Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CCI > SEC Filings for CCI > Form 10-K on 24-Feb-2014All Recent SEC Filings

Show all filings for CROWN CASTLE INTERNATIONAL CORP | Request a Trial to NEW EDGAR Online Pro

Form 10-K for CROWN CASTLE INTERNATIONAL CORP


24-Feb-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
Overview
We own, operate, and lease shared wireless infrastructure. See "Item 1. Business" for a further discussion of our business, including our long-term strategy, certain key terms of our lease agreements, and growth trends in the wireless communications industry. Site rental revenues represented 83% of our 2013 consolidated net revenues. CCUSA, our largest operating segment, accounted for 95% of our 2013 site rental revenues.
The following are certain highlights of our business fundamentals and results as of and for the year ended December 31, 2013:
Potential growth resulting from wireless network expansion and new entrants

          We expect wireless carriers will continue their focus on improving
           network quality and expanding capacity by adding additional antennas
           or other equipment on our wireless infrastructure.


          We expect existing and potential new wireless carrier demand for our
           wireless infrastructure will result from (1) next generation
           technologies, (2) continued development of mobile internet
           applications, (3) adoption of other emerging and embedded wireless
           devices, (4) increasing smartphone penetration, (5) wireless carrier
           focus on expanding quality and capacity, or (6) the availability of
           additional spectrum.


          Substantially all of our wireless infrastructure can accommodate
           additional tenancy, either as currently constructed or with
           appropriate modifications to the structure.

U.S. wireless carriers continue to invest in their networks.

          Our site rental revenues grew $379 million, or 18%, from the full year
           2012 to 2013. Our 2013 site rental revenues growth was impacted by:


?             Our acquisitions in 2012, including the acquisition of certain
              subsidiaries of Wireless Capital Partners, LLC ("WCP Acquisition"),
              the acquisition of NextG Networks, Inc. ("NextG Acquisition"), and
              the T-Mobile Acquisition (collectively the "2012 Acquisitions")
              and, to a lesser extent, the AT&T Acquisition (see note 3 to our
              consolidated financial statements); and


?             The fact that we have effectively pre-sold via a firm contractual
              commitment a significant portion of the modification of the
              existing installations relating to certain LTE upgrades.  We have
              done so by increasing the future contracted revenue above that of a
              typical escalation over a period of time, typically a three or four
              year period.  As a result, for any given period, the increase in
              cash revenue may not translate into a corresponding increase in
              reported revenues from the application of straight-line revenue
              recognition (see note 2 to our consolidated financial statements).

Site rental revenues under long-term customer contracts with contractual escalations

          Initial terms of five to 15 years with multiple renewal periods at the
           option of the tenant of five to ten years each.


          Weighted-average remaining term of approximately eight years,
           exclusive of renewals at the customer's option, representing
           approximately $22 billion of expected future cash inflows.

Revenues predominately from large wireless carriers

          Sprint, T-Mobile, AT&T, and Verizon Wireless collectively accounted
           for 88% and 86% of consolidated revenues and site rental revenues,
           respectively, after giving effect to T-Mobile's acquisition of Metro
           PCS (completed in April 2013), Sprint's acquisition of Clearwire
           (completed in July 2013), and AT&T's pending acquisition of Leap
           Wireless. See also "Item 1A. Risk Factors" and note 17 to our
           consolidated financial statements.

Majority of land interests under our towers under long-term control

          Approximately nine-tenths and three-fourths of our site rental gross
           margin is derived from towers that we own or control for greater than
           ten and 20 years, respectively. The aforementioned amounts include
           towers that reside on land interests that are owned, including fee
           interests and perpetual easements, which represent more than one-third
           of our site rental gross margin.

Relatively fixed wireless infrastructure operating costs

          Our wireless infrastructure operating costs tend to increase at
           approximately the rate of inflation and are not typically influenced
           by new tenant additions.

Minimal sustaining capital expenditure requirements

Sustaining capital expenditures represented less than 2% of net revenues.

Debt portfolio with long-dated maturities extended over multiple years, with the majority of such debt having a fixed rate (see "Item 7A. Quantitative and Qualitative Disclosures About Market Risk" for a further discussion of our debt)

66% of our debt has fixed rate coupons.

          Our debt service coverage and leverage ratios were comfortably within
           their respective financial maintenance covenants. See "Item 7.
           MD&A-Liquidity and Capital Resources" for a further discussion of our
           debt covenants.


