leases contain renewal options. Escalation clauses
present in operating leases, excluding those tied to CPI, are straight-lined
over the initial term of the lease.
Future minimum rental receipts expected from customers under noncancelable
operating lease agreements in effect at December 31, 2001 are as follows (in
thousands):
Year Ending December 31,
2002............................................. $ 396,433
2003............................................. 368,089
2004............................................. 347,689
2005............................................. 312,696
2006............................................. 257,240
Thereafter....................................... 1,158,262
----------
Total......................................... $2,840,409
==========
Acquisition Commitments--As of December 31, 2001, the Company was party to
various agreements relating to the acquisition of assets and businesses from
third parties for an estimated aggregate purchase price of approximately $30.0
million (including $8.4 million for ALLTEL, which closed in January and
February 2002, see note 13). The Company may, on a selective limited basis,
pursue the acquisitions of other properties and businesses in new and existing
locations, although there are no definitive material agreements with respect
thereto.
Build-to-Suit Agreements--As of December 31, 2001, the Company was party to
various arrangements relating to the construction of tower sites under existing
build-to-suit agreements. Under the terms of the agreements, the Company is
obligated to construct up to 500 towers over a five year period. The Company is
in the process of renegotiating several of these agreements to reduce its
overall commitment; however, there can be no assurance that it will be
successful in doing so.
ATC Separation--The Company was a wholly-owned subsidiary of American Radio
Systems Corporation (American Radio or ARS) until consummation of the spin-off
of the Company from American Radio on June 4, 1998 (the ATC Separation). On
June 4, 1998, the merger of American Radio and a subsidiary of CBS Corporation
(CBS) was consummated. As a result of the merger, all of the outstanding shares
of the Company's common stock owned by American Radio were distributed or
reserved for distribution to American Radio stockholders, and the Company
ceased to be a subsidiary of, or to be otherwise affiliated with, American
Radio. Furthermore, from that day forward the Company began operating as an
independent publicly traded company.
F-19
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As part of the ATC Separation, the Company was required to reimburse CBS for
certain tax liabilities incurred by American Radio as a result of the
transaction. Upon completion of the final American Radio tax filings, a
calculation of the total tax payments due to CBS was performed and approved by
both the Company and CBS. The Company continues to be obligated through
September 2002 to indemnify CBS and American Radio for certain tax matters
affecting American Radio prior to the ATC Separation. As of December 31, 2001,
no material matters covered under this indemnification have been brought to the
Company's attention.
Litigation--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 which
would, in the event of adverse outcome, have a material impact on the Company's
consolidated financial position, the results of its operations or liquidity.
9. RELATED PARTY TRANSACTIONS
JP Morgan Chase Bank (Chase) is a lender under the Company's credit facilities
and had participation percentages ranging from 1.68% to 6.67% during 2001, 2000
and 1999. Chase is an affiliate of J.P. Morgan Partners, LLC (JPMP), which
indirectly controls J.P. Morgan Partners (BHCA), L.P. (JPLP) and J.P. Morgan
Partners (23ASBIC), LLC (JPSBIC), stockholders of the Company. A director of
the Company is an Executive Partner of JPMP. At December 31, 2001, 2000 and
1999 the aggregate principal amount outstanding under the credit facilities was
approximately $1.4 billion, $1.4 billion and $90.0 million, respectively.
Chase's participation in the credit facilities at December 31, 2001 was 1.68%.
Chase's approximate share of interest and fees paid by the Company pursuant to
its various credit arrangements was approximately $1.5 million, $3.2 million
and $1.2 million in 2001, 2000 and 1999, respectively.
In March 2001, the Company purchased 78,432 shares of Class B Common Stock, par
value $0.01 per share, of America Connect, Inc., a Delaware corporation, from
JPSBIC, an affiliate of JPMP, for 100,000 shares of American Tower Class A
common stock.
During 2001, 2000 and 1999, the Company made demand loans to several executive
officers. At December 31, 2001, 2000 and 1999, amounts outstanding under the
loans approximated $1.0 million, $1.0 million and $1.1 million, respectively.
In October 2001, the Company consummated the sale of 8.7% of its Mexican
subsidiary, ATC Mexico Holding Corp. (ATC Mexico Holding), to J. Michael
Gearon, Jr., an executive officer and director, for $8.4 million. Mr. Gearon
paid $1.7 million in cash and delivered a 7% secured note due 2010 in the
principal amount of $6.7 million. The note, which accrues interest and is
payable quarterly, is secured by shares of our Class A common stock owned by
Mr. Gearon and his interest in ATC Mexico Holding. The purchase price
represented the fair market value of an 8.7% interest in ATC Mexico Holding on
the date of the sale as determined with the assistance of an independent
appraiser. Mr. Gearon may require the Company to purchase his interest in ATC
Mexico Holding, for its then fair market value, any time after the soonest to
occur of July 1, 2004, a Change in Control (as defined in a stockholder
agreement) of the Company or ATC Mexico Holding, or Mr. Gearon's death or
disability. The Company has the right to purchase Mr. Gearon's interest in ATC
Mexico Holding for its then fair market value after the soonest to occur of
July 1, 2005, Mr. Gearon's death or disability or on either a Gearon
Termination Event or a Forfeiture Event (each as defined in a stockholder
agreement).
During the years ended December 31, 2001, 2000 and 1999, the Company retained
several wholly-owned subsidiaries of Nordblom Co. Inc. to provide various real
estate services in connection with its acquisition, financing, ownership and
leasing of several properties. Services rendered by those companies included
advice in connection with the acquisition and arranging mortgage financing of
the Company's corporate headquarters building in Boston and two other office
buildings in which it has regional offices; the management of those buildings;
and the leasing of certain of them. The Company paid the Nordblom companies,
including Nordic
F-20
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Properties, an affiliate of Nordblom, an aggregate of $772,000, $474,000 and
$142,000 in 2001, 2000 and 1999, respectively. Two brothers and the father of
the Company's Chairman and Chief Executive Officer's (Mr. Dodge) wife own the
controlling interest of Nordblom Co. Inc. and Nordic Properties. Mr. Dodge's
wife has no interest in Nordblom Co. Inc. or Nordic Properties and Mr. Dodge
was not involved in the negotiation of any of the arrangements. The Company
believes that all of the arrangements with the Nordblom companies are on terms
and conditions that are customary in the industry and at least as favorable to
it as could be obtained from other recognized real estate management companies.
In 1999, the Company owned 33 1/3% of the outstanding equity of Kline Iron &
Steel Co. (Kline). During 1999 the Company purchased approximately $7.4 million
of tower steel products from Kline. In 2000, the Company purchased the
remaining equity interest in Kline.
