01—Abstract
Summary
Summary of the 10-K filed February 15, 2011. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported fiscal 2010 results that show a business with strong and growing operating fundamentals but a net loss driven largely by non-cash and refinancing-related charges.
Total net revenues rose 11% to $1.88 billiona, with site rental revenue up 10% to $1.70 billion, and site rental represented 91% of consolidated revenues. Operating income grew 33% to $575.4 million, and Adjusted EBITDA increased 16% to $1.17 billion. Management highlighted high incremental margins on new tenant additions (about 93-97%) and low sustaining capex (under 2% of site rental revenue), supporting the view that the tower portfolio generates stable, recurring cash flows under long-term contracts averaging about eight years of remaining term.
The bottom line was a net loss attributable to CCIC stockholders of $310.9 millionb, or $(1.16) per share after preferred dividends. The loss was driven by $286.4 million of losses on interest rate swaps that no longer qualified for hedge accounting, $138.4 million of losses on debt purchases and redemptions tied to refinancings, and $490.3 million of interest expense. Operating cash flow was $603.4 million, and the company paid $697.8 million to settle all remaining forward-starting swaps, which removes that source of volatility going forward.
Liquidity appears adequate for the next 12 months, with $112.5 millionc of cash, $243 million of undrawn revolver capacity, and no significant maturities until 2013-2014. Key risks for investors include customer concentration (AT&T, Verizon Wireless, Sprint and T-Mobile supplied about 73% of revenue), roughly $6.8 billion of total debt, a $318 million mandatory redemption of 6.25% convertible preferred stock in August 2012, and about 6,500 towers under a Sprint lease whose purchase option in 2037 is roughly $2.3 billion.
The company also has a full valuation allowance on its federal deferred tax assets, so it recognizes little tax benefit on losses. Management guided to 7-8% site rental revenue growth in 2011 and to more than $300 milliond of 2011 capital expenditures.
02—Key points
Key Highlights
- Total net revenues grew 11% to $1,878.7 million in 2010, with site rental revenue up 10% to $1,700.8 million and network services up 25% to $177.9 million.
- Operating income rose 33% to $575.4 million and Adjusted EBITDA rose 16% to $1,171.9 million, reflecting high incremental margins on tenant additions.
- Net loss attributable to CCIC stockholders was $310.9 million ($1.16 per share loss), driven by $286.4 million of interest rate swap losses and $138.4 million of debt refinancing losses.
- Operating cash flow of $603.4 million covered sustaining capex and debt service, while the company settled $697.8 million of forward-starting interest rate swaps during 2010.
- Customer concentration is high: AT&T, Verizon Wireless, Sprint and T-Mobile accounted for 73% of consolidated revenues, and customer contracts had a weighted-average remaining life of about eight years and $15.3 billion of future cash inflows.
- Total debt was $6.8 billion at year end, with no significant maturities until 2013-2014, $112.5 million of cash, and $243 million of undrawn revolver capacity; leverage (5.4x) and interest coverage (3.1x) were within covenants.
- Management guided to 7-8% site rental revenue growth for 2011 and more than $300 million of 2011 capital expenditures, and the company holds a 77.6% stake in its Australian subsidiary.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 15, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $1.88B$1.69B | +11.5% |
| SG&A Expenses | $165.36M$153.07M | +8.0% |
| Operating Expenses | $1.30B$1.25B | +4.1% |
| Operating Income | $575.37M$433.99M | +32.6% |
| Interest Expense | $404.81M$384.52M | +5.3% |
| Net Income | -$310.94M-$114.33M | −172.0% |
| EPS (Basic) | $-1.16$-0.47 | −146.8% |
| EPS (Diluted) | $-1.16$-0.47 | −146.8% |
| Shares Outstanding (Basic) | 286.76M286.62M | 0.0% |
| Shares Outstanding (Diluted) | 286.76M286.62M | 0.0% |
05—Questions
Frequently Asked Questions
Why did Crown Castle report a net loss despite growing revenue and operating income?
The net loss stems mainly from non-operating items rather than core tower operations. In 2010 the company recorded $286.4 million of losses on interest rate swaps that no longer qualified for hedge accounting, $138.4 million of losses on debt purchases and early redemptions tied to refinancings, and $490.3 million of interest expense. Operating income of $575.4 million was more than offset by these financing-related charges.
How stable are Crown Castle's revenues?
Revenues are highly recurring. Site rental accounted for 91% of 2010 revenue, and over 90% of site rental revenue has typically been contracted in a prior year. Contracts generally run five to 15 years with tenant-option renewals and contractual escalators, and the weighted-average remaining term is about eight years. The main caveat is concentration: four carriers generated 73% of consolidated revenue.
What are the main debt and refinancing risks?
Total debt and other long-term obligations were about $6.8 billion, and roughly $4.7 billion is secured by tower cash flows. Near-term maturities are small, and the term loans mature in 2014, but the 6.25% convertible preferred stock must be redeemed for about $318 million in August 2012, possibly with new capital markets financing. Covenant headroom appears adequate, but a deterioration in subsidiary performance could trigger cash trap reserves or accelerated maturities.
What does the Sprint tower lease mean for long-term value?
About 6,500 towers are leased from Sprint under master leases through May 2037. Crown Castle has the option to purchase all of these towers in 2037 for roughly $2.3 billion. If it does not exercise that option or cannot finance it, it would lose the cash flows from those towers, so the lease structure is a material long-dated consideration for investors.
06—Continue