[May 01, 2013] AMERICAN TOWER CORP /MA/ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Tweet (Edgar Glimpses Via Acquire Media NewsEdge) This Quarterly Report on Form 10-Q 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," "expect," "forecast," "estimate," "intend," "should," "would," "could" or "may," or other words that convey uncertainty of future events or outcomes, we are making forward-looking statements. 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 "Risk Factors" in Part II, Item 1A. of this Quarterly Report on Form 10-Q. 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. The discussion and analysis of our financial condition and results of operations that follow are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of our financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and the 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 condensed consolidated financial statements herein and the accompanying notes thereto, information set forth under the caption "Critical Accounting Policies and Estimates" of our Annual Report on Form 10-K for the year ended December 31, 2012, and in particular, the information set forth therein under Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations." Overview We are a leading independent owner, operator and developer of wireless and broadcast communications real estate. Our primary business is leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities and tenants in a number of other industries. We refer to this business as our rental and management operations, which accounted for approximately 97% of our total revenues for the three months ended March 31, 2013. We also offer tower-related services domestically, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites. Effective January 1, 2012, we reorganized to qualify as a real estate investment trust for federal income tax purposes ("REIT," and the reorganization, the "REIT Conversion"). Our communications real estate portfolio of 55,966 sites, as of March 31, 2013, includes wireless and broadcast communications towers and distributed antenna system ("DAS") networks, which provide seamless coverage solutions in certain in-building and outdoor wireless environments. Our portfolio primarily consists of towers that we own and towers that we operate pursuant to long-term lease arrangements, including, as of March 31, 2013, 22,599 towers domestically and 33,074 towers internationally. Our portfolio also includes 293 DAS networks. In addition to the communications sites in our portfolio, we manage rooftop and tower sites for property owners under various contractual arrangements. We also hold property interests that we lease to communications service providers and third-party tower operators. 31 -------------------------------------------------------------------------------- Table of Contents The following table details the number of communications sites we own or operate as of March 31, 2013: Number of Number of Country Owned Sites Operated Sites (1) United States 16,446 6,421 International: Brazil 4,223 155 Chile 1,184 - Colombia 2,335 706 Germany 2,031 - Ghana 1,934 - India 10,690 - Mexico 6,478 199 Peru 499 - South Africa 1,621 - Uganda 1,044 - (1) All of the sites we operate are held pursuant to long-term capital leases, including those subject to purchase options. Our continuing operations are reported in three segments, domestic rental and management, international rental and management and network development services. Among other factors, management uses segment gross margin and segment operating profit in its assessment of operating performance in each business segment. We define segment gross margin as segment revenue less segment operating expenses, excluding stock-based compensation expense recorded in costs of operations; depreciation, amortization and accretion; selling, general, administrative and development expense; and other operating expense. We define segment operating profit as segment gross margin less selling, general, administrative and development expense attributable to the segment, excluding stock-based compensation expense and corporate expenses. Segment gross margin and segment operating profit for the international rental and management segment also include interest income, TV Azteca, net (see note 15 to our condensed consolidated financial statements included herein). These measures of segment gross margin and segment operating profit are also before interest income, interest expense, loss on retirement of long-term obligations, other income (expense), net income (loss) attributable to noncontrolling interest, income (loss) on equity method investments and income taxes. In the section that follows, we provide information regarding management's expectations of long-term drivers of demand for our communications sites, as well as our current quarter-to-date results of operations, financial position and sources and uses of liquidity. In addition, we highlight key trends, which management believes provide valuable insight into our operating and financial resource allocation decisions. Revenue Growth. Our rental and management segments operate approximately 56,000 communications sites. Due to our diversified communications site portfolio, our tenant lease rates vary considerably depending upon numerous factors, including but not limited to, tower location, amount and type of tenant equipment on the tower, ground space required by the tenant and remaining tower capacity. We measure the remaining tower capacity by assessing several factors, including tower height, tower type, environmental conditions, existing equipment on the tower and zoning and permitting regulations in effect in the jurisdiction where the tower is located. In many instances, tower capacity can be increased through tower augmentation. The primary sources of revenue growth for our domestic and international rental and management segments are: • Recurring revenues from tenant leases generated from sites which existed in our portfolio as of the beginning of the prior year period ("legacy sites"); • Contractual rent escalations on existing tenant leases, net of cancellations; 32 -------------------------------------------------------------------------------- Table of Contents • New revenue generated from leasing additional space on our legacy sites; and • New revenue generated from sites acquired or constructed since the beginning of the prior year period ("new sites"). The majority of our tenant leases with wireless carriers are typically for an initial non-cancellable term of five to ten years, with multiple five-year renewal terms thereafter. Accordingly, nearly all of the revenue generated by our rental and management operations during the three months ended March 31, 2013 is recurring revenue that we should continue to receive in future periods. Based upon foreign currency exchange rates and the tenant leases in place as of March 31, 2013, we expect to generate approximately $21 billion of non-cancellable tenant lease revenue over future periods, absent the impact of straight-line lease accounting. In addition, most of our tenant leases have provisions that periodically increase the rent due under the lease, typically annually based on a fixed percentage (on average approximately 3.5% in the U.S.), inflation or inflation with a fixed minimum or maximum escalation for the year. Revenue lost from either cancellations of leases at the end of their terms or rent negotiations historically have not had a material adverse effect on the revenues generated by our rental and management operations. During the three months ended March 31, 2013, loss of revenue from tenant lease cancellations or renegotiations represented approximately 1.4% of the total revenue of our rental and management segments. Demand Drivers. We continue to believe that our site leasing revenue is likely to increase due to the growing use of wireless communications services and our ability to meet that demand by adding new tenants and new equipment for existing tenants on our legacy sites, which increases the utilization and profitability of our sites. In addition, we believe the majority of our site leasing activity will continue to come from wireless service providers. Our legacy site portfolio and our established tenant base provide us with new business opportunities, which have historically resulted in consistent and predictable organic revenue growth as wireless carriers seek to increase the coverage and capacity of their networks as well as roll out next generation wireless technologies. In addition, we intend to continue to supplement the organic growth on our legacy sites by selectively developing or acquiring new sites in our existing and new markets where we can achieve our risk adjusted return on investment criteria. According to industry data, we believe the following key trends will provide opportunities for organic growth in our domestic rental and management segment: • The deployment of advanced wireless technology across existing wireless networks will provide higher speed data services and enable fixed broadband substitution. As a result, our tenants continue to deploy additional equipment across their existing networks. • Wireless service providers compete based on the overall capacity and coverage of their existing wireless networks. To maintain or improve their network performance as overall network usage increases, our tenants continue to deploy additional equipment across their existing sites and also add new cell sites. • Wireless service providers are investing in reinforcing their networks through incremental backhaul and the utilization of on-site generators, which results in additional space and/or equipment leased at the tower site. • Wireless service providers continue to acquire additional spectrum, and as a result, are expected to add additional equipment to their network as they seek to optimize their network configuration. According to industry data, we believe the following key trends will provide opportunities for organic growth in our international rental and management segment: • In India, nationwide voice networks continue to be deployed as wireless service providers are beginning their initial investments in wireless data networks. • In Ghana and Uganda, wireless service providers continue to build their voice and data networks to satisfy increasing demand for wireless service. 