Crown Castle International Corp. — FY2011 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended December 31, 2011. Crown Castle owns, operates and leases shared wireless infrastructure, primarily towers, distributed antenna systems and related land interests, in the United States and Australia. Approximately 91% of 2011 consolidated revenue came from recurring site rental activities under long-term contracts. At year-end, the company owned, leased or managed approximately 23,800 towers, 800 DAS nodes and 150 third-party land interests.
The filing also provides unaudited quarterly information. Fourth-quarter 2011 revenue was $519.5 million, operating income was $176.8 million and net income attributable to CCIC stockholders was $48.9 million.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Site rental revenue | $1.854 billion | $1.701 billion | +9% |
| Network services and other revenue | $179.2 million | $177.9 million | +1% |
| Total revenue | $2.033 billion | $1.879 billion | +8% |
| Operating income | $692.3 million | $575.4 million | +20% |
| Net income attributable to CCIC stockholders | $171.1 million | $(310.9) million | Turned profitable |
| Net income attributable to common stockholders | $148.1 million | $(331.7) million | Turned profitable |
| Basic and diluted earnings per share | $0.52 | $(1.16) | Improved |
| Adjusted EBITDA | $1.307 billion | $1.172 billion | +12% |
| Net cash provided by operating activities | $643.5 million | $603.4 million | +7% |
Approximate 2011 margins were 34.1% for operating income, 8.4% for net income attributable to CCIC stockholders, 74.0% for site rental gross margin and 64.3% for Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure and is not necessarily comparable with similarly titled measures used by other companies.
- Capital expenditures were $347.9 million, including $196.4 million for land interests and $23.4 million of sustaining capital expenditures.
- Cash and cash equivalents were $80.1 million at December 31, 2011; restricted cash was $252.4 million.
- Reported debt and other long-term obligations were $6.886 billion at year-end, compared with $6.779 billion in 2010.
- After giving effect to the WCP acquisition and January 2012 refinancing, management presented approximately $563.9 million of cash, $1.0 billion of undrawn revolving capacity and $7.936 billion of debt and other long-term obligations, excluding the undrawn $500 million delayed-draw term loan.
- The company paid $303.4 million to repurchase 7.4 million common shares and paid $19.5 million in preferred-stock dividends during 2011. It paid no common-stock dividend.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by new tenant additions, contract escalations, renewals and extensions in the site rental business. The site rental business generated a 93% incremental margin on the increase in CCUSA site rental revenue.
- Network services revenue declined 4% in CCUSA, reflecting the variable and volatile nature of this business, although related gross margin increased.
- Operating income and Adjusted EBITDA increased substantially because of high-margin site rental growth and relatively fixed infrastructure operating costs.
- Net income improved sharply because 2011 had no comparable 2010 losses of $286.4 million on interest-rate swaps or $138.4 million on early debt retirement.
- Australian operations benefited from currency translation and higher activity. CCAL revenue increased 23% to $126.2 million, while the Australian dollar averaged approximately 12% stronger against the U.S. dollar than in 2010.
- Capital expenditures increased from $228.1 million to $347.9 million, primarily because land-interest purchases increased.
- Common shares outstanding declined from approximately 290.8 million to 284.4 million due to repurchases, while the company announced the planned conversion of its remaining preferred stock into approximately 8.3 million common shares in February 2012.
Guidance, outlook, commentary, risks and unusual items
Management expected 2012 site rental revenue to grow approximately 5% from 2011, excluding the WCP and anticipated NextG acquisitions. The projection assumed growth from new tenant additions, including Sprint Network Vision deployments, offset by expected customer cancellations related to prior carrier consolidation. Management expected approximately $350 million of 2012 capital expenditures, including sustaining expenditures of approximately $22 million to $27 million.
- In December 2011, Crown Castle agreed to acquire NextG Networks for approximately $1.0 billion in cash, subject to adjustments; closing was expected in the second quarter of 2012. NextG had more than 7,000 nodes on-air, approximately 1,500 under construction and rights to more than 4,600 miles of fiber.
- In January 2012, the company acquired certain WCP subsidiaries for approximately $500 million and assumed approximately $320 million of secured debt.
- In January 2012, the company refinanced its credit facility with a $1.0 billion revolving facility, a $500 million delayed-draw term loan and a $1.6 billion term loan. Management stated that liquidity should cover debt service, capital expenditures and the anticipated NextG acquisition, with no expected capital-markets refinancing need before at least 2015.
- Approximately 74% of consolidated revenue came from AT&T, Sprint, Verizon Wireless and T-Mobile, creating customer concentration risk. Sprint Network Vision could also lead to non-renewal of certain contracts.
- The company had substantial leverage and significant contractual obligations, including $24.991 billion of total contractual obligations after giving effect to announced transactions and refinancing. This included $10.519 billion of future interest payments, $5.442 billion of operating lease obligations and approximately $1.4 billion of undiscounted asset-retirement obligations.
- Several securitized debt instruments have anticipated repayment dates before their contractual maturities. Failure to repay them at those dates could trigger approximately 5% annual interest increases and cash-flow-based amortization.
- Interest-rate exposure remained material: approximately 20% of pro forma debt was floating-rate, and a two-percentage-point increase in rates was estimated to increase annual interest expense by approximately $32 million.
- Management reported no debt-covenant violations, no material unresolved legal proceedings and effective disclosure controls and internal control over financial reporting.
Most important facts for investors to verify
- Whether the projected 5% 2012 site-rental growth was achieved and how much came from tenant additions, escalations, cancellations and acquisitions.
- The completed purchase accounting, financing and operating contribution of the NextG and WCP transactions.
- Debt maturities, anticipated repayment dates, covenant headroom and the effect of any required cash trapping or accelerated amortization.
- Customer concentration, especially exposure to Sprint Network Vision, carrier consolidation and contract non-renewals.
- Cash conversion after capital expenditures, land-interest purchases, share repurchases and acquisition spending.
- The effect of the preferred-stock conversion on common shares outstanding, per-share results and future dividend obligations.
- Potential tax benefits from approximately $2.5 billion of federal net operating losses and any reversal of deferred-tax valuation allowances.