Significant cash flows from operations

Net cash provided by operating activities was $1.2 billion.

          We believe our core business of providing access to our wireless
           infrastructure can be characterized as a stable cash flow stream,
           which we expect to grow as a result of anticipated demand for our
           wireless infrastructure and contractual escalators.


       Capital allocated to drive long-term stockholder value (see also "Item 7.
        MD&A-Liquidity and Capital Resources" )


          Historical discretionary investments include (in no particular order):
           purchasing our common stock, acquiring or constructing wireless
           infrastructure, acquiring land interests under our towers, improving
           or structurally enhancing our existing wireless infrastructure, or
           purchasing, repaying or redeeming our debt.


          In addition to the AT&T Acquisition, described under "-AT&T
           Acquisition and Financing" below, discretionary investments during
           2013 included:


?             Discretionary capital expenditures of $520.1 million, including
              wireless infrastructure improvements in order to support additional
              site rentals, construction of wireless infrastructure, and land
              purchases.

? The purchase of 1.4 million shares of our common stock for $99.5 million.

Other investing and financing activities during 2013 included the following:

?             In April 2013, we refinanced all of the outstanding Tranche B Term
              Loans, which effectively lowered the credit spread by 75 basis
              points. In August 2013, we issued $800.0 million of incremental
              Tranche B Term Loans. In December 2013, we amended our credit
              facility to (1) extend the maturity of our $1.5 billion senior
              secured revolving credit facility ("2012 Revolver") and Tranche A
              Term Loans, (2) lower the credit spread on the 2012 Revolver and
              Tranche A Term Loans to a per annum rate equal to LIBOR plus an
              interest rate margin in average between 1.50% and 2.25%, based on
              CCOC's total net leverage ratio, and (3) issued $500.0 million of
              incremental Tranche B Term Loans and $200.0 million of Tranche A
              Term Loans, whose combined net proceeds were used to repay a
              portion of the amounts then outstanding under the 2012 Revolver.

See notes 7 and 20 to our consolidated financial statements, including with respect to the extension of maturity of the Tranche B Term Loans in January 2014.

? In January 2013, we completed the repurchase and redemption of all of our outstanding 9% senior notes and 7.75% secured notes.

The following are certain highlights of our 2014 outlook that impact our business fundamentals described above.
We expect that our full year 2014 site rental revenue growth will also be impacted by both of the items that impacted our 2013 site rental revenue growth, namely pre-sold arrangements and acquisitions (including a substantial expected contribution from the AT&T Acquisition). See note 3 to our consolidated financial statements for further discussion of our AT&T Acquisition.

We expect the site rental revenue contribution from new tenant installations to increase in 2014 from 2013, as a result of our customers' focus on improving network quality and capacity.

Additionally, we do not expect that recent customer consolidations, or any related non-renewal of customer contracts anticipated in 2014 and 2015, will have a material adverse effect on our operations or cash flows for 2014 or subsequent periods. We expect a reduction to our consolidated site rental revenues (approximately 1% in 2014 and an approximately 2% reduction coming after 2014) as a result of Sprint's non-renewal of tenant contracts stemming from Sprint's decommissioning of its iDEN network.

We expect sustaining capital expenditures of approximately 2% of net revenues for full year 2014.

AT&T Acquisition and Financing
In October 2013, we entered into a definitive agreement with AT&T to acquire, for approximately $4.827 billion in cash, exclusive rights to AT&T towers which, as of December 31, 2013, comprise approximately 24% of our towers. Pursuant to a prepaid lease agreement entered into in connection with the AT&T Acquisition, we have the exclusive right to lease or sublease or operate and manage, for a weighted-average term of approximately 28 years, towers which, as of December 31, 2013, comprise 22% of our towers. In addition, pursuant to the AT&T Transaction, we purchased towers from AT&T which, as of December 31, 2013, comprise approximately 2% of our towers. On December 16, 2013, we closed on the AT&T Acquisition. See notes 1 and 3 to our consolidated financial statements for a further discussion of the terms of the AT&T Acquisition, including our option to purchase the leased sites at the end of the respective lease terms.