10. RESTRUCTURING
On November 6, 2001, the Company announced a restructuring of the organization
to include a reduction in the scope of its tower development activities and the
centralization of certain operating functions. The reduction in tower
development activities will result in a significant decrease in new tower
construction in the near term and more selective criteria for evaluating tower
construction and acquisitions. As a result, the Company wrote-off certain
construction-in-progress to reflect the abandonment of tower sites, resulting
in a non-cash charge in the fourth quarter of 2001 of approximately $62.6
million. In addition, the Company implemented an initiative to consolidate
operations in each of its business segments, incurring employee separation
costs associated with the termination of approximately 675 employees (primarily
tower development and administrative employees) and facility closing costs
associated with the shut down of approximately 20 field office locations. As a
result of this initiative, the Company recorded approximately $6.6 million of
restructuring charges in the fourth quarter of 2001 and expects to record
approximately $3.0 million of additional restructuring charges in the first
quarter of 2002.
The following table displays the balance of the accrued restructuring liability
for the year ended December 31, 2001(in thousands). The accrued restructuring
liability is reflected in accrued expenses in the accompanying December 31,
2001 consolidated balance sheet.
Cash Non-Cash Liability as of
Total Payments Charges December 31, 2001
------- -------- -------- -----------------
Restructuring costs
Construction in progress write-off....................... $62,550 $62,550
Employee separations..................................... 3,371 $2,448 $ 923
Office closings (primarily real estate lease obligations) 3,253 549 2,704
------- ------ ------- ------
Total.................................................... $69,174 $2,997 $62,550 $3,627
======= ====== ======= ======
11. INCOME TAXES
The income tax benefit (provision) from continuing operations was comprised of
the following for the years ended December 31, (in thousands):
2001 2000 1999
-------- -------- -------
Current:
Foreign........................................................................... $ (3,624) $ (1,220)
Deferred:
Federal........................................................................... 155,582 68,582 $ 1,029
State............................................................................. 20,571 8,560 148
Foreign........................................................................... (4,475) 58
Less:
Benefit from disposition of stock options recorded to additional paid-in capital.. (1,001) (10,266) (1,449)
Valuation allowance............................................................... (50,266) (6,000)
-------- -------- -------
Income tax benefit (provision)....................................................... $116,787 $ 59,656 $ (214)
======== ======== =======
F-21
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation between the U.S. statutory rate from continuing operations and
the effective rate was as follows for the years ended December 31,
2001 2000 1999
---- ---- ----
Statutory tax rate................................................ 35% 35% 35%
State taxes, net of federal benefit............................... 5 5 5
Non-deductible intangible amortization and note conversion expense (8) (14) (42)
Other (primarily including valuation allowance)................... (11) (2) 2
--- ---- ----
Effective tax rate................................................ 21% 24% %
==== ==== ====
Income (loss) from foreign operations before income taxes and extraordinary
losses approximated $15.3 million, $8.9 million and $(0.2) million in 2001,
2000 and 1999, respectively.
The components of the net deferred tax asset and related valuation allowance
are as follows (in thousands):
2001 2000
--------- ---------
Current assets:
Allowances, accruals and other items not currently deductible.. $ 24,136 $ 15,166
--------- ---------
Long-term items:
Assets:
Basis step-up from corporate restructuring.................. 108,030 120,042
Net operating loss carryforwards............................ 328,085 175,859
Items not currently deductible and other.................... 33,280 716
Liabilities:
Depreciation and amortization............................... (159,906) (150,222)
Other....................................................... (8,008)
--------- ---------
Subtotal.......................................................... $ 301,481 $ 146,395
Less: Valuation allowance...................................... (56,266) (6,000)
--------- ---------
Net long-term deferred tax assets........................... $ 245,215 $ 140,395
========= =========
Basis step-up from corporate restructuring represents the tax effects of
increasing the basis for tax purposes of certain of the Company's assets in
conjunction with its spin-off from American Radio.
At December 31, 2001, the Company had net federal and state operating loss
carryforwards available to reduce future taxable income of $816.0 million. For
federal purposes, these loss carryforwards, if not utilized, expire between
2008 and 2021. For state purposes, carryforwards expire on varying dates from
2003 to 2021.
SFAS No. 109, "Accounting for Income Taxes," requires that companies record a
valuation allowance when it is "more likely than not that some portion or all
of the deferred tax assets will not be realized." At December 31, 2001, the
Company has provided a valuation allowance of approximately $56.3 million
primarily related to state net operating loss carryforwards. The Company has
not provided a valuation allowance for the remaining net deferred tax assets,
primarily its federal net operating loss carryforwards, as management believes
the Company will have sufficient time to realize these assets during the
twenty-year carryforward period.
The ultimate realization of the net deferred tax assets depends on the
Company's ability to generate sufficient taxable income in the future. Based on
its current outlook of future taxable income during the carryforward period,
management believes that its net deferred tax asset will be realized. If the
Company is unable to generate sufficient taxable income in the future, it will
be required to reduce its net deferred tax asset through a charge to income tax
expense, which would result in a corresponding decrease in stockholders' equity.
F-22
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. STOCKHOLDERS' EQUITY
Preferred Stock
As of December 31, 2001 the Company was authorized to issue up to 20.0 million
shares of $.01 par value preferred stock. As of December 31, 2001 and 2000
there were no preferred shares issued or outstanding.
Common Stock
As of December 31, 2001 the Company was authorized to issue up to 500.0 million
shares of its $.01 par value per share Class A common stock, 50.0 million
shares of its $.01 par value per share Class B common stock and 10.0 million
shares of its $.01 par value per share Class C common stock. The Class A and B
common stockholders are entitled to one and ten votes per share, respectively.
The Class C common stock is non-voting. In addition, holders of Class B and C
common stock may exchange their shares on a one-to-one basis for shares of
Class A common stock. During the years ended December 31, 2001, 2000 and 1999,
holders of Class B and Class C common stock exchanged 93,236, 613,286 and
1,192,354 of their shares, respectively, for shares of Class A common stock.
The following is a summary of the Company's principal equity transactions
during the years ended December 31, 2001, 2000 and 1999.
2001
In January 2001, the Company completed a public offering of 10,000,000 shares
of its Class A common stock, at $36.50 per share. The Company's net proceeds of
the offering (after deduction of the offering expenses) were approximately
$360.8 million. The Company used the proceeds to finance acquisitions and the
construction of towers, as well as for general working capital purposes.
2000
In June 2000, the Company completed a public offering of 12,500,000 shares of
its Class A common stock at $41.125 per share. The Company's net proceeds of
the offering (after deduction of the offering expenses) were approximately
$513.9 million. The Company used the proceeds to reduce borrowings under the
Amended Credit Facilities and to finance acquisitions and the construction of
towers, as well as for general working capital purposes.