33 -------------------------------------------------------------------------------- Table of Contents • In South Africa, carriers are beginning to deploy wireless data networks utilizing spectrum acquired through recent auctions. • In Mexico and Brazil, nationwide voice networks have been deployed and certain incumbent wireless service providers continue to invest in their wireless data networks. Recent spectrum auctions in both markets have enabled other incumbent wireless service providers and new market entrants to begin initial investments in wireless data networks. • In markets such as Chile, Colombia and Peru, recent or anticipated spectrum auctions are expected to drive investment in nationwide voice and wireless data networks. • In Germany, our most mature international wireless market, demand is currently being driven by a government-mandated rural LTE network build-out, as well as other tenant initiatives to deploy next generation wireless services. Direct Operating Expenses. Direct operating expenses incurred by our domestic and international rental and management segments include direct site level expenses and consist primarily of ground rent, property taxes, repairs and maintenance, security and power and fuel costs, some of which may be passed through to our tenants. These segment direct operating expenses exclude all segment and corporate selling, general, administrative and development expenses, which are aggregated into one line item entitled selling, general, administrative and development expense in our condensed consolidated statements of operations. In general, our domestic and international rental and management segments selling, general, administrative and development expenses do not significantly increase as a result of adding incremental tenants to our legacy sites and typically increase only modestly year-over-year. As a result, leasing additional space to new tenants on our legacy sites provides significant incremental cash flow. We may incur additional segment selling, general, administrative and development expenses as we increase our presence in geographic areas where we have recently launched operations or are focused on expanding our portfolio. Our profit margin growth is therefore positively impacted by the addition of new tenants to our legacy sites and can be temporarily diluted by our development activities. As we continue to focus on growing our rental and management operations, we anticipate that our network development services revenue will continue to represent a small percentage of our total revenues. Through our network development services segment, we offer tower-related services, including site acquisition, zoning and permitting services and structural analysis services, which primarily support our site leasing business and the addition of new tenants and equipment on our sites. REIT Conversion. We began operating as a REIT effective January 1, 2012. The REIT tax rules require that we derive most of our income, other than income generated by a taxable REIT subsidiary ("TRS"), from investments in real estate, which for us primarily consists of income from the leasing of our communications sites. Under the Internal Revenue Code of 1986, as amended (the "Code"), maintaining REIT status generally requires that no more than 25% of the value of the REIT's assets be represented by securities of one or more TRSs and other non-qualifying assets. A REIT must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). On April 25, 2013, we made a regular distribution of $0.26 per share, or a total of approximately $102.8 million, to our stockholders of record at the close of business on April 10, 2013. The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will be declared based upon various factors, a number of which may be beyond our control, including our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, our ability to utilize net operating losses ("NOLs") to offset, in whole or in part, our distribution requirements, limitations on our ability to fund distributions using cash generated through our TRSs and other factors that our Board of Directors may deem relevant. 34-------------------------------------------------------------------------------- Table of Contents For more information on the requirements to qualify as a REIT, see Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption "Business - Overview," and Item 1A of this Quarterly Report under the caption "Risk Factors." Non-GAAP Financial Measures Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation, amortization and accretion, as adjusted ("Adjusted EBITDA"), Funds From Operations, as defined by the National Association of Real Estate Investment Trusts ("NAREIT FFO") and Adjusted Funds From Operations ("AFFO"). We define Adjusted EBITDA as net income before income (loss) on discontinued operations, net; income (loss) from equity method investments; income tax provision (benefit); other income (expense); loss on retirement of long-term obligations; interest expense; interest income; other operating expenses; depreciation, amortization and accretion; and stock-based compensation expense. NAREIT FFO is defined as net income before gains or losses from the sale or disposal of real estate, real estate related impairment charges and real estate related depreciation, amortization and accretion, and including adjustments for (i) unconsolidated affiliates and (ii) noncontrolling interest. We define AFFO as NAREIT FFO before (i) straight-line revenue and expense; (ii) stock-based compensation expense; (iii) the non-cash portion of our tax provision; (iv) non-real estate related depreciation, amortization and accretion; (v) amortization of deferred financing costs, capitalized interest and debt discounts and premiums; (vi) other (income) expense; (vii) loss on retirement of long-term obligations; (viii) other operating (income) expense; (ix) unconsolidated affiliates; and (x) noncontrolling interest, less cash payments related to capital improvements and cash payments related to corporate capital expenditures. Adjusted EBITDA, NAREIT FFO and AFFO are not intended to replace net income or any other performance measures determined in accordance with GAAP. Neither NAREIT FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and therefore these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs, including our ability to make cash distributions. Rather, Adjusted EBITDA, NAREIT FFO and AFFO are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision making and for evaluating the performance of our operating segments; (2) Adjusted EBITDA is a component of the calculation used by our lenders to determine compliance with certain debt covenants; (3) Adjusted EBITDA is widely used in the tower industry to measure operating performance as depreciation, amortization and accretion may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (4) each provides investors with a meaningful measure for evaluating our period to period operating performance by eliminating items which are not operational in nature; and (5) each provides investors with a measure for comparing our results of operations to those of different companies. Our measurement of Adjusted EBITDA, NAREIT FFO and AFFO may not be comparable to similarly titled measures used by other companies. Reconciliations of Adjusted EBITDA, NAREIT FFO and AFFO to net income, the most directly comparable GAAP measure, have been included below. 