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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
Commission File Number 000-24737
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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 November 1, 2001: 215,824,249
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CROWN CASTLE INTERNATIONAL CORP.
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 2000 and September 30, 2001... 3
Consolidated Statement of Operations and Comprehensive Loss for the three
and nine months ended September 30, 2000 and 2001....................... 4
Consolidated Statement of Cash Flows for the nine months ended September
30, 2000 and 2001....................................................... 5
Condensed Notes to Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk........ 28
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................. 29
Signatures................................................................ 30
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, September 30,
2000 2001
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 453,833 $ 536,695
Receivables:
Trade, net of allowance for doubtful accounts of
$18,722 and $23,911 at December 31, 2000 and
September 30, 2001, respectively................ 168,184 204,927
Other............................................ 4,942 7,537
Short-term investments............................. 38,000 73,500
Inventories........................................ 78,640 195,407
Prepaid expenses and other current assets.......... 28,535 39,182
----------- ----------
Total current assets............................ 772,134 1,057,248
Property and equipment, net of accumulated
depreciation of $305,520 and $482,404 at December
31, 2000 and September 30, 2001, respectively...... 4,303,037 4,808,305
Investments......................................... 137,000 64,000
Escrow deposit...................................... -- 388,760
Goodwill and other intangible assets, net of
accumulated amortization of $101,085 and $148,279
at December 31, 2000 and September 30, 2001,
respectively....................................... 1,112,876 1,067,603
Deferred financing costs and other assets, net of
accumulated amortization of $10,733 and $18,422 at
December 31, 2000 and September 30, 2001,
respectively....................................... 114,794 137,273
----------- ----------
$ 6,439,841 $7,523,189
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 100,766 $ 101,051
Accrued interest................................... 47,604 44,870
Accrued compensation and related benefits.......... 11,901 10,183
Deferred rental revenues and other accrued
liabilities....................................... 164,605 321,968
Long-term debt, current maturities................. -- 14,691
----------- ----------
Total current liabilities....................... 324,876 492,763
Long-term debt, less current maturities............. 2,602,687 3,374,703
Other liabilities................................... 93,354 146,146
----------- ----------
Total liabilities............................... 3,020,917 4,013,612
----------- ----------
Commitments and contingencies
Minority interests.................................. 155,344 167,857
Redeemable preferred stock.......................... 842,718 869,415
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized;
shares issued: December 31, 2000 -- 198,912,094
and
September 30, 2001 -- 215,820,249............... 1,989 2,158
Additional paid-in capital......................... 2,894,095 3,283,852
Accumulated other comprehensive loss............... (25,100) (41,695)
Accumulated deficit................................ (450,122) (772,010)
----------- ----------
Total stockholders' equity....................... 2,420,862 2,472,305
----------- ----------
$6,439,841 $7,523,189
=========== ==========
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 Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 2001 2000 2001
-------- --------- --------- ---------
Net revenues:
Site rental and broadcast
transmission..................... $117,174 $ 146,222 $ 320,418 $ 420,064
Network services and other........ 57,415 72,174 126,774 240,701
-------- --------- --------- ---------
174,589 218,396 447,192 660,765
-------- --------- --------- ---------
Operating expenses:
Costs of operations (exclusive of
depreciation and amortization):
Site rental and broadcast
transmission.................... 50,383 58,856 139,233 176,150
Network services and other....... 34,993 50,241 70,901 169,248
General and administrative........ 18,196 21,458 52,544 77,818
Corporate development............. 2,222 2,679 6,415 9,890
Restructuring charges............. -- 19,252 -- 19,252
Asset write-down charges.......... -- 3,738 -- 16,010
Non-cash general and
administrative compensation
charges.......................... 808 1,949 1,619 4,724
Depreciation and amortization..... 65,596 78,525 167,365 227,372
-------- --------- --------- ---------
172,198 236,698 438,077 700,464
-------- --------- --------- ---------
Operating income (loss)............ 2,391 (18,302) 9,115 (39,699)
Other income (expense):
Interest and other income
(expense)........................ 10,217 (1,462) 22,586 6,174
Interest expense and amortization
of deferred financing costs...... (65,498) (79,091) (173,987) (218,921)
-------- --------- --------- ---------
Loss before income taxes, minority
interests and extraordinary item.. (52,890) (98,855) (142,286) (252,446)
Provision for income taxes......... (127) (11,727) (163) (11,787)
Minority interests................. 52 252 (1,806) 1,115
-------- --------- --------- ---------
Loss before extraordinary item..... (52,965) (110,330) (144,255) (263,118)
Extraordinary item -- loss on early
extinguishment of debt............ -- -- (1,495) --
-------- --------- --------- ---------
Net loss........................... (52,965) (110,330) (145,750) (263,118)
Dividends on preferred stock....... (16,353) (19,000) (39,571) (58,770)
-------- --------- --------- ---------
Net loss after deduction of
dividends on preferred stock...... $(69,318) $(129,330) $(185,321) $(321,888)
======== ========= ========= =========
Net loss........................... $(52,965) $(110,330) $(145,750) $(263,118)
Other comprehensive income (loss):
Foreign currency translation
adjustments...................... (13,901) 37,776 (27,031) (7,689)
Derivative instruments:
Net change in fair value of cash
flow hedging instruments........ -- (6,986) -- (10,004)
Amounts reclassified into results
of operations................... -- 786 -- 920
-------- --------- --------- ---------
Comprehensive loss before
cumulative effect of change in
accounting principle.............. (66,866) (78,754) (172,781) (279,891)
Cumulative effect of change in
accounting principle for
derivative financial
instruments...................... -- -- -- 178
-------- --------- --------- ---------
Comprehensive loss................. $(66,866) $ (78,754) $(172,781) $(279,713)
======== ========= ========= =========
Per common share -- basic and
diluted:
Loss before extraordinary item.... $ (0.36) $ (0.60) $ (1.07) $ (1.51)
Extraordinary item................ -- -- (0.01) --
-------- --------- --------- ---------
Net loss.......................... $ (0.36) $ (0.60) $ (1.08) $ (1.51)
======== ========= ========= =========
Common shares outstanding - basic
and diluted (in thousands)........ 191,763 214,986 171,985 213,413
======== ========= ========= =========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Nine Months Ended
September 30,
------------------------
2000 2001
----------- -----------
Cash flows from operating activities:
Net loss............................................ $ (145,750) $ (263,118)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 167,365 227,372
Amortization of deferred financing costs and
discounts on long-term debt....................... 59,805 68,085
Asset write-down charges........................... -- 16,010
Non-cash general and administrative compensation
charges........................................... 1,619 4,724
Minority interests................................. 1,806 (1,115)
Extraordinary loss on early extinguishment of
debt.............................................. 1,495 --
Changes in assets and liabilities, excluding the
effects of acquisitions:
Increase in deferred rental revenues and other
liabilities...................................... 86,336 202,411