To finance the AT&T Acquisition, we utilized proceeds from the October Equity Financings and borrowings under the 2012 Revolver, as well as cash on hand. The October Equity Financings consisted of the issuance of (1) 41.4 million shares of our common stock, which generated net proceeds of $3.0 billion and (2) approximately 9.8 million shares of our 4.50% Mandatory Convertible Preferred Stock, which generated net proceeds of $950.9 million. In December 2013, we borrowed $865.0 million from our 2012 Revolver. Subsequent to the borrowing from our 2012 Revolver, we (1) issued $500.0 million of Incremental Tranche B-2 Term Loans and (2) issued $200.0 million of Incremental Tranche A Term Loans to repay a portion of the then outstanding 2012 Revolver. See notes 7 and 12 to our consolidated financial statements for a further discussion of the financing of the AT&T Acquisition.
REIT Election
Effective January 1, 2014, we commenced operating as a REIT for U.S. federal income tax purposes. As a REIT, we will generally be entitled to a deduction for dividends that we pay and therefore will not be subject to U.S. federal corporate income tax on our net taxable income that is currently distributed to our stockholders. We also may be subject to certain federal, state, local, and foreign taxes on our income or assets, including alternative minimum taxes, taxes on any undistributed income, and state, local, or foreign income, franchise, property and transfer taxes. In addition, we could in certain circumstances be required to pay an excise or penalty tax, which could be significant in amount, in order to utilize one or more relief provisions under the Code to maintain qualification for taxation as a REIT. Our small cells will initially be included in one or more wholly-owned TRSs. We have submitted a private letter ruling request with the IRS regarding whether certain components of our small cell business and the related rents qualify as real property under Code Section 856 and thus can be included in our REIT. Additionally, we will include in TRSs our tower operations in Australia and may include certain other assets and operations in TRSs. Those TRS assets and operations will continue to be subject, as applicable, to federal and state corporate income taxes and to foreign taxes in the jurisdictions in which such assets and operations are located. Our foreign assets and operations (including our tower operations in Puerto Rico and Australia) most likely will be subject to foreign income taxes in the jurisdictions in which such assets and operations are located, regardless of whether they are included in a TRS or not.
To qualify and be taxed as a REIT, we will generally be required to distribute at least 90% of our REIT taxable income, after the utilization of our net operating loss carryforwards ("NOLs"), (determined without regard to the dividends paid deduction and excluding net capital gain) each year to our stockholders. Our determination as to the timing and amount of future dividends that we may make as a REIT will be based on a number of factors, including investment opportunities around our core business and our federal net operating losses of approximately $2.2 billion (see note 10 to our consolidated financial statements).
In connection with completing the steps necessary to qualify to operate as a REIT, in December 2013 we de-recognized the net deferred tax assets and liabilities related to the entities included in the REIT resulting in a corresponding net non-cash income tax charge of $67.4 million. The de-recognition of the deferred tax assets and liabilities was recorded upon completion of all necessary actions to qualify as a REIT and receipt of final approval from our board of directors.
See notes 10 and 20 to our consolidated financial statements and "Item 1A-Risk Factors" for additional information concerning our REIT election. Announcement of Plan to Initiate Common Stock Dividend In February 2014, our board of directors declared a quarterly cash dividend of $0.35 per share to our common stockholders, which is expected to result in an annual aggregate payment of $470 million. See notes 12 and 20 to our consolidated financial statements.


Results of Operations
The following discussion of our results of operations should be read in conjunction with "Item 1. Business," "Item 7. MD&A-Liquidity and Capital Resources" and our consolidated financial statements. The following discussion of our results of operations is based on our consolidated financial statements prepared in accordance with generally accepted accounting principles in the U.S. which require us to make estimates and judgments that affect the reported amounts (see "Item 7. MD&A-Accounting and Reporting Matters-Critical Accounting Policies and Estimates" and note 2 to our consolidated financial statements). Comparison of Consolidated Results
The following is a comparison of our 2013, 2012 and 2011 consolidated results of operations:

                                       Years Ended December 31,                    Percent Change(b)
                                                                                  2013             2012
                                                                                  vs.              vs.
                                 2013            2012            2011             2012             2011
                                       (In thousands of dollars)
Net revenues:
Site rental                  $ 2,503,620     $ 2,124,190     $ 1,853,550           18  %              15 %
Network services and other       518,764         308,490         179,179           68  %              72 %
Net revenues                   3,022,384       2,432,680       2,032,729           24  %              20 %
Operating expenses:
Costs of operations(a):
Site rental                      725,109         539,239         481,398           34  %              12 %
Network services and other       321,687         189,750         106,987           70  %              77 %
Total costs of operations      1,046,796         728,989         588,385           44  %              24 %
General and administrative       238,702         212,572         173,493           12  %              23 %
Asset write-down charges          14,863          15,548          22,285            *                  *
Acquisition and integration
costs                             26,005          18,298           3,310            *                  *
Depreciation, amortization
and accretion                    774,215         622,592         552,951           24  %              13 %
Total operating expenses       2,100,581       1,597,999       1,340,424           31  %              19 %
Operating income (loss)          921,803         834,681         692,305           10  %              21 %
Interest expense and
amortization of deferred
financing costs                 (589,630 )      (601,044 )      (507,587 )         (2 )%              18 %
Gains (losses) on retirement
of long-term obligations         (37,127 )      (131,974 )             -            *                  *
Net gain (loss) on interest
rate swaps                             -               -               -            *                  *
Interest income                    1,355           4,556             666            *                  *
Other income (expense)            (3,872 )        (5,392 )        (5,577 )          *                  *
Income (loss) before income
taxes                            292,529         100,827         179,807            *                  *
Benefit (provision) for
income taxes                    (198,628 )       100,061          (8,347 )          *                  *
Net income (loss)                 93,901         200,888         171,460            *                  *
Less: Net income (loss)
attributable to the
noncontrolling interest            3,790          12,304             383            *                  *
Net income (loss)
attributable to CCIC
stockholders                 $    90,111     $   188,584     $   171,077            *                  *
Dividends on preferred stock
and losses on purchases of
preferred stock              $   (11,363 )   $    (2,629 )   $   (22,940 )          *                  *
Net income (loss)
attributable to CCIC common
stockholders                 $    78,748     $   185,955     $   148,137

* Percentage is not meaningful

(a) Exclusive of depreciation, amortization and accretion, which are shown separately.

(b) Inclusive of the impact of foreign exchange fluctuations. See "Item 7.
MD&A-Results of Operations-Comparison of Operating Segments-CCAL."

2013 and 2012. Our consolidated results of operations for 2013 and 2012, respectively, predominately consist of our CCUSA segment, which accounted for
(1) 95% and 94% of consolidated net revenues, (2) 95% and 94% of consolidated gross margins, and (3) 85% and 77% of consolidated net income (loss) attributable to CCIC stockholders. Our operating segment results for 2013 and 2012, including CCUSA, are discussed below (see "Item 7. MD&A-Results of Operations-Comparison of Operating Segments").