35-------------------------------------------------------------------------------- Table of Contents Results of Operations Three Months Ended March 31, 2013 and 2012 (in thousands, except percentages) Revenue Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Rental and management Domestic $ 515,676 $ 487,062 $ 28,614 6 % International 261,757 196,928 64,829 33 Total rental and management 777,433 683,990 93,443 14 Network development services 25,295 12,527 12,768 102 Total revenues $ 802,728 $ 696,517 $ 106,211 15 % Total revenues for the three months ended March 31, 2013 increased 15% to $802.7 million. The increase was primarily attributable to an increase in both of our rental and management segments, including organic revenue growth attributable to our legacy sites, and revenue growth attributable to the approximately 10,180 new sites that we have constructed or acquired since January 1, 2012. Domestic rental and management segment revenue for the three months ended March 31, 2013 increased 6% to $515.7 million, which was comprised of: • Revenue growth from legacy sites of approximately 4%, which includes approximately 5% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 2% attributable to contractual rent escalations, net of tenant lease cancellations, partially offset by a negative impact of 3% due to a tenant billing settlement and a lease termination settlement which totaled $15.6 million during the quarter ended March 31, 2012; • Revenue growth from new sites of approximately 3%, resulting from the construction or acquisition of approximately 1,030 new sites, as well as land interests under third-party sites since January 1, 2012; and • A decrease of less than 1% from the impact of straight-line lease accounting. International rental and management segment revenue for the three months ended March 31, 2013 increased 33% to $261.8 million, which was comprised of: • Revenue growth from new sites of approximately 27%, resulting from the construction or acquisition of approximately 9,150 new sites since January 1, 2012; • Revenue growth from legacy sites of approximately 14%, which includes approximately 11% due to incremental revenue primarily generated from new tenant leases and amendments to existing tenant leases on our legacy sites and approximately 3% attributable to contractual rent escalations, net of tenant lease cancellations; and • A decline of approximately 8% attributable to the negative impact from foreign currency translation, which includes the negative impact of approximately 4% attributable to fluctuations in Brazilian Reais, approximately 2% due to fluctuations in South African Rand and approximately 2% associated with fluctuations in Indian Rupee. Network development services segment revenue for the three months ended March 31, 2013 increased 102% to $25.3 million. The growth was primarily attributable to an increase in structural engineering services as a result of an increase in tenant lease applications; which are primarily associated with our tenants' next generation technology network upgrades during the three months ended March 31, 2013. In addition, network development services segment revenue increased as a result of additional zoning, permitting and site acquisitions projects for one of our major tenants. 36-------------------------------------------------------------------------------- Table of Contents Gross Margin Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Rental and management Domestic $ 423,843 $ 394,059 $ 29,784 8 % International 166,084 129,947 36,137 28 Total rental and management 589,927 524,006 65,921 13 Network development services 15,016 5,530 9,486 172 % Domestic rental and management segment gross margin for the three months ended March 31, 2013 increased 8% to $423.8 million, which was comprised of: • Gross margin growth from legacy sites of approximately 5%, primarily associated with the increase in revenue, as described above, as well as an approximate 6% decrease in expenses primarily attributable to the impacts of straight-line lease accounting and delayed repair and maintenance expense due to inclement weather during the three months ended March 31, 2013; and • Gross margin growth from new sites of approximately 3%, resulting from the construction or acquisition of approximately 1,030 new sites, as well as land interests under third-party sites since January 1, 2012. International rental and management segment gross margin for the three months ended March 31, 2013 increased 28% to $166.1 million, which was comprised of: • Gross margin growth from new sites of approximately 25%, resulting from the construction or acquisition of approximately 9,150 new sites since January 1, 2012; • Gross margin growth from legacy sites of approximately 10%, primarily associated with the increase in revenue, as described above; and • A decline of approximately 7% attributable to the negative impact from foreign currency translation, which includes the negative impact of approximately 4% attributable to fluctuations in Brazilian Reais, approximately 2% due to fluctuations in South African Rand and approximately 1% associated with fluctuations in Indian Rupee. Network development services segment gross margin for the three months ended March 31, 2013 increased 172% to $15.0 million. The increase was primarily attributable to the increase in revenue as described above. Selling, General, Administrative and Development Expense Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Rental and management Domestic $ 22,898 $ 19,400 $ 3,498 18 % International 29,535 23,895 5,640 24 Total rental and management 52,433 43,295 9,138 21 Network development services 2,901 358 2,543 710 Other 45,819 35,931 9,888 28 Total selling, general, administrative and development expense $ 101,153 $ 79,584 $ 21,569 27 % 37 -------------------------------------------------------------------------------- Table of Contents Total selling, general, administrative and development expense ("SG&A") for the three months ended March 31, 2013 increased 27% to $101.2 million. The increase was primarily attributable to an increase in our international rental and management segment and other SG&A. Domestic rental and management segment SG&A for the three months ended March 31, 2013 increased 18% to $22.9 million. The increase was primarily driven by increasing personnel and related costs to support a growing portfolio. International rental and management segment SG&A for the three months ended March 31, 2013 increased 24% to $29.5 million. The increase was primarily attributable to our continued expansion initiatives in foreign markets including the launch of operations in Uganda and Germany. Network development services segment SG&A for the three months ended March 31, 2013 increased 710% to $2.9 million. The increase was primarily attributable to the reversal of bad debt expense during the three months ended March 31, 2012 of $1.4 million upon the receipt of tenant payments for amounts previously reserved. Other SG&A for the three months ended March 31, 2013 increased 28% to $45.8 million. The increase was primarily due to an $8.0 million increase in SG&A related stock-based compensation expense primarily due to $6.7 million of additional stock-based compensation expense recognized in connection with awards granted to retirement eligible employees. Operating Profit Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Rental and management Domestic $ 400,945 $ 374,659 $ 26,286 7 % International 136,549 106,052 30,497 29 Total rental and management 537,494 480,711 56,783 12 Network development services 12,115 5,172 6,943 134 % Domestic rental and management segment operating profit for the three months ended March 31, 2013 increased 7% to $400.9 million. The growth was primarily attributable to the increase in our domestic rental and management segment gross margin (8%), as described above, and was partially offset by an increase in our domestic rental and management segment SG&A (18%), as described above. International rental and management segment operating profit for the three months ended March 31, 2013 increased 29% to $136.5 million. The growth was primarily attributable to the increase in our international rental and management segment gross margin (28%), as described above, and was partially offset by an increase in our international rental and management segment SG&A (24%), as described above. Network development services segment operating profit for the three months ended March 31, 2013 increased 134% to $12.1 million. The growth was primarily attributable to the increase in network development services segment gross margin (172%), as described above, and was partially offset by an increase in our network development services segment SG&A (710%), as described above. Depreciation, Amortization and Accretion Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Depreciation, amortization and accretion $ 185,804 $ 149,655 $ 36,149 24 % 38 -------------------------------------------------------------------------------- Table of Contents Depreciation, amortization and accretion for the three months ended March 31, 2013 increased 24% to $185.8 million. The increase was primarily attributable to the depreciation, amortization and accretion associated with the acquisition or construction of approximately 10,180 sites since January 1, 2012, which resulted in an increase in property and equipment. Other Operating Expenses Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Other operating expenses $ 14,319 $ 21,847 $ (7,528 ) (34 )% Other operating expenses for the three months ended March 31, 2013 decreased 34% to $14.3 million. This change was primarily attributable to a decrease of approximately $14.3 million in impairment charges and loss on disposal of assets, which included the impairment of one of our outdoor DAS networks upon the termination of a tenant lease during the three months ended March 31, 2012. This decrease was partially offset by an increase of approximately $7.1 million in acquisition related costs. Interest Expense Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Interest expense $ 111,766 $ 95,117 $ 16,649 18 % Interest expense for the three months ended March 31, 2013 increased 18% to $111.8 million. The increase was primarily attributable to an increase in our average debt outstanding of approximately $1.6 billion, which was primarily used to fund our recent acquisitions, partially offset by a decrease in our annualized weighted average cost of borrowing from 5.24% to 4.94%. Loss on Retirement of Long-term Obligations Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Loss on retirement of long-term obligations $ 35,298 $ 398 $ 34,900 8,769 % During the three months ended March 31, 2013, loss on retirement of long-term obligations increased to $35.3 million as we repaid the $1.75 billion outstanding balance of the Commercial Mortgage Pass-Through Certificates, Series 2007-1 and incurred a prepayment penalty and recorded the acceleration of deferred financing costs. Other Income Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Other income $ 22,291 $ 52,861 $ (30,570 ) (58 )% During the three months ended March 31, 2013, other income decreased 58% to $22.3 million. The decrease was primarily a result of a decline in unrealized currency gains of $33.7 million. During the three months ended March 31, 2013 and 2012, we recorded unrealized foreign currency gains of approximately $22.1 million and $55.8 million, respectively, resulting primarily from fluctuations in the foreign currency exchange rates associated with our intercompany notes and similar unaffiliated balances denominated in a currency other than the subsidiaries' functional currencies. 