Increase in accounts payable...................... 37,447 811
Increase in inventories, prepaid expenses and
other assets..................................... (51,983) (131,347)
Increase in receivables........................... (56,357) (42,501)
Increase (decrease) in accrued interest........... 15,807 (2,624)
----------- -----------
Net cash provided by operating activities........ 117,590 78,708
----------- -----------
Cash flows from investing activities:
Maturities of investments........................... -- 211,000
Capital expenditures................................ (437,005) (561,112)
Investments in affiliates and other, including
escrow deposit..................................... (1,989) (415,249)
Purchase of investments............................. -- (173,500)
Acquisitions of businesses and assets, net of cash
acquired........................................... (1,091,416) (152,127)
----------- -----------
Net cash used for investing activities........... (1,530,410) (1,090,988)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt............ 1,015,020 450,000
Proceeds from issuance of capital stock............. 741,603 352,724
Net borrowings under revolving credit agreements.... 63,000 281,829
Proceeds from issuance of subsidiary stock to
minority shareholder............................... -- 16,434
Incurrence of financing costs....................... (47,184) (12,058)
Principal payments on long-term debt................ (82,000) --
----------- -----------
Net cash provided by financing activities........ 1,690,439 1,088,929
----------- -----------
Effect of exchange rate changes on cash.............. (10,009) 6,213
----------- -----------
Net increase in cash and cash equivalents............ 267,610 82,862
Cash and cash equivalents at beginning of period..... 549,328 453,833
----------- -----------
Cash and cash equivalents at end of period........... $ 816,938 $ 536,695
=========== ===========
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............. $ 1,899,940 $ --
Escrow deposits for acquisitions.................. 50,000 --
Minority interests................................ 74,525 --
Issuance of common stock.......................... 683,999 --
Supplemental disclosure of cash flow information:
Interest paid....................................... $ 95,071 $ 154,938
Income taxes paid................................... 175 60
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, 2000,
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 September 30,
2001, the consolidated results of operations for the three and nine months
ended September 30, 2000 and 2001, and the consolidated cash flows for the
nine months ended September 30, 2000 and 2001. 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.
2. New Accounting Pronouncements
Derivative Instruments
On January 1, 2001, the Company adopted the requirements of 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 are recorded either in results of operations or in
other comprehensive income (loss), depending on the intended use of the
derivative instrument. The initial application of SFAS 133 is reported as the
effect of a change in accounting principle. The adoption of SFAS 133 resulted
in a net transition adjustment gain of approximately $178,000 in accumulated
other comprehensive income (loss), the recognition of approximately $363,000
of derivative instrument assets and the recognition of approximately $185,000
of derivative instrument liabilities. The amounts for this transition
adjustment are based on current fair value measurements at the date of
adoption of SFAS 133. The Company expects that the adoption of SFAS 133 will
increase the volatility of other comprehensive income (loss) as reported in
its future financial statements.
The derivative instruments recognized upon the Company's adoption of SFAS
133 consist of interest rate swap agreements. Such agreements are used to
manage interest rate risk on a portion of the Company's floating rate
indebtedness, and are designated as cash flow hedging instruments in
accordance with SFAS 133. The interest rate swap agreements have notional
amounts aggregating $150,000,000 and effectively convert the interest payments
on an equal amount of debt from a floating rate to a fixed rate. As such, the
Company is protected from future increases in market interest rates on that
portion of its indebtedness. To the extent that the interest rate swap
agreements are effective in hedging the Company's interest rate risk, the
changes in their fair values are recorded as other comprehensive income
(loss). Amounts recorded as other comprehensive income (loss) are reclassified
into results of operations in the same periods that the hedged interest costs
are recorded in interest expense. The Company estimates that such reclassified
amounts will be approximately $2,130,000 for the year ending December 31,
2001. To the extent that any portions of the interest rate swap agreements are
deemed ineffective, the related changes in fair values are recognized in
results of operations. As of September 30, 2001, the accumulated other
comprehensive loss in consolidated stockholders' equity includes $8,906,000 in
losses related to derivative instruments.
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business Combinations, Goodwill and Long-Lived Assets
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use
of the pooling-of-interests method of accounting for business combinations,
and requires that the purchase method be used for all business combinations
after June 30, 2001. SFAS 141 also changes the manner in which acquired
intangible assets are identified and recognized apart from goodwill. Further,
SFAS 141 requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. The
Company has used the purchase method of accounting since its inception, so the
adoption of SFAS 141 will not change its method of accounting for business
combinations. The Company will adopt the other recognition and disclosure
requirements of SFAS 141 as of July 1, 2001 for any future business
combinations. The transition provisions of SFAS 141 require that the carrying
amounts for goodwill and other intangible assets acquired in prior purchase
method business combinations be reviewed and reclassified in accordance with
the new recognition rules; such reclassifications are to be made in
conjunction with the adoption of SFAS 142. The Company will apply these
transition provisions of SFAS 141 as of January 1, 2002, and has not yet
determined the effect that they will have on its consolidated financial
statements.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with the Company's existing policies. SFAS 142
requires disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of intangible asset amortization expense for the next five
years. The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001. The Company will adopt the requirements of SFAS 142
as of January 1, 2002. In addition, the nonamortization provisions of SFAS 142
are to be immediately applied for goodwill and other intangible assets
acquired in business combinations subsequent to June 30, 2001. SFAS 142
requires that transitional impairment tests be performed at its adoption, and
provides that resulting impairment losses for goodwill and other intangible
assets be reported as the effect of a change in accounting principle. The
Company has not yet determined the effect that the adoption of SFAS 142 will
have on its consolidated financial statements.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"). SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"), but retains many of its
fundamental provisions. SFAS 144 also clarifies certain measurement and
classification issues from SFAS 121. In addition, SFAS 144 supersedes the
accounting and reporting provisions for the disposal of a business segment as
found in Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("APB 30"). However, SFAS 144 retains the requirement in APB 30 to separately
report discontinued operations, and broadens the scope of such requirement to
include more types of disposal transactions. The scope of SFAS 144 excludes
goodwill and other intangible assets that are not to be amortized, as the
accounting for such items is prescribed by SFAS 142. The provisions of SFAS
144 are effective for fiscal years beginning after December 15, 2001, and are
to be applied prospectively. The Company will adopt the requirements of SFAS
144 as of January 1, 2002.
