How did the Global Signal merger change Crown Castle's scale and capital structure?

The merger added 10,749 towers, lifting the portfolio to about 23,661 towers and making Crown Castle the largest U.S. tower operator. It was financed with about $550 million in cash raised from 2006 Tower Revenue Notes, plus roughly 98.1 million new shares. Global Signal's own roughly $1.8 billion of secured debt stayed in place, which significantly increases leverage and interest expense.

How predictable is Crown Castle's revenue?

Site rental revenue is largely recurring. Leases typically run five to 10 years, and the company states that over 90% of site rental revenue in any year, excluding acquisitions, was contracted in a prior year. Revenue concentration is high, however: four carriers (Sprint Nextel, AT&T, Verizon Wireless and T-Mobile) generated about 67% of 2006 consolidated revenue, and about 68% on a pro forma basis including Global Signal.

What are the main risks for investors?

Key risks include heavy debt and restrictive covenants, customer concentration, carrier consolidation that could eliminate duplicate sites, the risk that Global Signal assets or integration underperform, and the unproven Modeo mobile TV business, which has no revenue and needs significant additional funding. Other risks include ground lease renewal exposure (about 9.8% of towers are on land with less than 10 years of remaining tenure), foreign currency exposure in Australia, and the uncertain outcome of the derivative litigation and SEC inquiry.

Why did GAAP net loss improve so much in 2006?

The 2005 loss of about $401.5 million included $283.8 million of losses from early debt retirement and a large interest expense burden. In 2006 the debt-retirement loss fell to $5.8 million and operating income rose to $121.4 million, so the net loss narrowed to $41.9 million. Management emphasizes Adjusted EBITDA, which excludes interest, depreciation and other non-cash items, as the primary operating measure.

Does Crown Castle pay dividends, and how is capital being returned to shareholders?

Crown Castle has never paid cash dividends on its common stock and says it intends to retain cash for growth, debt reduction and share repurchases. Shareholder returns have come through buybacks, which totaled roughly $518 million in 2006 and $600 million in January 2007. The 6.25% convertible preferred stock pays about $19.9 million per year, which can be paid in cash or stock and must be redeemed in August 2012.

CCI 10-K FY2006 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.

Crown Castle International Corp. (CCI) reported its 2006 results in a 10-K filed February 28, 2007, a year defined by the transformative Global Signal merger, which closed January 12, 2007 after the period end.

Post-merger, Crown Castle operates roughly 23,661 towers, including about 21,700 in the U.S., making it the largest U.S. wireless tower company. The company's core business is multi-tenant antenna leasing under long-term contracts, with more than 90% of site rental revenue contracted in advance each year. Consolidated 2006 net revenues rose 16.5% to $788.2 million, operating income more than quintupled to $121.4 million^a, and Adjusted EBITDA reached $427.4 million, while GAAP net loss narrowed to $41.9 million from $401.5 million in 2005, largely because 2005 included $283.8 million of debt-extinguishment losses.

02—Key points

Key Highlights

Global Signal merger closed January 12, 2007 for roughly $4.0 billion in stock and cash (about 98.1 million shares plus $550 million cash), adding 10,749 towers and making Crown Castle the largest U.S. tower owner; former Global Signal holders own about 32.7% of the company.
2006 net revenues grew 16.5% to $788.2 million, with site rental revenue up 16.7% to $696.7 million and site rental gross margin of about 69.5%, reflecting high incremental margins on existing towers.
Adjusted EBITDA rose to $427.4 million in 2006 from $335.1 million in 2005; the CCUSA segment delivered most of the growth.
Total debt was about $3.5 billion at year-end 2006 and about $5.9 billion pro forma for Global Signal debt and the 2007 Term Loan; the debt-to-equity-plus-preferred ratio was 1.77x, and interest expense is guided to $348–353 million for 2007.
Crown Castle bought back 15.9 million shares for $518 million in 2006 and repurchased 17.7 million shares from Global Signal's major holders for $600 million in January 2007, funded by a $600 million term loan.
Material weaknesses inherited from Global Signal's controls were not remediated during 2006, and the company disclosed an SEC informal inquiry into stock option grant practices and five shareholder derivative suits in Texas.

03—Questions

Frequently Asked Questions

How did the Global Signal merger change Crown Castle's scale and capital structure?
The merger added 10,749 towers, lifting the portfolio to about 23,661 towers and making Crown Castle the largest U.S. tower operator. It was financed with about $550 million in cash raised from 2006 Tower Revenue Notes, plus roughly 98.1 million new shares. Global Signal's own roughly $1.8 billion of secured debt stayed in place, which significantly increases leverage and interest expense.
How predictable is Crown Castle's revenue?
Site rental revenue is largely recurring. Leases typically run five to 10 years, and the company states that over 90% of site rental revenue in any year, excluding acquisitions, was contracted in a prior year. Revenue concentration is high, however: four carriers (Sprint Nextel, AT&T, Verizon Wireless and T-Mobile) generated about 67% of 2006 consolidated revenue, and about 68% on a pro forma basis including Global Signal.
What are the main risks for investors?
Key risks include heavy debt and restrictive covenants, customer concentration, carrier consolidation that could eliminate duplicate sites, the risk that Global Signal assets or integration underperform, and the unproven Modeo mobile TV business, which has no revenue and needs significant additional funding. Other risks include ground lease renewal exposure (about 9.8% of towers are on land with less than 10 years of remaining tenure), foreign currency exposure in Australia, and the uncertain outcome of the derivative litigation and SEC inquiry.
Why did GAAP net loss improve so much in 2006?
The 2005 loss of about $401.5 million included $283.8 million of losses from early debt retirement and a large interest expense burden. In 2006 the debt-retirement loss fell to $5.8 million and operating income rose to $121.4 million, so the net loss narrowed to $41.9 million. Management emphasizes Adjusted EBITDA, which excludes interest, depreciation and other non-cash items, as the primary operating measure.
Does Crown Castle pay dividends, and how is capital being returned to shareholders?
Crown Castle has never paid cash dividends on its common stock and says it intends to retain cash for growth, debt reduction and share repurchases. Shareholder returns have come through buybacks, which totaled roughly $518 million in 2006 and $600 million in January 2007. The 6.25% convertible preferred stock pays about $19.9 million per year, which can be paid in cash or stock and must be redeemed in August 2012.

04—Continue

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