Crown Castle International Corp. 2012 Form 10-K Summary
Business Context and Reporting Period
The filing covers the fiscal year ended December 31, 2012, with unaudited quarterly information for the fourth quarter ended December 31, 2012. Crown Castle owns, operates and leases shared wireless infrastructure, primarily towers and distributed antenna systems in the United States and Australia. The company had approximately 31,500 towers at year-end, including approximately 29,800 in the U.S. and 1,700 in Australia. Site rental revenue represented 87% of consolidated revenue.
CCUSA accounted for approximately 94% of consolidated revenue, while CCAL, the 77.6%-owned Australian subsidiary, accounted for approximately 6%. The four largest U.S. customers—Sprint, AT&T, Verizon Wireless and T-Mobile—represented 72% of consolidated revenue.
Financial Performance and Key Metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Net revenues | $2.433 billion | $2.033 billion | +20% |
| Site rental revenue | $2.124 billion | $1.854 billion | +15% |
| Network services and other revenue | $308.5 million | $179.2 million | +72% |
| Operating income | $834.7 million | $692.3 million | +21% |
| Net income attributable to CCIC stockholders | $188.6 million | $171.1 million | +10% |
| Net income attributable to common stockholders | $186.0 million | $148.1 million | +26% |
| Basic and diluted EPS | $0.64 | $0.52 | +23% |
| Adjusted EBITDA | $1.553 billion | $1.307 billion | +19% |
| Net cash from operating activities | $772.6 million | $643.5 million | +20% |
Calculated 2012 margins were approximately 34.3% for operating income, 8.3% for net income attributable to CCIC stockholders, and 63.8% for Adjusted EBITDA. Site rental gross margin was approximately 74.6%. Adjusted EBITDA is a non-GAAP measure and is not directly comparable with GAAP operating income or net income.
Fourth-quarter 2012 net revenue was $674.1 million, operating income was $208.7 million, and net loss attributable to CCIC stockholders was $19.5 million, or $(0.07) per diluted share. The quarterly loss principally reflected debt-retirement losses and related financing effects.
Cash Flow, Capital Expenditures, Debt and Liquidity
- Operating cash flow increased to $772.6 million from $643.5 million in 2011.
- Investing cash flow was an outflow of $4.200 billion, including $3.759 billion for acquisitions and $441.4 million of capital expenditures.
- Capital expenditures included $404.3 million of discretionary expenditures and $37.1 million of sustaining expenditures. Sustaining capital expenditures were less than 2% of revenue.
- Debt and other long-term obligations were $11.611 billion at December 31, 2012, compared with $6.886 billion at December 31, 2011. Approximately 78% of debt was secured.
- After giving effect to January 2013 debt retirements, debt and other long-term obligations were approximately $11.015 billion, cash was $109.5 million, and undrawn revolving-credit availability was $247.0 million.
- The company reported a consolidated leverage ratio of approximately 6.5 times after the January 2013 debt retirements, below a 7.0-times restrictive covenant. CCOC’s net leverage ratio was 5.1 times against a 5.5-times restrictive covenant, and its interest coverage ratio was 4.6 times against a 2.5-times maintenance requirement.
- Management expected cash on hand, available revolver capacity and operating cash flow to cover the next 12 months’ $88.2 million of principal payments and approximately $400 million to $450 million of capital expenditures.
- The company had no common-stock dividend policy in place and had never paid common-stock dividends. It repurchased approximately 0.7 million common shares for $36.0 million in 2012.
Material Changes Versus the Prior Comparable Period
- Growth reflected continued wireless data demand, carrier network expansion, new tenant additions, contractual escalations and acquisitions.
- Network services revenue increased substantially because of carrier network enhancements, including LTE-related work, but this business remains more volatile and less contracted than site rental revenue.
- In 2012, Crown Castle completed the $214.7 million WCP acquisition, approximately $1.0 billion NextG acquisition and approximately $2.5 billion T-Mobile tower-rights acquisition. These acquisitions contributed $143.3 million of 2012 revenue but reduced CCIC stockholder net income by $12.6 million, excluding acquisition financing interest.
- The T-Mobile transaction added exclusive rights to lease, operate or otherwise acquire approximately 7,100 towers.
