BOSTON—American Tower Corp., the nation’s largest tower company, released limited second-quarter results—but said it will probably restate its past earnings as a result of its investigation of stock option-granting practices.
AMT said it expects to report its full second-quarter results in the next four to six weeks.
During its quarterly conference call, AMT said its stock-option investigation has cost the company $1.5 million, a number that could climb to $3 million by the end of the third quarter.
In late May, AMT received a formal letter of inquiry about its stock-option grants from the Securities and Exchange Commission, and the company’s board created a special committee of independent directors to conduct its own internal review of its stock-option practices and related accounting.
At the time, AMT said, “Depending on the outcome of this review, the company may need to correct its historical determinations of non-cash stock-based compensation expense and, if such corrections are material, it could result in the need to restate the company’s financial statements.”
However, the company also said in the statement that it does not expect the review to result in changes to its revenues, operating expenses or cash flow from operations.
Soon after, a class action lawsuit was filed against the company in the U.S. District Court for the District of Massachusetts, along with a shareholder lawsuit in the state of Massachusetts, alleging that current and former officers and directors were involved in unfair stock-option awards.
At issue is the illegal practice of “backdating” stock-option grants for employees, usually high-level executives. By manipulating the stock grant date of stock options, companies can match up a favorable stock price with an option after the stock market has run its course for a particular stock during a specific time period.
In effect, backdating stock options is the equivalent of lottery officials allowing lottery players to win the lottery by buying winning-number tickets after the winning numbers are posted.
Done legally, companies award stock-option grants as incentives, hoping that employees will work hard to ensure that the company performs well, thus increasing its stock value. Backdating the options potentially allows employees to benefit regardless of how the company or the stock performs.
Other wireless companies have also been stung by investigations into their stock option-award practices, including Boston Communications Group Inc., Openwave Systems Inc. and Comverse Technology Inc.
In light of the SEC review of AMT’s stock-option grants, the company said it has temporarily suspended its $750 million stock buyback program.
As for the company’s financials, AMT’s revenues jumped 73 percent to $325.9 million, higher than Wall Street’s expectation of $321.7 million.
The company’s rental and management revenues also climbed by 73 percent, bringing in $320.2 million as the segment’s gross margin rose 70 percent to $240.6 million.
“Demand for tower space remains robust,” stated Jim Taiclet, chief executive officer of AMT. “On a pro-forma basis, adjusted for the impact of our merger with SpectraSite, our second quarter 2006 tower revenues grew 12 percent over the prior year.”
Wall Street hardly blinked at the company’s limited earnings report, as AMT’s stocks traded down 7 cents at $33.19 per share after the news.