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Escrow Deposit
On April 27, 2001, a wholly owned subsidiary of the Company entered into a
Share Purchase Agreement for the acquisition of 49% of the outstanding capital
stock of RaiWay S.p.A. ("RaiWay", a corporation organized under the laws of
Italy). RaiWay is a subsidiary of RAI Radio Televisione Italiana S.p.A.
("RAI"), the Italian state-owned television and radio broadcaster. RaiWay
manages over 2,300 broadcast transmission sites across Italy. The cost of the
Company's investment in RaiWay amounted to approximately $383,820,000 in cash,
and such amount was deposited into a Euro-denominated escrow account upon
execution of the Share Purchase Agreement. The transaction was subject to
approval by the Italian regulatory authorities and, in October 2001, the
Company was notified that the Italian Minister of Communications had declined
to approve the transaction. Pursuant to the terms of the agreement, the escrow
deposit was returned to the Company in November 2001.
4. Long-term Debt
Long-term debt consists of the following:
December 31, September 30,
2000 2001
------------ -------------
(In thousands of dollars)
2000 Credit Facility............................... $ 500,000 $ 700,000
CCUK Credit Facility............................... 138,932 172,640
Crown Atlantic Credit Facility..................... 239,000 285,000
9% Guaranteed Bonds due 2007....................... 181,820 179,057
10 5/8% Senior Discount Notes due 2007, net of
discount.......................................... 206,768 223,461
10 3/8% Senior Discount Notes due 2011, net of
discount.......................................... 355,482 383,497
9% Senior Notes due 2011........................... 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of
discount.......................................... 175,685 190,739
9 1/2% Senior Notes due 2011....................... 125,000 125,000
10 3/4% Senior Notes due 2011...................... 500,000 500,000
9 3/8% Senior Notes due 2011....................... -- 450,000
---------- ----------
2,602,687 3,389,394
Less: current maturities........................... -- (14,691)
---------- ----------
$2,602,687 $3,374,703
========== ==========
Crown Atlantic Credit Facility
In March 2001, the Crown Atlantic Credit Facility was amended to increase
the available borrowings to $345,000,000. Under the amended facility, the
amount of available borrowings will begin to decrease on March 31, 2003.
9 3/8% Senior Notes due 2011 (the "9 3/8% Senior Notes")
On May 10, 2001, the Company issued $450,000,000 aggregate principal amount
of its 9 3/8% Senior Notes for proceeds of $441,000,000 (after underwriting
discounts of $9,000,000). The proceeds from the sale of these securities will
be used to fund the initial interest payments on the 9 3/8% Senior Notes and
for general corporate purposes. Semi-annual interest payments for the 9 3/8%
Senior Notes are due on each February 1 and August 1, commencing on August 1,
2001. The maturity date of the 9 3/8% Senior Notes is August 1, 2011.
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The 9 3/8% Senior Notes are redeemable at the option of the Company, in
whole or in part, on or after August 1, 2006 at a price of 104.688% of the
principal amount plus accrued interest. The redemption price is reduced
annually until August 1, 2009, after which time the 9 3/8% Senior Notes are
redeemable at par. Prior to August 1, 2004, the Company may redeem up to 35%
of the aggregate principal amount of the 9 3/8% Senior Notes, at a price of
109.375% of the principal amount thereof, with the net cash proceeds from a
public offering of the Company's common stock.
CCUK Letter of Credit
In April 2001, CCUK issued a letter of credit to one of its customers in
connection with a site development agreement. The letter of credit was issued
through one of CCUSA's lenders in the amount of (Pounds)100,000,000
(approximately $141,900,000) and expires on April 16, 2002.
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:
September 30, 2001
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 371,199 $ 165,496 $ -- $ 536,695
Other current assets..... 385,250 135,303 -- 520,553
Property and equipment,
net..................... 3,338,514 1,469,791 -- 4,808,305
Investments.............. 64,000 -- -- 64,000
Escrow deposit........... -- 388,760 -- 388,760
Investments in
Unrestricted
Subsidiaries............ 2,090,622 -- (2,090,622) --
Goodwill and other
intangible assets, net.. 181,304 886,299 -- 1,067,603
Other assets, net........ 118,767 18,506 -- 137,273
---------- ---------- ----------- ----------
$6,549,656 $3,064,155 $(2,090,622) $7,523,189
========== ========== =========== ==========
Current liabilities...... $ 320,971 $ 171,792 $ -- $ 492,763
Long-term debt, less
current maturities...... 2,752,697 622,006 -- 3,374,703
Other liabilities........ 42,295 103,851 -- 146,146
Minority interests....... 91,973 75,884 -- 167,857
Redeemable preferred
stock................... 869,415 -- -- 869,415
Stockholders' equity..... 2,472,305 2,090,622 (2,090,622) 2,472,305
---------- ---------- ----------- ----------
$6,549,656 $3,064,155 $(2,090,622) $7,523,189
========== ========== =========== ==========
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended September 30, 2001 Nine Months Ended September 30, 2001
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $131,142 $ 87,254 $ 218,396 $ 400,843 $259,922 $ 660,765
Costs of operations
(exclusive of
depreciation and
amortization) 68,597 40,500 109,097 214,170 131,228 345,398
General and
administrative......... 17,887 3,571 21,458 62,047 15,771 77,818
Corporate development... 2,235 444 2,679 8,557 1,333 9,890
Restructuring charges... 16,444 2,808 19,252 16,444 2,808 19,252
Asset write-down
charges................ 3,738 -- 3,738 11,458 4,552 16,010
Non-cash general and
administrative
compensation charges... 872 1,077 1,949 2,616 2,108 4,724
Depreciation and
amortization........... 44,731 33,794 78,525 129,239 98,133 227,372
-------- -------- --------- --------- -------- ---------
Operating income
(loss)................. (23,362) 5,060 (18,302) (43,688) 3,989 (39,699)
Interest and other
income (expense)....... (496) (966) (1,462) 3,393 2,781 6,174
Interest expense and
amortization of
deferred financing
costs.................. (66,526) (12,565) (79,091) (182,661) (36,260) (218,921)
Provision for income
taxes.................. -- (11,727) (11,727) -- (11,787) (11,787)
Minority interests...... 996 (744) 252 2,403 (1,288) 1,115
-------- -------- --------- --------- -------- ---------
Net loss................ $(89,388) $(20,942) $(110,330) $(220,553) $(42,565) $(263,118)
======== ======== ========= ========= ======== =========
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, the 9 1/2% Senior Notes, the 10
3/4% Senior Notes and the 9 3/8% Senior Notes (the "1999, 2000 and 2001
Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of
dollars)
Tower Cash Flow, for the three months ended September
30, 2001............................................... $ 39,692 $ 39,692
======== ========
Consolidated Cash Flow, for the twelve months ended
September 30, 2001..................................... $148,122 $160,630
Less: Tower Cash Flow, for the twelve months ended
September 30, 2001..................................... (135,366) (135,366)
Plus: four times Tower Cash Flow, for the three months
ended September 30, 2001............................... 158,768 158,768
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months
ended September 30, 2001............................... $171,524 $184,032
======== ========
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, September 30,
2000 2001
------------ -------------
(In thousands of dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares
issued: December 31, 2000 -- 257,067 and September
30, 2001 -- 282,441 (stated at mandatory
redemption and aggregate liquidation value)....... $258,433 $283,942
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)......................................... 195,383 195,691
6.25% Convertible Preferred Stock; shares issued:
8,050,000 (stated net of unamortized issue costs;
mandatory redemption and aggregate liquidation
value of $402,500)................................ 388,902 389,782
-------- --------
$842,718 $869,415
======== ========
6. Stockholders' Equity
On January 11, 2001, the Company sold shares of its common stock in an
underwritten public offering. The Company had granted the underwriters an
over-allotment option to purchase additional shares in the offering. On
January 12, 2001, the over-allotment option was partially exercised. As a
result, the Company sold a total of 13,445,200 shares of its common stock at a
price of $26.25 per share and received proceeds of $342,853,000 (after
underwriting discounts of $10,084,000). The proceeds from this offering will
be used for general corporate purposes.
