美國電塔 (AMT) 2008 Q3 法說會逐字稿

Good morning my name is Carmen, and I will be your conference operator today. At this time I would like to welcome everyone to the American Tower Corporation third quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over to Michael Powell, Vice President of Investor Relations. Sir, you may begin your conference.

Thank you, Carmen. Good morning everyone and thank you for joining American Tower's conference call regarding our third quarter 2008 financial results. We will begin with comments from Jean Bua, our interim Chief Financial Officer, and then we will have comments from Jim Taiclet, our Chairman, President and Chief Executive Officer. After these comments, we will open up the call to your questions.

In order to maximize participation during the Q & A portion of the call we kindly ask that you show courtesy to the other participants and limit to your questions to just one or two parts. If you do have more than two parts or if you think of additional questions, feel free to line up in the queue again and we'll answer as many questions as possible in the allotted time. However, before I turn things over to Jean, I'd like to remind you this call will contain forward-looking statements and involve a number of risks and uncertainties. Examples of these statements include statements regarding our 2008 outlook, our stock repurchase program, our International Business Development initiatives, and any other statements regarding matters that are not historical facts. You should be aware that certain factors may affect us in the future, and could cause actual results to differ materially from those expressed in these forward-looking statements. Such factors include the risk factors set fourth in this morning's press release and those set fourth in our form 10-Q for the quarter ended June 30, 2008 and other filings with the SEC. We urge you to consider these factors and remind you that we undertake no obligation to update this information contained in the call, reflecting subsequently events or circumstances and now I'd like to turn things over to Jean.

Thank you, Michael. Good morning, everyone. American Tower continued its track record of consistently delivering strong revenue, adjusted EBITDA, and free cash flow growth as our third quarter business performance indicates. Today, I will talk about our third quarter business results, our outlook for the remainder of 2008, our share repurchase and liquidity positions and our outlook for our business performance for 2009. Turning first to our third quarter results, our core tower division reported increased revenues of approximately $394 million, reflecting a 10% growth rate. Tower gross margin increased 9% to approximately $304 million from the third quarter in 2007. Please note that the third quarter gross comparables are impacted from a one-time pick up from a customer settlement in the third quarter of 2007. Excluding the effect of this item, the third quarter's gross comparables for revenue and gross margin would be approximately 11% and 12% respectively, as compared to Q3 2007.

Our level of organic new business continued to be strong, but annualized levels of signed new business of approximately $97 million during the third quarter. Signed new business for the third quarter was at comparable levels to the second quarter and was across all of our markets. Our total selling, general, administrative and development expense was $45 million, which includes $13 million of stock based compensation expense. Third quarter SG&A is down from the same period in 2007, principally due to reduced stock option review costs from the 2007 levels. Adjusted EBITDA increased approximately 12% to $278 million and our adjusted EBITDA margin was 68%.

Our operating income for the quarter increased approximately $56 million from the third quarter of 2007 to $154 million. Of the increase approximately $30 million was attributable to the change in our estimate of the useful lives of our Tower and related intangible assets that we instituted at the beginning of 2008. Our net income for the third quarter was approximately $60 million or $0.15 per basic and diluted common share. Our capital expenditures totaled $68 million during the quarter and we completed the construction of 223 new sites. New build activity have increased in the second half of 2008, consistent with our previous forecast. We continue to see increased activity and growing pipelines in all of our markets. We also added five new towers through acquisitions during the quarter. The average unlevered day one return of new sites that we acquired and filled in the quarter was over 11%. These towers have strong prospects for additional tenants, further increasing our future returns on invested capital.

We also had higher than historic levels of redevelopment CapEx during the quarter due to an incremental investment related to one of our International customers. We are nearing the completion of this agreement and anticipate redevelopment spending to return to normalized levels in 2009. Under our Land Management program, capital spending on land acquisitions totaled $11 million in the quarter, and we also spent approximately $600,000 to extend and prepay ground leases. Please note that the prepayment of ground leases even for the prepayment of 99 year leases is not treated as capital spending in our financials. It instead flows through as a reduction of cash provided by operating activities.

Our strong operating performance produced approximately $159 million of free cash flow for the quarter. We define free cash flow as cash provided by operating activities less all capital expenditures. I would like to point out that our free cash flow calculations include approximately $41 million of discretionary capital spending on new site construction and land acquisitions. The prepayment of long term ground leases as well as $17 million for the redevelopment of existing sites.

