UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 000-24737
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 BERING DRIVE 77057-1457
SUITE 500 (Zip Code)
HOUSTON, TEXAS
(Address of principal executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at May 1, 2000:
Common Stock - 154,326,984
Class A Common Stock - 11,340,000
CROWN CASTLE INTERNATIONAL CORP.
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1999 and March 31, 2000............................ 3
Consolidated Statement of Operations and Comprehensive Loss for the three months ended
March 31, 1999 and 2000...................................................................... 4
Consolidated Statement of Cash Flows for the three months ended March 31, 1999 and 2000....... 5
Condensed Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................................. 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 23
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.............................................. 24
Item 6. Exhibits and Reports on Form 8-K....................................................... 24
Signatures...................................................................................... 25
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
December 31, March 31,
1999 2000
---------- ----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 549,328 $ 509,505
Receivables:
Trade, net of allowance for doubtful accounts of $3,218 and $4,756 at
December 31, 1999 and March 31, 2000, respectively............................. 74,290 87,991
Other........................................................................... 4,327 50
Inventories....................................................................... 19,178 24,948
Prepaid expenses and other current assets......................................... 14,922 12,897
---------- ----------
Total current assets........................................................... 662,045 635,391
Property and equipment, net of accumulated depreciation of $119,473 and
$155,556 at December 31, 1999 and March 31, 2000, respectively.................... 2,468,101 2,851,855
Escrow deposit for acquisition..................................................... 50,000 50,000
Goodwill and other intangible assets, net of accumulated amortization of
$53,437 and $61,887 at December 31, 1999 and March 31, 2000, respectively......... 596,147 595,166
Deferred financing costs and other assets, net of accumulated amortization of
$4,245 and $4,458 at December 31, 1999 and March 31, 2000, respectively........... 60,357 80,100
---------- ----------
$3,836,650 $4,212,512
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................. $ 45,998 $ 43,640
Accrued interest.................................................................. 20,912 9,273
Accrued compensation and related benefits......................................... 4,005 4,918
Deferred rental revenues and other accrued liabilities............................ 60,366 85,633
---------- ----------
Total current liabilities...................................................... 131,281 143,464
Long-term debt..................................................................... 1,542,343 1,892,566
Other liabilities.................................................................. 67,064 75,250
---------- ----------
Total liabilities.............................................................. 1,740,688 2,111,280
---------- ----------
Commitments and contingencies
Minority interests................................................................. 55,292 74,529
Redeemable preferred stock......................................................... 422,923 430,291
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized:
Common Stock; shares issued: December 31, 1999 - 146,074,905 and
March 31, 2000 - 148,813,270................................................... 1,461 1,488
Class A Common Stock; shares issued: 11,340,000................................. 113 113
Additional paid-in capital........................................................ 1,805,053 1,831,119
Cumulative foreign currency translation adjustment................................ (3,013) (5,393)
Accumulated deficit............................................................... (185,867) (230,915)
---------- ----------
Total stockholders' equity..................................................... 1,617,747 1,596,412
---------- ----------
$3,836,650 $4,212,512
========== ==========
See condensed notes to consolidated financial statements.
3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended
March 31,
----------------------
1999 2000
-------- --------
Net revenues:
Site rental and broadcast transmission.............................................. $ 45,326 $ 93,741
Network services and other.......................................................... 9,783 30,503
-------- --------
55,109 124,244
-------- --------
Operating expenses:
Costs of operations (exclusive of depreciation and amortization):
Site rental and broadcast transmission............................................ 18,527 40,287
Network services and other........................................................ 6,982 15,901
General and administrative.......................................................... 8,304 14,853
Corporate development............................................................... 874 2,071
Restructuring charges............................................................... 1,814 --
Non-cash compensation charges....................................................... 667 461
Depreciation and amortization....................................................... 19,656 45,122
-------- --------
56,824 118,695
-------- --------
Operating income (loss).............................................................. (1,715) 5,549
Other income (expense):
Interest and other income (expense)................................................. 340 5,704
Interest expense and amortization of deferred financing costs....................... (11,286) (41,761)
-------- --------
Loss before income taxes, minority interests, extraordinary item and cumulative
effect of change in accounting principle............................................ (12,661) (30,508)
Provision for income taxes........................................................... (127) (11)
Minority interests................................................................... (685) (1,541)
-------- --------
Loss before extraordinary item and cumulative effect of change in accounting
principle........................................................................... (13,473) (32,060)
Extraordinary item--loss on early extinguishment of debt............................. -- (1,495)
Cumulative effect of change in accounting principle for costs of start-up
activities.......................................................................... (2,414) --
-------- --------
Net loss............................................................................. (15,887) (33,555)
Dividends on preferred stock......................................................... (6,408) (11,493)
-------- --------
Net loss after deduction of dividends on preferred stock............................. $(22,295) $(45,048)
======== ========
Net loss............................................................................. $(15,887) $(33,555)
Other comprehensive income:
Foreign currency translation adjustments............................................ (4,743) (2,380)
-------- --------
Comprehensive loss................................................................... $(20,630) $(35,935)
======== ========
Per common share - basic and diluted:
Loss before extraordinary item and cumulative effect of change in accounting
principle.......................................................................... $ (0.21) $ (0.27)
Extraordinary item.................................................................. -- (0.01)
Cumulative effect of change in accounting principle................................. (0.03) --
-------- --------
Net loss............................................................................ $ (0.24) $ (0.28)
======== ========
Common shares outstanding - basic and diluted (in thousands)......................... 94,732 158,566
======== ========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
Three Months Ended
March 31,
----------------------
1999 2000
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................................ $ (15,887) $ (33,555)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization......................................................... 19,656 45,122
Amortization of deferred financing costs and discounts on long-term debt.............. 4,920 19,139
Minority interests.................................................................... 685 1,541
Extraordinary loss on early extinguishment of debt.................................... -- 1,495
Non-cash compensation charges......................................................... 667 461
Cumulative effect of change in accounting principle................................... 2,414 --
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in deferred rental revenues and other liabilities........................... 46,046 38,026
Increase in inventories, prepaid expenses and other assets........................... (4,456) (11,767)
Decrease in accrued interest......................................................... (14,457) (11,541)
Increase in receivables.............................................................. (1,363) (9,842)
Decrease in accounts payable......................................................... (17,738) (2,145)
--------- ---------
Net cash provided by operating activities.......................................... 20,487 36,934
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired........................................ (204,845) (287,363)
Capital expenditures.................................................................... (76,363) (110,427)
Investments in affiliates............................................................... -- (1,498)
--------- ---------
Net cash used for investing activities............................................. (281,208) (399,288)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................................................ -- 400,000
Net borrowings under revolving credit agreements........................................ 64,679 19,000
Proceeds from issuance of capital stock................................................. 1,835 6,845
Principal payments on long-term debt.................................................... -- (82,000)
Incurrence of financing costs........................................................... (117) (18,930)
--------- ---------
Net cash provided by financing activities.......................................... 66,397 324,915
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................................. (279) (2,384)
--------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................................ (194,603) (39,823)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......................................... 296,450 549,328
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............................................... $ 101,847 $ 509,505
========= =========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill and other intangible assets..... $ 653,029 $ 320,392
Escrow deposits for acquisitions...................................................... 100,000 --
Issuance of long-term debt............................................................ 280,000 --
Minority interests.................................................................... 14,330 18,289
Issuance of common stock.............................................................. 253,854 14,740
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid........................................................................... $ 21,452 $ 33,096
Income taxes paid....................................................................... 104 23
See condensed notes to consolidated financial statements.
