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FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One):

x		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2003.

¨		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission File Number: 001-14195

American Tower Corporation

(Exact name of registrant as specified in its charter)

Delaware

65-0723837

(State or other jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

116 Huntington Avenue

Boston, Massachusetts 02116

(Address of principal executive offices)

Telephone Number (617) 375-7500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): Yes x No ¨

Class of Common Stock		Outstanding at August 8, 2003
Class A Common Stock		209,211,350
Class B Common Stock		7,426,282
Class C Common Stock		2,267,813

Total		218,905,445

AMERICAN TOWER CORPORATION

INDEX

		Page No.

	PART I. FINANCIAL INFORMATION

Item 1.	Unaudited Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002	1

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002	2

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002	3

	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49

Item 4.	Controls and Procedures	50

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	51

Item 2.	Changes in Securities and Use of Proceeds	51

Item 4.	Submission of Matters to a Vote of Security Holders	51

Item 6.	Exhibits and Reports on Form 8-K	52

Signatures		53

PART 1. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS—Unaudited

(In Thousands, Except Share Data)

	June 30, 2003			December 31, 2002
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	107,597		$	127,292
Restricted cash and investments		192,885
Accounts receivable, net of allowance for doubtful accounts of $16,667 and $17,395, respectively		57,904			68,421
Prepaid and other current assets		42,154			49,417
Costs and earnings in excess of billings on uncompleted contracts and unbilled receivables		18,036			23,169
Deferred income taxes		13,047			13,111
Assets held for sale		153,521			303,702

Total current assets		585,144			585,112

PROPERTY AND EQUIPMENT, net		2,634,575			2,696,985
OTHER INTANGIBLE ASSETS, net		1,096,229			1,141,996
GOODWILL, net		592,683			592,683
DEFERRED INCOME TAXES		411,920			383,431
DEPOSITS, INVESTMENTS AND OTHER LONG-TERM ASSETS		146,452			152,582
NOTES RECEIVABLE		109,249			109,414

TOTAL	$	5,576,252		$	5,662,203


LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	92,422		$	113,832
Accrued interest		59,479			63,611
Convertible notes, net—2.25%		140,123			210,899
Current portion of long-term obligations		94,123			58,982
Billings in excess of costs on uncompleted contracts and unearned revenue		36,663			38,739
Liabilities held for sale		138,508			200,215

Total current liabilities		561,318			686,278

LONG-TERM OBLIGATIONS		3,282,589			3,178,656
OTHER LONG-TERM LIABILITIES		29,822			41,379

Total liabilities		3,873,729			3,906,313

COMMITMENTS AND CONTINGENCIES

MINORITY INTEREST IN SUBSIDIARIES		16,717			15,567

STOCKHOLDERS’ EQUITY:
Preferred Stock: $.01 par value; 20,000,000 shares authorized; no shares issued or outstanding
Class A Common Stock: $.01 par value; 500,000,000 shares authorized; 194,744,050 and 185,643,625 shares issued, 194,598,829 and 185,499,028 shares outstanding, respectively		1,947			1,856
Class B Common Stock: $.01 par value; 50,000,000 shares authorized; 7,699,070 and 7,917,070 shares issued and outstanding, respectively		77			79
Class C Common Stock: $.01 par value; 10,000,000 shares authorized; 2,267,813 shares issued and outstanding		23			23
Additional paid-in capital		3,782,193			3,642,019
Accumulated deficit		(2,086,368	)		(1,887,030	)
Accumulated other comprehensive loss		(980	)		(5,564	)
Note receivable		(6,720	)		(6,720	)
Treasury stock (145,221 and 144,597 shares at cost)		(4,366	)		(4,340	)

Total stockholders’ equity		1,685,806			1,740,323

TOTAL	$	5,576,252		$	5,662,203

See notes to condensed consolidated financial statements

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS—Unaudited

(In Thousands, Except Per Share Data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
REVENUES:
Rental and management	$	151,916		$	132,017		$	298,378		$	258,618
Network development services		26,306			33,820			44,769			70,805

Total operating revenues		178,222			165,837			343,147			329,423

OPERATING EXPENSES:
Rental and management		54,205			57,062			108,901			114,013
Network development services		24,421			28,921			42,542			62,337
Depreciation and amortization		80,770			79,804			161,150			154,439
Corporate general and administrative expense		5,962			6,474			11,997			13,303
Restructuring expense					2,952						5,774
Development expense		1,003			1,027			1,616			3,467
Impairments and net loss on sale of long-lived assets		8,036			5,017			11,732			1,311

Total operating expenses		174,397			181,257			337,938			354,644

OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS		3,825			(15,420	)		5,209			(25,221	)

OTHER INCOME (EXPENSE):
Interest income, TV Azteca, net of interest expense of $371, $373, $747 and $746, respectively		3,528			3,471			7,030			6,900
Interest income		1,930			774			2,856			1,811
Interest expense		(71,201	)		(65,537	)		(142,943	)		(129,307	)
Loss on investments and other expense		(402	)		(17,808	)		(25,599	)		(19,355	)
Loss from write-off of deferred financing fees and extinguishment of debt								(5,841	)		(8,869	)
Note conversion expense		(35,832	)					(38,482	)
Minority interest in net earnings of subsidiaries		(793	)		(491	)		(1,363	)		(734	)

Total other expense		(102,770	)		(79,591	)		(204,342	)		(149,554	)

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(98,945	)		(95,011	)		(199,133	)		(174,775	)
INCOME TAX BENEFIT		17,985			27,312			37,493			50,027

LOSS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(80,960	)		(67,699	)		(161,640	)		(124,748	)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT OF $958, $17,848, $3,572 AND $25,721, RESPECTIVELY		(26,755	)		(33,469	)		(37,698	)		(48,192	)

LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(107,715	)		(101,168	)		(199,338	)		(172,940	)

CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAX BENEFIT OF $14,438											(562,618	)

NET LOSS	$	(107,715	)	$	(101,168	)	$	(199,338	)	$	(735,558	)

BASIC AND DILUTED LOSS PER COMMON SHARE AMOUNTS:
Loss from continuing operations before cumulative effect of change in accounting principle	$	(0.40	)	$	(0.35	)	$	(0.81	)	$	(0.64	)
Loss from discontinued operations		(0.13	)		(0.17	)		(0.19	)		(0.25	)
Cumulative effect of change in accounting principle											(2.88	)

NET LOSS PER COMMON SHARE	$	(0.53	)	$	(0.52	)	$	(1.00	)	$	(3.77	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING		202,913			195,361			199,328			195,322

See notes to condensed consolidated financial statements.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW—Unaudited

(In Thousands)

	Six Months Ended June 30,
	2003			2002
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net loss	$	(199,338	)	$	(735,558	)
Cumulative effect of change in accounting principle, net					562,618
Other non-cash items reflected in statements of operations		265,104			187,771
Decrease in assets		7,558			27,467
Decrease in liabilities		(22,737	)		(9,826	)

Cash provided by operating activities		50,587			32,472

CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Payments for purchase of property and equipment and construction activities		(32,691	)		(131,265	)
Payments for acquisitions		(41,096	)		(21,651	)
Proceeds from sales of businesses and other long-term assets		77,317			20,029
Deposits, investments and other long-term assets		635			(10,735	)

Cash provided by (used for) investing activities		4,165			(143,622	)

CASH FLOWS (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Borrowings under credit facilities					160,000
Proceeds from 12.25% senior subordinated notes offering		419,884
Repayment of notes payable, credit facilities and capital leases		(281,799	)		(102,848	)
Restricted cash and investments		(192,885	)		46,601
Deferred financing costs and other		(19,647	)		910

Cash (used for) provided by financing activities		(74,447	)		104,663

NET DECREASE IN CASH AND CASH EQUIVALENTS		(19,695	)		(6,487	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		127,292			35,958

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	107,597		$	29,471

CASH PAID FOR INCOME TAXES	$	1,158		$	425

CASH PAID FOR INTEREST	$	118,267		$	126,118

NON-CASH TRANSACTIONS:
Change in fair value of cash flow hedges (net of tax)	$	4,584		$	4,117
2.25% note conversions (excluding note conversion expense)		47,647
Notes receivable converted to investment					9,300
Capital leases					435

See notes to condensed consolidated financial statements

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited

1. Basis of Presentation and Accounting Policies

The accompanying condensed consolidated financial statements have been prepared by American Tower Corporation (the Company) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). The financial information included herein is unaudited; however, the Company believes such information and the disclosures are adequate to make the information presented not misleading and reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of financial position and results of operations for such periods. Results of interim periods may not be indicative of results for the full year. These condensed consolidated financial statements and related notes should be read in conjunction with the Company’s 2002 Annual Report on Form 10-K and Current Report on Form 8-K dated July 28, 2003, which conforms the presentation of information in the Company’s 2002 Form 10-K with the presentation reported in its March 31, 2003 Form 10-Q, reflecting an office building in Westwood, Massachusetts as a discontinued operation.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates, and such differences could be material to the accompanying condensed consolidated financial statements.

Restricted Cash and Investments—As of June 30, 2003, restricted cash and investments represented amounts required to be held in escrow to pay, repurchase, redeem or retire any of the Company’s 2.25% convertible notes. To the extent that the balance is not used or required to repurchase any of the 2.25% convertible notes, the Company may use such balance through June 30, 2004 to repurchase any of its indebtedness. Thereafter, such funds must be applied to prepay borrowings under the credit facilities (see notes 5 and 13).

Investments—During the six months ended June 30, 2003, the Company recorded a loss of approximately $19.3 million related to an investment accounted for under the equity method. The charge was a result of the investee changing its business strategy which led to the impairment of certain investee long-lived assets. The loss is included in loss on investments and other expense in the condensed consolidated statement of operations for the six months ended June 30, 2003.

Inventories—Inventories, which consist entirely of finished goods, are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) basis. As of June 30, 2003 and December 31, 2002, inventories were approximately $5.4 million and $4.9 million, respectively, and are included in prepaid and other current assets in the accompanying condensed consolidated balance sheets.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

Stock-Based Compensation—In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of SFAS No. 123,” which provides optional transition guidance for those companies electing to voluntarily adopt the accounting provisions of SFAS No. 123. The following table illustrates the effect on net loss and net loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model (in thousands, except per share amounts):

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Net loss as reported	$	(107,715	)	$	(101,168	)	$	(199,338	)	$	(735,558	)
Less: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect		(6,435	)		(10,945	)		(13,735	)		(20,942	)

Pro-forma net loss	$	(114,150	)	$	(112,113	)	$	(213,073	)	$	(756,500	)

Basic and diluted net loss per share as reported	$	(0.53	)	$	(0.52	)	$	(1.00	)	$	(3.77	)
Basic and diluted net loss per share pro-forma	$	(0.56	)	$	(0.57	)	$	(1.07	)	$	(3.87	)

Loss Per Common Share—Basic and diluted loss per common share has been computed by dividing the Company’s loss by the weighted average common shares outstanding during the period. For the three and six months ended June 30, 2003 and 2002, potential common shares, including options, warrants and shares issuable upon conversion of the Company’s convertible notes, have been excluded from the computation of diluted loss per common share, as their effect is anti-dilutive. Potential common shares excluded from the calculation of loss per share were approximately 57.8 million and 46.1 million as of June 30, 2003 and 2002, respectively.

Recent Accounting Pronouncements—In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This statement establishes accounting standards for the recognition and measurement of liabilities associated with the retirement of tangible long-lived assets and the related asset retirement costs. The requirements of SFAS No. 143 are effective for the Company as of January 1, 2003. The adoption of this statement did not have a material impact on the Company’s consolidated financial position or results of operations. Accordingly, the Company has reflected the cumulative effect of adopting this statement of $1.3 million in loss on investments and other expense in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2003.

In April 2002, the FASB issued SFAS No. 145 “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” The Company adopted the provisions of SFAS No. 145 on January 1, 2003. Accordingly, for the six months ended June 30, 2002, the Company reclassified a loss from extinguishment of debt originally recorded as an extraordinary item of $1.7 million to loss from write-off of deferred financing fees and extinguishment of debt in the accompanying condensed consolidated statement of operations.