39-------------------------------------------------------------------------------- Table of Contents Income Tax Provision Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Income tax provision $ 19,222 $ 27,248 $ (8,026 ) (29 )% Effective tax rate 10.7 % 11.5 % The income tax provision for the three months ended March 31, 2013 decreased 29% to $19.2 million. The effective tax rate ("ETR") for the three months ended March 31, 2013 decreased to 10.7% from 11.5%. This decrease was primarily attributable to fluctuations in foreign currency exchange rates in our TRSs during the three months ended March 31, 2012 that resulted in higher tax expense than during the three months ended March 31, 2013. The ETR on income from continuing operations for the three months ended March 31, 2013 and 2012 differs from the federal statutory rate primarily due to our expected qualification for taxation as a REIT effective as of January 1, 2012 and to adjustments for foreign items. Net Income/Adjusted EBITDA Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Net income $ 160,948 $ 210,358 $ (49,410 ) (23 )% Income from equity method investments - (18 ) (18 ) (100 ) Income tax provision 19,222 27,248 (8,026 ) (29 ) Other income (22,291 ) (52,861 ) (30,570 ) (58 ) Loss on retirement of long-term obligations 35,298 398 34,900 8,769 Interest expense 111,766 95,117 16,649 18 Interest income (1,714 ) (2,253 ) (539 ) (24 ) Other operating expenses 14,319 21,847 (7,528 ) (34 ) Depreciation, amortization and accretion 185,804 149,655 36,149 24 Stock-based compensation expense 21,042 13,045 7,997 61 Adjusted EBITDA $ 524,394 $ 462,536 $ 61,858 13 % Net income for the three months ended March 31, 2013 decreased 23% to $160.9 million. The decrease was primarily attributable to the loss on retirement of long-term obligations recorded during the three months ended March 31, 2013 and increases in interest expense and depreciation, amortization and accretion expense, partially offset by an increase in our rental and management segments operating profit, as described above. Adjusted EBITDA for the three months ended March 31, 2013 increased 13% to $524.4 million. Adjusted EBITDA growth was primarily attributable to the increase in our rental and management segments gross margin, and was partially offset by an increase in SG&A. 40-------------------------------------------------------------------------------- Table of Contents Net Income/NAREIT FFO/AFFO Three Months Ended Amount of Percent March 31, Increase Increase 2013 2012 (Decrease) (Decrease) Net income $ 160,948 $ 210,358 $ (49,410 ) (23 )% Real estate related depreciation, amortization and accretion 163,742 132,832 30,910 23 Losses from sale or disposal of real estate and real estate related impairment charges 269 3,815 (3,546 ) (93 ) Adjustments for unconsolidated affiliates and noncontrolling interest 2,830 6,617 (3,787 ) (57 ) NAREIT FFO $ 327,789 $ 353,622 $ (25,833 ) (7 )% Straight-line revenue (34,240 ) (38,503 ) (4,263 ) (11 ) Straight-line expense 7,115 9,735 (2,620 ) (27 ) Stock-based compensation expense 21,042 13,045 7,997 61 Non-cash portion of tax provision 5,679 28,145 (22,466 ) (80 ) Non-real estate related depreciation, amortization and accretion 22,062 16,823 5,239 31 Amortization of deferred financing costs, capitalized interest and debt discounts and premiums (1) 7,527 1,852 5,675 306 Other income (2) (22,291 ) (52,861 ) (30,570 ) (58 ) Loss on retirement of long-term obligations 35,298 398 34,900 8,769 Other operating expenses (3) 14,050 18,032 (3,982 ) (22 ) Capital improvement capital expenditures (15,882 ) (13,929 ) 1,953 14 Corporate capital expenditures (7,518 ) (4,212 ) 3,306 78 Adjustments for unconsolidated affiliates and noncontrolling interest (2,830 ) (6,617 ) (3,787 ) (57 ) AFFO $ 357,801 $ 325,530 $ 32,271 10 % (1) Includes accrued non-cash interest expense attributable to joint-venture loans. (2) Primarily includes unrealized (gain) loss on foreign currency exchange rate fluctuations. (3) Primarily includes impairments and transaction related costs. NAREIT FFO for the three months ended March 31, 2013 was $327.8 million as compared to NAREIT FFO of $353.6 million for the three months ended March 31, 2012. AFFO for the three months ended March 31, 2013 increased 10% to $357.8 million as compared to $325.5 million for the three months ended March 31, 2012. AFFO growth was primarily attributable to the increase in our operating profit and was partially offset by an increase in cash paid for interest expense and cash paid for income taxes. The increase in cash paid for income taxes was primarily attributable to the non-recurrence of a $12.5 million tax refund which was received during the three months ended March 31, 2012. Liquidity and Capital Resources The information in this section updates as of March 31, 2013 the "Liquidity and Capital Resources" section of our Annual Report on Form 10-K for the year ended December 31, 2012 and should be read in conjunction with that report. Overview As a holding company, our cash flows are derived primarily from the operations of, and distributions from, our operating subsidiaries or funds raised through borrowings under our credit facilities and debt offerings. As of March 31, 2013, we had approximately $2,115.1 million of total liquidity, comprised of approximately $441.7 million in cash and cash equivalents and the ability to borrow up to $1,673.4 million, net of any outstanding letters of credit, under our $1.0 billion unsecured credit facility entered into in April 2011 (the "2011 Credit 41 -------------------------------------------------------------------------------- Table of Contents Facility") and our $1.0 billion unsecured credit facility entered into in January 2012 (the "2012 Credit Facility"). In January 2013, we completed a registered public offering of $1.0 billion aggregate principal amount of 3.50% senior unsecured notes due 2023 ("3.50% Notes") and used the net proceeds to repay certain amounts outstanding under the 2011 Credit Facility and 2012 Credit Facility. Summary cash flow information for the three months ended March 31, 2013 and 2012 is set forth below (in thousands). Three Months Ended March 31, 2013 2012 Net cash provided by (used for): Operating activities $ 394,036 $ 402,017 Investing activities (376,628 ) (291,296 ) Financing activities 34,629 27,440Net effect of changes in exchange rates on cash and cash equivalents 21,051 2,906 Net increase in cash and cash equivalents $ 73,088 $ 141,067 We use our cash flows to fund our operations and investments in our business, including tower maintenance and improvements, communications site construction and managed network installations, and tower and land acquisitions. Additionally, we use our cash flows to make distributions of our REIT taxable income in order to maintain our REIT qualification under the Code and fund our stock repurchase program. As of March 31, 2013, we had total outstanding indebtedness of approximately $8.8 billion. During the three months ended March 31, 2013 and the year ended December 31, 2012, we generated sufficient cash flow from operations to fund our capital expenditures and debt service obligations, as well as our required REIT distributions. We believe the cash generated by operations during the next 12 months will be sufficient to fund our REIT distribution requirements, capital expenditures and debt service (interest and principal repayments) obligations for the next 12 months. If our pending acquisitions, capital expenditures or debt repayments exceed the cash generated by our operations, we believe we have sufficient borrowing capacity under our credit facilities to fund our activities. As of March 31, 2013, we had approximately $250.3 million of cash and cash equivalents held by our foreign subsidiaries, of which $83.4 million was held by our joint ventures. Historically, it has not been our practice to repatriate cash from our foreign subsidiaries primarily due to our ongoing expansion efforts and related capital needs. However, in the event that we do repatriate any funds, we may be required to accrue and pay taxes. As a REIT, we are subject to a number of organizational and operational requirements, including a requirement that we annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). Generally, we expect to distribute all or substantially all of our REIT taxable income so as not to be subject to the income or excise tax on undistributed REIT taxable income. On April 25, 2013, we made a regular distribution of $0.26 per share, or a total of approximately $102.8 million, to stockholders of record at the close of business on April 10, 2013. The amount, timing and frequency of future distributions will be at the sole discretion of our Board of Directors and will be based upon various factors. See Item 5 of our Annual Report on Form 10-K for the year ended December 31, 2012 under the caption "Dividends" for a discussion of these factors considered. Cash Flows from Operating Activities For the three months ended March 31, 2013, cash provided by operating activities was $394.0 million, a decrease of $8.0 million as compared to the three months ended March 31, 2012. This decrease was primarily due to an increase in cash paid for interest and income taxes during the three months ended March 31, 2013. Cash paid for income taxes increased from the prior year period due to the non-recurrence of a $12.5 million tax refund received during the three months ended March 31, 2012. In addition, $61.4 million of value added tax was recovered during the three months ended March 31, 2012. 