7. 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.
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the numerators and denominators of the basic and
diluted per share computations is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2000 2001 2000 2001
-------- --------- --------- ---------
(In thousands of dollars, except per
share amounts)
Loss before extraordinary item..... $(52,965) $(110,330) $(144,255) $(263,118)
Dividends on preferred stock....... (16,353) (19,000) (39,571) (58,770)
-------- --------- --------- ---------
Loss before extraordinary item
applicable to common stock for
basic and diluted computations.... (69,318) (129,330) (183,826) (321,888)
Extraordinary item................. -- -- (1,495) --
-------- --------- --------- ---------
Net loss applicable to common stock
for basic and diluted
computations...................... $(69,318) $(129,330) $(185,321) $(321,888)
======== ========= ========= =========
Weighted-average number of common
shares outstanding during the
period for basic and diluted
computations (in thousands)....... 191,763 214,986 171,985 213,413
======== ========= ========= =========
Per common share -- basic and
diluted:
Loss before extraordinary item... $ (0.36) $ (0.60) $ (1.07) $ (1.51)
Extraordinary item............... -- -- (0.01) --
-------- --------- --------- ---------
Net loss......................... $ (0.36) $ (0.60) $ (1.08) $ (1.51)
======== ========= ========= =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of September 30, 2001: (1)
options to purchase 22,199,804 shares of common stock at exercise prices
ranging from $-0- to $39.75 per share, (2) warrants to purchase 639,990 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 the Company's 8 1/4% Cumulative Convertible Redeemable
Preferred Stock which are convertible into 7,441,860 shares of common stock
and (5) shares of the Company's 6.25% Convertible Preferred Stock which are
convertible into 10,915,254 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.
8. 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.
9. 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
general and administrative compensation charges, asset write-down charges and
restructuring charges. EBITDA is not intended as an alternative measure of
operating results or cash flow from operations (as determined in accordance
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
with generally accepted accounting 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 September 30, 2001
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 68,888 $ 4,563 $ 52,013 $ 20,758 $ -- $ 146,222
Network services and
other................ 57,070 621 5,972 8,511 -- 72,174
---------- -------- ---------- -------- -------- ----------
125,958 5,184 57,985 29,269 -- 218,396
---------- -------- ---------- -------- -------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 66,178 2,419 27,975 12,525 -- 109,097
General and
administrative......... 12,570 1,464 2,045 1,526 3,853 21,458
Corporate development... -- -- -- -- 2,679 2,679
---------- -------- ---------- -------- -------- ----------
EBITDA.................. 47,210 1,301 27,965 15,218 (6,532) 85,162
Restructuring charges... 7,142 -- 1,839 969 9,302 19,252
Asset write-down
charges................ 1,733 -- -- -- 2,005 3,738
Non-cash general and
administrative
compensation charges... 532 -- 1,077 -- 340 1,949
Depreciation and
amortization........... 41,040 3,290 23,695 10,099 401 78,525
---------- -------- ---------- -------- -------- ----------
Operating income
(loss)................. (3,237) (1,989) 1,354 4,150 (18,580) (18,302)
Interest and other
income (expense)....... (20) 90 1,535 73 (3,140) (1,462)
Interest expense and
amortization of
deferred financing
costs.................. (12,799) (823) (6,566) (5,999) (52,904) (79,091)
Provision for income
taxes.................. -- -- (11,727) -- -- (11,727)
Minority interests...... 98 898 -- (744) -- 252
---------- -------- ---------- -------- -------- ----------
Net loss................ $ (15,958) $ (1,824) $ (15,404) $ (2,520) $(74,624) $ (110,330)
========== ======== ========== ======== ======== ==========
Capital expenditures.... $ 83,119 $ 2,419 $ 42,828 $ 23,091 $ 961 $ 152,418
========== ======== ========== ======== ======== ==========
Total assets (at period
end)................... $3,623,469 $252,642 $1,786,298 $887,543 $973,237 $7,523,189
========== ======== ========== ======== ======== ==========
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 2001
--------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $195,673 $12,024 $152,075 $60,292 $ -- $ 420,064
Network services and
other................ 192,000 1,146 21,988 25,567 -- 240,701
-------- ------- -------- ------- --------- ---------
387,673 13,170 174,063 85,859 -- 660,765
-------- ------- -------- ------- --------- ---------
Costs of operations
(exclusive of
depreciation and
amortization).......... 208,385 5,785 91,667 39,561 -- 345,398
General and
administrative......... 45,764 4,690 9,064 6,707 11,593 77,818
Corporate development... -- -- 48 -- 9,842 9,890
-------- ------- -------- ------- --------- ---------
EBITDA.................. 133,524 2,695 73,284 39,591 (21,435) 227,659
Restructuring charges... 7,142 -- 1,839 969 9,302 19,252
Asset write-down
charges................ 5,702 -- 3,785 767 5,756 16,010
Non-cash general and
administrative
compensation charges... 1,595 -- 2,108 -- 1,021 4,724
Depreciation and
amortization........... 119,922 8,050 67,965 30,168 1,267 227,372
-------- ------- -------- ------- --------- ---------
Operating income
(loss)................. (837) (5,355) (2,413) 7,687 (38,781) (39,699)
Interest and other
income (expense)....... 1,519 165 3,281 243 966 6,174
Interest expense and
amortization of
deferred financing
costs.................. (40,064) (1,618) (20,098) (16,162) (140,979) (218,921)
Provision for income
taxes.................. -- -- (11,754) (33) -- (11,787)
Minority interests...... (271) 2,674 -- (1,288) -- 1,115
-------- ------- -------- ------- --------- ---------
Net loss................ $(39,653) $(4,134) $(30,984) $(9,553) $(178,794) $(263,118)
======== ======= ======== ======= ========= =========
Capital expenditures.... $295,457 $ 3,076 $182,475 $76,440 $ 3,664 $ 561,112
======== ======= ======== ======= ========= =========
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended September 30, 2000