In July 2002, the FASB issued SFAS No. 146 “Accounting For Costs Associated with Exit or Disposal Activities.” This statement requires costs associated with exit or disposal activities to be recognized when they are incurred rather than at the date of a commitment to an exit or disposal plan. The requirements of SFAS No. 146 are effective for exit or disposal activities initiated after January 1, 2003. The Company will apply the provisions of this statement to any future exit or disposal activities.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

In January 2003, the FASB issued Interpretation No. 46, “Consolidation for Variable Interest Entities, an Interpretation of ARB No. 51” (FIN 46) which requires all variable interest entities (VIEs) to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interest in the VIE. In addition, the interpretation expands the disclosure requirements for both variable interest entities that are consolidated as well as VIEs from which the entity is the holder of a significant amount of beneficial interests, but not the majority. FIN 46 is effective for all new VIEs created or acquired after January 31, 2003, of which there were none. For VIEs created or acquired prior to February 1, 2003, of which there were none, the provisions of FIN 46 must be applied for the first interim or annual period beginning after June 15, 2003. The Company will apply the provisions of this statement in the third quarter of 2003 and the adoption will not be material to its consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.” The statement requires issuers to classify certain financial instruments as liabilities, many of which were previously classified as equity. This statement does not, however, affect the classification of convertible bonds, puttable stock or other outstanding shares that are conditionally redeemable; nor does it change the accounting treatment of conversion features, conditional redemption features, or other features embedded in financial instruments that are not derivatives in their entirety. The requirements of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003, of which there were none, and otherwise effective for the Company for the first interim period beginning after June 15, 2003. The Company will apply the provisions of this statement in the third quarter of 2003 and does not expect it to be material to its consolidated financial position or results of operations.

Reclassifications—Certain reclassifications have been made to the 2002 condensed consolidated financial statements and related notes to conform to the 2003 presentation.

2. Income Taxes

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate for the full fiscal year. Cumulative adjustments to the Company’s estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.

3. Discontinued Operations

During the six months ended June 30, 2003 and the year ended December 31, 2002, in connection with the Company’s plan to focus on its core tower business, the Company sold or committed to sell several non-core businesses. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company classified the operating results of these businesses as discontinued operations in the accompanying condensed consolidated statements of operations. In addition, the assets and liabilities of the discontinued operations not disposed of as of June 30, 2003 and December 31, 2002 have been reflected as assets held for sale and liabilities held for sale in the accompanying condensed consolidated balance sheets. The effect of suspending depreciation and amortization for the long-lived assets held for sale was not material for the three and six months ended June 30, 2003.

The following businesses have been reflected as discontinued operations in the accompanying statements of operations for the three and six months ended June 30, 2003:

Consummated Transactions— In May 2003, the Company consummated the sale of an office building in Westwood, Massachusetts (previously held primarily as rental property and reported in its rental and management segment) for a purchase price of approximately $18.5 million, including $2.4 million of cash proceeds and the buyer’s assumption of $16.1 million of related mortgage notes. Pursuant to this transaction, the Company has recorded a net loss on disposal of approximately $4.0 million for the six months ended June 30, 2003.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

In March 2003, the Company consummated the sale of an office building in Schaumburg, Illinois (previously held primarily as rental property and reported in its rental and management segment) for net proceeds of approximately $10.3 million in cash and has recognized a net loss on disposal of $0.1 million for the six months ended June 30, 2003.

In February 2003, the Company consummated the sale of Maritime Telecommunications Network (MTN), a subsidiary of Verestar, for net proceeds of approximately $25.5 million in cash. The Company did not recognize a gain or loss on its sale of MTN.

In January 2003, the Company consummated the sale of Flash Technologies, Inc., its remaining components business (previously included in the network development services segment) for approximately $35.5 million in cash and has recognized a net gain on disposal of approximately $0.5 million for the six months ended June 30, 2003.

Pending Transactions—In June 2003, the Company committed to sell its steel fabrication and tall tower construction service subsidiary (previously included in its network development services segment), Kline Iron & Steel Co., Inc. (Kline) by June 30, 2004. Accordingly, the results of operations related to Kline are included in loss from discontinued operations, net, in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2003 and 2002. Additionally, in the second quarter of 2003, the Company recognized a non-cash charge of approximately $12.9 million related to the impairment of Kline’s net assets to reduce their carrying value to the estimated proceeds expected upon disposal. This charge is reflected in loss from discontinued operations, net, in the acccompanying condensed consolidated statements of operations for the three and six months ended June 30, 2003.

In December 2002, the Company committed to a plan to sell Verestar by December 31, 2003. In the second quarter of 2003, the Company recognized a non-cash charge of approximately $12.0 million related to an additional impairment of Verestar’s remaining net assets to reduce their carrying value to zero, as the estimated proceeds expected upon disposal of the remaining net assets will be minimal. This charge is reflected in loss from discontinued operations, net, in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2003.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

Summary results of the discontinued operations are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002⁽¹⁾			2003			2002⁽¹⁾
Revenue	$	48,661		$	110,851		$	107,016		$	217,612

Loss from discontinued operations		(2,233	)		(26,819	)		(9,588	)		(49,415	)
Income tax benefit on loss from discontinued operations		91			9,260			554			17,133
Loss on disposal of discontinued operations, net of tax benefit of $867, $8,588, $3,018 and $8,588, respectively		(24,613	)		(15,910	)		(28,664	)		(15,910	)

Loss from discontinued operations, net	$	(26,755	)	$	(33,469	)	$	(37,698	)	$	(48,192	)

(1)

In addition to the businesses described above, the summary results shown above reflect the building where the Company maintained its corporate headquarters in Boston, Massachusetts, which was sold in December 2002 and MTS Components, which was sold in July 2002, as discontinued operations for the three and six months ended June 30, 2002. The net loss on disposal of discontinued operations for the three and six months ended June 30, 2002 represents the estimated loss on the disposal of MTS Components.

The Company had assets held for sale and liabilities held for sale comprised of the following (in thousands):

	June 30, 2003		December 31, 2002
Accounts receivable, net	$	26,901	$	36,537
Prepaids and other current assets		14,233		18,853
Property and equipment, net		103,555		216,685
Other long-term assets		8,832		31,627

Assets held for sale	$	153,521	$	303,702


Capital lease obligations	$	54,149	$	116,901
Accounts payable, accrued expenses and other current liabilities		45,900		58,866
Notes payable				16,142
Other long-term liabilities		38,459		8,306

Liabilities held for sale	$	138,508	$	200,215

4. Goodwill and Other Intangible Assets

As of January 1, 2002, the Company adopted the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but reviewed for impairment at least annually. Intangible assets that are deemed to have a definite life will continue to be amortized over their useful lives. SFAS No. 142 also required that, as of January 1, 2002, the Company assess whether its goodwill was impaired by performing a transitional impairment test.

The Company completed its transitional impairment test in the second quarter of 2002 and concluded that all of the goodwill related to the satellite and fiber network access services segment and the majority of the goodwill in the network development services segment was impaired. As a result, the Company recognized a $562.6 million non-cash charge (net of a tax benefit of $14.4 million) as the cumulative effect of a change in accounting principle related to the write-down of goodwill to its fair value.

As discussed in note 3, in the second quarter of 2003, the Company recognized a non-cash charge related to the impairment of Kline’s net assets to reduce its carrying value to the estimated proceeds expected upon disposal. As part of that charge, the Company wrote-off approximately $10.3 million of goodwill which

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

comprised the remaining goodwill related to its network development services segment. Pursuant to this write-off and the reclassification of Kline’s assets to assets held for sale, the Company’s carrying amount of goodwill was approximately $592.7 million as of June 30, 2003 and December 31, 2002, all of which related to its rental and management segment.

Summarized information about the Company’s acquired intangible assets subject to amortization is as follows (in thousands):

	June 30, 2003			December 31, 2002
Acquired customer base and network location intangibles	$	1,304,903		$	1,316,059
Deferred financing costs		110,123			100,091
Acquired licenses and other intangibles		42,587			42,778

Subtotal		1,457,613			1,458,928
Less accumulated amortization		(361,384	)		(316,932	)

Other intangible assets, net	$	1,096,229		$	1,141,996

The Company amortizes its intangible assets over periods ranging from two to fifteen years. Amortization of intangible assets for the three and six months ended June 30, 2003 was approximately $22.4 million and $45.5 million, respectively. The Company expects to record estimated amortization expense of $89.9 million on its intangible assets for the year ended December 31, 2003, $89.0 million for the year ended December 31, 2004, $88.9 million for the years ended December 31, 2005 and 2006 and $86.5 million for the years ended December 31, 2007 and 2008.

5. Financing Transactions

12.25% Senior Subordinated Discount Notes and Warrants Offering—In January 2003, the Company issued 808,000 units, each consisting of (1) $1,000 principal amount at maturity of the 12.25% senior subordinated discount notes due 2008 of American Towers, Inc. (ATI), a wholly owned subsidiary of the Company (ATI Notes), and (2) a warrant to purchase 14.0953 shares of Class A common stock of the Company, for gross proceeds of approximately $420.0 million. Net proceeds from the offering aggregated approximately $397.0 million and were or will be used for the purposes described below under the Company’s Amended and Restated Loan Agreement.

The gross offering proceeds of approximately $420.0 million were allocated between the ATI Notes ($367.4 million) and the warrants ($52.6 million) based on their respective fair values. The value ascribed to the warrants is reflected as a discount to the ATI Notes in the accompanying June 30, 2003 balance sheet and will be accreted to interest expense utilizing the effective interest method over the term of the notes. As of June 30, 2003, the accreted value outstanding under the ATI Notes (net of the allocated fair value of the warrants) was $392.6 million.

The ATI Notes accrue no cash interest. Instead, the accreted value of each ATI Note will increase between the date of original issuance and maturity (August 1, 2008) at a rate of 12.25% per annum. The 808,000 warrants that were issued together with the ATI Notes each represent the right to purchase 14.0953 shares of Class A common stock at $0.01 per share. The warrants are exercisable at any time on or after January 29, 2006 and will expire on August 1, 2008.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

subsidiaries. The indenture governing the ATI Notes contains covenants that, among other things, limit the ability of ATI, the guarantors of the ATI Notes (other than the Company) and its subsidiaries to incur or guarantee additional indebtedness, create liens, pay dividends or make other equity distributions, enter into agreements restricting the restricted subsidiaries’ ability to pay dividends, purchase or redeem capital stock, make investments and sell assets or consolidate or merge with or into other companies. The ATI Notes rank junior in right of payment to all existing and future senior indebtedness, including all indebtedness outstanding under the credit facilities, and are structurally senior in right of payment to all other existing and future indebtedness of the Company (other than its guaranty of indebtedness outstanding under the credit facilities).

Amended and Restated Loan Agreement—In February 2003, the Company completed an amendment to its credit facilities. The Company also completed a subsequent amendment in July 2003 (see note 13). The February amendment provides for the following:

•

Prepayment of a Portion of Outstanding Term Loans. The Company prepaid an aggregate of $200.0 million of the term loans outstanding under the credit facilities from a portion of the net proceeds of the units offering completed in January 2003. This prepayment consisted of a $125.0 million prepayment of the term loan A and a $75.0 million prepayment of the term loan B, each to be applied to reduce future scheduled principal payments.

•

Reduction to Revolving Loan Commitments. The Company reduced its revolving credit facility by $225.0 million to a total commitment of $422.1 million.

•

Consent for Restricted Payments to Prepay or Repurchase the 2.25% Notes. The lenders under the credit facilities agreed to permit the Company to make payments of up to $217.0 million (consisting of the balance of the net proceeds of the units offering after prepayments of the term loans and cash on hand) to purchase its 2.25% convertible notes. To the extent that the $217.0 million is not used or required to purchase any of the 2.25% convertible notes, the Company may use any remaining proceeds through June 30, 2004 to purchase any indebtedness of the Company. Pending these payments, the $217.0 million is being held in a restricted account that is pledged to the lenders and, to the extent the Company does not use the funds in the account for such payments by June 30, 2004, the Company must use the remaining funds to prepay a portion of the term loans outstanding under the credit facilities. Taking into account the repurchases described below, the balance remaining in the restricted account was approximately $192.9 million as of June 30, 2003.

•

Leverage Ratio. The leverage ratio was amended to take into account the issuance of the ATI Notes and a new senior leverage ratio has been added.

•

Revolving Credit Facility Drawdowns. A provision has been added limiting future revolving credit facility drawdowns based on the Company’s cash on hand.

Loss from Write-off of Deferred Financing Fees and Existinguishment of Debt—In February 2003, in connection with the amendment described above, the Company recorded a $5.8 million loss from the write-off of deferred financing fees associated with the reduction in the Company’s overall borrowing capacity. Such loss is included in loss from write-off of deferred financing fees and extinguishment of debt in the accompanying condensed consolidated statement of operations for the six months ended June 30, 2003.