1999
In February 1999, the Company completed a public offering of 25,700,000 shares
of Class A common stock, (including 1,700,000 shares sold by the Company
pursuant to the exercise in full of the underwriters' over-allotment option) at
$25.00 per share. The Company's net proceeds of the offering (after deduction
of the offering expenses) were approximately $618.0 million. The Company used
such proceeds, together with borrowings under its prior credit facilities, to
fund acquisitions and construction activities.
In February 1999, the Company consummated the sale of 500,000 shares of Class A
common at $26.31 per share. The Company's net proceeds of the offering were
approximately $13.2 million. The Company used such proceeds, together with
borrowings under its prior credit facilities, to fund acquisitions and
construction activities.
On June 5, 1999, a Put Agreement requiring the Company to purchase 336,250
shares of Class A common stock at the current market price issued in connection
with a merger expired. Accordingly, these shares were reclassified from
Redeemable Class A common stock to common stock and additional paid in capital.
F-23
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock Issued for Acquisitions--See note 13 of the consolidated financial
statements for issuances of warrants, options and common stock in connection
with the Company's acquisitions.
Stock Option Plans--The Company maintains a stock option plan for directors,
officers and employees (the Plan), which provides for non qualified and
incentive stock options. Exercise prices in the case of incentive stock options
are not less than the fair market value of the underlying common stock on the
date of grant. Exercise prices in the case of non-qualified stock options are
set at the discretion of the Company's Board of Directors (which to date has
not been less than the fair market value on the date of grant).
The option pool under the Plan consists of an aggregate of 27,000,000 shares of
common stock. In addition to the shares authorized under the Plan, options to
purchase approximately 2,100,000 shares of common stock were outstanding as of
December 31, 2001 outside of the Plan. Options outside the Plan are the result
of the exchange of certain American Radio options that occurred pursuant to the
ATC Separation and the assumption of certain options that occurred pursuant to
the mergers of OmniAmerica, Inc, and American Tower Corporation (Old ATC) as
described in note 13. Each unexercised option to purchase shares of American
Radio, Omni America, Inc. and Old ATC common stock held by persons who became
directors or employees of the Company were exchanged or converted into the
Company's options. All options were exchanged or converted in a manner that
preserved the spread in such options between the option exercise price and the
fair market value of the common stock and the ratio of the spread to the
exercise price prior to such conversion.
Option grants generally vest ratably over various periods, generally three to
five years, commencing one year from the date of grant. Option grants generally
expire ten years from the date of grant.
The following table summarizes the Company's option activity for the periods
presented:
Weighted Average Options
Options Exercise Price Exercisable
---------- ---------------- -----------
Outstanding as of January 1, 1999...... 11,088,095 $13.43 1,513,639
----------
Granted................................ 5,391,450 22.72
Transferred--OmniAmerica Merger-options
outside the plan..................... 971,850 13.83
Exercised.............................. (254,480) 13.43
Cancelled.............................. (479,673) 20.72
----------
Outstanding as of December 31, 1999.... 16,717,242 16.23 4,132,562
----------
Granted................................ 7,092,350 32.77
Exercised.............................. (1,583,950) 15.45
Cancelled.............................. (627,503) 27.72
----------
Outstanding as of December 31, 2000.... 21,598,139 21.35 5,781,018
----------
Granted................................ 2,482,100 14.66
Exercised.............................. (217,658) 14.20
Cancelled.............................. (5,914,028) 29.72
----------
Outstanding as of December 31, 2001.... 17,948,553 $17.77 8,620,691
==========
F-24
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth information regarding options outstanding at
December 31, 2001:
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------- ------------------------------------
Outstanding Weighted Average
Number of Range of Exercise Weighted Average Remaining Life Options Weighted Average
Options Price Per Share Exercise Price Per Share (Years) Exercisable Exercise Price Per Share
- ----------- ----------------- ------------------------ ---------------- ----------- ------------------------
2,326,944 $ 2.05-$ 5.98 $ 4.23 6.26 1,484,849 $ 3.25
1,095,225 6.30- 9.09 8.57 4.99 900,442 8.58
2,676,432 10.00- 10.00 10.00 6.01 1,602,511 10.00
2,095,600 10.83- 17.00 13.60 7.34 819,286 13.44
2,418,170 17.04- 21.13 20.36 7.08 1,004,142 20.61
2,330,521 21.20- 23.75 22.94 7.11 1,169,331 23.13
1,946,721 23.81- 23.81 23.81 7.86 789,900 23.81
338,122 24.25- 30.38 26.50 8.28 89,265 26.00
2,281,493 30.63- 30.63 30.63 8.72 665,500 30.63
439,325 30.69- 48.88 37.91 8.56 95,465 37.67
========== ---------
17,948,553 $ 2.05-$48.88 $17.77 7.08 8,620,691 $15.36
========== =========
Voluntary Option Exchange--As a result of a voluntary option exchange program
in the fourth quarter of 2001, the Company accepted for surrender options to
purchase an aggregate of 3,471,211 shares of Class A common stock and agreed to
issue options to purchase 2,314,140 shares of Class A common stock in the
second quarter of 2002 with an exercise price equal to the fair market value of
the Class A common stock on the date of the grant. The program, which was
offered to both full and part-time employees, excluding most of the Company's
executive officers, called for the grant (at least six months and one day from
the surrender date) of new options exercisable for two shares of Class A common
stock for every three shares of Class A common stock issuable upon exercise of
a surrendered option.
ATC Teleports Stock Option Plan--During 1999, Verestar, Inc.'s (Verestar,
formerly ATC Teleports, Inc.) Board of Directors approved the formation of the
ATC Teleports Stock Option Plan (ATC Teleports Plan) that provides for the
issuance of options to officers, employees, directors and consultants of the
Company's wholly owned subsidiary, Verestar. The ATC Teleports Plan limits the
number of shares of common stock which may be granted to an aggregate of
1,000,000 shares. During 2000, Verestar granted 809,400 options to purchase
shares of Verestar common stock to officers, directors and employees. Such
options were issued at one time with an exercise price of $7.75 per share. The
exercise price per share was at fair market value based on an independent
appraisal performed at the Company's request. The fair value of ATC Teleports
Plan options granted during 2000 were $1.97 per share as determined by using
the Black-Scholes option pricing model. Options granted vest based on the
discretion of Verestar's Board of Directors and expire ten years from the date
of grant. No options were granted and 340,800 options were terminated under the
ATC Teleports Plan in 2001. No options under the ATC Teleports Plan were
exercised in 2001 or 2000 and 150,520 options (of the 468,600 options
outstanding) were exercisable as of December 31, 2001. No options were
exercisable as of December 31, 2000.