-------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- ------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 51,007 $ 2,325 $47,503 $16,339 $ -- $117,174
Network services and
other................ 43,701 -- 6,488 7,226 -- 57,415
-------- ------- ------- ------- -------- --------
94,708 2,325 53,991 23,565 -- 174,589
-------- ------- ------- ------- -------- --------
Costs of operations
(exclusive of
depreciation and
amortization) 47,140 1,231 27,046 9,959 -- 85,376
General and
administrative......... 11,914 1,504 1,154 2,066 1,558 18,196
Corporate development... -- -- 90 -- 2,132 2,222
-------- ------- ------- ------- -------- --------
EBITDA.................. 35,654 (410) 25,701 11,540 (3,690) 68,795
Non-cash general and
administrative
compensation charges... 82 -- 385 -- 341 808
Depreciation and
amortization........... 32,726 2,001 22,109 8,443 317 65,596
-------- ------- ------- ------- -------- --------
Operating income
(loss)................. 2,846 (2,411) 3,207 3,097 (4,348) 2,391
Interest and other
income (expense)....... 689 114 39 94 9,281 10,217
Interest expense and
amortization of
deferred financing
costs.................. (13,201) (46) (7,783) (4,498) (39,970) (65,498)
Provision for income
taxes.................. (3) -- -- (124) -- (127)
Minority interests...... (155) 1,124 -- (917) -- 52
-------- ------- ------- ------- -------- --------
Net income (loss)....... $ (9,824) $(1,219) $(4,537) $(2,348) $(35,037) $(52,965)
======== ======= ======= ======= ======== ========
Capital expenditures.... $118,477 $ 1,126 $25,933 $23,762 $ 9,102 $178,400
======== ======= ======= ======= ======== ========
15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 2000
--------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $126,928 $ 4,139 $144,077 $45,274 $ -- $ 320,418
Network services and
other................ 87,846 -- 18,764 20,130 34 126,774
-------- ------- -------- ------- --------- ---------
214,774 4,139 162,841 65,404 34 447,192
-------- ------- -------- ------- --------- ---------
Costs of operations
(exclusive of
depreciation and
amortization).......... 98,672 2,262 80,593 28,558 49 210,134
General and
administrative......... 34,122 2,859 4,811 5,897 4,855 52,544
Corporate development... -- -- 660 -- 5,755 6,415
-------- ------- -------- ------- --------- ---------
EBITDA.................. 81,980 (982) 76,777 30,949 (10,625) 178,099
Non-cash general and
administrative
compensation charges... 149 -- 449 -- 1,021 1,619
Depreciation and
amortization........... 84,389 3,292 54,309 24,450 925 167,365
-------- ------- -------- ------- --------- ---------
Operating income
(loss)................. (2,558) (4,274) 22,019 6,499 (12,571) 9,115
Interest and other
income (expense)....... 3,401 341 365 790 17,689 22,586
Interest expense and
amortization of
deferred financing
costs.................. (28,827) (92) (24,488) (12,939) (107,641) (173,987)
Provision for income
taxes.................. (18) -- (21) (124) -- (163)
Minority interests...... 255 2,089 (2,333) (1,817) -- (1,806)
Extraordinary item...... (1,495) -- -- -- -- (1,495)
-------- ------- -------- ------- --------- ---------
Net income (loss)....... $(29,242) $(1,936) $ (4,458) $(7,591) $(102,523) $(145,750)
======== ======= ======== ======= ========= =========
Capital expenditures.... $283,103 $ 1,566 $ 69,525 $72,768 $ 10,043 $ 437,005
======== ======= ======== ======= ========= =========
10. Restructuring Charges and Asset Write-Down Charges
In July 2001, the Company announced a restructuring of its business in
order to increase operational efficiency and better align costs with
anticipated revenues. As part of the restructuring, the Company has reduced
its global staff by approximately 311 full-time employees, is closing five
offices in the United States and is closing its development offices in Brazil
and Europe. The Company anticipates that the actions to be taken for the
restructuring will be substantially completed by the end of 2001. In
connection with the restructuring, the Company recorded non-recurring cash
charges of $19,252,000 during the third quarter of 2001 related to employee
severance payments and costs of office closures. At September 30, 2001, other
accrued liabilities includes $13,374,000 related to these charges.
The Company has recorded non-cash charges of $16,010,000 during the nine
months ended September 30, 2001 related to the write-down of certain
inventories, property and equipment, and other assets.
11. Provision for Income Taxes
The provision for income taxes of $11,727,000 for the third quarter of 2001
represents a non-cash deferred tax liability recognized by CCUK.
16
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 September 30, 2001 and our consolidated
results of operations for the three- and nine- month periods ended September
30, 2000 and 2001. 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, the success or failure of our efforts to implement
our businesss strategy and the following:
. We may be unable to manage our significant growth.
. Our substantial level of indebtedness could adversely affect our ability
to react to changes in our business and limit our ability to use debt to
fund future capital needs.
. If we are unable to service our indebtedness, our indebtedness may be
accelerated.
. Restrictive covenants on our debt instruments may limit our ability to
take actions that may be in our best interests.
. We may be unable to raise the significant capital required to fund our
operations and make acquisitions.
. We may not be able to construct or acquire new towers at the pace and in
the locations that we desire.
. Our business depends on the demand for wireless communications.
. Demand for our network services business is very volatile which causes
our network services operating results to vary significantly for any
particular period.
. We operate in an increasingly competitive industry and many of our
competitors have significantly more resources than we do.
. Technology changes may significantly reduce the demand for towers.
. 3G and other technologies may not deploy as rapidly or in the manner
projected.
. Carrier consolidation may significantly reduce the demand for towers and
wireless communication sites.
. Network sharing and other agreements among our customers may act as
alternatives to leasing sites from us.