5
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements for the fiscal year ended December 31, 1999,
and related notes thereto, included in the Annual Report on Form 10-K (the "Form
10-K") filed by Crown Castle International Corp. with the Securities and
Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited; however,
they include all adjustments (consisting only of normal recurring adjustments)
which, in the opinion of management, are necessary to present fairly the
consolidated financial position of the Company at March 31, 2000 and the
consolidated results of operations and consolidated cash flows for the three
months ended March 31, 1999 and 2000. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 requires that such deferred costs be charged to results of operations
upon its adoption. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted the requirements of SOP 98-5 as of
January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 resulted in a charge to results of operations for
$2,414,000 in the Company's financial statements for the three months ended
March 31, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of such derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be reported
as the effect of a change in accounting principle. SFAS 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt the requirements of SFAS 133 in its financial statements
for the three months ending March 31, 2001. The Company has not yet determined
the effect that the adoption of SFAS 133 will have on its consolidated financial
statements.
2. ACQUISITIONS
Agreement With GTE Corporation ("GTE")
On November 7, 1999, the Company entered into an agreement with GTE to form a
joint venture ("Crown Castle GT") to own and operate a significant majority of
GTE's towers. The agreement contemplates that the transaction will be completed
in multiple closings during 2000. On January 31, 2000, the formation of Crown
Castle GT took place in connection with the first such closing of towers.
During the course of the multiple closings, (1) the Company will contribute an
aggregate of approximately $825,000,000 (of which up to
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$100,000,000 can be in shares of its common stock, with the balance in cash) in
exchange for a majority ownership interest in Crown Castle GT, and (2) GTE will
contribute approximately 2,300 towers in exchange for cash distributions
aggregating approximately $800,000,000 (less any amount contributed in the form
of the Company's common stock) from Crown Castle GT and a minority ownership
interest in Crown Castle GT. Upon dissolution of Crown Castle GT, GTE will
receive (1) any shares of the Company's common stock contributed to Crown Castle
GT and (2) a payment equal to approximately 11.4% of the fair market value of
Crown Castle GT's other net assets; the Company will then receive the remaining
assets and liabilities of Crown Castle GT. The Company is accounting for its
investment in Crown Castle GT as a purchase of tower assets, and is including
Crown Castle GT's results of operations and cash flows in the Company's
consolidated financial statements for periods subsequent to formation. Upon
entering into this agreement, the Company placed $50,000,000 into an escrow
account. At the January 31, 2000 closing, the Company contributed $223,870,000
in cash to Crown Castle GT, and GTE contributed 637 towers in exchange for a
cash distribution of $198,870,000 from Crown Castle GT. See Note 9.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
and BellSouth DCS
On February 2, 2000, the Company closed on an additional 90 of the BellSouth
towers. In connection with this closing, the Company paid $20,437,000 in cash
and issued 441,925 shares of its common stock. On the same date, the Company
closed on an additional 26 of the BellSouth DCS towers. In connection with this
closing, the Company paid $10,662,000 in cash. See Note 9.
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, March 31,
1999 2000
------------ ---------
(In thousands of dollars)
2000 Credit Facility........................................ $ -- $ 400,000
Senior Credit Facility...................................... 63,000 --
CCUK Credit Facility........................................ 133,456 131,778
Crown Atlantic Credit Facility.............................. 180,000 180,000
9% Guaranteed Bonds due 2007................................ 195,699 193,096
10 5/8% Senior Discount Notes due 2007, net of discount..... 186,434 191,321
10 3/8% Senior Discount Notes due 2011, net of discount..... 321,284 329,511
9% Senior Notes due 2011.................................... 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of discount..... 157,470 161,860
9 1/2% Senior Notes due 2011................................ 125,000 125,000
---------- ----------
$1,542,343 $1,892,566
========== ==========
2000 Credit Facility
In March 2000, a subsidiary of the Company entered into a credit agreement
with a syndicate of banks (the "2000 Credit Facility") which consists of two
term loan facilities and a revolving line of credit aggregating $1,200,000,000.
Available borrowings under the 2000 Credit Facility are generally to be used for
the construction and purchase of towers and for general corporate purposes of
CCUSA, Crown Castle GT and Crown Castle Australia Limited. The amount of
available borrowings will be determined based on the current financial
performance (as defined) of those subsidiaries' assets. In addition, up to
$25,000,000 of borrowing availability under the 2000 Credit Facility can be used
for letters of credit.
On March 15, 2000, the Company used $83,375,000 in borrowings under one of
the term loan facilities of the 2000 Credit Facility to repay outstanding
borrowings and accrued interest under the Senior Credit Facility. The net
proceeds from $316,625,000 in additional borrowing under this term loan facility
are being used to fund
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
a portion of the purchase price for Crown Castle GT and for general corporate
purposes (see Note 9). As of March 31, 2000, approximately $180,000,000 of
borrowings was available under the 2000 Credit Facility, of which $25,000,000
was available for letters of credit. There were no letters of credit outstanding
as of March 31, 2000. In the first quarter of 2000, CCI recorded an
extraordinary loss of $1,495,000 consisting of the write-off of unamortized
deferred financing costs related to the Senior Credit Facility.
The amount of available borrowings under the 2000 Credit Facility's term
loans and revolving line of credit will decrease by stated amounts at the end of
each calendar quarter beginning on June 30, 2003. Any remaining borrowings
under the term loan currently outstanding must be repaid on March 15, 2008. Any
remaining borrowings under the other term loan and the revolving line of credit
must be repaid on September 15, 2007. Under certain circumstances, the Company's
subsidiaries may be required to make principal prepayments under the 2000 Credit
Facility in an amount equal to 50% of excess cash flow (as defined), the net
cash proceeds from certain asset sales or the net cash proceeds from certain
borrowings.