Pro Forma Disclosure--As described in note 1, the Company uses APB. No. 25 to
account for equity grants and awards to employees. Accordingly, there is no
compensation cost related to option grants reflected in the accompanying
consolidated financial statements. Had the Company used the fair value method,
as prescribed in SFAS No. 123, to measure compensation for grants under all
plans made in 2001, 2000 and 1999, the reported net loss and basic and diluted
loss per common share would have been as follows (in thousands, except per
share amounts):
2001 2000 1999
--------- --------- --------
Net loss.................................... $(500,634) $(245,814) $(87,221)
Basic and diluted earnings per share........ $ (2.61) $ (1.46) $ (0.58)
F-25
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The "fair value" of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model. The weighted average fair values of the
Company's options granted during 2001, 2000 and 1999 were $9.04, $18.19 and
$13.14 per share, respectively. Key assumptions used to apply this pricing
model are as follows:
2001 2000 1999
------- ------- -------
Approximate risk-free interest rate (both the Company and ATC
Teleports plans).............................................. 4.97% 5.95% 5.7%
Expected life of option grants (both the Company and ATC
Teleports plans).............................................. 5 years 5 years 5 years
Expected volatility of underlying stock (the Company plan)...... 77.9% 68.0% 72.0%
Expected volatility of underlying stock (ATC Teleports plans)... N/A N/A N/A
Expected dividends (both the Company and ATC Teleports plans)... N/A N/A N/A
Employee Stock Purchase Plan--During 2000, the Company established an employee
stock purchase plan for all eligible employees. Under the plan, shares of the
Company's common stock may be purchased at six-month intervals at 85% of the
lower of the fair market value on the first or the last day of each offering
period. Employees may purchase shares having a value not exceeding 15% of their
gross compensation during an offering period and may not purchase more than
$25,000 worth of stock in a calendar year (based on market values at the
beginning of each offering period). During 2001 and 2000, employees purchased
231,257 and 33,794 shares at a weighted average price per share of $11.90 and
$25.61, respectively. At December 31, 2001, 4,734,949 shares remain reserved
for future issuance under the plan.
13. ACQUISITIONS
General--The acquisitions consummated during 2001, 2000 and 1999 have been
accounted for under the purchase method of accounting. The purchase prices have
been allocated to the net assets acquired (principally tangible and intangible
assets) and the liabilities assumed based on their estimated fair values at the
date of acquisition. The Company has recorded the excess of purchase price over
the estimated fair value of the net assets acquired as goodwill and other
intangible assets. For certain acquisitions, the consolidated financial
statements reflect preliminary allocations of purchase price, as appraisals of
the net assets acquired have not been finalized. The Company does not expect
any changes in depreciation and amortization from the finalization of these
appraisals to be material to its consolidated results of operations.
During the years ended December 31, 2001, 2000 and 1999, the Company has
primarily acquired its tower assets from third parties in one of three ways:
- - the purchase of assets,
- - the purchase of a business; or
- - a capital lease.
The structure of the transaction affects the way the Company allocates purchase
price within the consolidated financial statements. Specifically, in the case
of an asset purchase, the Company allocates a portion of the purchase price to
property and equipment for the appraised value of the tower (replacement cost),
intangible assets for existing customer base and any other identifiable
intangibles (if applicable). Any remaining purchase price is then recorded
within intangible assets as a "network/location intangible."
F-26
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In the case of tower assets acquired through the purchase of a business, the
allocation is similar to the above except that the remaining purchase price
after valuing all assets (including towers and identifiable intangibles) and
liabilities is recorded, in accordance with APB No. 16 "Business Combinations,"
as goodwill. For tower assets acquired through capital lease, which as of
December 31, 2001, represented only the ALLTEL transaction (as discussed
below), the entire asset value is recorded as "assets held under capital lease"
and is reflected in property and equipment in the accompanying consolidated
financial statements.
Property and equipment, network/location intangibles and assets held under
capital lease related to tower acquisitions are all amortized over a
fifteen-year period.
2001 Acquisitions--During the year ended December 31, 2001, the Company
consummated more than 30 transactions involving the acquisition of various
communications sites and related businesses and satellite and fiber network
access services assets for a purchase price of approximately of $ 827.2
million. This purchase price includes approximately $809.6 million in cash, the
issuance of approximately 0.4 million shares of Class A common stock valued at
approximately $8.5 million and the assumption of certain liabilities. Total
purchase price allocated to goodwill was approximately $30.7 million. The
principal transaction was as follows:
ALLTEL transaction--In December 2000, the Company entered into an agreement to
acquire the rights from ALLTEL to up to 2,193 communications towers through a
fifteen-year sublease agreement. Under the agreement, the Company will sublease
these towers for cash consideration of up to $657.9 million. The Company has
the option under the agreement to purchase the towers at the end of the
fifteen-year term. The purchase price per tower will be $27,500 plus interest
accrued at 3% per annum or 769 shares of the Company's Class A common stock at
ALLTEL's option.
As of December 31, 2001, the Company subleased 1,748 towers and paid ALLTEL
approximately $524.4 million in cash. Through February 2002, the Company closed
on an additional 28 towers and paid ALLTEL approximately $8.4 million in cash.
The Company will not close on the remaining 417 towers under the sublease
agreement, as permitted by the agreement. The Company has accounted for the
ALLTEL transaction as a capital lease.
2000 Acquisitions--During the year ended December 31, 2000, the Company
consummated more than 60 transactions involving the acquisition of various
communications sites and related businesses and several satellite and fiber
network access services businesses for a purchase price of approximately of
$1.8 billion. This purchase price includes approximately $1.4 billion in cash,
the issuance of approximately 4.5 million shares of Class A common stock and
options valued at approximately $164.0 million, warrants to purchase
approximately 3.0 million shares of Class A common stock valued at $63.5
million and the assumption of $59.2 million of debt. Total purchase price
allocated to goodwill was approximately $426.8 million. The principal
transactions were as follows:
AirTouch transaction--In August 1999, the Company agreed to lease on a
long-term basis (99 years) up to 2,100 towers located throughout the United
States from AirTouch Communications, Inc. (now part of Verizon Wireless 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 the
issuance of five-year warrants to purchase 3.0 million shares of Class A common
stock at $22.00 per share. At various closings in 2000, the Company leased
1,801 towers, paid AirTouch approximately $686.1 million in cash and issued
warrants for approximately 3.0 million shares of its Class A common stock. In
2001, the Company leased 61 towers and paid AirTouch approximately $23.3
million in cash. The Company will not close on the balance of the towers
included in the initial agreement. The Company has accounted for the AirTouch
transaction as a purchase of assets.