2.25% Convertible Note Exchanges—During the six months ended June 30, 2003, the Company exchanged an aggregate of $73.9 million accreted value ($93.5 million face value) of its 2.25% convertible notes in exchange for an aggregate of 8,415,984 shares of Class A common stock and $24.8 million in restricted cash. These shares included an aggregate of 6,440,636 shares of Class A common stock issued to such holders in addition to the amounts issuable upon conversion of those notes as provided in the applicable indentures. The Company made these exchanges pursuant to negotiated transactions with a limited number of note holders.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

As a consequence of these exchanges, the Company recorded note conversion expense of approximately $35.8 million and $38.5 million in the three and six months ended June 30, 2003, respectively, which represents the fair market value of the shares of stock issued to the note holders in excess of the number of shares originally issuable upon conversion of the notes. As of June 30, 2003, the accreted value of the 2.25% convertible notes was approximately $140.1 million ($176.3 million face value).

6. Restructuring

During the six months ended June 30, 2003, the Company made cash payments of approximately $1.3 million against its accrued restructuring liability. Such payments were as follows (in thousands):

	Liability as of January 1, 2003		Cash Payments		Liability as of June 30, 2003
Employee separations	$	1,639	$	801	$	838
Lease terminations and other facility closing costs		1,993		546		1,447

Total	$	3,632	$	1,347	$	2,285

There were no material changes in estimates related to the Company’s accrued restructuring liability during the six months ended June 30, 2003. The Company expects to pay the balance of the employee separation liabilities over the remainder of 2003. Additionally, the Company continues to negotiate certain lease terminations associated with its restructuring liability. Such liability is reflected in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

7. Derivative Financial Instruments

During the six months ended June 30, 2003, the Company recorded an unrealized loss of approximately $0.3 million (net of a tax benefit of approximately $0.2 million) in other comprehensive loss for the change in fair value of cash flow hedges and reclassified $4.9 million (net of a tax benefit of $2.7 million) into results of operations. During the six months ended June 30, 2002, the Company recorded an unrealized loss in other comprehensive loss of approximately $5.3 million (net of a tax benefit of $2.8 million) and reclassified $10.4 million into results of operations (net of a tax benefit of $5.6 million). Hedge ineffectiveness resulted in no gain or loss for the six months ended June 30, 2003 and a loss of approximately $0.4 million for the six months ended June 30, 2002, which is recorded in loss on investments and other expense in the accompanying condensed consolidated statements of operations. The Company records the changes in fair value of its derivative instruments that are not accounted for as hedges in loss on investments and other expense. At June 30, 2003 and December 31, 2002, the fair value of the Company’s derivative instruments represented a liability of approximately $2.7 million and $15.5 million, respectively, and is included in other long-term liabilities in the accompanying condensed consolidated balance sheets. The Company estimates that approximately $1.0 million of derivative losses (net of tax benefit) included in other comprehensive loss will be reclassified into its statement of operations within the next twelve months.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

8. Comprehensive Loss

Other comprehensive loss consists of derivative instruments accounted for as cash flow hedges (as discussed in note 7). The components of the Company’s comprehensive loss are as follows (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Net loss	$	(107,715	)	$	(101,168	)	$	(199,338	)	$	(735,558	)
Other comprehensive loss, net of tax:
Derivative instruments:
Net change in fair value of cash flow hedges		(133	)		(3,911	)		(345	)		(5,268	)
Amounts reclassified into results of operations		1,530			4,930			4,929			10,404

Comprehensive loss	$	(106,318	)	$	(100,149	)	$	(194,754	)	$	(730,422	)

9. Business Segments

The Company operates in two business segments: rental and management (RM) and network development services (Services). The RM segment provides for the leasing and subleasing of antennae sites on multi-tenant towers and other properties for a diverse range of customers primarily in the wireless communication and broadcast industries. The Services segment offers a broad range of services, including antenna and line installation, maintenance, construction, site acquisition, zoning, radio frequency engineering and network design.

The accounting policies applied in compiling segment information below are similar to those described in the Company’s 2002 Annual Report on Form 10-K. In evaluating financial performance, management focuses on operating profit (loss) which is defined as operating income (loss) from continuing operations, excluding depreciation and amortization, corporate general and administrative expense, restructuring expense, development expense and impairments and net loss on sale of long-lived assets. For reporting purposes the RM segment includes interest income, TV Azteca, net.

The Company’s reportable segments are strategic business units that offer different services. They are managed separately because each segment requires different resources, skill sets and marketing strategies. Summarized financial information concerning the Company’s reportable segments as of and for the three and six months ended June 30, 2003 and 2002 is shown in the following table. The Other column below represents amounts excluded from specific segments, such as depreciation and amortization, corporate general and administrative expense, restructuring expense, development expense, impairments and net loss on sale of long-lived assets, interest income, interest expense, loss on investments and other expense, loss from write-off of deferred financing fees and extinguishment of debt, note conversion expense and minority interest in net earnings of subsidiaries. In addition, the Other column also includes corporate assets such as cash and cash equivalents, restricted cash and investments and certain tangible and intangible assets and income tax accounts that have not been allocated to specific segments, as well as assets held for sale.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

Three Months Ended June 30, (in thousands)	RM		Services		Other			Total
2003
Revenues	$	151,916	$	26,306				$	178,222
Operating profit (loss)		101,239		1,885	$	(202,069	)		(98,945	)
Assets		4,403,441		134,740		1,038,071			5,576,252
2002
Revenues	$	132,017	$	33,820				$	165,837
Operating profit (loss)		78,426		4,899	$	(178,336	)		(95,011	)
Assets		4,726,633		132,922		1,250,755			6,110,310

Six Months Ended June 30, (in thousands)	RM		Services		Other			Total
2003
Revenues	$	298,378	$	44,769				$	343,147
Operating profit (loss)		196,507		2,227	$	(397,867	)		(199,133	)
Assets		4,403,441		134,740		1,038,071			5,576,252
2002
Revenues	$	258,618	$	70,805				$	329,423
Operating profit (loss)		151,505		8,468	$	(334,748	)		(174,775	)
Assets		4,726,633		132,922		1,250,755			6,110,310

10. Information Presented Pursuant to the Indenture for the 9³/8% Senior Notes

The following table sets forth information that is presented solely to address certain reporting requirements contained in the indenture for the Company’s 9³/8% senior notes (senior notes). This information presents certain financial data of the Company on a consolidated basis and on a restricted group basis, as defined in the indenture governing the senior notes. All of the Company’s subsidiaries are part of the restricted group, except its wholly owned subsidiary Verestar. In December 2002, the Company committed to a plan to dispose of Verestar by sale by December 31, 2003. As a result of that plan, the results of operations related to Verestar have been included in loss from discontinued operations, net, in the accompanying condensed consolidated statements of operations and the assets and liabilities of Verestar are included in assets held for sale and liabilities held for sale, respectively, within the accompanying condensed consolidated balance sheets.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

	Three Months Ended June 30, 2003						Six Months Ended June 30, 2003
	Consolidated			Restricted Group			Consolidated			Restricted Group
	(In thousands)						(In thousands)
Statement of Operations Data:
Operating revenues	$	178,222		$	178,222		$	343,147		$	343,147

Operating expenses:
Rental and management		54,205			54,205			108,901			108,901
Network development services		24,421			24,421			42,542			42,542
Depreciation and amortization		80,770			80,770			161,150			161,150
Corporate general and administrative expense		5,962			5,962			11,997			11,997
Development expense		1,003			1,003			1,616			1,616
Impairments and net loss on sale of long-lived assets		8,036			8,036			11,732			11,732

Total operating expenses		174,397			174,397			337,938			337,938

Operating income from continuing operations		3,825			3,825			5,209			5,209

Interest income, TV Azteca, net		3,528			3,528			7,030			7,030
Interest income		1,930			1,930			2,856			2,856
Interest expense		(71,201	)		(71,201	)		(142,943	)		(142,943	)
Loss on investments and other expense		(402	)		(402	)		(25,599	)		(25,599	)
Loss from write-off of deferred financing fees and extinguishment of debt								(5,841	)		(5,841	)
Note conversion expense		(35,832	)		(35,832	)		(38,482	)		(38,482	)
Minority interest in net earnings of subsidiaries		(793	)		(793	)		(1,363	)		(1,363	)

Loss from continuing operations before income taxes		(98,945	)		(98,945	)		(199,133	)		(199,133	)
Income tax benefit		17,985			17,985			37,493			37,493

Loss from continuing operations		(80,960	)		(80,960	)		(161,640	)		(161,640	)
Loss from discontinued operations, net of tax		(26,755	)		(12,783	)		(37,698	)		(17,310	)

Net loss	$	(107,715	)	$	(93,743	)	$	(199,338	)	$	(178,950	)

	June 30, 2003
	Consolidated		Restricted Group
Balance Sheet Data:
Cash and cash equivalents (including restricted cash and investments)	$	300,482	$	300,482
Assets held for sale		153,521		28,291
Property and equipment, net		2,634,575		2,634,575
Total assets		5,576,252		5,451,022
Long-term obligations, including current portion		3,516,835		3,516,835
Liabilities held for sale		138,508		11,876
Total stockholders’ equity		1,685,806		1,685,806

11. Acquisitions

During the six months ended June 30, 2003, the Company acquired 241 communication sites from NII Holdings, Inc. (NII) for an aggregate preliminary purchase price of approximately $40.9 million, bringing the

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

total towers closed under its agreement with NII to 381 and the total cash paid to approximately $67.1 million. The Company has accounted for the acquisition of these towers under the purchase method of accounting.

Unaudited Pro Forma Operating Results—The unaudited pro forma results of operations for the three and six months ended June 30, 2003 and 2002 are not presented for comparative purposes due to the insignificant impact of the 2003 acquisitions (as described above) on the Company’s consolidated results of operations.

12. Commitments and Contingencies

Litigation—The Company periodically becomes involved in various claims and lawsuits that are incidental to its business. In the opinion of management, after consultation with counsel, there are no matters currently pending which would, in the event of adverse outcome, have a material impact on the Company’s consolidated financial position, the results of its operations or liquidity.

Acquisition Commitments—As of June 30, 2003, the Company was party to an agreement relating to the acquisition of tower assets from NII for an aggregate remaining purchase price of approximately $32.9 million.

Build-to-Suit Agreements—As of June 30, 2003, the Company was party to various arrangements relating to the construction of tower sites under existing build-to-suit agreements. Under the terms of the agreements, the Company is obligated to construct up to 1,000 towers over a three year period which includes 650 towers in Mexico and 350 towers in Brazil. During the six months ended June 30, 2003, the Company constructed six towers in Mexico. The Company is in the process of renegotiating several of these agreements to reduce its overall commitment; however, there can be no assurance that it will be successful in doing so.

ATC Separation—The Company was a wholly owned subsidiary of American Radio Systems Corporation (American Radio) until consummation of the spin-off of the Company from American Radio on June 4, 1998 (the ATC Separation). On June 4, 1998, the merger of American Radio and a subsidiary of CBS Corporation (CBS) was consummated. As a result of the merger, all of the outstanding shares of the Company’s common stock owned by American Radio were distributed or reserved for distribution to American Radio stockholders, and the Company ceased to be a subsidiary of, or to be otherwise affiliated with, American Radio. Furthermore, from that day forward the Company began operating as an independent publicly traded company.

In connection with the ATC Separation, the Company agreed to reimburse CBS for any tax liabilities incurred by American Radio as a result of the transaction. Upon completion of the final American Radio tax returns, the amount of these tax liabilities was determined and paid by the Company; however, the Company was obligated under a tax indemnification agreement with CBS to pay additional taxes that may occur. As of June 30, 2003, the federal statute of limitations has expired and the Company no longer has an obligation to indemnify CBS for federal taxes resulting from the transaction. Although not all of the state statutes of limitations have expired, the Company does not believe that any material state tax liabilities will be imposed. Accordingly, no amounts have been provided for in the condensed consolidated financial statements relating to this indemnification.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

13. Subsequent Events

Amended Credit Facilities—In July 2003, the Company completed an amendment to the credit facilities primarily to facilitate the convertible notes offering and concurrent equity offering described below. The amendment permitted the Company to issue additional indebtedness so long as (i) 50% of the net proceeds of the first $200.0 million of such indebtedness is applied to prepay obligations under the credit facilities; and (ii) the remaining net proceeds (and 100% of the net proceeds from indebtedness in excess of $200.0 million, if any) are deposited into a restricted account (in which the lenders under the credit facilities have a security interest) for the purpose of refinancing outstanding indebtedness or further prepaying obligations under the credit facilities. Any net proceeds remaining in the restricted account no later than sixty days following the issuance of such indebtedness must be used to prepay obligations under the credit facilities. The repayment of the credit facilities provide for a reduction of the term loans and the revolving credit facility and result in a permanent reduction in revolving loan commitments to the extent the revolving loans are repaid. The amendment also permitted the Company to retain the net proceeds from the equity offering, provided that, to the extent not contributed as equity to the borrower subsidiaries under the credit facilities, such proceeds must be deposited in a restricted account (in which the lenders under the credit facilities have a security interest) to be applied by the Company to repurchase the outstanding indebtedness. Any balance remaining in the account twelve months after the closing of the offering must be contributed as equity to the borrower subsidiaries under the credit facilities.