The 2000 Credit Facility is secured by substantially all of the assets of
CCUSA and CCAL, and the Company's pledge of the capital stock of those
subsidiaries and Crown Castle GT. In addition, the 2000 Credit Facility is
guaranteed by CCIC. Borrowings under the 2000 Credit Facility bear interest at
rates per annum, at the Company's election, equal to the bank's prime rate plus
margins ranging from 1.75% to 2.00% or a Eurodollar interbank offered rate
(LIBOR) plus margins ranging from 2.75% to 3.00%. The interest rate margins may
be reduced by up to 1.00% (non-cumulatively) based on a financial test,
determined quarterly. Interest on prime rate loans is due quarterly, while
interest on LIBOR loans is due at the end of the period (from one to six months)
for which such LIBOR rate is in effect. The 2000 Credit Facility requires the
borrowers to maintain certain financial covenants and places restrictions on
their ability to, among other things, incur debt and liens, pay dividends, make
capital expenditures, dispose of assets, undertake transactions with affiliates
and make investments.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing the
Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
March 31, 2000
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
Cash and cash equivalents....................... $ 475,007 $ 34,498 $ -- $ 509,505
Other current assets............................ 61,248 64,638 -- 125,886
Property and equipment, net..................... 1,706,949 1,144,906 -- 2,851,855
Escrow deposit for acquisition.................. 50,000 -- -- 50,000
Investments in Unrestricted Subsidiaries........ 999,931 -- (999,931) --
Goodwill and other intangible assets, net....... 134,568 460,598 -- 595,166
Other assets, net............................... 68,526 11,574 -- 80,100
---------- ---------- --------- ----------
$3,496,229 $1,716,214 $(999,931) $4,212,512
========== ========== ========= ==========
Current liabilities............................. $ 57,685 $ 85,779 $ -- $ 143,464
Long-term debt.................................. 1,387,692 504,874 -- 1,892,566
Other liabilities............................... 5,760 69,490 -- 75,250
Minority interests.............................. 18,389 56,140 -- 74,529
Redeemable preferred stock...................... 430,291 -- -- 430,291
Stockholders' equity............................ 1,596,412 999,931 (999,931) 1,596,412
---------- ---------- --------- ----------
$3,496,229 $1,716,214 $(999,931) $4,212,512
========== ========== ========= ==========
Three Months Ended March 31, 2000
---------------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------- ------------- -------------
(In thousands of dollars)
Net revenues....................................................$ 49,459 $ 74,785 $124,244
Costs of operations (exclusive of depreciation and
amortization).................................................. 19,432 36,756 56,188
General and administrative...................................... 12,030 2,823 14,853
Corporate development........................................... 1,786 285 2,071
Non-cash compensation charges................................... 407 54 461
Depreciation and amortization................................... 21,450 23,672 45,122
-------- -------- --------
Operating income (loss)......................................... (5,646) 11,195 5,549
Interest and other income (expense)............................. 5,048 656 5,704
Interest expense and amortization of deferred financing costs... (29,100) (12,661) (41,761)
Provision for income taxes...................................... (11) -- (11)
Minority interests.............................................. (100) (1,441) (1,541)
Extraordinary item.............................................. (1,495) -- (1,495)
-------- -------- --------
Net loss........................................................$(31,304) $ (2,251) $(33,555)
======== ======== ========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (2) the indentures governing the 10 3/8% Discount Notes, the 9%
Senior Notes, the 11 1/4% Discount Notes and the 9 1/2% Senior Notes (the "1999
Securities"):
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended March 31, 2000............................... $ 16,251 $ 16,251
======== ========
Consolidated Cash Flow, for the twelve months ended March 31, 2000....................... $ 39,951 $ 45,480
Less: Tower Cash Flow, for the twelve months ended March 31, 2000........................ (45,175) (45,175)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2000.............. 65,004 65,004
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2000.............. $ 59,780 $ 65,309
======== ========
4. REDEEMABLE PREFERRED STOCK
Redeemable preferred stock ($.01 par value, 10,000,000 shares authorized)
consists of the following:
December 31, March 31,
1999 2000
-------- --------
(In thousands of
dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 1999 - 226,745 and March 31, 2000 - 233,973 (stated at
mandatory redemption and aggregate liquidation value).................................. $227,950 $235,216
8 1/4% Cumulative Convertible Redeemable Preferred Stock; shares issued:
200,000 (stated net of unamortized value of warrants; mandatory
redemption and aggregate liquidation value of $200,000)................................ 194,973 195,075
-------- --------
$422,923 $430,291
======== ========
5. RESTRUCTURING CHARGES
In connection with the formation of Crown Atlantic, the Company completed a
restructuring of its United States operations during the first quarter of 1999.
The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States.
Coincident with the restructuring, the Company incurred one-time charges of
$1,814,000 related to severance payments for staff reductions, as well as costs
related to non-cancelable leases of excess office space.
6. PER SHARE INFORMATION
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
A reconciliation of the numerators and denominators of the basic and diluted
per share computations is as follows:
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended
March 31,
------------------------
1999 2000
-------- --------
(In thousands of dollars,
except per share amounts)
Loss before extraordinary item and cumulative effect of change in
accounting principle........................................................ $(13,473) $(32,060)
Dividends on preferred stock................................................. (6,408) (11,493)
-------- --------
Loss before extraordinary item and cumulative effect of change in
accounting principle applicable to common stock for basic and diluted
computations................................................................ (19,881) (43,553)
Extraordinary item........................................................... -- (1,495)
Cumulative effect of change in accounting principle.......................... (2,414) --
-------- --------
Net loss applicable to common stock for basic and diluted computations....... $(22,295) $(45,048)
======== ========
Weighted-average number of common shares outstanding during the period
for basic and diluted computations (in thousands)........................... 94,732 158,566
========= ========
Per common share - basic and diluted:
Loss before extraordinary item and cumulative effect of change in
accounting principle..................................................... $ (0.21) $ (0.27)
Extraordinary item........................................................ -- (0.01)
Cumulative effect of change in accounting principle....................... (0.03) --
-------- --------
Net loss.................................................................. $ (0.24) $ (0.28)
======== ========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of March 31, 2000: (1) options
to purchase 19,452,770 shares of common stock at exercise prices ranging from
$-0- to $33.25 per share, (2) warrants to purchase 835,990 shares of common
stock at an exercise price of $7.50 per share, (3) warrants to purchase
1,000,000 shares of common stock at an exercise price of $26.875 per share, (4)
shares of Crown Castle UK Holdings Limited ("CCUK") stock which are convertible
into 17,443,500 shares of common stock and (5) shares of the Company's 8 1/4%
Cumulative Convertible Redeemable Preferred Stock which are convertible into
7,441,860 shares of common stock. The inclusion of such potential common shares
in the diluted per share computations would be antidilutive since the Company
incurred net losses for all periods presented.
7. CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently determine
the ultimate costs that may be incurred, management believes the resolution of
such uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
8. OPERATING SEGMENTS
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company defines
EBITDA as operating income (loss) plus depreciation and amortization, non-cash
compensation charges and restructuring charges. EBITDA is not intended as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
principles), and the Company's measure of EBITDA may not be comparable to
similarly titled measures of other companies. There are no significant revenues
resulting from transactions between the Company's operating segments.