F-27
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 operations. The purchase price is
$260.0 million in cash, subject to adjustment if all towers are not purchased.
At various closings in 2000, the Company acquired 1,929 towers and paid AT&T
$258.1 million. In 2001, the Company acquired two towers and paid AT&T
approximately $0.1 million. The Company did not close on the balance of the
towers included in the initial agreement.
During 2000, the Company had recorded a liability of approximately $2.0 million
related primarily to contractual obligations assumed in its acquisition of
towers from AT&T. For the year ended December 31, 2000, the Company had charged
approximately $0.8 million against this liability. During the year ended
December 31, 2001, the Company recorded charges of approximately $0.6 million
against this liability and reversed the remaining $0.6 million against other
intangible assets.
UNISite merger--In January 2000, the Company consummated its merger with
UNISite, Inc. (UNISite). The purchase price was approximately $196.4 million,
which included 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 $0.9
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, $33.2 million in cash and vested
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 antennae 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 approximately $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.
Publicom transaction--In October 2000, the Company consummated the purchase of
Publicom Corporation (Publicom) and its affiliates. The aggregate purchase
price was approximately $31.4 million, which included a payment of
approximately $14.5 million in cash and the issuance of approximately 0.4
million shares of Class A common stock. Publicom and its affiliates distribute
satellite and telecommunications equipment via strategic vendor relationships
with established equipment providers. Publicom also provides wholesale Internet
Service Provider (ISP) services.
InterPacket Networks merger--In December 2000, the Company consummated its
merger with InterPacket Networks, Inc. (InterPacket). Total merger
consideration was approximately $63.5 million and included approximately $21.4
million in cash and the issuance of approximately 1.1 million shares of Class A
common stock.
In connection with its acquisition of InterPacket, the Company recorded a
liability of approximately $7.4 million related to contractual obligations
assumed. During the year ended December 31, 2001, the Company recorded charges
against this liability of approximately $0.8 million. In addition, as a result
of finalizing its purchase price allocation, the Company reversed approximately
$3.8 million related to this liability against goodwill. As of December 31,
2001, the Company has a remaining liability related to these assumed
contractual obligations of approximately $2.8 million.
F-28
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1999 Acquisitions--During the year ended December 31, 1999, the Company
consummated more than 60 transactions involving the acquisition of various
communications sites, service providers and satellite and fiber network access
services assets for an estimated purchase price of approximately $1.2 billion.
This purchase price includes the issuance of approximately 20.7 million shares
of Class A common stock valued at $430.8 million. The principal transactions
were as follows:
OmniAmerica merger--In February 1999, the Company consummated its merger with
Omni America Inc. (Omni). Omni owned or co-owned 223 towers in 24 states. Omni
also offered nationwide turnkey tower construction and installation services
and manufactured wireless infrastructure components. Total merger consideration
was $462.0 million, consisting of the issuance of 16.8 million shares of Class
A common stock and the assumption of $96.6 million of debt. The Company also
assumed certain Omni employee stock options that were converted into options to
purchase approximately 1.0 million shares of the Company's Class A common stock.
TeleCom merger--In February 1999, the Company consummated its merger with
TeleCom Towers, LLC (TeleCom). TeleCom owned or co-owned approximately 271
towers and managed 121 revenue-generating sites in 27 states. The aggregate
merger consideration was $194.6 million, consisting of the payment of $63.1
million in cash, the issuance of 3.9 million shares of Class A common stock and
the assumption of $48.4 million in debt.
Triton PCS acquisition--In September 1999, the Company acquired 187 wireless
communications towers from Triton PCS for $70.7 million in cash.
ICG transaction--In December 1999, the Company acquired ICG Satellite Services
and its subsidiary, Maritime Telecommunications Network, Inc. (collectively,
ICG), for $100.0 million in cash. The acquisition involved a major
around-the-clock teleport facility in New Jersey and a global maritime
telecommunications network headquartered in Miramar, Florida. ICG provides
Internet, voice, data and compressed video satellite services to major cruise
lines, the U.S. military, Internet-related companies and international
telecommunications customers.
Unaudited Pro Forma Operating Results--The operating results of the
acquisitions consummated in 2001 and 2000 have been included in the Company's
consolidated results of operations from the date of acquisition. The following
unaudited pro forma summary presents the consolidated results of operations as
if the acquisitions had occurred as of January 1, 2000, after giving effect to
certain adjustments, including depreciation and amortization of assets and
interest expense on debt incurred to fund the acquisitions. This unaudited pro
forma information has been prepared for comparative purposes only and does not
purport to be indicative of what would have occurred had the acquisitions been
made as of January 1 of each of the periods presented or results which may
occur in the future.
2001 2000
---- ----
(In thousands, except per
share data-unaudited)
Operating revenues..................... $1,157,202 $ 909,901
Loss before extraordinary losses....... (474,552) (299,468)
Net loss............................... (474,552) (303,806)
Basic and diluted loss per common share (2.48) (1.80)
F-29
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information and non-cash investing and financing
activities are as follows (in thousands):
2001 2000 1999
-------- -------- --------
Supplemental cash flow information:
Cash paid during the period for interest (including amounts capitalized). $243,856 $140,251 $ 22,160
Cash paid during the period for income taxes (net of refunds)............ 3,349 4,335 2,242
Non-cash investing and and financing activities:
Issuance of common stock, options and warrants and assumption of
options for acquisitions............................................... 8,458 227,507 448,036
Treasury stock........................................................... 2,812 1,528
Conversion of convertible notes (excluding note conversion expense)...... 60,107 136,399
Capital leases........................................................... 47,426 77,427 4,518
Note receivable converted to investment.................................. 7,772
Note receivable from sale of 8.7% of Mexican subsidiary.................. 6,720
Issuance of common stock for equity investment........................... 2,464
Decrease to estimated remaining tax liabilities to CBS Corporation....... 12,003
Non-cash derivative liability (net of tax benefit of $8,590)............. 15,953
15. BUSINESS SEGMENTS
The Company operates in three business segments: rental and management (RM),
network development services (Services), and satellite and fiber network access
services (SFNA). The RM segment provides for the leasing and subleasing of
antennae sites on multi-tenant towers and other properties for a diverse range
of customers in the wireless communication and broadcast and other industries.
The Services segment offers a broad range of services, including network
design, radio frequency engineering, site acquisition, zoning, construction,
component parts, antenna and line installation, maintenance, tower monitoring
and steel fabrication. The SFNA segment offers satellite and fiber network
services to telecommunications companies, internet service providers,
governmental organizations, broadcasters and maritime customers.
