American Tower Corporation — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also presents unaudited fourth-quarter results; this is an annual filing, not a standalone quarterly report. Dollar amounts below are in U.S. dollars.
Business context
American Tower owns, operates and develops wireless and broadcast communications infrastructure, principally leasing antenna space on multi-tenant towers. At year-end it had 54,604 communications sites across the United States and ten international markets. Rental and management operations generated approximately 97% of 2012 revenue. The company began operating as a REIT for federal income tax purposes on January 1, 2012.
Financial performance
| Metric | FY 2012 | FY 2011 | Change |
|---|---|---|---|
| Revenue | $2.876 billion | $2.444 billion | +18% |
| Operating income | $1.120 billion | $920.1 million | +22% |
| Operating margin | 38.9% | 37.7% | +1.2 percentage points |
| Net income | $594.0 million | $381.8 million | +56% |
| Net income attributable to American Tower | $637.3 million | $396.5 million | +61% |
| Diluted earnings per share | $1.60 | $0.99 | +$0.61 |
| Adjusted EBITDA (non-GAAP) | $1.892 billion | $1.595 billion | +19% |
| Cash from operating activities | $1.414 billion | $1.166 billion | +21% |
Attributable net income exceeds consolidated net income because of the reported net loss attributable to noncontrolling interests. Adjusted EBITDA is a company-defined non-GAAP measure.
- Revenue mix and growth: Domestic rental and management revenue was $1.941 billion, up 11%; international revenue was $862.8 million, up 34%; network development services revenue was $72.5 million, up 26%. International growth reflected substantial site additions, partly offset by a 14% adverse foreign-currency translation impact.
- Cash flow and investment: Cash used in investing activities was $2.558 billion, including $1.998 billion for acquisitions and $568.0 million for property, equipment and construction. Financing activities provided $1.170 billion. Cash and cash equivalents were $368.6 million at year-end; restricted cash was a further $69.3 million.
- Debt and liquidity: Long-term obligations, including current portion, were $8.753 billion, up from $7.236 billion. Management reported approximately $1.103 billion of available liquidity at year-end, including $368.6 million cash and $734.6 million of available credit capacity. The company reported compliance with its credit-facility covenants.
- Distributions: The company paid $355.6 million in regular distributions in 2012, or $0.90 per share. Its REIT status generally requires annual distributions of at least 90% of REIT taxable income; future distributions remain subject to board discretion and other constraints.
Material changes and unusual items
- Revenue growth reflected legacy-site leasing and escalations as well as acquisitions and construction. The portfolio added or constructed approximately 8,790 towers in 2012; major expansions included Uganda and Germany.
- Interest expense rose 29% to $401.7 million, mainly because average debt increased to fund acquisitions. The weighted-average borrowing cost also increased slightly, from 5.32% to 5.37%.
- The effective tax rate fell to 15.3% from 24.7%, principally reflecting the REIT conversion and related dividend-paid deduction, partly offset by foreign taxes and valuation allowances.
- Other expense fell to $38.3 million from $123.0 million, mainly because unrealized foreign-currency losses declined. 2012 still included approximately $34.3 million of unrealized currency losses.
- Other operating expenses included $21.5 million of impairment charges; $10.8 million related to an outdoor DAS network following a tenant lease termination. No goodwill impairment was identified in 2012.
- Fourth-quarter revenue was $768.4 million versus $653.2 million in Q4 2011; Q4 net income was $118.2 million versus $196.4 million, and diluted EPS was $0.34 versus $0.52. The filing text does not provide a clear quarter-specific explanation for the net-income decline.
Outlook, risks and contingencies
- Management expected 2013 operating cash flow to fund operating needs, capital expenditures, debt service and REIT distributions. It forecast 2013 capital expenditures of approximately $550 million to $650 million, including construction of roughly 2,250 to 2,750 new sites, and intended to continue regular distributions.
- In January 2013, the company issued $1.0 billion of 3.50% senior notes due 2023 and used the proceeds primarily to repay credit-facility borrowings. It also acquired 883 sites from Axtel for $248.5 million, subject to post-closing adjustments and value-added tax.
- Key risks include tenant concentration (AT&T Mobility, Sprint Nextel and Verizon Wireless represented 18%, 14% and 11% of consolidated revenue, respectively), customer consolidation or site sharing, technology changes that could reduce tower demand, international currency and political risks, land-right renewal, regulation, and REIT qualification and distribution requirements.
- Approximately 88% of sites were on leased land. Ground lease costs and renewal terms are material; approximately 78% of ground agreements had final expiration dates in 2022 or later. Long-term tenant lease receipts were approximately $20.2 billion, but are contractual estimates and depend on lease performance.
- The securitization covering 5,278 towers had a 3.89x debt-service coverage ratio at year-end; specified thresholds could trap excess cash or require principal amortization. The company also disclosed $34.3 million of unrecognized tax benefits and $28.7 million of accrued tax-related interest and penalties.
- The SEC completed its investigation into tax accounting and reporting in November 2012 and stated it did not intend to recommend enforcement action. A Mexican litigation claim against a subsidiary was released in connection with a January 2013 site acquisition. Management said no other pending litigation was expected to have a material impact.
Important facts for investors to verify
- Reconcile reported net income of $594.0 million with $637.3 million attributable to American Tower, including the noncontrolling-interest treatment.
- Assess whether acquisition-led growth and legacy-site leasing can continue to support revenue and Adjusted EBITDA growth after the 2012 expansion.
- Review debt maturities, variable-rate exposure, covenant headroom and the effect of required REIT distributions on cash available for investment and debt repayment.
- Monitor international currency movements, tenant concentration and any regulatory or land-right developments in operating markets.
- Confirm whether the 2013 capital-spending outlook, post-year-end financing and acquisitions were completed as anticipated; the filing does not provide realized 2013 results.