Regarding our outlook for the remainder of 2008, we anticipate continued strong new business performance within our business operations; however our reported revenues could be influenced by the recent volatility in foreign currency exchange rates. Since early September, foreign currency markets have experienced significant movements resulting in the strengthening of the US dollar versus the Mexican peso and Brazilian real by approximately 20% as compared to the average rates we experienced in the third quarter. Because of this, it should be noted that our outlook for 2008 reflects the following exchange rates: Approximately 12.85 Pesos per US Dollar and 2.11 Reals per US Dollar. Jim will talk more about the foreign currency effects on our reported revenue in his remarks.

The mid point of our full year 2008 outlook now anticipates tower revenues of $1.5475 billion, tower gross margins of $1.198 billion, and adjusted EBITDA of $1.0895 billion. We have increased the mid point on each of these metrics by approximately $2 million from our previous outlook. The changes to our 2008 outlook are primarily attributable to our strong performance in Q3 and continued strong performance expected in Q4. Our strong business performance is offset by the impact of the recent strengthening in the US dollar against the Peso and the Real. Based on an even stronger pipeline of new build opportunities than we had previously forecast, we are increasing our outlook for capital spending for the full year 2008. Our capital spending ranges from 230 to $250 million and includes the construction of approximately 650 new sites. Within the 650 new sites, we expect to complete construction of approximately 200 towers in India.

Regarding our share repurchase activity, during the third quarter we repurchased approximately 8.3 million shares for $332 million. As of October 24, 2008, we had repurchased approximately $484 million under our current $1.5 billion stock repurchase program that we announced in March 2008. The $484 million of share repurchases includes $30 million of share repurchases subsequent to the end of the third quarter. While we are committed to our stock repurchase program, we have adjusted the pacing of the program at different times. During the third quarter, we increased the share repurchases in order to accelerate our buyback rate; however starting in late September in response to the current uncertain financial market conditions, we decided to buy cash flow neutral levels to maintain greater financial flexibility. We expect that we may adjust the pacing of the buyback in the future in response to market conditions of other factors.

Our financial position remains very solid with the lowest leverage of our publicly traded peers by approximately half, supported by stable growing operations that generate substantial free cash flow. As of September 30, 2008, we had approximately $4.4 billion of long term debt and we ended the quarter with leverage equal to 3.9 times annualized adjusted EBITDA. During October, holders of approximately $125 million of convertible notes converted their debt into shares. Additionally, we drew down $50 million from our credit facility, factoring in the $125 million of convertible note conversions and the drawdown on our revolver, our pro forma net leverage ratio was approximately 3.8 times. Additionally, from a combination of cash on hand and availability under our revolving credit facility, we have over $600 million of available liquidity.

While we continue to believe the appropriate target leverage range for our business is four to six times net debt to adjusted EBITDA, due to the current credit market conditions, we expect our leverage will likely remain at or below the low end of our target range for the near term. We will continue to actively monitor the credit markets to identify the appropriate time to raise incremental capital; however due to our lack of near term maturities, and a substantial free cash flow and available liquidity we have the ability to remain patient, which is a valuable benefit given the current credit and capital market conditions.

As we look to 2009, we anticipate continued strong new business and revenue growth. We are forecasting similar levels of commenced new business when compared to 2008. Our 2009 commenced new business outlook does not include any activity related to a large scale WiMAX network deployment; however as mentioned earlier, our reported results could be influenced by foreign currency exchange rates. Compared to the mid point of our 2008 outlook, we expect incremental tower revenue in 2009 to increase by approximately 93 to $118 million, which includes the unfavorable impact of straight line revenue and foreign currency fluctuation; however, excluding the impact of straight line revenue and foreign currency, we expect tower revenues to increase approximately 9 to 10.5% from the mid point of 2008 outlook.

Our gross margin increase for 2009 ranges from 79 million to $99 million as compared to the mid point of our 2008 outlook. The increased gross margin represents the flow through of new revenue less the increase in direct expenses associated with new Tower sites and ground rent escalations. With respect to SG&A, our outlook for 2009 reflects cost increases related to the full year effect of the increased scale of our Brazil operations as well as the first full year of Operations for India. Also, as disclosed in our second quarter results, 2008's SG&A benefited from a one-time expense accrual reduction of approximately $3.1 million. Normalized for these items, we expect SG&A in 2009 to increase consistent with inflationary levels.

Our conversion ratio incremental Tower revenue to adjusted EBITDA for 2009 is expected to be in the mid 80s after excluding the impacts of straight line and the one-time benefit to SG&A in 2008 that I noted. A mid 80s conversion ratio for 2009 reflects our typically high conversion ratio of organic growth, offset by the naturally lower conversion ratio of growth from adding new assets which have associated expenses such as land rent, property taxes and utilities. Compared to the mid point of our 2008 outlook, we anticipate 2009 adjusted EBITDA to increase between approximately $72 million and $96 million, which includes the unfavorable impacts of straight line revenue and expense and foreign currency fluctuation; however, if you exclude the impact of straight line and currency, we expect adjusted EBITDA to increase approximately 9.5 to 12% from the mid point of 2008 outlook.