2012 and 2011. Our consolidated results of operations for 2012 and 2011, respectively, predominately consist of our CCUSA segment, which accounted for
(1) 94% and 94% of consolidated net revenues, (2) 94% and 94% of consolidated gross margins, and (3) 77% and 98% of consolidated net income (loss) attributable to CCIC stockholders. Our operating segment results for 2012 and 2011, including CCUSA, are discussed below (see "Item 7. MD&A-Results of Operations-Comparison of Operating Segments"). Comparison of Operating Segments
Our reportable operating segments for 2013 are (1) CCUSA, consisting of our U.S. operations and (2) CCAL, our Australian operations. Our financial results are reported to management and the board of directors in this manner.
See note 17 to our consolidated financial statements for segment results and a reconciliation of net income (loss) to Adjusted EBITDA (defined below). Our measurement of profit or loss currently used to evaluate our operating performance and operating segments is earnings before interest, taxes, depreciation, amortization and accretion, as adjusted ("Adjusted EBITDA"). Our measure of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, including companies in the tower sector or other similar providers of wireless infrastructure, and is not a measure of performance calculated in accordance with U.S. generally accepted accounting principles ("GAAP").
We define Adjusted EBITDA as net income (loss) plus restructuring charges (credits), asset write-down charges, acquisition and integration costs, depreciation, amortization and accretion, amortization of prepaid lease purchase price adjustments, interest expense and amortization of deferred financing costs, gains (losses) on retirement of long-term obligations, net gain (loss) on interest rate swaps, impairment of available-for-sale securities, interest income, other income (expense), benefit (provision) for income taxes, cumulative effect of a change in accounting principle, income (loss) from discontinued operations, and stock-based compensation expense (see note 13 to our consolidated financial statements). The reconciliation of Adjusted EBITDA to our net income (loss) is set forth in note 17 to our consolidated financial statements. Adjusted EBITDA is not intended as an alternative measure of operating results or cash flows from operations as determined in accordance with GAAP, and Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is discussed further under "Item 7. MD&A-Accounting and Reporting Matters-Non-GAAP Financial Measures." CCUSA-2013 and 2012. See note 3 in our consolidated financial statements for further discussion of the impact of the 2012 Acquisitions and the AT&T Acquisition.
Net revenues for 2013 increased by $579.4 million, or 25%, from 2012. This increase in net revenues resulted from an increase in (1) site rental revenues of $370.3 million, or 19% , and (2) network services and other revenues of $209.1 million, or 73%, in each case as compared to 2012.
This increase in site rental revenues was impacted by the following items, inclusive of straight-line accounting, in no particular order: new tenant additions across our entire portfolio, renewals or extensions of customer contracts, escalations, acquisitions, and cancellations of customer contracts. The 2012 Acquisitions and the AT&T Acquisition also increased our site rental revenues from 2012 to 2013 by 14% (based on initial run rate revenues from these acquisitions). See "Item 7. MD&A-Accounting and Reporting Matters-Critical Accounting Policies and Estimates" for a further discussion of our revenue recognition policies. Tenant additions were influenced by our customers' upgrading to LTE and their ongoing efforts to improve network quality and capacity. See also "Item 1. Business-The Company-CCUSA." Site rental gross margins for 2013 increased by $187.1 million, or 12%, from 2012. The increase in the site rental gross margins was related to the previously mentioned 19% increase in site rental revenues. Site rental gross margins for 2013 increased primarily as a result of (1) the high incremental margins associated with tenant additions given the relatively fixed costs to operate wireless infrastructure and (2) acquisitions. The $187.1 million incremental margin represents 51% of the related increase in site rental revenues, inclusive of impact of acquisitions.
Network services and other gross margin for 2013 increased by $78.7 million, or 71%, from 2012. The increase in our gross margin from our network services and other revenues is a reflection of the volume of activity from carrier network enhancements such as LTE upgrades, the increase in our market share and the general volatility in the volume and mix of network services work. Our network services offering is of a variable nature as these revenues are not under long-term contracts.


General and administrative expenses for 2013 increased by $28.6 million, or 15%, from 2012 but decreased to 7% of net revenues in 2013 from 8% of net revenues in 2012. General and administrative expenses are inclusive of stock-based compensation charges. See also note 13 to our consolidated financial statements. The increase in general and administrative expenses in nominal dollars was commensurate with the growth in our business as a result of our acquisitions. Typically, our general and administrative expenses do not significantly increase as a result of the co-location of additional tenants on our wireless infrastructure.
Adjusted EBITDA for 2013 increased by $235.8 million, or 16%, from 2012. Adjusted EBITDA was positively impacted by the growth in our site rental and network services activities and the 2012 Acquisitions.
Depreciation, amortization, and accretion for 2013 increased by $149.9 million, or 25%, from 2012. This increase predominately resulted from the fixed asset and intangible asset additions related to the NextG Acquisition and the T-Mobile Acquisition.
Interest expense and amortization of deferred financing costs decreased $11.4 million, or 2%, from 2012 to 2013, as a result of our refinancings during 2012 and 2013, partially offset by additional borrowings to fund the 2012 Acquisitions and the AT&T Acquisition. During 2012 and 2013, we completed several debt transactions, resulting in (1) lowering our average cost of debt,
(2) funding for our acquisitions, (3) the refinancing of certain of our debt, and (4) the extension of certain of our debt maturities. See "Item 7. MD&A-Liquidity and Capital Resources."
As a result of our debt transactions, we incurred a net loss of $37.1 million for 2013, inclusive of (1) non-cash losses of $1.1 million resulting from the write-off of deferred financing costs and discounts and (2) cash losses of $36.0 million including with respect to make whole payments. During 2012, as a result of repurchasing and redeeming certain of our debt, we incurred a net loss of $132.0 million, inclusive of (1) non-cash losses of $48.1 million resulting from the write-off of deferred financing costs and discounts and (2) cash losses of $83.9 million including with respect to make whole payments. For a further discussion of the debt refinancings, see notes 7 and 8 to our consolidated . . .

  Add CCI to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CCI - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.