. Extensive regulations, which could change at any time, govern our
business and industry, and we could fail to comply with these
regulations.
. We could suffer from future claims if radio frequency emissions from
equipment on our towers is demonstrated to cause negative health effects.
. Our international operations expose us to changes in foreign currency
exchange rates.
. We are heavily dependent on our senior management.
Should one or more of these risks materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected. More information about potential factors which could affect the
Company's financial results is included in the Risk Factors sections of the
Company's filings with the Securities and Exchange Commission.
The following 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.
17
Results of Operations
During 2000 we completed the transactions with BellSouth, BellSouth DCS and
GTE. Additionally, during 2000 Crown Atlantic acquired the Frontier towers
from Bell Atlantic Mobile, and CCAL completed the substantial portion of the
transaction with Cable & Wireless Optus. Results of operations of these
acquired 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 and nine months ended September 30, 2000
are not comparable to the results of operations for the three and nine months
ended September 30, 2001.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 2001 September 30, 2000 September 30, 2001
---------------------- ------------------- ------------------- -------------------
Percent Percent Percent Percent
of Net of Net of Net of Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
---------- ---------- --------- -------- --------- -------- --------- --------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission.......... $ 117,174 67.1 % $ 146,222 67.0 % $ 320,418 71.7 % $ 420,064 63.6 %
Network services and
other................. 57,415 32.9 72,174 33.0 126,774 28.3 240,701 36.4
---------- ------- --------- ----- --------- ----- --------- -----
Total net revenues... 174,589 100.0 218,396 100.0 447,192 100.0 660,765 100.0
---------- ------- --------- ----- --------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and
broadcast
transmission.......... 50,383 43.0 58,856 40.3 139,233 43.5 176,150 41.9
Network services and
other................. 34,993 60.9 50,241 69.6 70,901 55.9 169,248 70.3
---------- ------- --------- ----- --------- ----- --------- -----
Total costs of
operations.......... 85,376 48.9 109,097 50.0 210,134 47.0 345,398 52.3
General and
administrative........ 18,196 10.4 21,458 9.8 52,544 11.8 77,818 11.8
Corporate development.. 2,222 1.3 2,679 1.2 6,415 1.4 9,890 1.5
Restructuring charges.. -- -- 19,252 8.8 -- -- 19,252 2.9
Asset write-down
charges............... -- -- 3,738 1.7 -- -- 16,010 2.4
Non-cash general and
administrative
compensation charges.. 808 0.4 1,949 0.9 1,619 0.4 4,724 0.7
Depreciation and
amortization.......... 65,596 37.6 78,525 36.0 167,365 37.4 227,372 34.4
---------- ------- --------- ----- --------- ----- --------- -----
Operating income
(loss)................. 2,391 1.4 (18,302) (8.4) 9,115 2.0 (39,699) (6.0)
Other income (expense):
Interest and other
income (expense)...... 10,217 5.8 (1,462) (0.7) 22,586 5.1 6,174 0.9
Interest expense and
amortization of
deferred financing
costs................. (65,498) (37.5) (79,091) (36.2) (173,987) (38.9) (218,921) (33.1)
---------- ------- --------- ----- --------- ----- --------- -----
Loss before income
taxes, minority
interests and
extraordinary item..... (52,890) (30.3) (98,855) (45.3) (142,286) (31.8) (252,446) (38.2)
Provision for income
taxes.................. (127) (0.1) (11,727) (5.3) (163) (0.1) (11,787) (1.8)
Minority interests...... 52 0.1 252 0.1 (1,806) (0.4) 1,115 0.2
---------- ------- --------- ----- --------- ----- --------- -----
Loss before
extraordinary item..... (52,965) (30.3) (110,330) (50.5) (144,255) (32.3) (263,118) (39.8)
Extraordinary item--loss
on early extinguishment
of debt................ -- -- -- -- (1,495) (0.3) -- --
---------- ------- --------- ----- --------- ----- --------- -----
Net loss................ $ (52,965) (30.3)% $(110,330) (50.5)% $(145,750) (32.6)% $(263,118) (39.8)%
========== ======= ========= ===== ========= ===== ========= =====
18
Comparison of Three Months Ended September 30, 2001 and 2000
Consolidated revenues for the three months ended September 30, 2001 were
$218.4 million, an increase of $43.8 million from the three months ended
September 30, 2000. This increase was primarily attributable to:
(1) a $29.0 million, or 24.8%, increase in site rental and broadcast
transmission revenues, of which $4.5 million was attributable to CCUK,
$4.4 million was attributable to Crown Atlantic, $2.2 million was
attributable to CCAL and $17.9 million was attributable to CCUSA,
(2) a $13.4 million increase in network services and other revenues from
CCUSA,
(3) a $1.3 million increase in network services and other revenues from
Crown Atlantic, and
(4) $0.6 million in network services and other revenues from CCAL,
partially offset by
(5) a $0.5 million decrease in network services and other revenues from
CCUK.
Costs of operations for the three months ended September 30, 2001 were
$109.1 million, an increase of $23.7 million from the three months ended
September 30, 2000. This increase was primarily attributable to:
(1) an $8.5 million increase in site rental and broadcast transmission
costs, of which $1.6 million was attributable to CCUK, $1.2 million was
attributable to Crown Atlantic, $0.6 million was attributable to CCAL
and $5.0 million was attributable to CCUSA,
(2) a $14.0 million increase in network services costs related to CCUSA,
(3) a $1.4 million increase in network services costs from Crown Atlantic,
and
(4) $0.6 million in network services costs from CCAL, partially offset by
(5) a $0.7 million decrease in network services costs from CCUK.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues were 40.3% for the three
months ended September 30, 2001 as compared to 43.0% for the three months
ended September 30, 2000, due to higher margins attributable to the CCUSA,
CCAL, CCUK and Crown Atlantic operations. Costs of operations for network
services and other as a percentage of network services and other revenues
increased to 69.6% for the three months ended September 30, 2001 from 60.9%
for the three months ended September 30, 2000, as lower margins from the CCUSA
and Crown Atlantic operations were partially offset by higher margins from the
CCUK operations.
General and administrative expenses for the three months ended September
30, 2001 were $21.5 million, an increase of $3.3 million from the three months
ended September 30, 2000. This increase was primarily attributable to:
(1) a $0.7 million increase in expenses related to the CCUSA operations,
(2) a $2.3 million increase in expenses at our corporate office, and
(3) a $0.9 million increase in expenses at CCUK, partially offset by
(4) a $0.5 million decrease in expenses at Crown Atlantic.
