Crown Castle International Corp. — FY 2009 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2009. The filing also provides unaudited quarterly data, including fourth-quarter 2009 results; it is not a standalone quarterly filing.
Business context
Crown Castle owns, leases and manages approximately 24,000 wireless communications towers, primarily in the United States and Australia. Recurring site-rental revenue represented 92% of consolidated revenue. The company’s contracts generally have five- to 15-year initial terms, contractual escalations and limited termination rights. CCUSA generated approximately 95% of 2009 consolidated revenue, while CCAL, the Australian segment, generated approximately 5%.
Customer concentration is significant: Sprint Nextel, AT&T, Verizon Wireless and T-Mobile together represented 73% of consolidated 2009 revenue.
Financial performance
| Metric | 2009 | 2008 | Change |
|---|---|---|---|
| Total revenue | $1.685 billion | $1.527 billion | Up 10% |
| Site-rental revenue | $1.543 billion | $1.403 billion | Up 10% |
| Network services and other revenue | $142.2 million | $123.9 million | Up 15% |
| Operating income | $434.0 million | $292.5 million | Up 48% |
| Net loss attributable to CCIC stockholders | $114.3 million | $48.9 million | Loss increased |
| Net loss attributable to common stockholders after preferred dividends | $135.1 million | $69.7 million | Loss increased |
| Basic and diluted loss per share | $0.47 | $0.25 | Loss increased |
| Adjusted EBITDA | $1.013 billion | $867.1 million | Up 17% |
| Cash flow from operations | $571.3 million | $513.0 million | Up 11% |
| Capital expenditures | $173.5 million | $450.7 million | Down 61% |
Site-rental gross margin increased to 70% from 67%, primarily because incremental tenant additions generated high margins against relatively fixed tower operating costs. Operating income was approximately 26% of revenue. Adjusted EBITDA was approximately 60% of revenue, although management cautions that Adjusted EBITDA is a non-GAAP measure and may not be comparable with other companies.
Balance sheet, debt and liquidity
- Cash and cash equivalents at December 31, 2009 were $766.1 million; restricted cash totaled $218.5 million.
- Total debt and other long-term obligations were $6.579 billion, including $6.362 billion classified as non-current. Debt fair value was approximately $6.871 billion.
- Net interest-rate-swap liabilities were $300.0 million at year-end, based on fair value. Forward-starting swaps had a $5.0 billion notional amount and a settlement liability of approximately $313.9 million at December 31, 2009.
- Pro forma after January 2010 transactions, management reported $483.4 million of unrestricted cash, $400.0 million of undrawn revolver availability and expected operating cash flow of $575 million to $625 million over the next 12 months.
- The company issued $4.8 billion of debt during 2009 and early 2010 and repaid or repurchased $4.4 billion face value of debt to extend and ladder maturities. This increased the weighted-average cost of debt.
- The 6.25% convertible preferred stock had a $315.7 million carrying value and must be redeemed in August 2012 for approximately $318.0 million plus unpaid dividends.
- The company had no debt-covenant violations at December 31, 2009 and reported pro forma leverage of 6.1 times against a credit-agreement limit below 7.5 times, with interest coverage of 2.6 times against a requirement above 2.0 times.
Material changes versus the prior comparable period
- Revenue increased 10%, led by 11% growth in CCUSA revenue and continued tenant additions, contractual escalations and lease renewals.
- CCUSA site-rental gross margin increased by three percentage points to 70%; CCUSA Adjusted EBITDA increased 18%.
- Operating income improved materially, but net loss widened because interest expense increased $92.6 million to $445.9 million, debt-retirement losses were $91.1 million and interest-rate-swap losses were $93.0 million.
- Capital expenditures were reduced substantially as management prioritized liquidity, debt retirement and settlement of certain swaps.
- CCAL revenue declined 5% to $84.3 million, principally due to unfavorable Australian-dollar translation and lower network-services revenue; CCAL Adjusted EBITDA declined 2%.
- 2009 did not include the $55.9 million FiberTower impairment recorded in 2008, but 2009 included $19.2 million of asset write-down charges.
- Comprehensive income attributable to CCIC stockholders was $169.8 million in 2009, compared with a $483.4 million comprehensive loss in 2008, primarily reflecting improved derivative and foreign-currency valuation effects.
Guidance, outlook, risks and unusual items
- Management expected 2010 site-rental revenue of $1.6 billion to $1.7 billion, representing 7% to 8% growth from 2009, and operating cash flow of $575 million to $625 million over the following 12 months.
- Management expected at least $225 million of 2010 capital expenditures, including approximately $27 million to $32 million of sustaining capital expenditures and approximately $100 million for existing-tower installations and capacity improvements.
- The company planned to refinance the $1.55 billion of 2006 tower revenue notes by their anticipated November 2011 repayment date. Failure to refinance could increase interest rates by approximately 5 percentage points and divert substantially all excess cash flow to principal repayment.
- Interest-rate swaps must be cash settled primarily during 2010 and 2011. A hypothetical 100-basis-point decline in LIBOR would increase the swap settlement liability by nearly $270 million and reduce earnings by approximately $205 million under the filing’s sensitivity analysis.
- Other key risks include substantial leverage, refinancing and covenant risk, customer concentration, wireless-industry or carrier capital-spending slowdowns, customer consolidation and network sharing, competition, ground-lease renewals, regulatory and zoning requirements, technological substitution, foreign-currency exposure and potential environmental or asset-retirement obligations.
- Estimated undiscounted asset-retirement cash outlays were approximately $1.8 billion, compared with a recorded net present value liability of approximately $58.8 million. Total contractual obligations were approximately $20.3 billion, including debt, interest, leases, swaps and preferred-stock obligations.
- The independent auditor issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. Management and the auditor concluded that internal controls were effective.
Most important facts for investors to verify
- Reconcile reported year-end cash with the lower pro forma unrestricted-cash figure after January 2010 debt transactions and distinguish restricted cash.
- Review the timing, collateral and refinancing assumptions for the 2006 tower revenue notes and the related approximately $5.0 billion of forward-starting swaps.
- Assess whether recurring site-rental growth and tenant additions can offset higher interest expense and the substantially higher cost of debt.
- Evaluate exposure to Sprint Nextel, AT&T, Verizon Wireless and T-Mobile, which supplied 73% of consolidated revenue.
- Review the $318.0 million preferred-stock redemption obligation due in 2012 and the company’s ability to fund it without impairing operating or investment capacity.
- Validate management’s 2010 revenue, cash-flow and capital-expenditure outlook against actual subsequent filings.
- Consider the potential cash impact of asset-retirement obligations, ground leases, debt covenant triggers and swap settlements.