The accounting policies applied in compiling segment information below are
similar to those described in note 1. In evaluating financial performance,
management focuses on Operating Profit (Loss), excluding depreciation and
amortization, restructuring, development and corporate general and
administrative expenses. This measure of Operating Profit (Loss) is also before
interest expense, interest income and other, net, loss (gain) on investments,
note conversion expense, minority interest in net earnings of subsidiaries,
income taxes and extraordinary losses. For reporting purposes the RM segment
includes interest income-TV Azteca, net for the years ended December 31, 2001
and 2000.
The Company's reportable segments are strategic business units that offer
different services. They are managed separately because each segment requires
different resources, skill sets and marketing strategies. Summarized financial
information concerning the Company's reportable segments as of and for the
years ended December 31, 2001, 2000 and 1999 is shown in the following table.
The "Other" column below represents amounts excluded from specific segments,
such as depreciation and amortization, restructuring, development and corporate
and general administrative expenses, interest expense, interest income and
other, net, loss (gain) on investments, note conversion expense, minority
interest in net earnings of subsidiaries, income taxes and extraordinary
losses. In addition, the Other column also includes corporate assets such as
cash and cash equivalents, certain tangible and intangible assets and income
tax accounts which have not been allocated to specific segments. All amounts
shown are in thousands.
F-30
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
RM Services SFNA Other Total
---------- -------- -------- --------- ----------
2001
Revenues.......................... $ 444,560 $454,238 $235,393 $1,134,191
Operating profit (loss)........... 244,431 48,656 7,439 $(750,620) (450,094)
Assets............................ 4,813,374 761,347 635,326 619,676 6,829,723
Capital expenditures.............. 464,258 30,735 38,782 34,383 568,158
Depreciation and amortization..... 314,214 54,852 63,233 8,072 440,371
2000
Revenues.......................... $ 278,153 $311,921 $145,201 $ 735,275
Operating profit (loss)........... 151,592 37,152 35,136 $(418,508) (194,628)
Assets............................ 3,861,060 723,262 640,913 435,444 5,660,679
Capital expenditures.............. 483,699 19,402 25,560 12,686 541,347
Depreciation and amortization..... 211,432 41,018 27,074 3,836 283,360
1999
Revenues.......................... $ 135,303 $ 90,416 $ 32,362 $ 258,081
Operating profit (loss)........... 72,862 21,098 8,264 $(152,951) (50,727)
Assets............................ 1,847,847 505,018 229,260 436,741 3,018,866
Capital expenditures.............. 249,659 4,588 15,835 2,588 272,670
Depreciation and amortization..... 98,011 25,991 7,264 1,273 132,539
Summarized geographical information related to the Company's operating revenues
and long-lived assets as of and for the year ended December 31 is as follows
(in thousands):
2001 2000 1999
---------- ---------- ----------
Operating Revenues:
United States.................... $1,076,732 $ 729,161 $ 258,081
International.................... 57,459 6,114
---------- ---------- ----------
Total operating revenues..... $1,134,191 $ 735,275 $ 258,081
========== ========== ==========
Long-Lived Assets:
United States.................... $5,535,918 $4,685,754 $2,489,870
International.................... 259,566 116,597 6,373
---------- ---------- ----------
Total long-lived assets...... $5,795,484 $4,802,351 $2,496,243
========== ========== ==========
For the year ended December 31, 1999, one customer within the rental and
management and services segments accounted for approximately 17% of the
Company's consolidated operating revenues. No single customer accounted for
more than 10% of consolidated operating revenues for the years ended December
31, 2001 and 2000.
F-31
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
16. INFORMATION PRESENTED PURSUANT TO THE INDENTURE FOR THE 9 3/8% SENIOR NOTES
(UNAUDITED)
The following table sets forth information that is presented solely to address
certain reporting requirements contained in the indenture for our senior notes.
This information presents certain financial data of the Company on a
consolidated basis and on a restricted group basis, as defined in the indenture
governing the senior notes. All of the Company's subsidiaries are part of the
restricted group, except its wholly owned subsidiary Verestar.
Consolidated Restricted Group(1)
---------------------- ----------------------
Year Ended December 31, Year Ended December 31,
---------------------- ----------------------
2001 2000 2001 2000
---------- --------- ---------- ---------
(in thousands)
Statement of Operations Data:
Operating revenues.................................... $1,134,191 $ 735,275 $ 898,798 $ 590,074
---------- --------- ---------- ---------
Operating expenses:
Operating expenses excluding depreciation and
amortization, restructuring, development and
corporate general and administrative expenses....... 848,042 524,074 620,088 414,009
Depreciation and amortization......................... 440,371 283,360 377,138 256,286
Restructuring expense................................. 69,174 67,992
Development expense................................... 8,630 14,517 7,895 14,433
Corporate general and administrative expense.......... 26,478 14,958 26,478 14,958
---------- --------- ---------- ---------
Total operating expenses.............................. 1,392,695 836,909 1,099,591 699,686
---------- --------- ---------- ---------
Loss from operations.................................. (258,504) (101,634) (200,793) (109,612)
Interest expense...................................... (282,291) (156,839) (271,098) (155,006)
Interest income and other, net........................ 26,742 15,556 26,125 15,199
Interest income-TV Azteca, net........................ 14,377 12,679 14,377 12,679
Loss on investments................................... (40,551) (2,538) (36,797) (2,538)
Note conversion expense............................... (26,336) (16,968) (26,336) (16,968)
Minority interest in net earnings of subsidiaries..... (318) (202) (318) (202)
---------- --------- ---------- ---------
Loss before income taxes and extraordinary losses..... $ (566,881) $(249,946) $ (494,840) $(256,448)
========== ========= ========== =========
December 31, 2001
-----------------------
Restricted
Consolidated Group
------------ ----------
Balance Sheet Data:
Cash and cash equivalents............................. $ 35,958 $ 33,113
Restricted cash....................................... 94,071 94,071
Property and equipment, net........................... 3,287,573 2,980,031
Total assets.......................................... 6,829,723 6,194,397
Long-term obligations, including current portion...... 3,561,960 3,436,324
Net debt(2)........................................... 3,431,931 3,309,140
Total stockholders' equity............................ 2,869,196 2,869,196
- --------
(1) Corporate overhead allocable to Verestar and interest expense related to
intercompany borrowings to Verestar (unrestricted subsidiary) have not been
excluded from results shown for the restricted group.
(2) Net debt represents long-term obligations, including current portion, less
cash and cash equivalents and restricted cash.