3.25% Convertible Notes Offering—In August 2003, the Company completed a private placement of $175.0 million principal amount of 3.25% convertible notes (3.25% Notes), issued at 100% of their face amount. The Company also granted the initial purchasers a 30-day option to purchase an additional $35.0 million principal amount of the notes. The initial purchasers have exercised the additional purchase option in full, and the Company expects to receive the additional net proceeds of $33.9 million on August 18, 2003. The 3.25% Notes mature on August 1, 2010. Interest is payable semi-annually in arrears on February 1 and August 1 each year. The net proceeds of the 3.25% Notes offering, excluding amounts to be received from the initial purchasers’ additional purchase option, were approximately $168.8 million. The Company utilized $84.4 million of the net proceeds to refinance a portion of its outstanding indebtedness under its credit facilities and the remaining $84.4 million was placed in a restricted account to fund repurchases of the Company’s 2.25% convertible notes and 5.0% convertible notes. As of August 11, 2003, all of the proceeds within this restricted account have been used to repurchase a portion of the Company’s convertible notes. See 2.25% convertible note and 5.0% convertible note repurchases below.

The Company expects to receive approximately $33.9 million from the exercise of the additional purchase option relating to the 3.25% Notes. Accordingly, $15.6 million will be applied to reduce indebtedness under the credit facilities, and the remaining $18.3 million will be held in a restricted account to fund additional purchases of other debt securities of its parent company, or to reduce further indebtedness under the credit facilities.

The 3.25% Notes are convertible at any time into shares of the Company’s Class A common stock at a conversion price of $12.22 per share, subject to certain adjustments. The Company may redeem the 3.25% Notes after August 6, 2008. The initial redemption price on the 3.25% Notes is 100.9% of the principal amount, subject to a ratable decline after August 1 of the following year to 100% of the principal amount in 2010. The 3.25% Notes rank equally with the 5.0% convertible notes, the 6.25% convertible notes, the 2.25% convertible notes and the 9³/8% senior notes and are structurally and effectively junior to indebtedness outstanding under the credit facilities and the 12.25% senior subordinated discount notes.

Equity Offering—In August 2003, the Company completed a public equity offering of 14,260,000 shares of its Class A common stock, at $8.89 per share, including the underwriters’ exercise in full of an over-allotment

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

option to purchase 1,860,000 shares. The Company’s net proceeds of the offering were approximately $120.4 million, after deducting the underwriters’ discount and commissions and other expenses related to the offering. The Company placed the net proceeds in a restricted account, from which it will repurchase its outstanding debt securities or make equity contributions to the borrower subsidiaries as described above. In connection with this offering and the 3.25% convertible notes offering described above, the Company signed a lock-up agreement prohibiting it prior to November 4, 2003 from issuing shares of Class A common stock, except in limited circumstances, without the consent of the underwriters and initial purchasers.

2.25% Convertible Note and 5.0% Convertible Note Repurchases—From August 4, 2003 to August 11, 2003, the Company repurchased an aggregate of $37.0 million accreted value ($46.4 million face value) of its 2.25% convertible notes for approximately $37.3 million in restricted cash. In addition, the Company repurchased an aggregate of $68.3 million face amount of its 5.0% convertible notes for approximately $61.0 million in restricted cash. The Company repurchased these notes with the $84.4 million of proceeds from the 3.25% Notes offering and $13.9 million of restricted cash held at June 30, 2003. Giving effect to these repurchases, through August 11, 2003, the total accreted value outstanding under the 2.25% convertible notes was approximately $103.1 million ($129.9 million face value) and the total principal amount outstanding under the 5.0% convertible notes was approximately $381.7 million.

Voluntary Option Exchange Program—In August 2003, pursuant to an option exchange program, the Company accepted for surrender certain options to purchase an aggregate of 1,831,981 shares of its Class A common stock and agreed to issue options to purchase 1,221,321 shares of its Class A common stock in the first quarter of 2004, with an exercise price equal to the fair market value of its Class A common stock on the date of grant. The Company initiated this option exchange program in June 2003 (after receiving stockholder approval) and offered participation to both full and part-time employees of the Company and the Company’s eligible subsidiaries, excluding the Company’s executive officers and directors. This option exchange program calls for the grant (at least six months and one day from the surrender date) of new options to purchase two shares Class A common stock for every option to purchase three shares that is surrendered. No portion of any new options granted for surrendered options will be exercisable for an additional six months after the new grant date. At that time, the new options will become exercisable to the same extent that the options they replace would have been vested on that date had they not been exchanged.

14. Subsidiary Guarantees

The Company’s payment obligations under the ATI Notes are fully and unconditionally guaranteed on a joint and several basis by the Company and substantially all of the Company’s and ATI’s wholly owned domestic subsidiaries (collectively Restricted Guarantors). The ATI Notes and the subsidiary guarantees under the ATI Notes are subordinated to all indebtedness under the Company’s credit facilities.

The following condensed consolidating financial data illustrates the composition of ATI’s parent, ATI (the issuer of the ATI Notes), the combined guarantor subsidiaries under the ATI Notes and the non-guarantor subsidiaries. These statements have been prepared in accordance with the rules and requirements of the SEC and the requirements contained in the ATI Notes indenture. The Company believes that separate complete financial statements of the respective guarantors would not provide additional material information that would be useful in assessing the financial composition of the guarantors. No single guarantor has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in event of default on the subsidiary guarantee other than its subordination to the Company’s credit facilities described above.

Investments in subsidiaries are accounted for by the parent under the equity method for purposes of the supplemental consolidating presentation. In addition, ATI and the guarantor subsidiaries account for their subsidiaries that are not guarantors under the equity method. (Earnings) losses of subsidiaries accounted for under the equity method are therefore reflected in their parents’ investment accounts. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions.

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

JUNE 30, 2003

(In Thousands)

							Guarantor			Non-Guarantor						Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations			Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents				$	80,487		$	1,860		$	25,250					$	107,597
Restricted cash and investments					192,885												192,885
Accounts receivable, net					49,174			317			8,413						57,904
Prepaid and other current assets	$	7,556			47,481			92			5,061						60,190
Deferred income taxes		13,111									(64	)					13,047
Assets held for sale								28,291			125,230						153,521

Total current assets		20,667			370,027			30,560			163,890						585,144

PROPERTY AND EQUIPMENT, NET					2,304,488			20,969			309,118						2,634,575
INTANGIBLE ASSETS, NET		38,175			1,576,487			9,513			64,737						1,688,912
INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES		3,075,883			30,163			431,604					$	(3,537,650	)
OTHER LONG-TERM ASSETS		412,746			145,687						109,188						667,621

TOTAL	$	3,547,471		$	4,426,852		$	492,646		$	646,933		$	(3,537,650	)	$	5,576,252

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations	$	140,123		$	93,712					$	411					$	234,246
Accounts payable and accrued expenses		51,100			93,770		$	(793	)		7,824						151,901
Other current liabilities					36,663												36,663
Liabilities held for sale								11,876			126,632						138,508

Total current liabilities		191,223			224,145			11,083			134,867						561,318

LONG-TERM OBLIGATIONS		1,662,742			1,584,341						35,506						3,282,589
OTHER LONG-TERM LIABILITIES					29,822												29,822

Total liabilities		1,853,965			1,838,308			11,083			170,373						3,873,729

MINORITY INTEREST IN SUBSIDIARIES					226						16,491						16,717
STOCKHOLDERS’ EQUITY:
Common Stock		2,047															2,047
Additional paid-in capital		3,782,193			3,663,323			448,539			919,833		$	(5,031,695	)		3,782,193
Accumulated (deficit) earnings		(2,086,368	)		(1,074,025	)		33,024			(453,044	)		1,494,045			(2,086,368	)
Accumulated other comprehensive loss					(980	)											(980	)
Note receivable											(6,720	)					(6,720	)
Treasury stock		(4,366	)														(4,366	)

Total stockholders’ equity		1,693,506			2,588,318			481,563			460,069			(3,537,650	)		1,685,806

TOTAL	$	3,547,471		$	4,426,852		$	492,646		$	646,933		$	(3,537,650	)	$	5,576,252

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2003

(In Thousands)

							Guarantor			Non-Guarantor					Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations		Totals
Operating revenues				$	154,449		$	1,013		$	22,760				$	178,222
Operating expenses					155,941			767			17,689					174,397

Operating (loss) income from continuing operations					(1,492	)		246			5,071					3,825

Other income (expense):
Interest income, TV Azteca, net											3,528					3,528
Interest income					1,861						69					1,930
Interest expense	$	(36,502	)		(34,274	)					(425	)				(71,201	)
Other expense		(35,832	)		(149	)					(253	)				(36,234	)
Minority interest in earnings of subsidiaries											(793	)				(793	)
Equity in (loss) income of subsidiaries, net of income taxes recorded at the subsidiary level		(45,074	)		250			4,330					$	40,494

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(117,408	)		(33,804	)		4,576			7,197			40,494		(98,945	)
INCOME TAX BENEFIT (PROVISION)		9,693			10,706			(76	)		(2,338	)				17,985

(LOSS) INCOME FROM CONTINUING OPERATIONS		(107,715	)		(23,098	)		4,500			4,859			40,494		(80,960	)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT					533			(13,037	)		(14,251	)				(26,755	)

NET (LOSS) INCOME	$	(107,715	)	$	(22,565	)	$	(8,537	)	$	(9,392	)	$	40,494	$	(107,715	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2003

(In Thousands)

							Guarantor			Non-Guarantor					Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations		Totals
Operating revenues				$	299,214		$	1,995		$	41,938				$	343,147
Operating expenses					304,466			1,563			31,909					337,938

Operating (loss) income from continuing operations					(5,252	)		432			10,029					5,209

Other income (expense):
Interest income, TV Azteca, net											7,030					7,030
Interest income					2,737						119					2,856
Interest expense	$	(73,839	)		(68,219	)					(885	)				(142,943	)
Other expense		(48,476	)		(21,051	)					(395	)				(69,922	)
Minority interest in earnings of subsidiaries											(1,363	)				(1,363	)
Equity in (loss) income of subsidiaries, net of income taxes recorded at the subsidiary level		(96,448	)		(2,926	)		9,705					$	89,669

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(218,763	)		(94,711	)		10,137			14,535			89,669		(199,133	)
INCOME TAX BENEFIT (PROVISION)		19,425			21,950			(112	)		(3,770	)				37,493

(LOSS) INCOME FROM CONTINUING OPERATIONS		(199,338	)		(72,761	)		10,025			10,765			89,669		(161,640	)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT					(534	)		(12,790	)		(24,374	)				(37,698	)

NET (LOSS) INCOME	$	(199,338	)	$	(73,295	)	$	(2,765	)	$	(13,609	)	$	89,669	$	(199,338	)

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2003

(In Thousands)

							Guarantor			Non-Guarantor			Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Totals
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	$	(69,388	)	$	100,284		$	(3,071	)	$	22,762		$	50,587

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment and construction activities					(22,504	)		(221	)		(9,966	)		(32,691	)
Payments for acquisitions								(129	)		(40,967	)		(41,096	)
Proceeds from sale of businesses and other long-term assets					49,148						28,169			77,317
Deposits, investments, and other long-term assets					(545	)					1,180			635

Cash provided by (used for) investing activities					26,099			(350	)		(21,584	)		4,165

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 12.25% senior subordinated notes offering					419,884									419,884
Repayment of notes payable, credit facilities and capital leases		(24,846	)		(253,389	)					(3,564	)		(281,799	)
Deferred financing costs, restricted cash and other					(212,532	)								(212,532	)
Investments in and advances from (to) subsidiaries		94,234			(107,459	)		4,525			8,700

Cash provided by (used for) financing activities		69,388			(153,496	)		4,525			5,136			(74,447	)

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(27,113	)		1,104			6,314			(19,695	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR					107,600			756			18,936			127,292

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	80,487		$	1,860		$	25,250		$	107,597

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING BALANCE SHEET

DECEMBER 31, 2002

(In Thousands)

							Guarantor			Non-Guarantor						Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations			Totals
ASSETS
CURRENT ASSETS:
Cash and cash equivalents				$	107,600		$	756		$	18,936					$	127,292
Accounts receivable, net					59,848						8,573						68,421
Prepaid and other current assets	$	6,026			54,245			112			12,203						72,586
Deferred income taxes		13,111															13,111
Assets held for sale					39,026			44,601			220,075						303,702