42-------------------------------------------------------------------------------- Table of Contents Cash Flows from Investing Activities For the three months ended March 31, 2013, cash used for investing activities was $376.6 million, an increase of $85.3 million as compared to the three months ended March 31, 2012. This increase was primarily attributable to an increase in acquisition-related activity during the three months ended March 31, 2013. During the three months ended March 31, 2013, payments for purchases of property and equipment and construction activities totaled $123.9 million, including $57.3 million of capital expenditures for discretionary capital projects, such as completion of the construction of approximately 452 communications sites and the installation of approximately 124 shared generators domestically, $14.8 million spent to acquire land under our towers that was subject to ground agreements (including leases), $23.4 million of capital expenditures related to capital improvements and corporate capital expenditures primarily attributable to information technology improvements and office build-outs, $21.7 million for the redevelopment of existing communications sites to accommodate new tenant equipment and $6.7 million of capital expenditures related to start-up capital projects primarily attributable to acquisitions and new market launches and costs that are contemplated in the business cases for these investments. In addition, during the three months ended March 31, 2013, we spent $245.1 million to acquire approximately 920 communications sites in our served markets and for the payment of amounts previously recognized in accounts payable or accrued expenses in the condensed consolidated balance sheets for communications sites we acquired in Uganda and the United States during the year ended December 31, 2012. We plan to continue to allocate our available capital after our REIT distribution requirements among investment alternatives that meet our return on investment criteria. Accordingly, we expect to continue to deploy our discretionary capital through our annual discretionary capital expenditure program, including land purchases and new site construction and acquisitions. We expect that our 2013 total capital expenditures will be between approximately $550 million and $650 million, including between $110 and $120 million for capital improvements and corporate capital expenditures, $20 million for start-up capital projects, between $95 million and $105 million for the redevelopment of existing communications sites, between $85 million and $105 million for ground lease purchases and between $240 million and $300 million for other discretionary capital projects, including the construction of approximately 2,250 to 2,750 new communications sites. Cash Flows from Financing Activities For the three months ended March 31, 2013, cash provided by financing activities was $34.6 million, as compared to $27.4 million during the three months ended March 31, 2012. Cash provided by financing activities during the three months ended March 31, 2013 is primarily due to (i) net proceeds of $1.78 billion from the offering of $1.8 billion of Secured Tower Revenue Securities, Series 2013-1A and Series 2013-2A (collectively, the "Securities"), as described in more detail below, (ii) net proceeds from our registered offering of $1.0 billion aggregate principal amount of our 3.50% Notes of $983.4 million, (iii) borrowings under our 2012 Credit Facility of $249.0 million, (iv) net contributions from noncontrolling interest holders of $7.7 million and (v) proceeds from stock options of $6.1 million. The proceeds from these borrowings were partially offset by the repayment of (i) $1.75 billion of Commercial Mortgage Pass-Through Certificates, Series 2007-1 (the "Certificates") and accrued interest thereon plus prepayment consideration of $29.2 million (ii) $919.0 million under the 2012 Credit Facility and (iii) $265.0 million under the 2011 Credit Facility. In addition, we paid $12.5 million for the repurchase of our common stock. Commercial Mortgage Pass-Through Certificates, Series 2007-1. During the year ended December 31, 2007, we completed a securitization transaction involving assets related to 5,295 broadcast and wireless communications towers owned by two special purpose subsidiaries of ours, through a private offering of $1.75 billion of the Certificates. On March 15, 2013, we repaid all indebtedness outstanding under the Certificates ($1.75 billion in principal amount), plus prepayment consideration and accrued interest thereon and other costs and expenses related thereto, with proceeds from the offering of $1.8 billion of the Securities. 43 -------------------------------------------------------------------------------- Table of Contents Secured Tower Revenue Securities, Series 2013-1A and Series 2013-2A. On March 15, 2013, we completed a securitization transaction (the "Securitization") involving assets related to 5,195 wireless and broadcast communications towers (the "Secured Towers") owned by two of our special purpose subsidiaries, through a private offering of $1.8 billion of the Securities. The Securities were issued by American Tower Trust I (the "Trust"), a trust established by American Tower Depositor Sub, LLC (the "Depositor"), our indirect wholly owned special purpose subsidiary. The assets of the Trust consist of a nonrecourse loan (the "Loan") to American Tower Asset Sub, LLC and American Tower Asset Sub II, LLC (the "Borrowers"), pursuant to a First Amended and Restated Loan and Security Agreement dated as of March 15, 2013 (the "Loan Agreement"). The Borrowers are special purpose entities formed solely for the purpose of holding the Secured Towers subject to a securitization. The Securities were issued in two separate series of the same class pursuant to a First Amended and Restated Trust and Servicing Agreement (the "Trust Agreement"), with terms identical to the Loan. The effective weighted average interest rate of the Loan is 2.648%. The Series 2013-1A Securities have an expected life of five years with a final repayment date in March 2043. The Series 2013-2A Securities have an expected life of ten years with a final repayment date in March 2048. The effective weighted average life of the Securities is 8.6 years. Amounts due under the Loan will be paid by the Borrowers solely from the cash flows generated by the Secured Towers. These funds in turn will be used by or on behalf of the Trust to service the payment of interest on the Securities and for any other payments required by the Loan Agreement. The Borrowers are required to make monthly payments of interest on the Loan. Subject to certain limited exceptions described below, no payments of principal will be required to be made prior to March 15, 2018, which is the anticipated repayment date for the component of the Loan associated with the Series 2013-1A Securities. On a monthly basis, after payment of all required amounts under the Loan Agreement and Trust Agreement, the excess cash flows generated from the operation of the Secured Towers are released to the Borrowers, and can then be distributed to, and used by, us. However, if the debt service coverage ratio (the "DSCR") as of the last day of any calendar quarter prior to the applicable anticipated repayment date, generally defined as the net cash flow divided by the amount of interest, servicing fees and trustee fees that the Borrowers will be required to pay over the succeeding 12 months on the Loan, is 1.30x or less (the "Cash Trap DSCR") for such quarter, and the DSCR continues to be equal to or below the Cash Trap DSCR for two consecutive calendar quarters, then all cash flow in excess of amounts required to make debt service payments, to fund required reserves, to pay management fees and budgeted operating expenses and to make other payments required under the loan documents, referred to as excess cash flow, will be deposited into a reserve account instead of being released to the Borrowers. The funds in the reserve account will not be released to the Borrowers unless the DSCR exceeds the Cash Trap DSCR for two consecutive calendar quarters. An "amortization period" commences if (i) as of the end of any calendar quarter the DSCR equals or falls below 1.15x (the "Minimum DSCR") for such calendar quarter and such amortization period will continue to exist until the DSCR exceeds the Minimum DSCR for two consecutive calendar quarters or (ii) on the anticipated repayment date the component of the Loan corresponding to the applicable subclass of the Securities has not been repaid in full, provided that such amortization period shall apply with respect to such component that has not been repaid in full. During an amortization period all excess cash is applied to payment of the principal on the Loan. The Borrowers may prepay the Loan in whole or in part at any time, provided it is accompanied by applicable prepayment consideration. If the prepayment occurs within twelve months of the anticipated