The financial results for the Company's operating segments are as follows:
Three Months Ended March 31, 2000
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
------------ ---------- ---------- ---------- -------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission.......................... $ 31,370 $ 48,579 $ 13,792 $ -- $ 93,741
Network services and other............. 18,055 6,546 5,868 34 30,503
---------- -------- -------- -------- ----------
49,425 55,125 19,660 34 124,244
---------- -------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization)......... 19,383 27,934 8,822 49 56,188
General and administrative.............. 9,980 1,026 1,797 2,050 14,853
Corporate development................... -- 285 -- 1,786 2,071
---------- -------- -------- -------- ----------
EBITDA.................................. 20,062 25,880 9,041 (3,851) 51,132
Non-cash compensation charges........... 67 54 -- 340 461
Depreciation and amortization........... 21,154 15,553 8,119 296 45,122
---------- -------- -------- -------- ----------
Operating income (loss)................. (1,159) 10,273 922 (4,487) 5,549
Interest and other income (expense)..... 776 185 471 4,272 5,704
Interest expense and amortization of
deferred financing costs............... (3,734) (8,285) (4,376) (25,366) (41,761)
Provision for income taxes.............. (11) -- -- -- (11)
Minority interests...................... (100) (1,303) (138) -- (1,541)
Extraordinary item...................... (1,495) -- -- -- (1,495)
---------- -------- -------- -------- ----------
Net income (loss)....................... $ (5,723) $ 870 $ (3,121) $(25,581) $ (33,555)
========== ======== ======== ======== ==========
Capital expenditures.................... $ 66,941 $ 20,904 $ 22,235 $ 347 $ 110,427
========== ======== ======== ======== ==========
Total assets (at period end)............ $2,135,195 $998,804 $717,410 $361,103 $4,212,512
========== ======== ======== ======== ==========
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Three Months Ended March 31, 1999
--------------------------------------------------
Corporate
Office Consolidated
CCUSA CCUK and Other Total
--------- --------- ---------- -------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission.................. $ 6,316 $39,010 $ -- $ 45,326
Network services and other.............................. 5,167 3,845 771 9,783
------- ------- ------- --------
11,483 42,855 771 55,109
------- ------- ------- --------
Costs of operations (exclusive of depreciation and
amortization)........................................... 4,208 20,784 517 25,509
General and administrative............................... 5,294 1,680 1,330 8,304
Corporate development.................................... -- 33 841 874
------- ------- ------- --------
EBITDA................................................... 1,981 20,358 (1,917) 20,422
Restructuring charges.................................... 1,814 -- -- 1,814
Non-cash compensation charges............................ 67 284 316 667
Depreciation and amortization............................ 4,238 15,139 279 19,656
------- ------- ------- --------
Operating income (loss).................................. (4,138) 4,935 (2,512) (1,715)
Interest and other income (expense)...................... (533) (175) 1,048 340
Interest expense and amortization of deferred
financing costs......................................... (685) (5,539) (5,062) (11,286)
Provision for income taxes............................... (31) -- (96) (127)
Minority interests....................................... -- (685) -- (685)
Cumulative effect of change in accounting principle
for costs of start-up activities........................ (2,014) -- (400) (2,414)
------- ------- ------- --------
Net loss................................................. $(7,401) $(1,464) $(7,022) $(15,887)
======= ======= ======= ========
Capital expenditures..................................... $17,171 $58,805 $ 387 $ 76,363
======= ======= ======= ========
9. SUBSEQUENT EVENTS
Crown Castle GT
On April 3, 2000, the second closing of towers took place for Crown Castle
GT. The Company contributed $479,671,000 in cash and 5,067,488 shares of its
common stock to Crown Castle GT, and GTE contributed 1,607 towers in exchange
for a cash distribution of $479,671,000 from Crown Castle GT. The funds in the
escrow account (see Note 2) were used to pay $50,000,000 of the Company's cash
contribution. A portion of the remaining cash contribution was financed with
the net proceeds from borrowings under the Term Loans due 2011 (as discussed
below).
In addition to the approximately 2,300 towers to be contributed pursuant to
the formation agreement, GTE has the right to contribute certain additional
towers to Crown Castle GT, including towers acquired by GTE from Ameritech Corp.
("Ameritech"), on terms substantially similar to those in the formation
agreement. In April 2000, the Company agreed with GTE that approximately 470 of
the Ameritech towers would be contributed to Crown Castle GT. The consideration
to GTE for these additional towers will be a cash distribution of approximately
$162,500,000 and additional ownership interests in Crown Castle GT.
Crown Castle Australia Limited ("CCAL")
In March 2000, CCAL (a 66.7% owned subsidiary of the Company) entered into an
agreement to purchase approximately 700 towers in Australia from Cable &
Wireless Optus ("Optus"). The total purchase price for the towers will be
approximately $135,000,000 in cash (Australian $220,000,000). The Company is
accounting for
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
its investment in CCAL as a purchase of tower assets, and will include CCAL's
results of operations and cash flows in the Company's consolidated financial
statements for periods subsequent to the purchase date. On April 3, 2000, the
first closing took place for CCAL. The Company contributed $90,786,000 in cash
(Australian $147,500,000) to CCAL. The largest portion of this amount, along
with a capital contribution from CCAL's minority shareholder, was used to pay
$95,710,000 (Australian $155,500,000) to Optus. The remaining portion of the
purchase price is expected to be paid to Optus in the second quarter of 2000.
Term Loans due 2011
On April 3, 2000, the Company borrowed $400,000,000 under a term loan
agreement with a group of lenders (the "Term Loans"). The net proceeds from
this borrowing, which amounted to $395,875,000, were used to fund a portion of
the cash contribution for the second closing of towers at Crown Castle GT (as
discussed above). The Term Loans mature on March 31, 2011 and bear interest at
an initial rate of LIBOR plus 3.75% per annum, with such interest rate
increasing on a periodic basis. Interest is due at the end of the period for
which such LIBOR rate is in effect. The Term Loans must be prepaid from the net
proceeds of any future equity or debt securities sold by the Company.
BellSouth and BellSouth DCS
On April 20, 2000, the Company closed on an additional 90 of the BellSouth
towers. In connection with this closing, the Company paid $20,518,000 in cash
and issued 441,926 shares of its common stock. On the same date, the Company
closed on an additional 32 of the BellSouth DCS towers. In connection with this
closing, the Company paid $13,175,000 in cash.
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of March 31, 2000 and our consolidated
results of operations for the three-month periods ended March 31, 1999 and 2000.