Total current assets		19,137			260,719			45,469			259,787						585,112

PROPERTY AND EQUIPMENT, NET					2,399,937			21,894			275,154						2,696,985
INTANGIBLE ASSETS, NET		42,877			1,617,351			9,518			64,933						1,734,679
INVESTMENTS IN AND ADVANCES TO SUBSIDIARIES		3,221,521			36,635			393,036					$	(3,651,192	)
OTHER LONG-TERM ASSETS		394,251			142,255						108,921						645,427

TOTAL	$	3,677,786		$	4,456,897		$	469,917		$	708,795		$	(3,651,192	)	$	5,662,203

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Current portion of long-term obligations	$	210,899		$	58,589					$	393					$	269,881
Accounts payable and accrued expenses		51,539			113,944		$	(794	)		12,754						177,443
Other current liabilities					38,529						210						38,739
Liabilities held for sale					2,525			18,771			178,919						200,215

Total current liabilities		262,438			213,587			17,977			192,276						686,278

LONG-TERM OBLIGATIONS		1,662,741			1,480,297						35,618						3,178,656
OTHER LONG-TERM LIABILITIES					41,379												41,379

Total liabilities		1,925,179			1,735,263			17,977			227,894						3,906,313

MINORITY INTEREST IN SUBSIDIARIES					225						15,342						15,567
STOCKHOLDERS’ EQUITY
Common Stock		1,958															1,958
Additional paid-in capital		3,642,019			3,727,703			416,151			911,714		$	(5,055,568	)		3,642,019
Accumulated (deficit) earnings		(1,887,030	)		(1,000,730	)		35,789			(439,435	)		1,404,376			(1,887,030	)
Accumulated other comprehensive loss					(5,564	)											(5,564	)
Note receivable											(6,720	)					(6,720	)
Treasury stock		(4,340	)														(4,340	)

Total stockholders’ equity		1,752,607			2,721,409			451,940			465,559			(3,651,192	)		1,740,323

TOTAL	$	3,677,786		$	4,456,897		$	469,917		$	708,795		$	(3,651,192	)	$	5,662,203

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002

(In Thousands)

							Guarantor			Non-Guarantor					Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations		Totals
Operating revenues				$	148,319		$	915		$	16,603				$	165,837
Operating expenses					167,393			907			12,957					181,257

Operating (loss) income from continuing operations					(19,074	)		8			3,646					(15,420	)

Other income (expense):
Interest income, TV Azteca, net											3,471					3,471
Interest income					748						26					774
Interest expense	$	(37,276	)		(27,625	)					(636	)				(65,537	)
Other expense		(11,652	)		(2,786	)					(3,370	)				(17,808	)
Minority interest in earnings of subsidiaries											(491	)				(491	)
Equity in (loss) income of subsidiaries, net of income taxes recorded at the subsidiary level		(65,987	)		382			2,248					$	63,357

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(114,915	)		(48,355	)		2,256			2,646			63,357		(95,011	)
INCOME TAX BENEFIT (PROVISION)		13,747			13,694			(2	)		(127	)				27,312

(LOSS) INCOME FROM CONTINUING OPERATIONS		(101,168	)		(34,661	)		2,254			2,519			63,357		(67,699	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT					(18,049	)		1,021			(16,441	)				(33,469	)

NET (LOSS) INCOME	$	(101,168	)	$	(52,710	)	$	3,275		$	(13,922	)	$	63,357	$	(101,168	)

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 2002

(In Thousands)

							Guarantor			Non-Guarantor					Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Eliminations		Totals
Operating revenues				$	293,117		$	1,749		$	34,557				$	329,423
Operating expenses					324,585			1,792			28,267					354,644

Operating (loss) income from continuing operations					(31,468	)		(43	)		6,290					(25,221	)

Other income (expense):
Interest income, TV Azteca, net											6,900					6,900
Interest income					1,755						56					1,811
Interest expense	$	(74,509	)		(52,535	)					(2,263	)				(129,307	)
Other expense		(13,292	)		(10,024	)					(4,908	)				(28,224	)
Minority interest in losses (earnings) of subsidiaries					1						(735	)				(734	)
Equity in (loss) income of subsidiaries, net of income taxes recorded at the subsidiary level		(671,958	)		837			5,159					$	665,962

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES		(759,759	)		(91,434	)		5,116			5,340			665,962		(174,775	)
INCOME TAX BENEFIT		24,201			25,405			12			409					50,027

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(735,558	)		(66,029	)		5,128			5,749			665,962		(124,748	)
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF INCOME TAX BENEFIT					(19,946	)		1,941			(30,187	)				(48,192	)

(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE		(735,558	)		(85,975	)		7,069			(24,438	)		665,962		(172,940	)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF INCOME TAX BENEFIT					(368,431	)		(4,884	)		(189,303	)				(562,618	)

NET (LOSS) INCOME	$	(735,558	)	$	(454,406	)	$	2,185		$	(213,741	)	$	665,962	$	(735,558	)

AMERICAN TOWER CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—Unaudited—(Continued)

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2002

(In Thousands)

							Guarantor			Non-Guarantor			Consolidated
	Parent			ATI			Subsidiaries			Subsidiaries			Totals
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	$	(67,344	)	$	89,168		$	3,166		$	7,482		$	32,472

CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment and construction activities					(103,221	)		(823	)		(27,221	)		(131,265	)
Payments for acquisitions					(17,901	)					(3,750	)		(21,651	)
Proceeds from sale of businesses and other long term assets					20,029									20,029
Deposits, investments, and other long-term assets					(4,382	)					(6,353	)		(10,735	)

Cash used for investing activities					(105,475	)		(823	)		(37,324	)		(143,622	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under credit facilities					160,000									160,000
Repayment of notes payable, credit facilities and capital leases					(3,539	)					(99,309	)		(102,848	)
Deferred financing costs, restricted cash and other		47,511												47,511
Investments in and advances from (to) subsidiaries		19,833			(151,959	)		(4,058	)		136,184

Cash provided by (used for) financing activities		67,344			4,502			(4,058	)		36,875			104,663

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS					(11,805	)		(1,715	)		7,033			(6,487	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR					25,912			2,997			7,049			33,958

CASH AND CASH EQUIVALENTS, END OF PERIOD				$	14,107		$	1,282		$	14,082		$	29,471

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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,” “estimate,” “intend,” “should,” “would,” “could” or “may,” or other words that convey uncertainty of future events or outcome, 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 below under the caption “Factors That May Affect Future Results.” Forward-looking statements represent management’s current expectations and are inherently uncertain. We do not undertake any obligation to update forward-looking statements made by us.

The discussion and analysis of our financial condition and results of operations that follows are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and 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 and the accompanying notes thereto, and the information set forth under the heading “Critical Accounting Policies” in our 2002 Form 10-K and our Current Report on Form 8-K dated July 28, 2003 (which conforms the presentation of information in our 2002 Form 10-K with the presentation reported in our March 31, 2003 Form 10-Q, reflecting our office building in Westwood, Massachusetts as a discontinued operation).

Our continuing operations are reported in two segments, rental and management and network development services. Management focuses on segment profit (loss) as a means to measure operating performance in these business segments. We define segment operating profit (loss) as segment revenues less segment operating expenses excluding depreciation and amortization, corporate general and administrative expense, restructuring expense, development expense and impairments and net loss on sale of long-lived assets. Segment profit (loss) for the rental and management segment includes interest income, TV Azteca, net.

The condensed consolidated statements of operations herein have been adjusted for all periods presented to reflect the results of operations for our discontinued operations (see note 3 to the accompanying condensed consolidated financial statements).

Results of Operations

Three Months Ended June 30, 2003 and 2002

	Three Months Ended						Amount of Increase (Decrease)			Percent Increase (Decrease)
	June 30,
	2003			2002
	(In thousands)
REVENUES:
Rental and management	$	151,916		$	132,017		$	19,899		15	%
Network development services		26,306			33,820			(7,514	)	(22	)

Total revenues		178,222			165,837			12,385		7

OPERATING EXPENSES:
Rental and management		54,205			57,062			(2,857	)	(5	)
Network development services		24,421			28,921			(4,500	)	(16	)
Depreciation and amortization		80,770			79,804			966		1
Corporate general and administrative expense		5,962			6,474			(512	)	(8	)
Restructuring expense					2,952			(2,952	)	N/A
Development expense		1,003			1,027			(24	)	(2	)
Impairments and net loss on sale of long-lived assets		8,036			5,017			3,019		60

Total operating expenses		174,397			181,257			(6,860	)	(4	)

OTHER INCOME (EXPENSE):
Interest income, TV Azteca, net of interest expense of $371 and $373, respectively		3,528			3,471			57		2
Interest income		1,930			774			1,156		149
Interest expense		(71,201	)		(65,537	)		5,664		9
Loss on investments and other expense		(402	)		(17,808	)		(17,406	)	(98	)
Note conversion expense		(35,832	)					35,832		N/A
Minority interest in net earnings of subsidiaries		(793	)		(491	)		302		62
Income tax benefit		17,985			27,312			(9,327	)	(34	)
Loss from discontinued operations, net		(26,755	)		(33,469	)		(6,714	)	(20	)

Net loss	$	(107,715	)	$	(101,168	)	$	6,547		6	%

Total Revenues

Total revenues for the three months ended June 30, 2003 were $178.2 million, an increase of $12.4 million from the three months ended June 30, 2002. The increase resulted from an increase in rental and management revenues of $19.9 million, offset by a decrease in network development services revenue of $7.5 million.

Rental and Management Revenue

Rental and management revenue for the three months ended June 30, 2003 was $151.9 million, an increase of $19.9 million from the three months ended June 30, 2002. The increase resulted primarily from adding additional broadband tenants to towers that existed as of July 1, 2002 and, to a lesser extent, from revenue generated on the approximately 570 towers acquired and constructed subsequent to July 1, 2002.

We continue to believe that our leasing revenue, which drives our core business, is likely to grow more rapidly than revenue from our network development services segment due to our expected increase in utilization of existing tower capacity. In addition, we believe that the majority of our leasing activity will continue to come from broadband type customers.

Network Development Services Revenue

Network development services revenue for the three months ended June 30, 2003 was $26.3 million, a decrease of $7.5 million from the three months ended June 30, 2002. The decline in revenue during the second quarter 2003 resulted primarily from decreases in revenue related to construction management, antennae installation, tower maintenance services and radio frequency engineering services, resulting from lower levels of construction activity and reduced demand for related services in the wireless telecommunications industry.

Total Operating Expenses

Total operating expenses for the three months ended June 30, 2003 were $174.4 million, a decrease of $6.9 million from the three months ended June 30, 2002. The decrease was attributable to decreased expenses in our network development services segment of $4.5 million, decreased expenses in our rental and management segment of $2.9 million and decreases in restructuring and corporate general and administrative expenses of $3.0 million and $0.5 million, respectively. These decreases were offset by increases in depreciation and amortization expense of $1.0 million and impairments and net loss on sale of long-lived assets of $3.0 million.

Rental and Management Expense/Segment Profit

Rental and management expense for the three months ended June 30, 2003 was $54.2 million, a decrease of $2.9 million from the three months ended June 30, 2002. The decrease primarily resulted from cost reduction efforts in administrative and operational functions, driven by the restructuring initiatives that we completed in 2002.

Rental and management segment profit for the three months ended June 30, 2003 was $101.2 million, an increase of $22.8 million from the three months ended June 30, 2002. The increase resulted primarily from incremental revenues and operating profit from existing towers and newly acquired and constructed towers, coupled with the cost reduction efforts in administrative and operational functions discussed above.

Network Development Services Expense/Segment Profit

Network development services expense for the three months ended June 30, 2003 was $24.4 million, a decrease of $4.5 million from the three months ended June 30, 2002. The majority of the decrease was due to an overall decline in demand for the services performed by this segment, as discussed above, coupled with decreases in overhead and related infrastructure costs.

Network development services segment profit for the three months ended June 30, 2003 was $1.9 million, a decrease of $3.0 million from the three months ended June 30, 2002. The decrease resulted primarily from a decline in revenue, as discussed above, partially offset by a reduction in personnel, overhead and infrastructure costs.

Depreciation and Amortization

Depreciation and amortization for the three months ended June 30, 2003 was $80.8 million, an increase of $1.0 million from the three months ended June 30, 2002. The increase resulted primarily from an increase in depreciation expense related to our acquisition/construction of approximately $157.7 million of property and equipment from July 1, 2002 to June 30, 2003.

Corporate General and Administrative Expense

Corporate general and administrative expense for the three months ended June 30, 2003 was $6.0 million, a decrease of $0.5 million from the three months ended June 30, 2002. The majority of the decrease is a result of cost reduction efforts in our personnel and information technology functions.