repayment date for the Series 2013-1A Securities or eighteen months of the anticipated repayment date for the 2013-2A Securities, no prepayment consideration is due. The entire unpaid principal balance of the component of the Loan related to the Series 2013-1A Securities will be due in March 2043. The entire unpaid principal balance of the component of the Loan related to the Series 2013-2A Securities will be due in March 2048. The Loan may be defeased in whole at any time prior to the anticipated repayment date for any component of the Loan then outstanding. The Loan is secured by (1) mortgages, deeds of trust and deeds to secure debt on substantially all of the Secured Towers, (2) a pledge of their operating cash flows from the Secured Towers, (3) a security interest in substantially all of the Borrowers' personal property and fixtures and (4) the Borrowers' rights under the tenant leases and the Management Agreement entered into in connection with the Securitization. American Tower Holding 44-------------------------------------------------------------------------------- Table of Contents Sub, LLC, whose only material assets are its equity interests in each of the Borrowers, and American Tower Guarantor Sub, LLC, whose only material asset is its equity interest in American Tower Holding Sub, LLC, each have guaranteed repayment of the Loan and pledged their equity interests in their respective subsidiary or subsidiaries as security for such payment obligations. American Tower Guarantor Sub, LLC, American Tower Holding Sub, LLC, the Depositor and the Borrowers each were formed as special purpose entities solely for purposes of entering a securitization transaction, and the assets and credit of these entities are not available to satisfy the debts and other obligations of us or any other person, except as set forth in the Loan Agreement. The Loan Agreement includes operating covenants and other restrictions customary for loans subject to rated securitizations. Among other things, the Borrowers are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets with customary carveouts for ordinary course trade payables and permitted encumbrances (as defined in the Loan Agreement). The organizational documents of the Borrowers contain provisions consistent with rating agency securitization criteria for special purpose entities, including the requirement that the Borrowers maintain at least two independent directors. The Loan Agreement also contains certain covenants that require the Borrowers to provide the trustee with regular financial reports and operating budgets, promptly notify the trustee of events of default and material breaches under the Loan Agreement and other agreements related to the Secured Towers, and allow the trustee reasonable access to the Secured Towers, including the right to conduct site investigations. A failure to comply with the covenants in the Loan Agreement could prevent the Borrowers from taking certain actions with respect to the Secured Towers, and could prevent the Borrowers from distributing any excess cash from the operation of the Secured Towers to us. If the Borrowers were to default on the Loan, Midland Loan Services, a Division of PNC Bank, National Association, in its capacity as servicer on behalf of the trustee, could seek to foreclose upon or otherwise convert the ownership of the Secured Towers, in which case we could lose the Secured Towers and the revenue associated with the Secured Towers. Under the Loan Agreement, the Borrowers are required to maintain reserve accounts, including for ground rents, real estate and personal property taxes and insurance premiums, and to reserve a portion of advance rents from tenants on the Secured Towers. Based on the terms of the Loan Agreement, all rental cash receipts received for each month are reserved for the succeeding month and held in an account controlled by the trustee and then released. The $39.3 million held in the reserve accounts as of March 31, 2013 is classified as restricted cash on our accompanying condensed consolidated balance sheet. Senior Notes Offering. On January 8, 2013, we completed a registered public offering of $1.0 billion aggregate principal amount of the 3.50% Notes, which were issued at a price equal to 99.185% of their face value. We used $265.0 million of the net proceeds to repay the outstanding indebtedness under the 2011 Credit Facility and $718.4 million to repay a portion of the outstanding indebtedness incurred under the 2012 Credit Facility. The 3.50% Notes mature on January 31, 2023, and interest is payable semi-annually in arrears on January 31 and July 31 of each year, commencing on July 31, 2013. We may redeem the 3.50% Notes at any time at a redemption price equal to 100% of the principal amount, plus a make-whole premium, together with accrued interest to the redemption date. Interest on the notes began to accrue on January 8, 2013 and is computed on the basis of a 360-day year comprised of twelve 30-day months. If we undergo a change of control and ratings decline, each as defined in the supplemental indenture, we will be required to offer to repurchase all of the 3.50% Notes at a purchase price equal to 101% of the principal amount, plus accrued and unpaid interest up to but not including the repurchase date. The 3.50% Notes rank equally with all of our other senior unsecured debt and are structurally subordinated to all existing and future indebtedness and other obligations of our subsidiaries. The supplemental indenture contains certain covenants that restrict our ability to merge, consolidate or sell assets and our (together with our subsidiaries') ability to incur liens. These covenants are subject to a number of exceptions, including that we and our subsidiaries may incur certain liens on assets, mortgages or other liens 45 -------------------------------------------------------------------------------- Table of Contents securing indebtedness, if the aggregate amount of such liens does not exceed 3.5x Adjusted EBITDA, as defined in the supplemental indenture. 2011 Credit Facility. As of March 31, 2013, we did not have any amounts outstanding under our 2011 Credit Facility and had approximately $1.9 million of undrawn letters of credit. We repaid all outstanding amounts on January 8, 2013 with net proceeds received from the offering of the 3.50% Notes. We continue to maintain the ability to draw down and repay amounts under our 2011 Credit Facility in the ordinary course. The 2011 Credit Facility has a term of five years and matures on April 8, 2016. The current margin over London Interbank Offered Rate ("LIBOR") that we would incur on borrowings is 1.850% and the current commitment fee on the undrawn portion of the 2011 Credit Facility is 0.350%. 2012 Credit Facility. As of March 31, 2013, we had $322.0 million outstanding under the 2012 Credit Facility and had approximately $2.7 million of undrawn letters of credit. We repaid $719.0 million on January 8, 2013 with net proceeds received from the offering of the 3.50% Notes and cash on hand. We continue to maintain the ability to draw down and repay amounts under our 2012 Credit Facility in the ordinary course. The 2012 Credit Facility has a term of five years and matures on January 31, 2017. The current margin over LIBOR that we would incur on borrowings is 1.625%, and the current commitment fee on the undrawn portion of the 2012 Credit Facility is 0.225%. 2012 Term Loan. On June 29, 2012, we entered into a $750.0 million unsecured term loan ("2012 Term Loan"). The 2012 Term Loan has a term of five years and matures on June 29, 2017. As of March 31, 2013, the interest rate under the 2012 Term Loan is LIBOR plus 1.75%. Stock Repurchase Program. In March 2011, our Board of Directors approved a stock repurchase program, pursuant to which we are authorized to purchase up to $1.5 billion of our common stock (the "2011 Buyback"). During the three months ended March 31, 2013, we repurchased 164,120 shares of our common stock for an aggregate of $12.5 million, including commissions and fees, pursuant to the 2011 Buyback. As of March 31, 2013, we had repurchased a total of approximately 4.5 million shares of our common stock under the 2011 Buyback for an aggregate of $256.4 million, including commissions and fees. Between April 1, 2013 and April 19, 2013, we repurchased an additional 205,814 shares of our common stock for an aggregate of $16.1 million, including commissions and fees, pursuant to the 2011 Buyback. As of April 19, 2013, we had repurchased a total of approximately 4.7 million shares of our common stock under the 2011 Buyback for an aggregate of $272.5 million, including commissions and fees. Under the 2011 Buyback, we are authorized to purchase shares from time to time through open market purchases or privately negotiated transactions at prevailing prices in accordance with securities laws and other legal requirements, and subject to market conditions and other factors. To facilitate repurchases, we make purchases pursuant to trading plans under Rule 10b5-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which allows us to repurchase shares during periods when it otherwise might be prevented from doing so under insider trading laws or because of self-imposed trading blackout periods. We expect to continue managing the pacing of the remaining $1.2 billion under the 2011 Buyback in response to general market conditions and other relevant factors. In the near term, we expect to fund any further repurchases of our common stock through a combination of cash on hand, cash generated by operations and borrowings under our credit facilities. Purchases under the 2011 Buyback are subject to us having available cash to fund repurchases. Sales of Equity Securities. We receive proceeds from sales of our equity securities pursuant to our employee stock purchase plan, upon the exercise of stock options granted under our equity incentive plans. For the three months ended March 31, 2013, we received an aggregate of approximately $6.1 million in proceeds upon exercises of stock options. 