General and administrative expenses as a percentage of revenues were 9.8% for
the three months ended September 30, 2001 as compared to 10.4% for the three
months ended September 30, 2000. Lower overhead costs as a percentage of
revenues for CCUSA and Crown Atlantic were largely offset by higher overhead
costs as a percentage of revenues for CCUK.
Corporate development expenses for the three months ended September 30,
2001 were $2.7 million, compared to $2.2 million for the three months ended
September 30, 2000. This increase was primarily attributable to an increase in
expenses at our corporate office.
19
For the three months ended September 30, 2001, we recorded non-recurring
cash charges of $19.3 million in connection with a restructuring of our
business announced in July 2001 (see "--Restructuring Charges"). Such charges
related to employee severance payments and costs of office closures.
For the three months ended September 30, 2001, we recorded asset write-down
charges of $3.7 million in connection with a restructuring of our business
announced in July 2001 (see "--Restructuring Charges"). Such non-cash charges
related to write-downs of certain inventories, property and equipment, and
other assets.
For the three months ended September 30, 2001, we recorded non-cash general
and administrative compensation charges of $1.9 million related to the
issuance of stock and stock options to certain employees and executives,
compared to $0.8 million for the three months ended September 30, 2000.
Depreciation and amortization for the three months ended September 30, 2001
was $78.5 million, an increase of $12.9 million from the three months ended
September 30, 2000. This increase was primarily attributable to:
(1) a $1.6 million increase in depreciation and amortization related to the
property and equipment and goodwill from CCUK,
(2) a $1.7 million increase in depreciation and amortization related to the
property and equipment and goodwill from Crown Atlantic,
(3) a $1.3 million increase in depreciation and amortization related to
property and equipment from CCAL, and
(4) an $8.3 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 September
30, 2001 resulted primarily from:
(1) the investment of the net proceeds from our recent offerings, offset by
(2) costs incurred in connection with unsuccessful acquisition attempts and
(3) our share of losses incurred by unconsolidated affiliates.
Interest expense and amortization of deferred financing costs for the three
months ended September 30, 2001 was $79.1 million, an increase of $13.6
million, or 20.8%, from the three months ended September 30, 2000. This
increase was primarily attributable to interest on indebtedness at CCUSA, CCUK
and Crown Atlantic, and interest on the 9 3/8% senior notes.
The provision for income taxes of $11.7 million for the three months ended
September 30, 2001 represents a non-cash deferred tax liability recognized by
CCUK.
Minority interests represent the minority partner's 43.1% interest in Crown
Atlantic's operations, the minority partner's 17.8% interest in the operations
of the GTE joint venture and the minority shareholder's 22.4% interest in the
CCAL operations.
Comparison of Nine Months Ended September 30, 2001 and 2000
Consolidated revenues for the nine months ended September 30, 2001 were
$660.8 million, an increase of $213.6 million from the nine months ended
September 30, 2000. This increase was primarily attributable to:
(1) a $99.6 million, or 31.1%, increase in site rental and broadcast
transmission revenues, of which $8.0 million was attributable to CCUK,
$15.0 million was attributable to Crown Atlantic, $7.9 million was
attributable to CCAL and $68.7 million was attributable to CCUSA,
(2) a $104.2 million increase in network services and other revenues from
CCUSA,
(3) a $3.2 million increase in network services and other revenues from
CCUK,
20
(4) a $5.4 million increase in network services and other revenues from
Crown Atlantic, and
(5) $1.1 million in network services and other revenues from CCAL.
Costs of operations for the nine months ended September 30, 2001 were
$345.4 million, an increase of $135.3 million from the nine months ended
September 30, 2000. This increase was primarily attributable to:
(1) a $36.9 million increase in site rental and broadcast transmission
costs, of which $6.7 million was attributable to CCUK, $5.1 million was
attributable to Crown Atlantic, $2.5 million was attributable to CCAL
and $22.7 million was attributable to CCUSA,
(2) an $87.0 million increase in network services costs related to CCUSA,
(3) a $4.3 million increase in network services costs from CCUK,
(4) a $6.0 million increase in network services costs from Crown Atlantic,
and
(5) $1.1 million in network services costs from CCAL.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues were 41.9% for the nine
months ended September 30, 2001 as compared to 43.5% for the nine months ended
September 30, 2000, as higher margins attributable to the CCUSA, CCAL and
Crown Atlantic operations were offset by lower margins from the CCUK
operations. Costs of operations for network services and other as a percentage
of network services and other revenues increased to 70.3% for the nine months
ended September 30, 2001 from 55.9% for the nine months ended September 30,
2000, primarily due to lower margins from the CCUSA, CCUK and Crown Atlantic
operations.
General and administrative expenses for the nine months ended September 30,
2001 were $77.8 million, an increase of $25.3 million from the nine months
ended September 30, 2000. This increase was primarily attributable to:
(1) an $11.6 million increase in expenses related to the CCUSA operations,
(2) a $6.7 million increase in expenses at our corporate office,
(3) a $0.8 million increase in expenses at Crown Atlantic,
(4) a $4.3 million increase in expenses at CCUK, and
(5) a $1.8 million increase in expenses at CCAL.
General and administrative expenses as a percentage of revenues were 11.8% for
the nine months ended September 30, 2001, unchanged from the nine months ended
September 30, 2000. Higher overhead costs as a percentage of revenues for CCUK
were largely offset by lower overhead costs as a percentage of revenues for
CCUSA, Crown Atlantic and CCAL.
Corporate development expenses for the nine months ended September 30, 2001
were $9.9 million, compared to $6.4 million for the nine months ended
September 30, 2000. This increase was primarily attributable to an increase in
expenses at our corporate office.
For the nine months ended September 30, 2001, we recorded non-recurring
cash charges of $19.3 million in connection with a restructuring of our
business announced in July 2001 (see "--Restructuring Charges"). Such charges
related to employee severance payments and costs of office closures.
For the nine months ended September 30, 2001, we recorded asset write-down
charges of $16.0 million in connection with a restructuring of our business
announced in July 2001 (see "--Restructuring Charges"). Such non-cash charges
related to write-downs of certain inventories, property and equipment, and
other assets.
For the nine months ended September 30, 2001, we recorded non-cash general
and administrative compensation charges of $4.7 million related to the
issuance of stock and stock options to certain employees and executives,
compared to $1.6 million for the nine months ended September 30, 2000.