F-32
AMERICAN TOWER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 2001 and
2000 is as follows:
Three Months Ended
-----------------------------------------------------
March 31, June 30, September 30, December 31,(1),(2)
--------- --------- ------------- -------------------
(in thousands, except per share data)
2001:
Operating revenues............................... $262,468 $ 262,968 $ 296,196 $ 312,559
Loss from operations............................. (38,804) (47,383) (51,358) (120,959)
Loss before extraordinary losses................. (71,507) (103,940) (124,938) (149,709)
Net loss......................................... (71,507) (103,940) (124,938) (149,709)
Basic and diluted loss per common share amounts:
Loss before extraordinary losses.............. $ (0.38) $ (0.54) $ (0.65) $ (0.77)
Net loss...................................... $ (0.38) $ (0.54) $ (0.65) $ (0.77)
2000:
Operating revenues............................... $115,517 $ 167,047 $ 208,958 $ 243,753
Loss from operations............................. (23,808) (26,985) (20,904) (29,937)
Loss before extraordinary losses................. (37,660) (58,632) (39,527) (54,471)
Net loss......................................... (41,998) (58,632) (39,527) (54,471)
Basic and diluted loss per common share amounts:
Loss before extraordinary losses.............. $ (0.24) $ (0.36) $ (0.22) $ (0.30)
Net loss...................................... $ (0.27) $ (0.36) $ (0.22) $ (0.30)
- --------
(1) During the fourth quarter of 2001, the Company recorded a restructuring
charge of approximately $69.2 million.
(2) During the fourth quarter of 2000, the Company recorded a specific charge
for a bad debt reserve of approximately $7.0 million.
F-33
EXHIBIT INDEX
Below are the exhibits which are included, either by being filed herewith or
by incorporation by reference, as part of this Annual Report on Form 10-K.
Exhibits are identified according to the number assigned to them in Item 601 of
Regulation S-K. Documents that are incorporated by reference are identified by
their Exhibit number as set forth in the filing from which they are
incorporated by reference. With respect to documents filed under Exhibit 2,
copies of schedules and exhibits have not been filed herewith, but will be
furnished supplementally to the Commission upon request. The filings of the
Registrant from which various exhibits are incorporated by reference into this
Annual Report are indicated by parenthetical numbering which corresponds to the
following key:
(1) Registration Statement on Form S-4 (File No. 333-46001) filed on February 10, 1998;
(2) Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-50111) filed on May 8, 1998;
(3) Amendment No. 2 to Registration Statement on Form S-1 (File No. 333-52481) filed on June 30, 1998;
(4) Quarterly Report on Form 10-Q (File No. 001-14195) filed on August 14, 1998;
(5) Registration Statement on Form S-4 (File No. 333-70683) filed on January 15, 1999;
(6) Annual Report on Form 10-K (File No. 001-14195) filed on March 19, 1999;
(7) Quarterly Report Form 10-Q (File No. 001-14195) filed on August 16, 1999;
(8) Current Report on Form 8-K (File No. 001-14195) filed on September 17, 1999;
(9) Registration Statement on Form S-3 (File No. 333-89345) filed on October 20, 1999;
(10) Current Report on Form 8-K (File No. 001-14195) filed on January 28, 2000;
(11) Current Report on Form 8-K (File No. 001-14195) filed on February 24, 2000;
(12) Annual Report on Form 10-K (File No. 001-14195) filed on March 29, 2000;
(13) Quarterly Report on Form 10-Q (File No. 001-14195) filed on November 13, 2000;
(14) Currently Report on Form 8-K (File No. 001-14195) filed on January 22, 2001;
(15) Annual Report on Form 10-K (File No. 001-14195) filed on April 2, 2001;
(16) Registration Statement on Form S-4 (File No. 333-59852) filed April 30, 2001;
(17) Quarterly Report on Form 10-Q (File No. 001-14195) filed August 14, 2001; and
(18) Quarterly Report on Form 10-Q (File No. 001-14195) filed November 14, 2001.
Exhibit
No. Description of Document Exhibit File No.
- ------- ----------------------- ----------------
1.1 Underwriting Agreement, dated January 18, 2001, between American Tower
Corporation and Goldman, Sachs & Co............................................. 1.1(14)
1.2 Terms Agreement, dated January 18, 2001, between American Tower Corporation and
Goldman, Sachs & Co............................................................. 1.2(14)
2.1 Lease and Sublease by and among ALLTEL Communications, Inc. and the other
entities named therein and American Towers, Inc. and American Tower Corporation,
dated , 2000........................................................ 2.1(15)
2.2 Agreement to Sublease by and among ALLTEL Communications, Inc. the ALLTEL
entities and American Towers, Inc. and American Tower Corporation, dated
December 19, 2000............................................................... 2.2(15)
Exhibit
No. Description of Document Exhibit File No.
- ------- ----------------------- ----------------
2.3 Build to Suit Agreement by and among ALLTEL Communications, Inc. the ALLTEL
entities named therein, American Towers, Inc. and American Tower Corporation,
dated December 19, 2000............................................................ 2.3(15)
2.4 Agreement to Sublease, dated as of August 6, 1999 by and between AirTouch
Communications, Inc., the other parties named therein as Sublessors, ATC and
American Tower, L.P................................................................ 10.1(7)
2.5 Purchase and Sale Agreement, dated as of September 10, 1999, by and among ATC
and AT&T Corp., a New York corporation............................................. 10.1(8)
3.1 Restated Certificate of Incorporation, as amended, of the Company as filed with the
Secretary of State of the State of Delaware on June 4, 1999........................ 3(i)(7)
3.2 By-Laws, as amended as of March 15, 2001, of the Company........................... 3.2(15)
4.1 Indenture, by and between the Company and The Bank of New York as Trustee, for
the 6.25% Convertibles Notes due 2009, dated as of October 4, 1999, including form
of 6.25% Note...................................................................... 4.1(9)
4.2 Indenture by and between the Company and The Bank of New York as Trustee, for the
2.25% Convertibles Notes due 2009, dated as of October 4, 1999, including the form
of 2.25% Note...................................................................... 4.2(9)
4.3 Form of 6.25% Note (included in Exhibit 4.1)....................................... 4.1(9)
4.4 Form of 2.25% Note (included in Exhibit 4.2)....................................... 4.4(9)
4.5 Indenture, by and between the Company and The Bank of New York as Trustee, for
the 5.0% Convertibles Notes due 2010, dated as of February 15, 2000, including form
of 5.0% Note....................................................................... 4.1(11)
4.6 Form of 5.0% Note (included in Exhibit 4.5)........................................ 4.2(11)
4.7 Indenture, by and between the Company and The Bank of New York as Trustee,
for the 9 3/8% Senior Notes due 2009, dated January 31, 2001, including the form of
9 3/8% Senior Note................................................................. 4.9(15)
10.1 American Tower Systems Corporation 1997 Stock Option Plan, dated as of
November 5, 1997, as amended and restated on April 27, 1998........................ 10.26(2)*
10.2 Amendment to the Amended and Restated American Tower Systems Corporation
1997 Stock Option Plan, dated March 9, 2000........................................ 10.1A(12)*
10.3 Amended and Restated American Tower Systems Corporation 1997 Stock Option
Plan, as amended May 17, 2001...................................................... 10.1(17)*
10.4 ATC Teleports Corporation 1999 Stock Option Plan................................... 10.16(12)*
10.5 American Tower Corporation 2000 Employee Stock Purchase Plan....................... 10.18(12)*
10.6 Employment Agreement, dated as of January 22, 1998, by and between ATI and
J. Michael Gearon, Jr.............................................................. 10.28(1)*
10.7 Letter of Agreement, dated as of April 13, 1998, by and between ATC and Douglas
Wiest.............................................................................. 10.22(5)*
10.8 American Tower Systems Corporation Stock Purchase Agreement, dated as of
January 8, 1998, by and among ATC and the Purchasers............................... 10.27(1)
10.9 ARS-ATS Separation Agreement, dated as of June 4, 1998 by and among American
Radio Systems Corporation, ('ARS'), ATC and CBS Corporation........................ 10.30(3)
10.10 Securities Purchase Agreement, dated as of June 4, 1998 by and among ATC, Credit
Suisse First Boston Corporation and each of the Purchasers named therein........... 10.31(3)
Exhibit
No. Description of Document Exhibit File No.