46-------------------------------------------------------------------------------- Table of Contents Distributions. As a REIT, we must annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). Generally, we expect to distribute all or substantially all of our REIT taxable income so as to not be subject to income tax or excise tax on undistributed REIT taxable income. The amount, timing and frequency of future distributions, however, will be at the sole discretion of our Board of Directors and will be declared based upon various factors, a number of which may be beyond our control, including our financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that we otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, our ability to utilize NOLs to offset our distribution requirements, limitations on our ability to fund distributions using cash generated through our TRSs and other factors that our Board of Directors may deem relevant. On March 12, 2013, we declared a cash distribution of $0.26 per share and on April 25, 2013 paid a total of approximately $102.8 million to stockholders of record at the close of business on April 10, 2013. We accrue distributions on unvested restricted stock unit awards granted subsequent to January 1, 2012, which are payable upon vesting. As of March 31, 2013, we had accrued $0.5 million of distributions payable upon the vesting of restricted stock units. Contractual Obligations. Our contractual obligations relate primarily to the Securitization, borrowings under our 2011 Credit Facility, 2012 Credit Facility, 2012 Term Loan and our outstanding notes. The following table summarizes our borrowings under the 2011 Credit Facility, 2012 Credit Facility, 2012 Term Loan and the balance outstanding under our notes and the Securities and certain other debt, as of March 31, 2013 (in thousands): Balance Indebtedness Outstanding Maturity Date Secured Tower Revenue Securities, Series 2013-1A (1) $ 500,000 March 15, 2018 Secured Tower Revenue Securities, Series 2013-2A (2) 1,300,000 March 15, 2023 2011 Credit Facility - April 8, 2016 2012 Credit Facility 322,000 January 31, 2017 2012 Term Loan 750,000 June 29, 2017 Unison Notes, Series 2010-1 Class C, Series 2010-2 Class C and Series 2010-2 Class F notes (3) 206,750 April 15, 2017 3.50% senior notes 992,007 January 31, 2023 4.70% senior notes 698,787 March 15, 2022 5.90% senior notes 499,370 November 1, 2021 4.50% senior notes 999,440 January 15, 2018 5.05% senior notes 699,353 September 1, 2020 4.625% senior notes 599,676 April 1, 2015 7.00% senior notes 500,000 October 15, 2017 7.25% senior notes 296,388 May 15, 2019 Ghana loan (4) 130,951 May 4, 2016 Uganda loan (4) 61,023 June 29, 2019 South African facility (5) 90,326 March 31, 2020 Colombian long-term credit facility (6) 73,682 November 30, 2020 Colombian bridge loans (7) 51,312 June 22, 2013 Colombian loan (4) 19,176 February 22, 2022 Other debt, including capital leases 58,882 Total $ 8,849,123 (1) Anticipated repayment date; final legal maturity date is March 15, 2043. 47 -------------------------------------------------------------------------------- Table of Contents (2) Anticipated repayment date; final legal maturity date is March 15, 2048. (3) Assumed by us in connection with the acquisition of certain legal entities holding a portfolio of property interests from Unison Holdings, LLC and Unison Site Management II, L.L.C. (the "Unison Acquisition"), and have anticipated repayment dates of April 15, 2017, April 15, 2020 and April 15, 2020, respectively, and a final maturity date of April 15, 2040. (4) Denominated in U.S. Dollars. (5) Denominated in South African Rand and amortizes through March 31, 2020. (6) Denominated in Colombian Pesos and amortizes through November 30, 2020. (7) Denominated in Colombian Pesos. The maturity dates for the Colombian bridge loans may be extended from time to time. A description of our contractual debt obligations is set forth under the caption "Quantitative and Qualitative Disclosures about Market Risk" in Part I, Item 3 of this Quarterly Report on Form 10-Q. We classify uncertain tax positions as non-current income tax liabilities. We expect the unrecognized tax benefits to change over the next 12 months if certain tax matters ultimately settle with the applicable taxing jurisdiction during this timeframe. However, based on the status of these items and the amount of uncertainty associated with the outcome and timing of audit settlements, we are currently unable to estimate the impact of the amount of such changes, if any, to previously recorded uncertain tax positions and have classified approximately $35.6 million as other non-current liabilities in the condensed consolidated balance sheet as of March 31, 2013. We also classified approximately $30.8 million of accrued income tax related interest and penalties as other non-current liabilities in the condensed consolidated balance sheet as of March 31, 2013. Factors Affecting Sources of Liquidity As discussed in the "Liquidity and Capital Resources" section of our Annual Report on Form 10-K for the year ended December 31, 2012, our liquidity is dependent on our ability to generate cash flow from operating activities, borrow funds under our credit facilities and maintain compliance with the contractual agreements governing our indebtedness. As discussed below, the loan agreements relating to the Securitization and to the 2011 Credit Facility, 2012 Credit Facility and 2012 Term Loan contain certain financial and operating covenants and other restrictions that could impact our liquidity. We believe that the foregoing debt agreements represent our material debt agreements that contain covenants, our compliance with which would be material to an investor's understanding of our financial results and the impact of those results on our liquidity. Restrictions Under Loan Agreements Relating to the 2011 Credit Facility, the 2012 Credit Facility and the 2012 Term Loan. The loan agreements for the 2011 Credit Facility, the 2012 Credit Facility and the 2012 Term Loan contain certain financial and operating covenants and other restrictions applicable to us and all of our subsidiaries that are not designated as unrestricted subsidiaries on a consolidated basis. These include limitations on additional debt, distributions and dividends, guaranties, sales of assets and liens. The loan agreements also contain covenants that establish three financial tests with which we and our restricted subsidiaries must comply related to total leverage, senior secured leverage and interest coverage, as set forth below. Where we designate certain of our subsidiaries as unrestricted subsidiaries in accordance with the respective agreements, those subsidiaries are excluded for purposes of the covenant calculations. As of March 31, 2013, we were in compliance with each of these covenants. • Consolidated Total Leverage Ratio: This ratio requires that we not exceed a ratio of Total Debt to Adjusted EBITDA (each as defined in the loan agreements) of 6.00 to 1.00. Based on our financial performance for the 12 months ended March 31, 2013, we could incur approximately $2.7 billion of additional indebtedness and still remain in compliance with this ratio. In addition, if we maintain our existing debt levels and our expenses do not change materially from current levels, our revenues could decrease by approximately $452 million and we would still remain in compliance with this ratio. • Consolidated Senior Secured Leverage Ratio: This ratio requires that we not exceed a ratio of Senior Secured Debt (as defined in the loan agreements) to Adjusted EBITDA of 3.00 to 1.00. Based on our financial performance for the 12 months ended March 31, 2013, we could incur approximately $3.6 48 -------------------------------------------------------------------------------- Table of Contents billion of additional Senior Secured Debt and still remain in compliance with this ratio (effectively, however, this ratio would be limited to $2.7 billion to remain in compliance with other covenants). In addition, if we maintain our existing Senior Secured Debt levels and our expenses do not change materially from current levels, our revenues could decrease by approximately $1.2 billion and we would still remain in compliance with this ratio. • Interest Coverage Ratio: This ratio requires that we maintain a ratio of Adjusted EBITDA to Interest Expense (as defined in the loan agreements) of not less than 2.50 to 1.00. Based on our financial performance for the 12 months ended March 31, 2013, our interest expense, which was $407 million for that period, could increase by approximately $362 million and we would still remain in compliance with this ratio. In addition, if our interest expense does not change materially from current levels, our revenues could decrease by approximately $906 million and we would still remain in compliance with this ratio. The loan agreements for our credit facilities also contain reporting and information covenants that require us to provide financial and operating information within certain time periods. If we are unable to provide the required information on a timely basis, we would be in breach of these covenants. Any failure to