Restructuring Expense

In November 2001, we announced a restructuring of our organization to include a reduction in the scope of our tower development and acquisition activities and the centralization of certain operational and administrative functions. During the first quarter of 2002, we committed to and implemented additional restructuring initiatives related to the consolidation of operations. As a result of these initiatives, during the three months ended June 30, 2002, we incurred employee separation costs associated with the termination of approximately 185 employees (primarily development and administrative), as well as costs associated with the termination of lease obligations and other incremental facility closing costs aggregating $3.0 million. As of December 31, 2002, we completed our restructuring initiatives to consolidate operations and do not expect future charges associated with this restructuring. As a result, there were no similar charges in the three months ended June 30, 2003.

Impairments and Net Loss on Sale of Long-Lived Assets

Impairments and net loss on sale of long-lived assets for the three months ended June 30, 2003 was $8.0 million, an increase of $3.0 million from the three months ended June 30, 2002. The increase was attributable to both impairment charges and incurred losses with respect to sales of certain of our non-core tower and other assets for the three months ended June 30, 2003.

Interest Income

Interest income for the three months ended June 30, 2003 was $1.9 million, an increase of $1.2 million from the three months ended June 30, 2002. The increase is primarily related to interest earned on restricted cash and investments and, to a lesser extent, cash on-hand.

Interest Expense

Interest expense for the three months ended June 30, 2003 was $71.2 million, an increase of $5.7 million from the three months ended June 30, 2002. The majority of the increase resulted from interest expense on our ATI Notes, which we issued in January 2003, partially offset by a net decrease in interest expense on our credit facilities, which resulted primarily from repayments.

Loss on Investments and Other Expense

Loss on investments and other expense for the three months ended June 30, 2003 was $0.4 million, a decrease of $17.4 million from the three months ended June 30, 2002. The decrease resulted primarily from decreased impairment and equity losses on our investments of $12.7 million, coupled with a net decrease in foreign currency transaction losses.

Note Conversion Expense

During the three months ended June 30, 2003, we exchanged an aggregate of $70.7 million accreted value ($89.5 million face value) of our 2.25% convertible notes in exchange for an aggregate of 7,815,742 shares of our Class A common stock and $24.8 million in restricted cash. As a consequence of these negotiated exchanges with our note holders, we recorded a non-cash charge of $35.8 million. This charge primarily represents the fair value of shares issued to the note holders in excess of the number of shares originally issuable upon conversion of the notes. We incurred no similar charge for the three months ended June 30, 2002.

Income Tax Benefit

The income tax benefit for the three months ended June 30, 2003 was $18.0 million, a decrease of $9.3 million from the three months ended June 30, 2002. The effective tax rate was 18.2% for the three months ended June 30, 2003, as compared to 28.7% for the three months ended June 30, 2002. The primary reason for the decrease in the effective tax rate is a result of non-deductible note conversion expense. The effective tax rate on loss from continuing operations for the three months ended June 30, 2003 and 2002 differs from the statutory rate due primarily to valuation allowances related to our state net operating losses, capital losses, foreign items and non-deductible note conversion expense.

SFAS No. 109, “Accounting for Income Taxes,” requires that we record a valuation allowance when it is “more likely than not that some portion or all of the deferred tax assets will not be realized.” At June 30, 2003, we have provided a valuation allowance primarily related to state net operating loss carryforwards, capital loss carryforwards and the lost tax benefit and costs associated with implementing our tax planning strategy. We have not provided a valuation allowance for the remaining deferred tax assets, primarily federal net operating loss carryforwards, as management believes that we will have sufficient time to realize these assets during the carryforward period.

We intend to recover a portion of our deferred tax asset from our tax planning strategy to accelerate the utilization of certain federal net operating losses. The recoverability of our remaining net deferred tax asset has been assessed utilizing stable state (no growth) projections based on our current operations. The projections show a significant decrease in depreciation and interest expense in the later years of the carryforward period as a result of a significant portion of our assets being fully depreciated during the first fifteen years of the carryforward period and debt repayments reducing interest expense. Accordingly, the recoverability of our net deferred tax asset is not dependent on material improvements to operations, material asset sales or other non-routine transactions. Based on our current outlook of future taxable income during the carryforward period, management believes that our net deferred tax asset will be realized. The realization of our deferred tax assets as of June 30, 2003 will be dependent upon our ability to generate approximately $900.0 million in taxable income from July 1, 2003 to June 30, 2023. If we are unable to generate sufficient taxable income in the future, or accelerate the utilization of losses as contemplated in our tax planning strategy, we will be required to reduce our net deferred tax asset through a charge to income tax expense, which would result in a corresponding decrease in stockholders’ equity.

In June 2003, we filed an income tax refund claim with the IRS relating to net operating losses that we generated in 1998, 1999 and 2001. We plan to file a similar claim in September 2003 with respect to net operating losses generated in 2002. We anticipate receiving a refund of approximately $90.0 million as a result of these claims, which will monetize a portion of our deferred tax asset. We estimate recovery of these amounts within one to three years of the dates the claims are filed with the IRS. There can be no assurances, however, with respect to the specific amount and timing of the refund.

Loss from Discontinued Operations, Net

In June 2003, we committed to a plan to sell Kline by June 30, 2004. In May 2003, we consummated the sale of an office building in Westwood, Massachusetts. In February, 2003, pursuant to our plan to sell Verestar, we sold MTN, a subsidiary of Verestar. In January 2003, we sold Flash Technologies. In December 2002, we consummated the sale of the building in Boston, Massachusetts where we maintain our corporate headquarters. Finally, in July 2002, we consummated the sale of MTS Components. Accordingly, we have presented the results of these operations, $(2.1 million) and $(17.6 million), net of tax, within loss from discontinued operations, net, in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2003 and 2002, respectively.

In addition to the above, the net loss on disposal of discontinued operations for the three months ended June 30, 2003 also includes: (a) a non-cash charge of $12.9 million (net of a tax benefit) to impair Kline’s net assets to the estimated proceeds expected upon disposal; and (b) a non-cash charge of approximately $12.0 million to reduce the carrying value of Verestar’s remaining net assets to zero, as estimated proceeds upon disposal of the remaining net assets are expected to be minimal. The net loss on disposal of discontinued operations for the three months ended June 30, 2002 represents the estimated loss on the disposition of MTS Components of approximately $15.9 million, net of a tax benefit.

As of June 30, 2003, we have two businesses, Verestar and Kline, whose disposals are still pending transactions. We expect to sell the remaining portion of Verestar by December 31, 2003 and Kline by June 30, 2004.

Six Months Ended June 30, 2003 and 2002

	Six Months Ended						Amount of Increase (Decrease)			Percent Increase (Decrease)
	June 30,
	2003			2002
	(In thousands)
REVENUES:
Rental and management	$	298,378		$	258,618		$	39,760		15	%
Network development services		44,769			70,805			(26,036	)	(37	)

Total revenues		343,147			329,423			13,724		4

OPERATING EXPENSES:
Rental and management		108,901			114,013			(5,112	)	(4	)
Network development services		42,542			62,337			(19,795	)	(32	)
Depreciation and amortization		161,150			154,439			6,711		4
Corporate general and administrative expense		11,997			13,303			(1,306	)	(10	)
Restructuring expense					5,774			(5,774	)	N/A
Development expense		1,616			3,467			(1,851	)	(53	)
Impairments and net loss on sale of long-lived assets		11,732			1,311			10,421		795

Total operating expenses		337,938			354,644			(16,706	)	(5	)

OTHER INCOME (EXPENSE):
Interest income, TV Azteca, net of interest expense of $747 and $746, respectively		7,030			6,900			130		2
Interest income		2,856			1,811			1,045		58
Interest expense		(142,943	)		(129,307	)		13,636		11
Loss on investments and other expense		(25,599	)		(19,355	)		6,244		32
Loss from write-off of deferred financing and extinguishment of debt		(5,841	)		(8,869	)		(3,028	)	(34	)
Note conversion expense		(38,482	)					38,482		N/A
Minority interest in net earnings of subsidiaries		(1,363	)		(734	)		629		86
Income tax benefit		37,493			50,027			(12,534	)	(25	)
Loss from discontinued operations, net		(37,698	)		(48,192	)		(10,494	)	(22	)
Cumulative effect of change in accounting principle, net					(562,618	)		(562,618	)	N/A

Net loss	$	(199,338	)	$	(735,558	)	$	(536,220	)	(73	)%

Total Revenues

Total revenues for the six months ended June 30, 2003 were $343.1 million, an increase of $13.7 million from the six months ended June 30, 2002. The increase resulted from an increase in rental and management revenue of $39.8 million, offset by a decrease in network development services revenues of $26.0 million.

Rental and Management Revenue

Rental and management revenue for the the six months ended June 30, 2003 was $298.4 million, an increase of $39.8 million from the six months ended June 30, 2002. The increase resulted primarily from adding additional broadband tenants to towers that existed as of July 1, 2002 and, to a lesser extent, from revenue generated on the approximately 570 towers acquired and constructed subsequent to July 1, 2002.

Network Development Services Revenue

Network development services revenue for the six months ended June 30, 2003 was $44.8 million, a decrease of $26.0 million from the six months ended June 30, 2002. The significant decline in revenue during the first half of 2003 resulted primarily from decreases in revenue related to construction management, antennae installation, tower maintenance services and radio frequency engineering services, resulting from lower levels of construction activity and reduced demand for related services in the wireless telecommunications industry.

Total Operating Expenses

Total operating expenses for the six months ended June 30, 2003 were $337.9 million, a decrease of $16.7 million from the six months ended June 30, 2002. The principal component of the decrease was attributable to expense decreases in our network development services segment of $19.8 million. The remaining components of the decrease were attributable to expense decreases in rental and management segment of $5.1 million, as well as decreases in corporate general and administrative expense of $1.3 million, restructuring expense of $5.8 million and development expense of $1.9 million. These decreases were offset by increases in depreciation and amortization expense of $6.7 million and impairments and net loss on sale of long-lived assets of $10.4 million.

Rental and Management Expense/Segment Profit

Rental and management expense for the six months ended June 30, 2003 was $108.9 million, a decrease of $5.1 million from the six months ended June 30, 2002. The decrease primarily resulted from cost reduction efforts in administrative and operational functions, driven primarily by the restructuring initiatives that we completed in 2002.

Rental and management segment profit for the six months ended June 30, 2003 was $196.5 million, an increase of $45.0 million from the six months ended June 30, 2002. The increase resulted primarily from incremental revenues and operating profit from existing towers and newly acquired and constructed towers, coupled with cost reduction efforts in administrative and operational functions discussed above.

Network Development Services Expense/Segment Profit

Network development services expense for the six months ended June 30, 2003 was $42.5 million, a decrease of $19.8 million from the six months ended June 30, 2002. The majority of the decrease was due to an overall decline in demand for the services performed by this segment, as discussed above, coupled with decreases in overhead and related infrastructure costs.

Network development services segment profit for the six months ended June 30, 2003 was $2.2 million, a decrease of $6.2 million from the six months ended June 30, 2002. The decrease resulted primarily from a decline in revenue, as discussed above, partially offset by a reduction in personnel, overhead and infrastructure costs.

Depreciation and Amortization

Depreciation and amortization for the six months ended June 30, 2003 was $161.2 million, an increase of $6.7 million from the six months ended June 30, 2002. The increase resulted primarily from an increase in depreciation expense related to our acquisition/construction of approximately $157.7 million of property and equipment from July 1, 2002 to June 30, 2003.

Corporate General and Administrative Expense

Corporate general and administrative expense for the six months ended June 30, 2003 was $12.0 million, a decrease of $1.3 million from the six months ended June 30, 2002. The majority of the decrease is a result of cost reduction efforts in personnel and information technology.

Restructuring Expense

In November 2001, we announced a restructuring of our organization to include a reduction in the scope of our tower development and acquisition activities and the centralization of certain operational and administrative functions. During the six months ended June 30, 2002, we committed to and implemented additional restructuring initiatives related to the consolidation of operations. As a result of these initiatives, during the six months ended June 30, 2002, we incurred employee separation costs associated with the termination of approximately 370 employees (primarily development and administrative), as well as costs associated with the termination of lease obligations and other incremental facility closing costs aggregating $5.8 million. As of December 31, 2002, we completed our restructuring initiatives to consolidate operations and do not expect future charges associated with those initiatives. As a result, we recorded no similar charges in the six months ended June 30, 2003.

Development Expense

Development expense for the six months ended June 30, 2003 was $1.6 million, a decrease of $1.9 million from the six months ended June 30, 2002. This decrease resulted primarily from reduced expenses related to tower site inspections and related data gathering and costs to integrate tower acquisitions as a result of our curtailed acquisition and development related activities.