The statements in this discussion regarding the industry outlook, our
expectations regarding the future performance of our businesses and the other
nonhistorical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
decisions on capital expenditures to be made in the future by wireless carriers
and broadcasters. This discussion should be read in conjunction with the
response to Part I, Item 1 of this report and the consolidated financial
statements of the Company, including the related notes, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in the Form 10-K. Any capitalized terms used but not defined in this
Item have the same meaning given to them in the Form 10-K.
RESULTS OF OPERATIONS
In March 1999, we completed the formation of Crown Atlantic. In June and
December of 1999, we completed the acquisition of towers from Powertel. During
1999, we completed the substantial portions of the transactions with BellSouth
and BellSouth DCS. Finally, in January 2000, the formation of Crown Castle GT
took place with the first closing of towers. Results of operations of these
acquired businesses and towers are included in our consolidated financial
statements for the periods subsequent to the respective dates of acquisition.
As such, our results of operations for the three months ended March 31, 1999 are
not comparable to the results of operations for the three months ended March 31,
2000.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
15
Three Months Ended Three Months Ended
March 31, 1999 March 31, 2000
------------------------ -----------------------
Percent of Percent of
Net Net
Amount Revenues Amount Revenues
---------- ----------- ---------- -----------
(Dollars in thousands)
Net revenues:
Site rental and broadcast transmission................... $ 45,326 82.2% $ 93,741 75.4%
Network services and other............................... 9,783 17.8 30,503 24.6
-------- ------ -------- ------
Total net revenues.................................... 55,109 100.0 124,244 100.0
-------- ------ -------- ------
Operating expenses:
Costs of operations:
Site rental and broadcast transmission................. 18,527 40.9 40,287 43.0
Network services and other............................. 6,982 71.4 15,901 52.1
-------- --------
Total costs of operations............................. 25,509 46.3 56,188 45.2
General and administrative............................... 8,304 15.1 14,853 12.0
Corporate development.................................... 874 1.6 2,071 1.7
Restructuring charges.................................... 1,814 3.3 -- --
Non-cash compensation charges............................ 667 1.2 461 0.4
Depreciation and amortization............................ 19,656 35.6 45,122 36.3
-------- ------ -------- ------
Operating income (loss)................................... (1,715) (3.1) 5,549 4.4
Other income (expense):
Interest and other income (expense)...................... 340 0.6 5,704 4.6
Interest expense and amortization of deferred
financing costs.......................................... (11,286) (20.5) (41,761) (33.6)
-------- ------ -------- ------
Loss before income taxes, minority interests,
extraordinary item and cumulative effect of change
in accounting principle.................................. (12,661) (23.0) (30,508) (24.6)
Provision for income taxes................................ (127) (0.2) (11) --
Minority interests........................................ (685) (1.2) (1,541) (1.2)
-------- ------ -------- ------
Loss before extraordinary item and cumulative effect
of change in accounting principle........................ (13,473) (24.4) (32,060) (25.8)
Extraordinary loss on early extinguishment of debt........ -- -- (1,495) (1.2)
Cumulative effect of change in accounting principle
for costs of start-up activities......................... (2,414) (4.4) -- --
-------- ------ -------- ------
Net loss.................................................. $(15,887) (28.8)% $(33,555) (27.0)%
======== ====== ======== ======
Comparison of Three Months Ended March 31, 2000 and 1999
Consolidated revenues for the three months ended March 31, 2000 were $124.2
million, an increase of $69.1 million from the three months ended March 31,
1999. This increase was primarily attributable to:
(1) a $48.4 million, or 106.8%, increase in site rental and broadcast
transmission revenues, of which $9.6 million was attributable to CCUK,
$13.8 million was attributable to Crown Atlantic and $25.0 million was
attributable to CCUSA,
(2) a $12.9 million increase in network services and other revenues from
CCUSA,
(3) a $2.7 million increase in network services and other revenues from CCUK,
and
(4) $5.9 million in network services and other revenues from Crown Atlantic.
Costs of operations for the three months ended March 31, 2000 were $56.2
million, an increase of $30.7 million from the three months ended March 31,
1999. This increase was primarily attributable to:
(1) a $21.8 million increase in site rental and broadcast transmission costs,
of which $5.9 million was attributable to CCUK, $5.9 million was
attributable to Crown Atlantic and $10.0 million was attributable to
CCUSA,
16
(2) a $5.2 million increase in network services costs related to CCUSA,
(3) a $1.3 million increase in network services costs from CCUK, and
(4) $3.0 million in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 43.0% for the
three months ended March 31, 2000 from 40.9% for the three months ended March
31, 1999 because of higher costs attributable to the CCUK, Crown Atlantic and
CCUSA operations. Costs of operations for network services and other as a
percentage of network services and other revenues decreased to 52.1% for the
three months ended March 31, 2000 from 71.4% for the three months ended March
31, 1999, primarily due to higher margins from the CCUK, Crown Atlantic and
CCUSA operations.
General and administrative expenses for the three months ended March 31, 2000
were $14.9 million, an increase of $6.5 million from the three months ended
March 31, 1999. This increase was primarily attributable to:
(1) a $4.7 million increase in expenses related to the CCUSA operations,
(2) a $0.7 million increase in expenses at our corporate office, and
(3) $1.8 million in expenses at Crown Atlantic, partially offset by
(4) a $0.7 million decrease in expenses at CCUK.
General and administrative expenses as a percentage of revenues decreased for
the three months ended March 31, 2000 to 12.0% from 15.1% for the three months
ended March 31, 1999 because of lower overhead costs as a percentage of revenues
for CCUK, Crown Atlantic and CCUSA.
Corporate development expenses for the three months ended March 31, 2000 were
$2.1 million, compared to $0.9 million for the three months ended March 31,
1999. This increase was attributable to (1) a $0.9 million increase in expenses
at our corporate office and (2) $0.3 million in expenses at CCUK.
In connection with the formation of Crown Atlantic, we completed a
restructuring of our United States operations during the first quarter of 1999.
The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States. In the
first quarter of 1999, we recorded one-time charges of $1.8 million related to
severance payments for staff reductions, as well as costs related to non-
cancelable leases of excess office space.
For the three months ended March 31, 2000, we recorded non-cash compensation
charges of $0.5 million related to the issuance of stock options to certain
employees and executives, compared to $0.7 million for the three months ended
March 31, 1999.
Depreciation and amortization for the three months ended March 31, 2000 was
$45.1 million, an increase of $25.5 million from the three months ended March
31, 1999. This increase was primarily attributable to:
(1) a $0.4 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
(2) $8.1 million of depreciation and amortization related to the property and
equipment and goodwill from Crown Atlantic, and
(3) a $16.9 million increase in depreciation and amortization related to the
property and equipment, goodwill and other intangible assets related to
the CCUSA operations.
