01—Abstract
Summary
Summary of the 10-K filed March 17, 1999. Cited figures are marked; the original filing is the authoritative source.
Crown Castle International Corp. (CCI) reported a transformative 1998 as it moved from a small U.S. tower operator to a combined U.S. and U.K. tower and broadcast transmission company.
Consolidated net revenues rose to $113.1 milliona in 1998 from $31.4 million in 1997, driven largely by the August 1998 share exchange that raised its stake in CTI (the U.K. business, formerly the BBC Home Service Transmission Business) from about 34.3% to 80%. Operating results remained negative: operating loss widened to $(12.9) million, net loss to $(37.8) million, and net loss applicable to common stock to $(43.2) million, or $(1.02) per share. EBITDA was $37.1 million.
Note that the filing reports EBITDA alongside a $12.8 millionb non-cash compensation charge tied to stock options granted around the IPO. The balance sheet expanded sharply, with total assets of $1.52 billion, cash of $296.5 million, and total debt of $429.7 million at year end. Stockholders' equity was $737.6 million after the August 1998 IPO (12.32 million shares at $13.00) and the December 1998 issuance of $200 million of 12 3/4% exchangeable preferred stock.
The company is highly leveraged on a pro forma basis, with debt plus redeemable preferred to equity at 0.84x before and 0.74x after the proposed transactions, and earnings would have been $104.2 millionc short of covering fixed charges on a pro forma basis. The central investor question is execution risk on a large set of proposed transactions: the BAM joint venture (about 1,427 towers, with CCI owning 62.3%), the BellSouth tower agreement (about 1,850 towers for $610 million), the Powertel acquisition (about 650 towers for $275 million), and the One2One framework (up to 821 U.K. towers).
These deals would add roughly 4,748 towers and depend on approximately $475 milliond of planned equity and $300 million of debt offerings. The filing explicitly states that none of these deals is guaranteed to close on the described terms, and $100 million of escrow deposits is at risk if they fail.
02—Key points
Key Highlights
- Total net revenues grew to $113.1 million in 1998 from $31.4 million in 1997, reflecting the consolidation of CTI (80% owned from August 1998) and continued U.S. tower growth.
- Net loss widened to $(37.8) million ($(1.02) per share after preferred dividends), with a $12.8 million non-cash stock option compensation charge and $29.1 million of interest expense.
- Tower footprint stood at 1,474 towers at year end: 609 in the U.S. and Puerto Rico and 865 in the U.K., with 72 U.S. towers under construction.
- Pending transactions would add about 4,748 towers, including BAM JV (~1,427), BellSouth (~1,850, $610 million consideration) and Powertel (~650, $275 million cash).
- Balance sheet at 12/31/1998 showed $296.5 million cash, $429.7 million long-term debt and $201.1 million redeemable preferred stock; pro forma debt rises to $909.7 million after transactions.
- Liquidity depends on the planned $475 million equity and $300 million debt offerings; $100 million of escrow deposits would be forfeited if transactions fail to close.
- Concentration risk is significant: the BBC represented about 60.6% of CTI revenues (about 25.1% of consolidated pro forma revenues), and foreign-currency exposure is high, with about 74.3% of revenues originating outside the U.S. in pound sterling.
03—Questions
Frequently Asked Questions
What drove the large jump in revenue and assets in 1998?
The main driver was the August 1998 share exchange with CTI's shareholders, which raised CCI's ownership of CTI from about 34.3% to 80% and consolidated the U.K. operations. CTI added roughly $52.5 million of site rental and broadcast revenue in 1998. Assets also grew because CCI recognized about $344 million of goodwill on the exchange and issued equity valued at roughly $419 million.
How risky is the company's debt load?
Risk is high. Debt and redeemable preferred stock were 0.84x equity pro forma for the offerings alone, and 0.74x pro forma for the transactions as well. Earnings in 1998 would have been insufficient to cover fixed charges by $104.2 million on a pro forma basis. Cash interest will become payable on the 10 5/8% discount notes in 2003, and the company's ability to pay depends on subsidiary cash flow, since CTI is effectively precluded from paying dividends and the U.S. subsidiary's dividend capacity is limited.
What happens if the proposed BellSouth, Powertel or BAM transactions do not close?
The filing says the company could forfeit part or all of its $100 million in escrow deposits ($50 million each for BellSouth and Powertel). The offering proceeds would then be available for other uses, but the company might not find comparable acquisitions on similar economic terms. Failure to close would materially change the growth plan that the company describes as central to its strategy.
How concentrated is the customer base?
The U.K. business is highly concentrated. The BBC accounted for about 60.6% of CTI's 1998 revenue, and the BBC analog contract runs to March 2007. In the U.S., Nextel accounted for about 12.5% of consolidated revenue, and no other customer exceeded 10%. Pro forma for the proposed transactions, the BBC would represent about 25.1% of revenue.
What is the stock market and dividend picture for investors?
Common stock began trading on Nasdaq (symbol TWRS) after the August 18, 1998 IPO at $13.00. The stock closed at $19.94 on March 15, 1999, and traded as high as $23.50 in the fourth quarter of 1998. The company has never paid cash dividends and does not expect to do so in the foreseeable future. It intends to retain earnings, and its debt instruments restrict dividend payments.
04—Continue