Impairments and Net Loss on Sale of Long-Lived Assets

Impairments and net loss on sale of long-lived assets for the six months ended June 30, 2003 was $11.7 million, an increase of $10.4 million from the six months ended June 30, 2002. The increase was attributable to both impairment charges and incurred losses on sales with respect to certain of our non-core tower and other assets for the six months ended June 30, 2003.

Interest Income

Interest income for the six months ended June 30, 2003 was $2.9 million, an increase of $1.0 million from the six months ended June 30, 2002. The increase is primarily related to the interest earned on restricted cash and investments and, to a lesser extent, cash on hand.

Interest Expense

Interest expense for the six months ended June 30, 2003 was $142.9 million, an increase of $13.6 million from the six months ended June 30, 2002. The majority of the increase, approximately $25.2 million, resulted from interest expense on our ATI Notes, which we issued in January 2003, partially offset by a net decrease in interest expense on our credit facilities as a result of repayments.

Loss on Investments and Other Expense

Loss on investments and other expense for the six months ended June 30, 2003 was $25.6 million, an increase of $6.2 million from the six months ended June 30, 2002. The increase resulted primarily from increased impairment and equity losses on our investments of $4.6 million, coupled with fees and expenses incurred in connection with a financing transaction that we did not consummate as a result of our ATI Notes offering. These increases were partially offset by decreased foreign currency transaction losses.

Loss from Write-Off of Deferred Financing Fees and Extinguishment of Debt

In February 2003, we amended our credit facilities which provided for the prepayment of $200.0 million of our term loans from a portion of the net proceeds from our ATI Notes offering and reduced the borrowing capacity of our revolving loan commitment under our credit facilities by $225.0 million. As a result, for the six months ended June 30, 2003, we recorded a $5.8 million loss from write-off of deferred financing fees associated with the reduction in our overall borrowing capacity.

In February 2002, we repaid $95.0 million outstanding under our Mexican credit facility with borrowings under our credit facilities. As a result of such repayment, for the six months ended June 30, 2002, we expensed approximately $1.7 million of deferred financing fees. In addition, in January 2002, we terminated the $250.0 million multi-draw term loan C component of our credit facilities and recorded a non-cash charge of approximately $7.2 million related to the write-off of the related deferred financing fees. The total of these charges, $8.9 million, represents our loss from write-off of deferred financing fees and extinguishment of debt for the six months ended June 30, 2002.

Note Conversion Expense

During the six months ended June 30, 2003, we exchanged an aggregate of $73.9 million accreted value ($93.5 million face value) of our 2.25% convertible notes in exchange for an aggregate of 8,415,984 shares of our Class A common stock and $24.8 million in restricted cash. As a consequence of these negotiated exchanges with our note holders, we recorded a non-cash charge of $38.5 million. This charge primarily represents the fair value of shares issued to the note holder in excess of the number of shares originally issuable upon conversion of the notes. We incurred no similar charge for the six months ended June 30, 2002.

Income Tax Benefit

The income tax benefit for the six months ended June 30, 2003 was $37.5 million, a decrease of $12.5 million from the six months ended June 30, 2002. The effective tax rate was 18.8% for the six months ended June 30, 2003, as compared to 28.6% for the six months ended June 30, 2002. The primary reason for the decrease in the effective tax rate is a result of the increase in the valuation allowance for capital losses incurred in the first quarter of 2003, and non-deductible note conversion expense. The effective tax rate on loss from continuing operations for the six months ended June 30, 2003 and 2002 differs from the statutory rate due primarily to valuation allowances related to our state net operating losses, capital losses, foreign items and non-deductible note conversion expense.

these claims, which will monetize a portion of our deferred tax asset. We estimate recovery of these amounts within one to three years of the dates the claims are filed with the IRS. There can be no assurances, however, with respect to the specific amount and timing of the refund.

Loss from Discontinued Operations, Net

In June 2003, we committed to a plan to sell Kline by June 30, 2004. In May 2003, we consummated the sale of an office building in Westwood, Massachusetts. In February, 2003, pursuant to our plan to sell Verestar, we sold MTN, a subsidiary of Verestar. In January 2003, we sold Flash Technologies. In December 2002, we consummated the sale of the building in Boston, Massachusetts where we maintain our corporate headquarters. Finally, in July 2002, we consummated the sale of MTS Components. Accordingly, we have presented the results of these operations $(9.0 million) and $(32.3 million), net of tax, as loss from discontinued operations, net, in the accompanying condensed consolidated statements of operations for the six months ended June 30, 2003 and 2002, respectively.

In addition to the above, the net loss on disposal of discontinued operations for the six months ended June 30, 2003 also includes: (a) a non-cash charge of $12.9 million (net of a tax benefit) to impair Kline’s net assets to the estimated proceeds expected upon disposal; (b) a non-cash charge of approximately $12.0 million to reduce the carrying value of Verestar’s remaining net assets to zero, as estimated proceeds upon disposal of the remaining net assets are expected to be minimal; (c) a $4.0 million net loss on the disposal of the office building in Westwood, Massachusetts; and (d) a $0.5 million gain on the sale of Flash Technologies. The net loss on disposal of discontinued operations for the six months ended June 30, 2002 represents the estimated loss on the disposition of MTS Components of approximately $15.9 million, net of a tax benefit.

Cumulative Effective of Change in Accounting Principle, Net

As of January 1, 2002, we adopted the provisions of SFAS No. 142 “Goodwill and Other Intangible Assets.” As a result, we recognized a $562.6 million non-cash charge (net of a tax benefit of $14.4 million) as the cumulative effect of change in accounting principle related to the write-down of goodwill to its fair value. The non-cash charge was comprised of goodwill within our satellite and fiber network access services segment ($189.3 million) and network development services segment ($387.8 million). In accordance with the provisions of SFAS No. 142, the charge is reflected as of January 1, 2002 and included in our results of operations for the six months ended June 30, 2002.

Liquidity and Capital Resources

Liquidity Overview

Our primary sources of liquidity have been internally generated funds from operations, borrowings under our credit facilities, proceeds from equity and debt offerings, cash on hand and, to a lesser extent, proceeds from the sale of non-core assets. We have used those funds to meet our operating, financing and capital requirements, which consist primarily of operational needs, debt service and capital expenditures for tower maintenance, construction and acquisitions.

In August 2003, we raised net proceeds of approximately $289.2 million through a private placement of $175.0 million principal amount of our 3.25% convertible notes due 2010 and a public equity offering of approximately 14.3 million shares of our Class A common stock (including the exercise in full of the underwriters’ over-allotment option for approximately 1.9 million shares). We also granted the initial purchasers’ of the 3.25% convertible notes offering a 30-day option to purchase an additional $35.0 million in principal amount of the notes, which, if exercised in full, would result in additional net proceeds to us of approximately

$33.9 million. The initial purchasers have exercised the additional purchase option in full, and we expect to receive the additional net proceeds on August 18, 2003. In connection with these offerings, we signed a lock-up agreement prohibiting us prior to November 4, 2003 from issuing shares of Class A common stock, except in limited circumstances, without the consent of the underwriters and initial purchasers.

Of the total net proceeds raised in these offerings, we have applied $84.4 million of the 3.25% convertible notes proceeds to reduce indebtedness under the credit facilities, applied the remaining $84.4 million of the 3.25% convertible notes proceeds to repurchase a portion of our 2.25% convertible notes and 5.0% convertible notes and placed the $120.4 million of equity proceeds in a restricted account. With respect to the approximately $33.9 million of additional net proceeds we expect to receive from the exercise of the additional purchase option relating to the 3.25% convertible notes, $15.6 million will be applied to reduce indebtedness under the credit facilities, and the remaining $18.3 million will be held in another restricted account to fund additional purchases of other debt securities of our parent company, or to reduce further indebtedness under the credit facilities.

From August 4, 2003 to August 11, 2003, we utilized the remaining $84.4 million of the proceeds from the 3.25% convertible notes offering and $13.9 million of restricted cash held at June 30, 2003 to repurchase $37.0 million accreted value of our 2.25% convertible notes ($46.4 million face value) for approximately $37.3 million and $68.3 million face value of our 5.0% convertible notes for approximately $61.0 million. We expect to use the net proceeds of our equity offering of approximately $120.4 million to fund additional repurchases of other debt securities of our parent company, or we may contribute as equity the remaining proceeds to our borrower subsidiaries under the credit facilities. Pursuant to an amendment to the credit facilities in July 2003, these funds are held in a restricted account for these purposes.

Uses of Liquidity

Our principal uses of liquidity, in addition to funding operations, are debt service and capital expenditures for tower maintenance, construction and acquisitions.

Debt Service. As of June 30, 2003, we had outstanding debt of approximately $3.5 billion, consisting of the following:

•

Credit facilities – $1.3 billion;

•

Senior notes – $1.0 billion;

•

Convertible notes, net of discount – $802.9 million;

•

ATI Notes, net of discount – $392.6 million; and

•

Other – $63.1 million (primarily capital leases and notes payable)

After giving effect to the $175.0 million 3.25% convertible notes offering, the repayment of $84.4 million of borrowings under our credit facilities and repurchases of our 2.25% convertible notes and 5.0% convertible notes from proceeds of the 3.25% convertible notes offering in August 2003, approximately $1.2 billion would be outstanding under our credit facilities and $3.5 billion of total consolidated debt would be outstanding as of June 30, 2003.

Certain of our debt instruments require us to make current interest payments and all of our debt instruments require us to make significant principal payments at their respective maturities. In addition, in the case of our credit facilities, we must make scheduled amortization payments in increasing amounts designed to repay the loans at maturity. During 2003, we are required to repay approximately $52.4 million of the amended term loans and have paid approximately $27.2 million during the six months ended June 30, 2003.

Prior to maturity, there are no mandatory redemption provisions for cash in the senior notes, the convertible notes or the ATI Notes. With the exception of the 3.25% convertible notes, the holders of the convertible notes, however, have the right to require us to repurchase their notes on specified dates prior to maturity, but we may at

our election pay the repurchase price in cash or by issuing shares of our Class A common stock, subject to certain conditions in the applicable indenture and the terms of the lock-up agreement relating to our August 2003 offerings. Our credit facilities restrict our ability to repurchase convertible notes for cash, except that we may repurchase convertible notes using the remaining funds in the restricted account relating to the 12.25% senior subordinated discount notes offering and the restricted account relating to the Class A common stock offering in August 2003. If, on June 30, 2004, any balance exists in the restricted account relating to the 12.25% senior subordinated discount notes offering, we must apply such balance to reduce the terms loans outstanding under the credit facilities. If, on August 4, 2004, any balance exists in the restricted account relating to the Class A common stock offering, we must contribute as equity such balance to our borrower subsidiaries under the credit facilities.

Summary of Debt Repurchases. From January 1, 2003 through August 11, 2003, we repurchased an aggregate of $110.9 million accreted value ($140.0 million face value) of our 2.25% convertible notes in exchange for 8,415,984 shares of our Class A common stock and approximately $62.1 million in cash from the restricted accounts described above. From August 4, 2003 to August 11, 2003 we repurchased $68.3 million face value of our 5.0% convertible notes for approximately $61.0 million in cash from the restricted accounts described above.

Tower Construction, Improvements and Acquisition Needs. We have significantly reduced our planned level of tower construction, improvements and acquisitions for 2003 from prior years. As a result, we anticipate that our liquidity needs for new tower development and acquisitions during 2003 will be significantly less than in previous periods.

•

Construction and Improvements. In 2003, we expect to build approximately 100 communications towers and expect total capital expenditures for construction and improvements to be between $48.0 million and $56.0 million.

•

Acquisitions. As of June 30, 2003 we had closed approximately $67.1 million of the $100.0 million NII Holdings Inc. tower acquisition, including approximately $10.6 million in the second quarter of 2003. We expect to close the remaining $32.9 million of the NII Holdings Inc. acquisition in stages throughout the remainder of 2003.

Sources of Liquidity

Cash on Hand. As of June 30, 2003, we had approximately $107.6 million in cash on hand and $192.9 million of restricted cash and investments. Giving effect to the August 2003 offerings and the convertible note repurchases occurring through August 11, 2003, the balances in the restricted cash accounts relating to the 12.25% senior subordinated discount notes offering and the August 2003 equity offering were $179.0 million and $120.4 million, respectively.

Credit Facilities. As of June 30, 2003, we had drawn $157.1 million of the $422.1 million revolving line of credit under our credit facilities (the only component of our credit facilities which is not fully drawn). We also had outstanding letters of credit of $27.2 million as of June 30, 2003. Availability under our revolving credit facility as of June 30, 2003, was, therefore, $237.8 million. After giving effect to the repayment of $84.4 million from proceeds from the 3.25% convertible notes offering and the related permanent reduction of revolving loan commitments, approximately $125.1 million would be outstanding under the revolving credit facility and total availability under our revolving credit facility would remain at $237.8 million as of June 30, 2003.