Interest and other income (expense) for the three months ended March 31, 2000
resulted primarily from:
17
(1) the investment of the net proceeds from the sale of our 11 1/4% discount
notes and 9 1/2% senior notes in July 1999,
(2) the investment of the net proceeds from the sale of our 8 1/4%
convertible preferred stock in November 1999, and
(3) the investment of the net proceeds from borrowings under the 2000 credit
facility. See "--Liquidity and Capital Resources".
Interest and other income (expense) for the three months ended March 31, 1999
resulted primarily from:
(1) the investment of the net proceeds from our initial public offering of
common stock in August 1998,
(2) the investment of the excess proceeds from the sale of our 12 3/4% senior
exchangeable preferred stock in December 1998, and
(3) the investment of the excess proceeds from the sale of our 10 5/8%
discount notes in November 1997, largely offset by costs incurred in
connection with unsuccessful acquisition attempts.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 2000 was $41.8 million, an increase of $30.5 million, or
270.0%, from the three months ended March 31, 1999. This increase was primarily
attributable to interest on indebtedness at CCUK and Crown Atlantic,
amortization of the original issue discount on the 10 3/8% discount notes and
the 11 1/4% discount notes, and interest on the 9% senior notes and the 9 1/2%
senior notes.
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations, the minority partner's 38.5% interest in Crown Atlantic's
operations and the minority partner's 18.7% interest in Crown Castle GT's
operations.
The extraordinary loss on early extinguishment of debt represents the write-
off of unamortized deferred financing costs related to the senior credit
facility. See "--Liquidity and Capital Resources".
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge we recorded upon the adoption of SOP
98-5 on January 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our business strategy contemplates substantial capital expenditures:
(1) in connection with the expansion of our tower portfolios by partnering
with wireless carriers to assume ownership or control of their existing
towers, by pursuing build-to-suit opportunities, and by pursuing other
tower acquisition opportunities, and
(2) to acquire existing transmission networks globally as opportunities
arise.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities, issuances of debt securities and the issuance of
promissory notes to sellers. Since its inception, CCUK has generally funded its
activities, other than the acquisition of the BBC home service transmission
business, through cash provided by operations and borrowings under CCUK's credit
facility. CCUK financed the acquisition of the BBC home service transmission
business with the proceeds from equity contributions and the issuance of the
CCUK bonds.
18
For the three months ended March 31, 1999 and 2000, our net cash provided by
operating activities was $20.5 million and $36.9 million, respectively. For the
three months ended March 31, 1999 and 2000, our net cash provided by financing
activities was $66.4 million and $324.9 million, respectively. Our primary
financing-related activities in the first quarter and April of 2000 included the
following:
2000 Credit Facility
In March 2000, a subsidiary of CCIC entered into a credit agreement with a
syndicate of banks which consists of two term loan facilities and a revolving
line of credit aggregating $1,200.0 million. Available borrowings under the
2000 credit facility are generally to be used for the construction and purchase
of towers and for general corporate purposes of CCUSA, Crown Castle GT and CCAL.
The amount of available borrowings will be determined based on the current
financial performance (as defined) of those subsidiaries' assets. In addition,
up to $25.0 million of borrowing availability under the 2000 credit facility can
be used for letters of credit. On March 15, 2000, we used $83.4 million in
borrowings under the 2000 credit facility to repay outstanding borrowings and
accrued interest under the Crown Communication senior credit facility. The net
proceeds from $316.6 million in additional borrowings are being used to fund a
portion of the purchase price for the GTE joint venture and for general
corporate purposes.
Term Loans due 2011
On April 3, 2000, we borrowed $400.0 million under a term loan agreement with
a group of lenders. The net proceeds from this borrowing, which amounted to
$395.9 million, were used to fund a portion of the cash contribution for the
second closing of towers at the GTE joint venture (as discussed below). The
term loans mature on March 31, 2011 and must be prepaid from the net proceeds of
any future equity or debt securities sold by us.
Capital expenditures were $110.4 million for the three months ended March 31,
2000, of which $0.4 million were for CCIC, $66.9 million were for CCUSA, $22.2
million were for Crown Atlantic and $20.9 million were for CCUK. We anticipate
that we will build, through the end of 2000, approximately 900 towers in the
United States at a cost of approximately $225.0 million and approximately 270
towers in the United Kingdom at a cost of approximately $45.0 million. We also
expect that the capital expenditure requirements related to the roll-out of
digital broadcast transmission in the United Kingdom will be approximately
(Pounds)17.5 million ($27.9 million).
In addition to capital expenditures in connection with build-to-suits, we
expect to apply a significant amount of capital to finance the remaining cash
portion of the consideration being paid in connection with the recent and agreed
to transactions discussed below.
In connection with the BellSouth transaction, through April 20, 2000, we have
issued approximately 8.6 million shares of our common stock and paid BellSouth
$411.1 million in cash. We expect to (1) issue an additional 0.5 million shares
of our common stock and (2) use a portion of the net proceeds from our recent
offerings to finance the remaining $18.9 million cash purchase price for this
transaction.
In connection with the BellSouth DCS transaction, through April 20, 2000, we
have paid BellSouth DCS $290.7 million in cash. We expect to use a portion of
the net proceeds from our recent offerings to finance the remaining $26.2
million cash purchase price for this transaction.
On November 7, 1999, we entered into an agreement with GTE to form a joint
venture to own and operate a significant majority of GTE's towers. The
agreement contemplates that the transaction will be completed in multiple
closings during 2000. On January 31, 2000, the formation of the joint venture
took place in connection with the first such closing of towers. During the
course of the multiple closings, (1) we will contribute an aggregate of
approximately $825.0 million (of which up to $100.0 million can be in shares of
our common stock, with the balance in cash) in exchange for a majority ownership
interest in the joint venture, and (2) GTE will contribute approximately 2,300
towers in exchange for cash distributions aggregating approximately $800.0
million (less any amount contributed in the form of our common stock) from the
joint venture and a minority ownership interest in the joint venture. Upon
dissolution of the joint venture, GTE will receive (1) any shares
19
of our common stock contributed to the joint venture and (2) a payment equal to
approximately 11.4% of the fair market value of the joint venture's other net
assets; we will then receive the remaining assets and liabilities of the joint
venture. We are accounting for our investment in the GTE joint venture as a
purchase of tower assets, and are including the joint venture's results of
operations and cash flows in our consolidated financial statements for periods
subsequent to formation. Upon entering into this agreement, we placed $50.0
million into an escrow account. At the January 31, 2000 closing, we contributed
$223.9 million in cash to the joint venture, and GTE contributed 637 towers in
exchange for a cash distribution of $198.9 million from the joint venture. On
April 3, 2000, the second closing of towers took place. We contributed $479.7
million in cash and 5.1 million shares of our common stock to the joint venture,
and GTE contributed 1,607 towers in exchange for a cash distribution of $479.7
million from the joint venture. The funds in the escrow account were used to pay
$50.0 million of our cash contribution. A portion of our remaining cash
contribution was financed with the net proceeds from borrowings under term loans
(as discussed above). We expect to use borrowings under our 2000 credit facility
to finance most of the remaining $21.4 million purchase price for this
transaction.
