Business context and reporting period
American Tower Corporation’s Form 10-K covers the fiscal year ended December 31, 2011; it is an annual report, not a standalone fourth-quarter filing. The company owns, operates and develops wireless and broadcast communications sites, earning about 98% of revenue from rental and management operations. At year-end it reported approximately 21,575 U.S. sites and 23,903 international sites. American Tower began operating as a REIT for tax purposes on January 1, 2012.
Financial performance and position
| Metric | FY 2011 | FY 2010 | Change |
|---|---|---|---|
| Revenue | $2.444 billion | $1.985 billion | +23% |
| Operating income | $920.1 million | $784.4 million | +17% |
| Net income | $381.8 million | $373.6 million | +2% |
| Net income attributable to American Tower | $396.5 million | $372.9 million | +6% |
| Diluted EPS from continuing operations attributable to American Tower | $0.99 | $0.92 | +8% |
| Adjusted EBITDA | $1.595 billion | $1.348 billion | +18% |
| Cash provided by operating activities | $1.166 billion | $1.021 billion | +14% |
| Cash used for investing activities | $2.791 billion | $1.301 billion | Increased $1.490 billion |
| Cash and cash equivalents | $330.2 million | $884.0 million | Down $553.8 million |
| Long-term obligations, including current portion | $7.236 billion | $5.587 billion | Up $1.649 billion |
Operating margin was approximately 37.7% in 2011, compared with 39.5% in 2010. Total rental and management revenue grew 23%: domestic revenue increased 11% to $1.744 billion and international revenue rose 73% to $641.9 million. International growth was principally acquisition-driven; new-site revenue contributed approximately 64% growth in that segment. The filing reports approximately $1.577 billion of available liquidity at year-end, including cash and borrowing availability under credit facilities. The company reported compliance with its debt covenants.
Fourth-quarter 2011 results, as presented in the filing’s unaudited quarterly data, were revenue of $653.2 million, operating income of $247.7 million, net income of $196.4 million and diluted EPS of $0.52. Fourth-quarter 2010 revenue was $547.6 million, operating income $203.4 million, net income $83.7 million and diluted EPS $0.21.
Material changes versus the prior comparable period
- Revenue and Adjusted EBITDA rose substantially, supported by organic leasing growth and a large increase in the international site portfolio. The company acquired or constructed approximately 10,470 communications sites during 2011 and acquired property interests under approximately 1,810 sites.
- Net income increased only 2% despite higher operating income. Interest expense rose 27% to $311.9 million as average debt increased, and other expense was $123.0 million, principally reflecting approximately $131.1 million of unrealized foreign-currency losses on intercompany and similar balances.
- The effective tax rate fell to 24.7% from 32.8%, primarily reflecting a $121 million deferred-tax adjustment associated with the REIT conversion. This benefited reported earnings but is not a recurring operating-growth measure.
- Cash used for acquisitions and other investing activity increased sharply; year-end cash declined while debt rose. The company issued $500 million of 5.90% senior notes due 2021 during 2011.
Outlook, commentary, risks and unusual items
- Management expected 2012 operating cash flow to cover operations, capital expenditures, cash debt service and required REIT distributions. It forecast 2012 capital expenditures of approximately $500 million to $600 million, including construction of about 1,800 to 2,200 new sites. This is capital-spending guidance, not earnings or revenue guidance.
- The company intended to begin regular REIT distributions in 2012. REIT rules generally require annual distributions of at least 90% of REIT taxable income; the board retains discretion over the amount, timing and frequency. A one-time $137.8 million, or $0.35-per-share, pre-REIT distribution was paid in December 2011.
- In January 2012, the company entered a new $1.0 billion revolving credit facility and used it, together with borrowings under its 2011 facility, to repay and terminate its prior revolving facility and repay its term loan.
- Principal risks include reliance on a limited number of tenants, tenant creditworthiness, carrier consolidation or network sharing, technology that reduces demand for tower space, foreign-exchange and political risks, REIT qualification and distribution constraints, substantial leverage, refinancing and covenant risks, and ground-lease renewal and regulatory issues. Four tenants represented about 74% of domestic rental and management revenue; five represented about 53% internationally.
- The SEC had issued a subpoena seeking documents, particularly concerning tax accounting and reporting; the company said it was cooperating and could not predict the investigation’s scope or outcome. A Mexico-related lawsuit remained unresolved, with potential statutory interest previously identified at approximately $6.7 million; actual liability and U.S. enforceability were uncertain. The company reported that the Horse-Shoe Capital dispute was settled and dismissed in 2011.
- Other notable items include $21.5 million of increased acquisition-related, REIT-conversion consulting and legal costs described as non-recurring, and $9.0 million of impairment charges in 2011. The filing reported an unqualified audit opinion and effective internal control over financial reporting.
Most important facts for investors to verify
- Whether organic leasing growth and site utilization can continue, separately from growth due to acquisitions and foreign-currency translation.
- How the 2012 REIT structure affects recurring taxes, cash available for distributions, and the ability to access cash held in taxable REIT subsidiaries and foreign operations.
- Debt maturities, borrowing costs, covenant headroom and liquidity after the January 2012 refinancing, particularly given debt of $7.2 billion at year-end.
- Tenant concentration and credit exposure, including the effect of carrier consolidation, lease churn and international tenant finances.
- Developments in the SEC tax-accounting investigation, the Mexico litigation, and any related tax assessments or contingent liabilities.
- Whether 2012 capital-spending plans and distributions can be funded while maintaining liquidity and limiting further leverage.