Cash Generated by Operations. We expect our cash flow needs by segment for 2003 to be as follows (excluding cash requirements to fund debt service, as interest expense is not allocated to our segments). Each of our rental and management and network development services segments are expected to generate cash flows from operations during 2003 in excess of their cash needs for operations and capital expenditures. We expect to use the excess cash generated from these segments principally to service our debt. Effective December 31, 2002, we committed to a plan to dispose of our satellite and fiber network access services segment. Accordingly, these operations are reflected as discontinued operations in our consolidated financial statements. We believe the businesses in our former satellite and fiber network access services segment will be funded out of its existing

cash on hand, working capital and a limited amount of funds from the Company. In addition, we currently provide financial guarantees of approximately $10.0 million for certain Verestar contractual obligations. Depending on the terms of any disposition, we may continue to be obligated with respect to those guarantees.

Offerings. In August 2003, we completed a public offering of approximately 14.3 million shares of Class A common stock (including the exercise in full of the underwriters’ over-allotment option to purchase approximately 1.9 million shares) at $8.89 per share for net proceeds of approximately $120.4 million, after deducting underwriters’ discounts and commissions and other expenses related to the offering. Concurrently, we also completed a separate private placement of $175.0 million principal amount of our 3.25% convertible notes due 2010 for net proceeds of approximately $168.8 million, after deducting initial purchasers’ discounts and commissions and other expenses related to the offering. We also granted the initial purchasers a 30-day option from the closing date (August 4, 2003) to purchase an additional $35.0 million in principal amount of the notes, which if exercised in full would result in additional net proceeds to us of approximately $33.9 million. The initial purchasers have exercised the additional purchase option in full, and we expect to receive the additional net proceeds on August 18, 2003.

Divestiture Proceeds. We are continuing to pursue strategic divestitures of non-core assets in an effort to enhance efficiency and increase our focus on our core tower operations. From January 1, 2003 through June 30, 2003, we received cash proceeds of approximately $77.3 million in non-core asset sales related to (a) a Verestar subsidiary, (b) Flash Technologies, (c) office buildings in Schaumburg, Illinois and Westwood, Massachusetts and (d) non-core towers and related assets. Proceeds from those and any future transactions have and will be used, to the extent permitted under our credit facilities and mortgages, to fund capital expenditures for tower construction and acquisitions. We anticipate receiving approximately $30.0 million of proceeds from additional sales of non-core assets during the remainder of 2003.

Cash Flows Summary

For the six months ended June 30, 2003, cash flows provided by operating activities were $50.6 million, as compared to $32.5 million for the six months ended June 30, 2002. The increase is primarily due to an increase in cash flow generated from our rental and management segment.

For the six months ended June 30, 2003, cash flows provided by investing activities were $4.2 million, as compared to $143.6 million used for investing activities for the six months ended June 30, 2002. This change is primarily due to a decrease in cash expended for purchases of property and equipment and construction activities, coupled with an increase in proceeds received from the sale of non-core businesses and other non-core long-lived assets.

For the six months ended June 30, 2003, cash flows used for financing activities were $74.4 million, as compared to $104.7 million of cash provided by financing activities for the six months ended June 30, 2002. The decrease is primarily related to an increase in repayments under the credit facilities, the funding of restricted cash and investments and a decrease in borrowings under our credit facilities.

Certain Contractual Commitments

Below is a summary of our credit facilities, ATI Notes, warrants, senior notes, convertible notes and certain other contractual obligations. It is qualified in its entirety by the terms of the actual agreements which are summarized. For more information about our obligations, commitments and contingencies, see our condensed consolidated financial statements herein and the accompanying notes thereto, as well as our Form 10-K for the year ended December 31, 2002, Form 8-K dated July 28, 2003 and Item 3. “Quantitative and Qualitative Disclosures About Market Risk” for principal payments and contractual maturity dates as of June 30, 2003.

Credit Facilities. As of June 30, 2003, our credit facilities provide us with a borrowing capacity of up to $1.523 billion. Our principal operating subsidiaries are the borrowers under our credit facilities. Borrowings

under the credit facilities are subject to compliance with certain financial ratios as described below. As of June 30, 2003, our credit facilities include:

•

a $422.1 million revolving credit facility, of which $157.1 million was drawn and against which $27.2 million of undrawn letters of credit were outstanding on June 30, 2003, maturing on June 30, 2007;

•

a $686.3 million multi-draw term loan A, which was fully drawn on June 30, 2003, maturing on June 30, 2007; and

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a $414.9 million term loan B, which was fully drawn on June 30, 2003, maturing on December 31, 2007.

In August 2003, we utilized a portion of the net proceeds from the 3.25% convertible notes offering to repay $84.4 million of indebtedness under the credit facilities, consisting of the repayment of $52.1 million of the term loan A, $0.3 million of the term loan B and $32.0 million of revolving loans (which resulted in the permanent reduction of the revolving loan commitments by the amount the revolving loan was repaid). After giving effect to this repayment, as of June 30, 2003, total borrowing capacity under the credit facilities would be approximately $1.4 billion, our borrowing availability would remain at $237.8 million and approximately $1.2 billion would be outstanding under the credit facilities. Accordingly, our credit facilities include:

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$390.1 million revolving credit facility, of which $125.1 million was drawn;

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$634.2 million multi-draw fully drawn term loan A; and

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$414.6 million fully drawn term loan B.

We are required under our credit facilities to make scheduled amortization payments in increasing amounts designed to repay the loans at maturity. During 2003, we are required to repay approximately $52.4 million of the term loans and have paid approximately $27.2 million during the six months ended June 30, 2003.

We and our restricted subsidiaries, as well as Verestar and its subsidiaries, have guaranteed all of the loans under our credit facilities. We have secured the loans with liens on substantially all assets of the borrowers and the restricted subsidiaries, as well as Verestar and its subsidiaries, and substantially all outstanding capital stock and other debt and equity interests of all of our direct and indirect subsidiaries.

In July 2003, we entered into an amendment to the credit facilities primarily to facilitate the 3.25% convertible notes offering and our public equity offering. The amendment permits us, among other things, to retain the net proceeds from the equity offering provided that such proceeds are deposited in a restricted account (in which the lenders under the credit facilities have a security interest) to be applied by us to repurchase our outstanding convertible notes and 9³/8% senior notes and that any balance remaining in the account twelve months after the closing of the offering must be contributed as equity to the borrower subsidiaries under the credit facilities. The amendment also permits us, prior to June 30, 2004, to use the funds in the restricted account relating to the 12.25% senior subordinated discount notes offering to repurchase, in addition to our 2.25% convertible notes, any of our other convertible notes and 9³/8% senior notes, subject to certain conditions.

3.25% Convertible Notes. In August 2003, we completed a private placement of $175.0 million principal amount of 3.25% convertible notes ($210.0 million including the initial purchasers’ additional purchase option, which they have exercised and is expected to close on August 18, 2003). The 3.25% Notes mature on August 1, 2010 and interest is payable semi-annually in arrears on February 1 and August 1 each year. The 3.25% Notes are convertible at any time into shares of our Class A common stock at a conversion price of $12.22 per share, subject to certain adjustments. We may redeem the 3.25% Notes after August 6, 2008. The initial redemption price on the 3.25% Notes is 100.9% of the principal amount, subject to a ratable decline after August 1 of the following year to 100% of the principal amount in 2010. The 3.25% Notes rank equally with the 5.0% convertible notes, the 6.25% convertible notes, the 2.25% convertible notes and the 9³/8% senior notes and are structurally and effectively junior to indebtedness outstanding under the credit facilities and the 12.25% senior subordinated discount notes.

ATI Notes and Warrants. In January 2003, ATI, our principal operating subsidiary, issued 12.25% senior subordinated discount notes due 2008 with a principal amount at maturity of $808.0 million. The ATI Notes will mature on August 1, 2008. No cash interest is payable on the ATI Notes. Instead, the accreted value of each note increases between the date of original issuance and the maturity date at a rate of 12.25% per annum.

The ATI Notes rank junior in right of payment to all existing and future senior indebtedness of ATI, the sister guarantors (as defined in the indenture relating to the ATI Notes) and their domestic subsidiaries and structurally senior in right of payment to all of our existing and future indebtedness (other than our guaranty of credit facility indebtedness). The ATI Notes are jointly and severally guaranteed on a senior subordinated basis by us and all of our wholly owned domestic subsidiaries, other than Verestar and its subsidiaries.

As part of the ATI Notes offering, we issued warrants to purchase an aggregate of 11.4 million shares of our Class A common stock at a price of $0.01 per share. The warrants and the discount notes were originally issued together as 808,000 units, each unit consisting of (1) one discount note having a principal value of $1,000 at maturity, and (2) one warrant to purchase 14.0953 shares of our Class A common stock at $0.01 per share. The warrants are exercisable at any time on or after January 29, 2006 and will expire on August 1, 2008.

As of June 30, 2003, we had outstanding an aggregate accreted value amount of $392.6 million of the ATI Notes, net of the allocated fair value of the warrants.

9³/8% Senior Notes. As of June 30, 2003, we had outstanding an aggregate principal amount of $1.0 billion of 9³/8% senior notes. The senior notes mature on February 1, 2009. Interest on the senior notes is payable semiannually on February 1 and August 1. The senior note indenture does not contain any sinking fund or mandatory redemption requirement for the senior notes prior to maturity.

October 1999 Convertible Notes. In October 1999, we issued 6.25% convertible notes due 2009 in an aggregate principal amount of $300.0 million and 2.25% convertible notes due 2009 at an issue price of $300.1 million, representing 70.52% of their principal amount at maturity of $425.5 million. The difference between the issue price and the principal amount at maturity of the 2.25% convertible notes will be accreted each year at the rate of 6.25% per annum as interest expense in our consolidated financial statements. The 6.25% convertible notes are convertible into shares of our Class A common stock at a conversion price of $24.40 per share. The 2.25% convertible notes are convertible into shares of Class A common stock at a conversion price of $24.00 per share.

The indentures under which the convertible notes were issued do not contain any sinking fund or mandatory redemption requirement for the convertible notes prior to maturity. However, holders may require us to repurchase all or any of their 6.25% convertible notes on October 22, 2006 at their principal amount, together with accrued and unpaid interest. Holders may require us to repurchase all or any of their 2.25% convertible notes on October 22, 2003 at $802.93, which is its issue price plus accreted original issue discount, together with accrued and unpaid interest.

We may elect to pay the repurchase price of each series of convertible notes in cash or shares of our Class A common stock, or any combination thereof, subject to certain conditions in the applicable indenture and the terms of the lock-up agreement related to our August 2003 offerings.

The amended credit facilities permit us to use, subject to certain conditions, restricted cash to purchase our 2.25% convertible notes, whether pursuant to the holders’ put rights on October 22, 2003, in privately negotiated transactions, or otherwise. See “Uses of Liquidity.” Notwithstanding this right, we will continue to evaluate financing opportunities with respect to our convertible notes generally and, in particular, with respect to the put right of the 2.25% convertible notes. We may seek, from time to time, to reduce our indebtedness through cash purchases and/or exchanges for equity securities, in open market purchases, privately negotiated transactions or otherwise. Such purchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

As of June 30, 2003, the total accreted amounts outstanding under the 2.25% and 6.25% convertible notes were $140.1 million and $212.7 million, respectively. Giving effect to the repurchases of our 2.25% convertible notes occurring through August 11, 2003, the total accreted amount outstanding under the 2.25% convertible notes was approximately $103.1 million.

February 2000 Convertible Notes. In February 2000, we issued 5.0% convertible notes due 2010 in an aggregate principal amount of $450.0 million. The 5.0% convertible notes are convertible into shares of our Class A common stock at a conversion price of $51.50 per share. The indenture under which the 5.0% convertible notes are outstanding does not contain any sinking fund or mandatory redemption requirement for the convertible notes prior to maturity. However, holders may require us to repurchase all or any of the 5.0% convertible notes on February 20, 2007 at their principal amount, together with accrued and unpaid interest. We may elect to pay the repurchase price in cash or shares of Class A common stock or any combination thereof, subject to certain conditions in the indenture and the terms of the lock-up agreement related to our August 2003 offerings. The amended credit facilities permit us to use, subject to certain conditions, the restricted cash, to repurchase our 5.0% convertible notes. See “Uses of Liquidity.”

The total amount outstanding under the 5.0% convertible notes as of June 30, 2003 was $450.0 million. Giving effect to the repurchases of our 5.0% convertible notes occurring