Our outlook for capital expenditures in 2009 reflects an increase in the number of new sites we expect to complete which ranges from 700 to 900 sites. In addition we expect redevelopment CapEx to normalize after spending higher than historic levels of redevelopment CapEx during 2008 in connection with an International customer agreement. In 2009, we expect to spend 25 to $30 million on land purchases, and $10 million on ground lease prepayments. In total we anticipate capital spending between 200 and $230 million for 2009. We expect free cash flow at the mid point to increase over 20% to $650 million in 2009. This reflects an increase in cash provided by Operations of over $85 million as well as a reduction in capital expenditures of $25 million from 2008.

In summary we experienced consistent strong growth in revenue, adjusted EBITDA and free cash flow in the third quarter and we anticipate continued strong revenue, adjusted EBITDA, and free cash flow growth over the remainder of 2008 and throughout 2009. Our financial position remains very solid with a relatively low levered balance sheet supported by stable, growing Operations that generate substantial free cash flow. We have approximately $600 million of liquidity and no material maturities until 2012. In the unlikely event that credit markets were to remain dislocated over the time period until these maturities occur in 2012, we believe that we would generate sufficient cash from Operations so that we would be able to use our internally generated cash flow to pay off the approximate $2 billion in 2012 maturities.

With that, I will turn things over to Jim.

Thanks Jean. Good morning, everyone. As you just heard Jean describe, American Tower's performance in the third quarter demonstrated continued strong growth in both revenue and profitability. Our Managers and team members across the organization once again delivered superior customer service and lease processing cycle times fueling another quarter of solid organic growth. In addition, our Tower development teams work closely with our customers to identify and execute new build opportunities. In the third quarter alone we've built nearly 100 towers in Brazil and completed our first 50 towers in India. In the third quarter our wireless customers and American Tower were running on all cylinders and we believe this pace of activity will continue in 2009. Our sales activity is robust, new lease and amendment applications are keeping our lease processing teams quite busy and our Operations teams are out in the field helping customers get installed and transmitting on our towers. Consequently we have raised the mid points of our full year 2008 guidance for tower revenue by $2.5 million and for adjusted EBITDA by $2 million in spite of unfavorable fluctuation in foreign currency exchange rates that occurred over the past month, and have negatively impacted our outlook for the remainder of this year.

We've also released our guidance for 2009. Our 2009 forecast is created by triangulating three key inputs. The first is a detailed bottoms up budgeting process that's performed by our sales force and general managers in each of our certain Markets: Mexico, Brazil, and India and our five US wireless regions plus our domestic broadcast and distributed antenna teams. I've recently had the opportunity to meet with a number of our front line sales account representatives, and was pleased to hear their confidence in our revenue growth prospects based on their territory, by territory, customer by customer analysis.

The second key input in our operational and General Managers perspectives from planning meetings and discussions with their Management counterparts at our customers regarding rollout schedules, the specific market priorities, and anticipated carrier budgets. Our third key input is the public statements and performance metrics of our customers, a couple of which I'll highlight in a few minutes. As a result of combining these three inputs, we have reassure firmed our expectations that our absolute dollars of core tower revenue growth in 2009 should be at or above the level anticipated for 2008.

The incremental cash revenue included in our 2009 guidance before the effects of currency fluctuations and straight line revenue recognition is anticipated to be over $140 million versus an expected increase of approximately $135 million in 2008 using the same methodology. In this morning's press release, we've broken out these three components for our 2008 and 2009 guidance to provide you with clear visibility to the actual growth performance of the business on a percentage basis, and how the estimated impact of foreign currency fluctuations and of non-cash straight line revenue and expense recognition are anticipated to affect our reported numbers.

Let's briefly walk through the 2009 guidance to insure we all have a common understanding. First, we anticipate core tower revenue growth of 9.6% year-over-year from the mid point of our 2008 guidance. For full year 2009, we're using exchange rate projections of 12 Mexican Pesos to the US Dollar and two Brazilian Reals to the US dollar, which are each about 5% more favorable than we've assumed exchange rates to be for the fourth quarter of 2008. Under these 2009 exchange rate assumptions, our core Tower revenue growth would be adversely impacted by approximately $17 million or 1.1 percentage points.

We also expect the adverse impact of non-cash straight line revenue recognition in 2009 to be approximately $22 million reduction to our revenue growth, or approximately 1.7 percentage points in 2009. So taking all three factors into account in our 2009 guidance results in the reported revenue growth of 6.8% that you see in our press release and which ties to the guidance range of $1.64 billion to $1.665 billion for 2009.