- The company refinanced its credit facility, issued $1.65 billion of 5.25% senior notes due 2023, and issued $1.5 billion of secured notes with a blended rate of approximately 3.36%. These actions reduced the reported average cost of debt from 6.2% to 4.5%.
- Despite higher operating income, net income attributable to CCIC stockholders declined from the comparable CCUSA amount of $168.1 million to $144.6 million because of higher interest expense and $132.0 million of losses on debt retirement, partially offset by tax benefits.
- The company converted all outstanding 6.25% redeemable convertible preferred stock into approximately 8.3 million common shares in February 2012.
- The 2012 tax benefit included a $115.2 million reversal of deferred-tax valuation allowances, which materially increased reported net income but did not provide operating cash flow.
Guidance, Outlook, Risks and Unusual Items
- Management expected continued demand from mobile data growth, smartphones, tablets, mobile video, LTE deployment and carrier capacity expansion.
- Management expected approximately 13% of 2013 site rental revenue growth to come from 2012 acquisitions and expected 2013 capital expenditures of approximately $400 million to $450 million, including approximately $28 million to $32 million of sustaining capital expenditures.
- Management did not expect anticipated Sprint Network Vision deployments and related iDEN lease non-renewals in 2014 and 2015 to have a material adverse effect on 2013 or subsequent operations and cash flows, but acknowledged that future customer actions could be adverse.
- Customer concentration is significant: Sprint, AT&T, Verizon Wireless and T-Mobile accounted for 72% of 2012 consolidated revenue. Customer consolidation, network sharing, bankruptcies or reduced carrier capital spending could reduce revenue, tenant additions and cash flow.
- The company’s leverage is substantial. Failure to refinance or comply with debt covenants could accelerate debt maturities, restrict distributions or expose collateralized wireless infrastructure to foreclosure.
- Several securitized debt instruments have anticipated repayment dates beginning in 2015. Failure to repay or refinance certain notes could trigger approximately 5% additional interest and cash-flow-based amortization requirements.
- Long-term contractual obligations totaled approximately $28.7 billion after giving effect to the January 2013 debt retirements, including $11.0 billion of debt obligations, $9.8 billion of interest payments and $7.9 billion of lease obligations.
- Estimated undiscounted asset-retirement obligations were approximately $1.0 billion, with a recorded net present value of approximately $95 million.
- Potential customer combinations involving T-Mobile and MetroPCS, and Sprint and Clearwire, could create overlapping networks and reduce future demand or revenue.
- Small-cell operations have different risks from traditional towers, including public-rights-of-way, CLEC, service-level, overbuilding and adoption risks. The NextG acquisition significantly increased this exposure.
- All interest-rate swaps had been settled by year-end. Approximately 29% of debt was floating rate, creating exposure to higher interest expense; a 0.125 percentage-point increase in rates was estimated to increase annual interest expense by approximately $2 million after giving effect to the LIBOR floor.
- In January 2013, the company completed the repurchase or redemption of the remaining 9% senior notes and 7.75% secured notes, resulting in approximately $35.8 million of additional losses recognized after year-end.
- The company reported no material pending legal proceedings, no financial covenant violations, no material unresolved SEC staff comments and effective disclosure and internal financial controls.
Important Facts for Investors to Verify
- Reconcile reported revenue and Adjusted EBITDA growth with the contribution, integration costs and final purchase-price allocations of the WCP, NextG and T-Mobile acquisitions.
- Review debt maturities and refinancing requirements beginning in 2015, including the anticipated repayment dates and potential 5% interest step-ups on securitized debt.
- Assess leverage, covenant headroom, secured collateral and the availability of the revolving credit facility under stressed operating conditions.
- Evaluate customer concentration and the potential impact of carrier consolidation, network sharing and Sprint’s Network Vision-related lease cancellations.
- Distinguish recurring site rental cash flow from volatile network services revenue and from non-cash straight-line rent recognition.
- Consider the effect of the $115.2 million deferred-tax valuation allowance reversal and other unusual tax items on the sustainability of reported earnings.
- Review the company’s approximately $7.9 billion of lease obligations and approximately $1.0 billion of undiscounted asset-retirement obligations.