- ------- ----------------------- ----------------
10.11 Registration Rights Agreement, dated June 4, 1998, by and among ATC, Credit Suisse
First Boston Corporation and each of the Parties named therein.................... 10.32(3)
10.12 Registration Rights Agreement, dated as of January 22, 1998, by and among ATC and
each of the Parties named therein................................................. 10.3(4)
10.13 Stock Purchase Agreement, dated as of February 4, 1999, by and among ATC and
Credit Suisse First Boston Corporation............................................ 10.13(6)
10.14 Registration Rights Agreement, dated as of February 4, 1999, by and among ATC and
Credit Suisse First Boston Corporation............................................ 10.14(6)
10.15 Amended and Restated Registration Rights Agreement, dated as of February 25, 1999,
by and among ATC and each of the Parties named herein............................. 10.1(15)
10.16 Purchase Agreement, dated as of January 24, 2001, by and among the Company and
the Purchasers Named therein with respect to the 9 3/8% Senior Notes.............. 10.21(15)
10.17 Registration Rights Agreement, dated January 31, 2001, by and between the Company
and the Initial Purchasers named therein.......................................... 4.10(15)
10.18 Stock Purchase Agreement, dated as of August 11, 1999, between ATC Teleports,
Inc., ICG Holdings, Inc. and ICG Satellite Services............................... 10.2(7)
10.19 Amended and Restated Loan Agreement, dated as of January 6, 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 banks party
thereto........................................................................... 10.1(10)
10.20 First Amendment and Waiver Agreement, dated as of February 9, 2000, by and among
American Tower L.P., American Tower Inc., and ATC Teleports, Inc., as Borrowers
and Toronto Dominion (Texas) Inc., as Administrative Agent, and the banks party
thereto........................................................................... 10.1(13)
10.21 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 banks party thereto................................................ 10.2(13)
10.22 Waiver and Third Amendment to Amended and Restated Loan Agreement, dated as of
October 13, 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 banks party thereto................................. 10.3(13)
10.23 Fourth Amendment to Amended and Restated Loan Agreement, dated as of
January 23, 2000, by and among American Tower, L.P., American Towers, Inc. and
Verestar, Inc., as Borrowers, and Toronto Dominion (Texas) Inc., as Administrative
Agent, and the banks party thereto................................................ 10.5(16)
10.24 Fifth Amendment and Waiver to Amended and Restated Loan Agreement, dated as of
March 26, 2001, by and among American Tower, L.P., American Towers, Inc. and
Verestar, Inc., as Borrowers, and Toronto Dominion (Texas) Inc., as Administrative
Agent, and the banks party thereto................................................ 10.6(16)
10.25 Sixth Amendment to Amended and Restated Loan Agreement, dated as of October 26,
2001, by and among American Tower, L.P., American Towers, Inc., Verestar, Inc. and
Towersites Monitoring, Inc., as Borrowers and Toronto Dominion (Texas) Inc., as
Administrative Agent, and the banks party thereto................................. 10.8(18)
Exhibit
No. Description of Document Exhibit File No.
- ------- ----------------------- ----------------
10.26 Notice of Incremental Facility Commitment, dated as of October 26, 2001, by and
among American Towers, Inc., American Tower, L.P., Verestar, Inc., Towersites
Monitoring, Inc. and American Tower International, Inc., as Borrowers and Toronto
Dominion (Texas) Inc., as Administrative Agent, and the banks party thereto........ 10.9(18)
10.27 Credit Agreement, dated December 22, 2000, by and among American Tower
Corporation de Mexico, S. de R.L. de C.V., MATC Holdings Mexico, S. de R.L. de
C.V., MATC TV, S. de R.L. de C.V. and Toronto Dominion (Texas), Inc................ 10.7(16)
10.28 Stockholder/Optionee Agreement, dated as of October 11, 2001, by and among ATC
Mexico Holding Corp., American Tower Corporation, American Tower International,
Inc., J. Michael Gearon, Jr., and the Persons who from time to time execute a Filed herewith
counterpart of the Agreement....................................................... as Exhibit 10.28
10.29 Noncompetition and Confidentiality Agreement, dated as of October 11, 2001, by and Filed herewith
between American Tower Corporation and J. Michael Gearon, Jr....................... as Exhibit 10.29
10.30 Pledge Agreement, dated as of October 11, 2001, by and among J. Michael Gearon, Jr. Filed herewith
and ATC Mexico Holding Corp........................................................ as Exhibit 10.30
10.31 Secured Note, dated October 11, 2001, by and among J. Michael Gearon, Jr. and ATC Filed herewith
Mexico Holding Corp................................................................ as Exhibit 10.31
Filed herewith
12 Statement Regarding Computation of Ratios of Earnings to Fixed Charges............. as Exhibit 12
Filed herewith
21 Subsidiaries of ATC................................................................ as Exhibit 21
Filed herewith
23 Independent Auditors' Consent--Deloitte & Touche LLP............................... as Exhibit 23
- --------
* Management contracts and compensatory plans and arrangements required to be
filed as exhibits to this Form 10-K pursuant to Item 14(c).