In using the same three factor methodology we show our expectations for adjusted EBITDA growth for 2008 and 2009. For 2009, we expect our core adjusted EBITDA growth to once again be in double digits at 10.6%, prior to the estimated impact of foreign currency fluctuations and non-cash straight line revenue and expense recognition. After taking these factors into account, the as reported guidance for adjusted EBITDA is 7.7% as reflected in the $1.161 billion to $1.185 billion range for 2009 that's shown in the press release.

In addition to providing full visibility to our core growth expectations and the anticipated effects of the foreign currency fluctuations and straight line accounting, we've also provided a sensitivity estimate in the event that currency exchange rates differ from our 2009 projection of 12 Pesos and two Reals to the dollar. Should exchange rates vary 10% from those rates used for our 2009 outlook, we would then expect the impact to be $17 million or approximately 1% of Tower revenue and $9 million or less than 1% of adjusted EBITDA. In other words, if these foreign currencies appreciate versus the dollar beyond our assumed exchange rates, the effects would be positive, and if these currencies do not appreciate to the levels assumed in our outlook or depreciate further versus the dollar, the effect would be negative to our outlook, so in sum, we view our exposure to foreign exchange rates to be measurable, relatively modest, and unlikely to impact the long term prospects of the Company.

Now, let's get back to the growth prospects of the core business. Our confidence and strong core revenue growth is based on a number of factors. First the wireless industry as a whole is still healthy and growing. For example, in the third quarter earnings calls, both AT&T and Verizon Communications reported their wireless units delivered substantial revenue growth and both noted the increasing importance of data revenues. AT&T experienced over 50% year-over-year growth in data revenues with an increasing portion coming from bandwidth-hungry internet access and related services. Third quarter iPhone sales numbered $2.4 million and AT&T stated that wireless CapEx was augmented in 2008 largely in support of widespread adoption of the 3G iPhone.

Similarly, Verizon reported a 42.5% increase in year-over-year data revenues and noted that the company's already running trials for LTE Technology. Additionally, Metro PCS prereleased third quarter subscriber adds that exceeded expectations suggesting a sustained interest among consumers for an unlimited voice plan option. These industry announcements support two critical beliefs that we have at American Tower which should help drive future growth revenue for our Company. First, is that wireless service has become a necessity rather than a luxury, so that even in difficult economic times, wireless subscribers and usage should continue to grow. Second, with the advent of such developments as the iPhone, Google's Android software initiative, Intel support of WiMAX chip technology and many others, that 3G has turned the corner in the US as a successful consumer product that will expand to very high penetration levels over the next few years.

Of course, we are at the moment in the midst of a constrained credit environment so how might this affect the wireless industry and our growth prospects? We believe that the great majority of our clients can either self-fund their upcoming Capital Expenditures or can turn to a well financed parent to do so. Thus we believe most of our new revenue will not require near term incremental financing by our customers. Moreover, our customers customers, which is the consumer, typically does not need financing to pay their monthly bill nor even to purchase handsets. Therefore, unlike buyers of automobiles, housing, or other big ticket items, the wireless industry's customer base should be able for the most part to continue to afford wireless service and in as race for data services continue to come down, more and more people should find 3G an affordable option as well. So at American Tower, we still believe we are in an industry environment that will support our growth, in spite of the turbulence and the broader economy and credit Markets. And among the publicly traded Tower companies we at American Tower believe that our Company is best positioned to weather this turbulence.

In developing the company's strategy over the past few years, we have consistently maintained a 5 to 10 year planning horizon. We've assumed that at some point in time, within that planning horizon, there might be the types of events that historically occurred within a typical business cycle; therefor, in the midst of today's economic uncertainty and dislocated Capital Markets we believe that we're far ahead of our peers in the tower industry in the ability to weather the current economic environment and deliver on our strategic goals. You should expect that we'll remain in tune to the environment and conditions around us, strive to sustain our strategic and financial flexibility, and maintain our patience and discipline when it comes to investment opportunities. To reconfirm, we're continuing to seek additional scale and diversification within our asset base, while holding firm to our committment to the Tower leasing business model. As reflected in our guidance, we expect to generate substantial cash from Operations in 2009, on the order of $865 million.