In addition to the approximately 2,300 towers to be contributed pursuant to
the formation agreement, GTE has the right to contribute certain additional
towers to the joint venture, including towers acquired by GTE from Ameritech, on
terms substantially similar to those in the formation agreement. In April 2000,
we agreed with GTE that approximately 470 of the Ameritech towers would be
contributed to the joint venture. The consideration to GTE for these additional
towers will be a cash distribution of approximately $162.5 million and
additional ownership interests in the joint venture. We expect to use
borrowings under our 2000 credit facility to finance the cash purchase price for
this transaction.
In March 2000, CCAL (our 66.7% owned subsidiary) entered into an agreement to
purchase approximately 700 towers in Australia from Cable & Wireless Optus. The
total purchase price for the towers will be approximately $135.0 million in cash
(Australian $220.0 million). We are accounting for our investment in CCAL as a
purchase of tower assets, and will include CCAL's results of operations and cash
flows in our consolidated financial statements for periods subsequent to the
purchase date. On April 3, 2000, the first closing took place for CCAL. We
contributed $90.8 million in cash (Australian $147.5 million) to CCAL. The
largest portion of this amount, along with a capital contribution from CCAL's
minority shareholder, was used to pay $95.7 million (Australian $155.5 million)
to Optus. We expect to use borrowings under our 2000 credit facility to finance
our remaining $33.5 million portion (Australian $54.5 million) of the cash
purchase price for this transaction.
We expect that the completion of the recent and agreed to transactions and
the execution of our new tower build, or build-to-suit program, will have a
material impact on our liquidity. We expect that once integrated, these
transactions will have a positive impact on liquidity, but will require some
period of time to offset the initial adverse impact on liquidity. In addition,
we believe that as new towers become operational and we begin to add tenants,
they should result in a long-term increase in liquidity.
To fund the execution of our business strategy, including the recent and
agreed to transactions described above and the construction of new towers that
we have agreed to build, we expect to use the net proceeds of our recent
offerings and borrowings available under our U.S. and U.K. credit facilities.
We will have additional cash needs to fund our operations in the future. We may
also have additional cash needs in the near term if additional tower
acquisitions or build-to-suit opportunities arise. Some of the opportunities
that we are currently pursuing could require significant additional capital. If
we do not otherwise have cash available, or borrowings under our credit
facilities have otherwise been utilized, when our cash need arises, we would be
forced to seek additional debt or equity financing or to forego the opportunity.
In the event we determine to seek additional debt or equity financing, there can
be no assurance that any such financing will be available, on commercially
acceptable terms or at all, or permitted by the terms of our existing
indebtedness. We expect to raise additional funds in the near term with bank
loans, debt or equity financing.
As of March 31, 2000, we had consolidated cash and cash equivalents of $509.5
million (including $214.6 million at CCUSA, $16.4 million at CCUK and $18.1
million at Crown Atlantic), consolidated long-term debt
20
of $1,892.6 million, consolidated redeemable preferred stock of $430.3 million
and consolidated stockholders' equity of $1,596.4 million.
As of May 1, 2000, Crown Atlantic had unused borrowing availability under its
credit facility of approximately $70.0 million, and CCUK had unused borrowing
availability under its credit facility of approximately (Pounds)65.0 million
($101.1 million). As of May 1, 2000, our subsidiaries had approximately $180.0
million of unused borrowing availability under the 2000 credit facility. Our
various credit facilities require our subsidiaries to maintain certain financial
covenants and place restrictions on the ability of our subsidiaries to, among
other things, incur debt and liens, pay dividends, make capital expenditures,
undertake transactions with affiliates and make investments. These facilities
also limit the ability of the borrowing subsidiaries to pay dividends to CCIC.
If we are unable to refinance our subsidiary debt or renegotiate the terms of
such debt, we may not be able to meet our debt service requirements, including
interest payments on the notes, in the future. Our 9% senior notes and our 9
1/2% senior notes will require annual cash interest payments of approximately
$16.2 million and $11.9 million, respectively. Prior to November 15, 2002, May
15, 2004 and August 1, 2004, the interest expense on our 10 5/8% discount notes,
our 10 3/8% discount notes and our 11 1/4% discount notes, respectively, will be
comprised solely of the amortization of original issue discount. Thereafter,
the 10 5/8% discount notes, the 10 3/8% discount notes and the 11 1/4% discount
notes will require annual cash interest payments of approximately $26.7 million,
$51.9 million and $29.3 million, respectively. Prior to December 15, 2003, we do
not expect to pay cash dividends on our exchangeable preferred stock or, if
issued, cash interest on the exchange debentures. Thereafter, assuming all
dividends or interest have been paid-in-kind, our exchangeable preferred stock
or, if issued, the exchange debentures will require annual cash dividend or
interest payments of approximately $47.8 million. Annual cash interest payments
on the CCUK bonds are (Pounds)11.25 million ($17.9 million). In addition, our
various credit facilities will require periodic interest payments on amounts
borrowed thereunder.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 11 1/4% discount notes. The terms of the indebtedness of our
subsidiaries significantly limit their ability to distribute cash to CCIC. As a
result, we will be required to apply a portion of the net proceeds from the
recent debt offerings to fund interest payments on the cash-pay notes. If we do
not retain sufficient funds from the offerings or any future financing, we may
not be able to make our interest payments on the cash-pay notes.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. We anticipate that we may need
to refinance all or a portion of our indebtedness on or prior to its scheduled
maturity. There can be no assurance that we will be able to effect any required
refinancings of our indebtedness on commercially reasonable terms or at all.