comply with the financial maintenance tests and operating covenants of the loan agreements for our credit facilities would not only prevent us from being able to borrow additional funds under these credit facilities, but would constitute a default under these credit facilities, which could result in, among other things, the amounts outstanding, including all accrued interest and unpaid fees, becoming immediately due and payable. If this were to occur, we would not have sufficient cash on hand to repay such indebtedness. The key factors affecting our ability to comply with the debt covenants described above are our financial performance relative to the financial maintenance tests defined in the loan agreements for these credit facilities and our ability to fund our debt service obligations. Based upon our current expectations, we believe our operating results during the next twelve months will be sufficient to comply with these covenants. Restrictions Under Loan Agreement Relating to the Securitization. The Loan Agreement related to the Securitization involves assets related to 5,195 broadcast and wireless communications towers owned by the Borrowers, through a private offering of $1.8 billion of the Securities. As of March 31, 2013, 5,195 broadcast and wireless communications towers are owned by the Borrowers. The Loan Agreement includes certain financial ratios and operating covenants and other restrictions customary for loans subject to rated securitizations. Among other things, the Borrowers are prohibited from incurring other indebtedness for borrowed money or further encumbering their assets with customary carveouts for ordinary course trade payables and permitted encumbrances (as defined in the Loan Agreement). The Borrowers' organizational documents contain provisions consistent with rating agency securitization criteria for special purpose entities, including the requirement that the Borrowers maintain at least two independent directors. The Loan Agreement also contains certain covenants that require the Borrowers to provide the trustee with regular financial reports and operating budgets, promptly notify the trustee of events of default and material breaches under the Loan Agreement and other agreements related to the Secured Towers, and allow the trustee reasonable access to the Secured Towers, including the right to conduct site investigations. Under the terms of the Loan Agreement, amounts due under the loan will be paid solely from the cash flows generated by the Secured Towers, which must be deposited, and thereafter distributed, solely pursuant to the terms of the Loan. The Borrowers are required to make monthly payments of interest on the Loan. On a monthly basis, after payment of all required amounts under the Loan Agreement, the excess cash flows generated from the operation of the Secured Towers are released to the Borrowers, which can then be distributed to, and used by, us. In order to distribute this excess cash flow to us, the Borrowers must maintain several specified ratios with respect to their DSCR. For this purpose, DSCR is tested as of the last day of each calendar quarter prior to the applicable anticipated repayment date and is generally defined as four times the Borrowers' net cash flow for that 49 -------------------------------------------------------------------------------- Table of Contents quarter divided by the amount of interest, servicing fees and trustee fees that the Borrowers must pay over the succeeding 12 months on the principal amount of the Loan. Pursuant to one such test, if the DSCR as of the end of any calendar quarter were 1.30x or less (the "Cash Trap DSCR") for such quarter, and the DSCR continues to be below the Cash Trap DSCR for two consecutive calendar quarters, then all excess cash flow would be placed in a reserve account and would not be released to the Borrowers for distribution to us until the DSCR exceeded the Cash Trap DSCR for two consecutive calendar quarters. Additionally, while the anticipated repayment date is not until March 2018 for the Series 2013-1A Securities and March 2023 for the Series 2013-2A Securities, excess cash flow would be applied to principal during an "amortization period" under the Loan if the DSCR as of the end of any calendar quarter was equal to or fell below 1.15x (the "Minimum DSCR"). In such a case, all excess cash flow and any amounts then in the reserve account because the Cash Trap DSCR was not met would be applied to pay principal of the Loan on each monthly payment date until the DSCR exceeded the Minimum DSCR for two consecutive calendar quarters, and so would not be available for distribution to us. Consequently, a failure to comply with the covenants in the Loan Agreement could prevent the Borrowers from taking certain actions with respect to the Secured Towers. Additionally, a failure to meet the noted DSCR tests could prevent the Borrowers from distributing excess cash flow to us, which could affect our ability to fund our discretionary expenditures, including tower construction and acquisitions, meet REIT distribution requirements and fund our stock repurchase program. In addition, if the Borrowers were to default on the Loan, the trustee could seek to foreclose upon or otherwise convert the ownership of the Secured Towers, in which case we could lose the towers and the revenue associated with the towers. As of March 31, 2013, the Borrowers' DSCR was 9.06x. Based on the Borrowers' net cash flow for the calendar quarter ended March 31, 2013 and the amount of interest, servicing fees and trustee fees payable over the succeeding 12 months on the Loan, the Borrowers could endure a reduction of approximately $373 million in net cash flow before triggering a Cash Trap DSCR, and approximately $380 million in net cash flow before triggering an amortization period. As discussed above, we use our available liquidity and seek new sources of liquidity to refinance and repurchase our outstanding indebtedness. In addition, in order to fund capital expenditures, future growth and expansion initiatives, satisfy our REIT distribution requirements and fund our stock repurchase program, we may need to raise additional capital through financing activities. If we determine that it is desirable or necessary to raise additional capital, we may be unable to do so, or such additional financing may be prohibitively expensive or restricted by the terms of our outstanding indebtedness. If we are unable to raise capital when our needs arise, we may not be able to fund capital expenditures, future growth and expansion initiatives, satisfy our REIT distribution requirements, refinance our existing indebtedness or fund our stock repurchase program. In addition, our liquidity depends on our ability to generate cash flow from operating activities. As set forth under the caption "Risk Factors" in Part II, Item 1A. of this Quarterly Report on Form 10-Q, we derive a substantial portion of our revenues from a small number of tenants and, consequently, a failure by a significant tenant to perform its contractual obligations to us could adversely affect our cash flow and liquidity. For more information regarding the terms of our outstanding indebtedness, please see note 8 to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2012. Critical Accounting Policies and Estimates Management's discussion and analysis of financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The 50-------------------------------------------------------------------------------- Table of Contents preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosures of contingent assets and liabilities. We evaluate our policies and estimates on an ongoing basis, including those related to impairment of assets, asset retirement obligations, accounting for acquisitions, revenue recognition, rent expense, stock-based compensation and income taxes, which we discussed in our Annual Report on Form 10-K for the year ended December 31, 2012. Management bases its estimates on historical experience and other various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have reviewed our policies and estimates to determine our critical accounting policies for the three months ended March 31, 2013. We have made no material changes to the critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2012. Recently Adopted Accounting Standards In February 2013, the Financial Accounting Standards Board ("FASB") issued additional guidance on comprehensive income which adds new disclosure requirements for items reclassified out of accumulated other comprehensive income ("AOCI") by component. This guidance enhances the transparency of changes in other comprehensive income ("OCI") and items transferred out of AOCI in the financial statements and it does not amend any existing requirements for reporting net income or OCI in the financial statements. Since the guidance relates only to presentation and disclosure of information, the adoption did not have a material effect on our condensed consolidated financial condition or results of operations. In February 2013, the FASB issued guidance that clarifies the scope of transactions subject to disclosures about offsetting assets and liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. This guidance is effective for annual and interim reporting periods beginning on or after January 1, 2013 on a retrospective basis. The adoption of this guidance did not have a material impact on our disclosures in the condensed consolidated financial statements. 51 -------------------------------------------------------------------------------- Table of Contents [ Back To TMCnet.com's Homepage ]