Our first priority for this cash is to invest in our existing market Operations through the construction of new towers, augmentation of existing towers to generate additional revenue, and installation of indoor and outdoor distributed antenna systems. Our capital expense guidance of $200 million to $230 million confirms our committment to these projects. Our next priority for use of our available free cash flow is to add assets in existing or new Markets through acquisitions or build to suit agreements we believe will meet our internal return targets. You can be assured especially in these current economic and credit environments that we will adhere to our disciplined approach to evaluating any potential investment. Our process remains the same. First, thoroughly evaluate the quality of the asset and the attractiveness and growth potential of that relevant customer base. Second, establish a purchase price range based upon this assessment which will approach the risk adjusted return we're seeking based on the asset and its geography, and third, take into consideration any synergies or strategic value resident in the opportunity. As has been our track record, even though we have the financial flexibility to act, we will not act until the criteria of our review processes are met. Finally, we've demonstrated a history of returning cash to shareholders when attractive CapEx and acquisition opportunities do not fully absorb our total investable capital.

We also have a tradition of maintaining our financial and strategic flexibility, and to avoid putting ourselves in a situation where our capital structure could become unduly restrictive if the economic or financial environments don't meet expectations. Over the past few years, normalized Capital Markets American Tower's target leverage range has been four to six times adjusted EBITDA. At this moment in time, we will not consider this to be a normal credit environment, therefore we intend to maintain leverage at or below the low end of our targeted range at least in the near term and sustain a strategy of prudently returning excess capital to shareholders by keeping our share repurchase program in place; however we will continue to monitor our available strategic opportunities and the overall economic and credit environment and adjust the rate of repurchase based on these factors.

Finally I'd like to close today's comments by reiterating what a great business we're in. One that can be quite successful even in the current environment. We've designed this Company not only to survive but to thrive in such times. I'm excited about the future of the Company, excited about our organic growth prospects and also hopeful about the possibility of some nice opportunities to prudently expand our asset base at entry prices that we find attractive.

And in a moment of humility, I'd like to congratulate the fans on the call of the Rays and the Phillies on making it to the World Series and to the Phillies for coming out on top. But watch out for the Red Sox next year. Thanks for joining the call today, everybody and now Jean and I would be happy to answer your questions. So you can go ahead, Carmen.

(OPERATOR INSTRUCTIONS). Our first question comes from the line of Jason Armstrong with Goldman Sachs.

Great. Thanks good morning. I'll keep it to two parts per Michael's request. Maybe first you talk about balance sheet positioning and wanting to be below the low end of the historical range at least for the near future, maybe just take the other side. Why wouldn't you come out and be a little bit more aggressive at this point? This seems to be what the Company has been positioning for for a long time, conservative balance sheet, take advantage of opportunities when potentially credit markets dislocate and maybe get devaluation of some other assets so maybe step us through the logic there and second quick question, just on the revenue guidance, as you think about '09, you sort of went into really good detail around the granularity behind those forecasts and how you sort of do the bottoms up approach. Could you just help us think about the phase in through '09? Is this something that should be lumpy in the first half of the year given the visibility you have or is this something the type of revenue uptick you're thinking about is a smooth uptick throughout the year? Thanks.

Sure, Jason. I think you said the keyword in your first part of your question, which was asset availability, and the prices there of. In difficult times we might have the good fortune of seeing assets move into our price range versus the quality that we see in them, and when and if that happens, we want to be able to act. No one really knows how long the credit markets are going to be in their sort of dislocated position as far as access to capital and so we want to make sure we've got the capability in this current time to make sure that we've got an ability to go after those assets if they come available, and we will as I said in very specifically in the call, we're going to monitor the access to credit that's out there, the pricing of assets and strategic opportunities that we have been cultivating, and we're going to do the same thing we've always done which is keep our options open and if repurchasing shares is the best activity at that point, given point in time we'll do that too. Second part of your question which was the '09 forecast, we think it will be very level spread, I should say, through the course of the four quarters of 2009. This year was pretty level spread as well so I think we'll see that continue into 2009.

Okay, great. Thanks.

You bet.

Your next question comes from the line of Jonathan Atkin with RBC Capital Markets.

Yeah, wondered if you could give us a little bit of an operational update on International first on India and the expansion there, I'm assuming that's going to continue to be relatively incremental. Would that possibly involve a carrier transaction or is that restricted for the time being to new tower construction, and then with respect to Latin America, if you could just kind of recap us on, refresh us on what the drivers are there.

Sure, Jonathan. With regards to India, we've chosen a build to suit entry strategy, simply because the process I outlined to you earlier when we looked at carrier assets and/or third party tower companies over the last year or year and a half I'd say, the quality in the growth prospects were good, but the price expectations were as you can imagine a lot higher than we would have calculated on our own and we didn't act in that way. This is a situation where in this market, we may see prices moderate, if we do you'll see us act whether it's a third party tower acquisition or some sort of carrier opportunity, but I think you're going to see us maintain the prudence and the patience that we've already demonstrated in this market and others, so overall, I just think we're in a great position to be the preferred acquirer of assets at the right prices. We're in a great position if those don't come around to buy our shares back with the really strong balance sheet, so I'm looking forward to all these options playing out.