REPORTING REQUIREMENTS UNDER THE INDENTURES GOVERNING THE COMPANY'S DEBT
SECURITIES (THE "INDENTURES") AND THE CERTIFICATE OF DESIGNATIONS GOVERNING THE
COMPANY'S 12 3/4% SENIOR EXCHANGEABLE PREFERRED STOCK (THE "CERTIFICATE")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
21
March 31, 2000
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
Cash and cash equivalents....................... $ 475,007 $ 34,498 $ -- $ 509,505
Other current assets............................ 61,248 64,638 -- 125,886
Property and equipment, net..................... 1,706,949 1,144,906 -- 2,851,855
Escrow deposit for acquisition.................. 50,000 -- -- 50,000
Investments in Unrestricted Subsidiaries........ 999,931 -- (999,931) --
Goodwill and other intangible assets, net....... 134,568 460,598 -- 595,166
Other assets, net............................... 68,526 11,574 -- 80,100
---------- ---------- --------- ----------
$3,496,229 $1,716,214 $(999,931) $4,212,512
========== ========== ========= ==========
Current liabilities............................. $ 57,685 $ 85,779 $ -- $ 143,464
Long-term debt.................................. 1,387,692 504,874 -- 1,892,566
Other liabilities............................... 5,760 69,490 -- 75,250
Minority interests.............................. 18,389 56,140 -- 74,529
Redeemable preferred stock...................... 430,291 -- -- 430,291
Stockholders' equity............................ 1,596,412 999,931 (999,931) 1,596,412
---------- ---------- --------- ----------
$3,496,229 $1,716,214 $(999,931) $4,212,512
========== ========== ========= ==========
Three Months Ended March 31, 2000
---------------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------- ------------- -------------
(In thousands of dollars)
Net revenues.......................................................... $ 49,459 $ 74,785 $124,244
Costs of operations (exclusive of depreciation and.................... 19,432 36,756 56,188
amortization)
General and administrative............................................ 12,030 2,823 14,853
Corporate development................................................. 1,786 285 2,071
Non-cash compensation charges......................................... 407 54 461
Depreciation and amortization......................................... 21,450 23,672 45,122
-------- -------- --------
Operating income (loss)............................................... (5,646) 11,195 5,549
Interest and other income (expense)................................... 5,048 656 5,704
Interest expense and amortization of deferred financing costs......... (29,100) (12,661) (41,761)
Provision for income taxes............................................ (11) -- (11)
Minority interests.................................................... (100) (1,441) (1,541)
Extraordinary item.................................................... (1,495) -- (1,495)
-------- -------- --------
Net loss.............................................................. $(31,304) $ (2,251) $(33,555)
======== ======== ========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (2) the indentures governing the 10 3/8% Discount Notes, the 9%
Senior Notes, the 11 1/4% Discount Notes and the 9 1/2% Senior Notes (the "1999
Securities"):
22
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended March 31, 2000.......................... $ 16,251 $ 16,251
======== ========
Consolidated Cash Flow, for the twelve months ended March 31, 2000.................. $ 39,951 $ 45,480
Less: Tower Cash Flow, for the twelve months ended March 31, 2000................... (45,175) (45,175)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2000......... 65,004 65,004
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2000......... $ 59,780 $ 65,309
======== ========
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 requires that such deferred costs be charged to results of operations
upon its adoption. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted the requirements of SOP 98-5 as of
January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 resulted in a charge to results of operations for
$2.4 million in the Company's financial statements for the three months ended
March 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS
133, as amended, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company will adopt the requirements of SFAS 133 in its
financial statements for the three months ending March 31, 2001. The Company
has not yet determined the effect that the adoption of SFAS 133 will have on its
consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our international operating, investing and financing
activities, we are exposed to market risks, which include changes in foreign
currency exchange rates and interest rates which may adversely affect our
results of operations and financial position. In attempting to minimize the
risks and/or costs associated with such activities, we seek to manage exposure
to changes in interest rates and foreign currency exchange rates where
economically prudent to do so.
Certain of the financial instruments we have used to obtain capital are
subject to market risks from fluctuations in market interest rates. The
majority of our financial instruments, however, are long-term fixed interest
rate notes and debentures. Therefore, fluctuations in market interest rates of
1% in 2000 would not have a material effect on our consolidated financial
results.
The majority of our foreign currency transactions are denominated in the
British pound sterling, which is the functional currency of CCUK. As a result
of CCUK's transactions being denominated and settled in such functional
currency, the risks associated with currency fluctuations are generally limited
to foreign currency translation adjustments. We do not currently hedge against
foreign currency translation risks and believe that foreign currency exchange
risk is not significant to our operations.
23
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 2, 2000 and April 20, 2000, the Company issued 441,925 and
441,926 unregistered shares of common stock, respectively, to an affiliate of
BellSouth Corporation in connection with closings relating to the BellSouth
transaction. The agreement of sublease relating to the BellSouth transaction
will close in a series of closings, with approximately 30% of the consideration
being paid with our common stock. As of May 1, 2000, we have issued a total of
8,612,638 shares of common stock to BellSouth in connection with closings
relating to the BellSouth transaction. We contemplate that a total of up to 9.1
million shares of our common stock will be issued to BellSouth in connection
with the BellSouth transaction. The shares were issued in exempt transactions
pursuant to Section 4(2) of the Securities Act of 1933, as amended (the "Act").
On March 26, 2000, the Company issued 156,501 shares of unregistered common
stock to the prior majority shareholder of Millennium Communications Limited in
connection with the acquisition of Millenium by Crown Castle UK Limited, which
originally closed on October 8, 1998. The shares were issued in an exempt
transaction pursuant to Section 4(2) of the Act.
On April 1, 2000, in connection with a subsequent closing relating to our
previously announced transaction with GTE, the Company contributed via its
wholly-owned subsidiary, Crown Castle GT Corp. ("CCGT"), 5,067,488 shares of
unregistered common stock of the Company along with $479.7 million in cash (of
which $50.0 million came out of an escrow account previously established by the
Company) to Crown Castle GT Holding Company LLC, a joint venture between CCGT
and GTE. GTE has contributed a total of 2,244 towers to the joint venture,
including 1,607 towers contributed in connection with the April 1, 2000 closing,
together with related assets and liabilities. The cash contributed to the joint
venture has been distributed to GTE by the joint venture. The shares were
issued and contributed to the joint venture in an exempt transaction pursuant to
Section 4(2) of the Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
*2.1 Operating Agreement, dated January 31, 2000, by and between Crown
Castle GT Corp. and affiliates of GTE Wireless Incorporated
*10.1 Credit Agreement dated as of March 15, 2000 among Crown Castle
Operating Company, Crown Castle International Corp., The Chase
Manhattan Bank, Credit Suisse First Boston Corporation, Key
Corporate Capital Inc. and The Bank of Nova Scotia, as Agents, and
the several Lenders which are parties thereto
10.2 Term Loan Agreement, dated as of March 30, 2000 among Crown Castle
International Corp., Chase Securities Inc., Goldman Sachs Credit
Partners L.P., Syndicated Loan Funding Trust and the several
Lenders which are parties thereto
11.1 Computation of Net Loss Per Common Share
12.1 Computation of Ratios of Earnings to Fixed Charges and Earnings
to Combined Fixed Charges and Preferred Stock Dividends
27.1 Financial Data Schedule
- -------------
* Incorporated by reference to the exhibit previously filed by the
Registrant on Form 10-K (Registration No. 0-24737) for the year ended
December 31, 1999.
(B) REPORTS ON FORM 8-K:
None.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CASTLE INTERNATIONAL CORP.
Date: May 11, 2000 By: /s/ W. BENJAMIN MORELAND
-------------------------------------
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: May 11, 2000 By: /s/ WESLEY D. CUNNINGHAM
-------------------------------------
Wesley D. Cunningham
Senior Vice President, Chief Accounting Officer
and Corporate Controller
(Principal Accounting Officer)
25