Latin America is another great place for us right now. Mexico and Brazil performed well for us in '08. We think they will do well in '09. Brazil in particular has some very nice growth opportunities with some spectrum being put into use in 2009, a couple of new entrants in the Sao Paolo region which is a place we're very strong, so we've begun investing in build to suit at a higher rate this year and we think we'll do more next year too. So those are the key factors in Latin America, continuing good performance in Mexico and some nice asset expansion opportunities through the build to suit in Brazil.

In your /09 outlook, just a quick follow-up, you talked about WiMAX not being part of the forecast right now, and what about the 700 megahertz because there is one Operator that looks like they are getting ready to buildout. Is that something that's included in your forecast?

If you're referring to Cox Communications, they are in a modest way. It will be helpful. It won't be a material boost if you will to '09 but we're very pleased to see them in the wireless space and looking forward to working for them for 50 years to deploy that network.

Thank you.

Yes.

Your next question comes from the line of David Barden with BOA.

Thanks, guys, for taking the question. Thanks, Jim. I guess my two questions would be number one, could you just revisit for us specifically the ForEx exposure that you have in Brazil/Mexico as distinct from the foreign exposure? So, how do the actual revenues expose to the currency? I know there's some natural hedging that goes on in the Peso de nominated Markets, for instance where some things come in in dollars and then the second question would be Jim, you mentioned access to capital being restricted obviously there's higher levered tower companies out there than you guys. Are you saying that regardless of where you are in the leverage cycle that the access to capital is restricted and if not, kind of could you frame out what you think your cost of capital in the current market is? Thank you very much.

Sure, on the foreign exchange, David, excellent point you're making there, that we do have some offsetting local currency expenses in our foreign markets but let me just step back first and put this whole thing into context which is 85% of our revenues come through the US and US dollars, so that's the first place to start and about 15% is in foreign markets via foreign currency. If you then take it step by step Mexico, there's about 10% of American Tower revenue, half of that revenue is in US dollar de nominated contracts, so right off the bat, five percentage points of those 10 percentage points are denominated in dollars. We also have a TDS contract that doesn't show up in revenue but shows up in about $15 million a year of EBITDA. That's dollar denominated also.

And then you turn to the expense side in Mexico and almost all of the expenses there are Peso denominated so when you get down to the EBITDA line only about a third of the EBITDA out of Mexico for the US dollar, non-US dollar de nominated currency, you're only exposing about a third of the EBITDA to currency fluctuations out of Mexico. Brazil, similar story with the exception that all revenue there by local regulation is de nominated in Reals but we've got a percent or two of the 5% of total revenue that gets recycled if you will through local cost so you've got four percentage points of revenue that is actually exposed to on a net basis exposed to currency fluctuations so that's when you run all that math through, a 10% change in those two foreign currencies only impacts revenues at American Tower by about 1%, and on EBITDA by less than 1% and it's because of the couple of the factors that you suggested there, David.

Okay.

On the leverage side, Capital Markets are dislocated for all companies, all grades, on the rating system scales. That's not to say you can't get it. It's to say you can't go as far down into leverage as you used to be able to do and you're going to be paying a lot higher cost in any Capital Market segment today than you did six months ago, and so we're taking that access and cost into consideration when we look at acquisitions, whether we decide to buy shares back or not and our first priority is our CapEx in our core markets and getting great acquisitions in our new build to suit contracts and new markets so and we've never backed ourselves into a corner on the balance sheet when we thought opportunities were available in the asset side. So everybody has got to be cognizant and we are certainly cognizant of the capital market situation and we're not going to paint ourselves into a corner.

Jim if I could just quick follow-up, are you getting a sense that in any market are people making a distinction for tower assets or tower cash flow streams or is it kind of towers have been baby in the bath water with all of the other assets in the market?

It's hard to tell. We're looking at context in that we have access to credit. It's more expensive. We look at it more as our company's attributes versus the sector attributes. Part of our company's attributes are long term contracts, stable revenue, escalator, very low churn, all those things. There's a number of other attributes of American Tower like revenue diversification, like the Capital Markets position, whereas far as our balance sheet that actually set us apart from the sector so I would look at American Tower uniquely within the greater sphere of the capital markets.

Thanks guys.

Yes.

Your next question comes from the line of Brett Feldman with Barclays Capital.

Thanks for taking the question and also thanks for all of the color in the press release about the exposure to foreign currency and some of the non-cash adjustments. I think that's very helpful. As we think about your outlook for next year I was hoping you could maybe just walk us through just how sensitive that outlook could be to things that happen in the industry and I know you gave a lot of detail in the discussion but you mention how there's no WiMAX in there. How significant would it be if you actually were to capture a share of a big WiMAX buildout and on the other end of it, what would happen to your outlook if a big customer decides to pull back on spending just to be cautious because of the economy? I guess what I'm really getting at is how big of a magnitude and leasing activity would you have to see for your range to either move up or down?

Sure, Brett. The sensitivity to WiMAX or any other customer change is in the context of the sort of $140 million of incremental revenue that I've talked about right? So if you use that as your starting point and then look at each case, so WiMAX deployment in '09, we're not going to count it until we see search rings, till we start scrubbing sites and getting applications on those sites and we're very hopeful that that will be in December or sometimes in the first quarter but it won't happen until the deal closes and the funding hits the bank for Clear Wire. Again we're hopeful that happens and we've been pre planning with some of the local teams and markets to anticipate that. But again, it will depend on how many search rings, what's the geography, when do the commencements hit and I think if that project does launch it will be more of a second half '09 revenue impact and it probably won't be as large as it would have been if the applications were in our hands today, and they were going to commence early in the first part of the year.

On the other hand, big customers have large deployment programs going on. We've got those search rings, we have those applications, they're in process. I think as most people on this call know, most of the large carrier network programs are multi-year. They are essential to their competitiveness and therefore, we think it's fairly unlikely that they get disrupted in a significant way. But even again if they do, let's take $140 million of incremental revenue Reza was about, would 5 to 10 million of that be at risk with the big carriers pull back dramatically? But we think the bulk of our incremental revenue will be there, a lot of it, almost a third of it is in escalators which are contractual and we've got a big diversification across our customer base so if one was to pull back I think we could absorb it within the guidance. Okay, that was really helpful.

One of your peers had said when they gave their outlook, almost any business that they would get in the second half of next year would probably have a very immaterial contribution. Does your outlook factor that in the same way?

Well we didn't factor in anything for a substantial WiMAX deployment in our guidance, Brett, so far.

I think I'll say in general in terms of thinking about how sensitive your outlook is to what happens during 2009 is it safe to say the amount of business you would generate, new business you'd generate in the second half of the year is relatively immaterial to the outlook anyhow?

I think that's a fair statement. It's going to matter especially depending on the magnitude but the later the applications roll in, or the fastest cycle times in the industry that's still 60 to 90 days to get somebody commencing revenue up and running on the tower so something shows up on July 1, it's going to be the fourth quarter or usually before it commences revenue.

Okay, and then could you clarify something that you said during the comments, you said the share repurchases during the quarter I think maybe during this quarter so far had been cash flow neutral? What does that mean? Does it mean the share repurchases were roughly at the level of cash flow you were generating after reinvestment?

That's correct and after CapEx we're generating about $50 million a month of free cash flow, Brett, and I think for the first three or four weeks of three and a half weeks of October, we showed in our press release we bought about $30 million worth back so we were a little bit under for those first three and a half weeks, our free cash flow generation, meaning we don't have to go to capital markets at all, to buyback at that particular rate, should we decide to maintain it.

But since you guys are skewing a bit conservative right now in the management of your balance sheet, should we be thinking sort of the maximum level of buybacks you might be willing to do until we saw improvement in the capital market environment?

Not necessarily, Brett. We'll look at all of the factors on the radar screen and we'll move the share repurchase up and down accordingly, so I really wouldn't make any sort of black and white assumption on what we're going to do. It's all going to depend on strategic opportunities, access to capital and that really nice free cash flow that comes through each and every month as to how we're going to deploy that.

Okay, great. Thanks for taking the questions.

You bet.

Your next question comes from the line of Michael Rollins with Citi Investment.

Hi. Good morning. I think you mentioned, Jim, earlier in the call, that the annualized new business that was signed in the quarter was about $97 million. And I was wondering if you could describe, does that include both new builds and lease amendments and what split was there, and how we should think about the split between new site co-location and lease amendments heading into 2009, thanks.

Sure. The incremental revenue signing rate does not include new builds. It's co-location plus amendments, and the split this time was 71% new, 29% amendments, and I think going into next year it will probably look a little bit more like75/25 Michael.

Great. Thank you very much.

You bet.

Your next question comes from the line of Simon Flannery with Morgan Stanley.

Okay, thanks very much. You talked a little bit about distributed antenna systems as being an area of focus for you, perhaps you could expand on that and also if you're seeing anything material in wireless backhaul in your forecast for '09. Thanks.

Sure, Simon. DAS, as we said on our previous earnings call last quarter we see as a niche business. It's definitely a nice thing to have that round out our complete service offering to our customers for sites and we're the only Company we feel that can deliver the whole package which is tower leasing, tower construction, rooftop management, we're the leader in indoor distributed systems and now we're able to deliver outdoor systems as well so it's a nice compliment to the total package. It's in our view probably always going to be relatively small. As I said we're the leader in indoor and it's about 2% of our revenue and DAS we hope to grow outdoor to another two, maybe all in, a couple years down the road could it be 5or 6% of revenue, that would be terrific but that's probably the extent of it.

Backhaul is showing up in a couple of ways. Increases over time in the microwaves that we have on our sites. That's been a consistent trend over the last couple of years for both redundancy and cost management by the carriers versus the local exchange carrier in the US. Again, it's a couple percent of revenue. It probably won't grow much more than that, single digits I'd say where backhaul will stay for us and there is some fiber being drawn to some of our towers and our operations folks want to ask them in the US it was about 15% of the towers on balance are getting fiber now.

Okay, great. Thank you.

All right?

Your next question comes from the line of Michael Bowen with Piper Jaffrey.

Okay, thanks very much. A couple quick questions. In India, I think you said you had rolled out the first 52 towers, was wondering if you could maybe give us an idea of how we should think about the pace of that buildout and also if you could just review for us what you're finding troublesome or not in that market and then secondly we picked up some information at a conference a few weeks ago talking about issues going forward possibly with some of the WiMAX equipment and ClearWire equipment being very very heavy on some of the longstanding towers and that this might or may require in the future retrofitting and things like that so if you could maybe address that and let us know if you're looking at that or if you have seen any of that, that would be great. Thank you.

Sure. On the India front, we've successfully built 50 towers in the third quarter. We're actually at our hundredth tower about last week, which is a very nice pace. We're going to finish we believe our 200 tower committment by the end of the year, so you look at 50 to 75 towers a month is the run rate right now that we're building under, and we think we can continue that under some additional contracts that we've secured for 2009. The opportunity is huge there, challenges are similar to Mexico or Brazil, we got started there, we're obviously overcoming and succeeding in light of those, and we have a very solid management team and some good support with vendors in that country so I'm very confident we'll be able to continue to build good towers at the cost levels that we expected. With regard to WiMAX equipment, there often are augmentations to the tower every fourth or fifth tower, no matter what kind of application equipment you're putting on it, may require on average an augmentation. We can do that. We think we've actually got the best structural engineering and design team and if not the country the world to do those things so we don't see it as an impediment and we welcome WiMAX equipment on to the towers.

Thank you.

Sure.

Your final question comes from the line of Ric Prentiss with Raymond James.

Hi, good morning guys. A couple questions for you. First on your '09 guidance, on the official adjusted EBITDA line of 1161-1185, just to confirm again, does that include or exclude the non-cash revenue and expense item?

It includes everything that's going to be in the GAAP reporting, Ric, so straight line is in there, expected changes in currency as we've assumed are in there, and if you go to the press release, you can really see the break out, we think pretty clearly which as we start with business in local currency without straight line and what's the growth year to year on that, and then we correct, if you will, for the GAAP effects of currency fluctuations between them, and then we correct for the straight line effects and that bottom line number you see on a percentage basis is what's in those numbers above.

Okay but the actual 1161 to 1185 on adjusted EBITDA, would it be higher or lower if non-cash was not being done?

It would be higher.

Okay. And then I think when we looked in the past at some point the non-cash revenue, non-cash expense kind of turns colors from being a negative impact to being a positive impact. Is that still off in the wings maybe in '10?

No. It's unfortunately, the other way around if you're an accountant, so we are now in diminishing benefit from straight line accounting as the years go forward. It hasn't crossed the negative line if you will meaning the cash revenue is actually higher than the GAAP revenue. That's not true but the cash revenue benefit is lower in '09 than it was in '08, lower in 08 than it was in '07.

And then where do you feel comfortable holding your cash balances on the balance sheet?

Our history has been 75-$100 million of non-restricted cash available to the Company.

Okay, thanks guys.

You bet.

At this time I'd like to turn the call back over to Management.

The last thing I'd say, this is Jim speaking. First of all to the investor base, thank you very much for being on the call. We appreciate your continued confidence in the Company, and I think and hope that you're seeing from our last few calls that we're trying to do what we think great companies should be doing which is setting a long term strategy, making sure we have the flexibility to execute that, as capital markets are the economic environment, adjust over time to the business cycle, and you're not going to see us do dramatic changes in our strategy. You're going to see us execute on the strategy that we've had for the last few years and we're going to be very aware of the external environment as we do that, so that's the one thing I would I guess end the call with is that we're still on message. We're still on our strategy, and we're going to use the same approaches and discipline now that we've always used in executing that and we're glad you guys are with us. You can close the call, Operator.

Thank you. Thank you for participating in today's conference call. You may now disconnect.