21
Depreciation and amortization for the nine months ended September 30, 2001
was $227.4 million, an increase of $60.0 million from the nine months ended
September 30, 2000. This increase was primarily attributable to:
(1) a $13.7 million increase in depreciation and amortization related to
the property and equipment and goodwill from CCUK,
(2) a $5.7 million increase in depreciation and amortization related to the
property and equipment and goodwill from Crown Atlantic,
(3) a $4.8 million increase in depreciation and amortization related to
property and equipment from CCAL, and
(4) a $35.5 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 nine months ended September 30,
2001 resulted primarily from:
(1) the investment of the net proceeds from our recent offerings, offset by
(2) costs incurred in connection with unsuccessful acquisition attempts and
(3) our share of losses incurred by unconsolidated affiliates.
Interest expense and amortization of deferred financing costs for the nine
months ended September 30, 2001 was $218.9 million, an increase of $44.9
million, or 25.8%, from the nine months ended September 30, 2000. This
increase was primarily attributable to interest on indebtedness at CCUSA, CCUK
and Crown Atlantic, and interest on the 10 3/4% senior notes and the 9 3/8%
senior notes.
The provision for income taxes of $11.8 million for the nine months ended
September 30, 2001 consists primarily of a non-cash deferred tax liability
recognized by CCUK
Minority interests represent the minority shareholder's 20% interest in
CCUK's operations (prior to July 2000), the minority partner's 43.1% interest
in Crown Atlantic's operations, the minority partner's 17.8% interest in the
operations of the GTE joint venture and the minority shareholder's 22.4%
interest in the CCAL operations.
The extraordinary loss on early extinguishment of debt for the nine months
ended September 30, 2000 represents the write-off of unamortized deferred
financing costs related to CCUSA's prior credit facility.
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures in
connection with the expansion of our tower portfolios by pursuing build-to-
suit opportunities in the markets in which we currently operate.
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.
22
For the nine months ended September 30, 2000 and 2001, our net cash
provided by operating activities was $117.6 million and $78.7 million,
respectively. For the nine months ended September 30, 2000 and 2001, our net
cash provided by financing activities was $1,690.4 million and $1,088.9
million, respectively. Our primary financing-related activities in the first
nine months of 2001 included the following:
January 2001 Offering
On January 11, 2001, we sold shares of our common stock in an underwritten
public offering. We had granted the underwriters an over-allotment option to
purchase additional shares in the offering. On January 12, 2001, the over-
allotment option was partially exercised. As a result, we sold a total of
13,445,200 shares of our common stock at a price of $26.25 per share and
received proceeds of $342.9 million (after underwriting discounts of $10.1
million). The proceeds from this offering will be used for general corporate
purposes.
Crown Atlantic Credit Facility
In March 2001, the Crown Atlantic credit facility was amended to increase
the available borrowings to $345.0 million. Under the amended facility, the
amount of available borrowings will begin to decrease on March 31, 2003.
May 2001 Debt Offering
On May 10, 2001, we issued $450.0 million aggregate principal amount of our
9 3/8% Senior Notes for proceeds of $441.0 million (after underwriting
discounts of $9.0 million). The proceeds from the sale of these securities
will be used to fund the initial interest payments on the 9 3/8% senior notes
and for general corporate purposes.
Capital expenditures were $561.1 million for the nine months ended
September 30, 2001, of which $3.7 million were for CCIC, $295.5 million were
for CCUSA, $76.4 million were for Crown Atlantic, $182.5 million were for CCUK
and $3.1 million were for CCAL. We anticipate that we will build, through the
end of 2001, approximately 700 towers in the United States at a cost of
approximately $161.0 million and approximately 800 towers in the United
Kingdom at a cost of approximately $175.0 million. We also expect to spend
approximately $120.0 million in the United States to improve the structural
capacity of our domestic towers.
On April 27, 2001, we entered into a Share Purchase Agreement for the
acquisition of 49% of the outstanding capital stock of RaiWay S.p.A.
("RaiWay"). RaiWay is a subsidiary of RAI Radio Televisione Italiana S.p.A.
("RAI"), the Italian state-owned television and radio broadcaster. RaiWay
manages over 2,300 broadcast transmission sites across Italy. The cost of our
investment in RaiWay amounted to approximately $383.8 million in cash, and
such amount was deposited into a Euro-denominated escrow account upon
execution of the Share Purchase Agreement. The transaction was subject to
approval by the Italian regulatory authorities and, in October 2001, we were
notified that the Italian Minister of Communication had declined to approve
the transaction. Pursuant to the terms of the agreement, the escrow deposit
was returned to us in November 2001.
We expect that the completion of the recent 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
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 future if additional tower acquisitions or build-
to-suit opportunities arise. 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
23
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.
As of September 30, 2001, we had consolidated cash and cash equivalents of
$536.7 million (including $15.3 million at CCUSA, $161.0 million at CCUK, $4.5
million at Crown Atlantic and $13.6 million at CCAL), consolidated long-term
debt of $3,389.4 million, consolidated redeemable preferred stock of $869.4
million and consolidated stockholders' equity of $2,472.3 million.
As of November 1, 2001, Crown Atlantic had unused borrowing availability
under its amended credit facility of approximately $45.0 million, and CCUK had
unused borrowing availability under its credit facility of approximately
(Pounds)30.0 million ($44.1 million). As of November 1, 2001, our subsidiaries
had approximately $500.0 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,
our 9 1/2% senior notes, our 10 3/4% senior notes and our 9 3/8% senior notes
require annual cash interest payments of approximately $16.2 million, $11.9
million, $53.8 million, and $42.2 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 ($16.5 million). In addition, our various credit facilities will
require periodic interest payments on amounts borrowed thereunder, which
amounts could be substantial.
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.
Restructuring Charges
In July 2001, we announced a restructuring of our business in order to
increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, we have reduced our global staff by
approximately 311 full-time employees; we are closing five offices in the
United States; and we are closing our
24
development offices in Brazil and Europe. We anticipate that the actions to be
taken for the restructuring will be substantially completed by the end of
2001. In connection with the restructuring, we recorded non-recurring cash
charges of approximately $19.3 million during the third quarter of 2001
related to employee severance payments and costs of office closures.
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, our measure of the following information may not be
comparable to similarly titled measures of other companies.
Summarized financial information for (1) CCIC and our Restricted
Subsidiaries and (2) our Unrestricted Subsidiaries is as follows:
September 30, 2001
----------------------------------------------------
Company
and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 371,199 $ 165,496 $ -- $ 536,695
Other current assets..... 385,250 135,303 -- 520,553
Property and equipment,
net..................... 3,338,514 1,469,791 -- 4,808,305
Investments.............. 64,000 -- -- 64,000
Escrow deposit........... -- 388,760 -- 388,760
Investments in
Unrestricted
Subsidiaries............ 2,090,622 -- (2,090,622) --
Goodwill and other
intangible assets, net.. 181,304 886,299 -- 1,067,603
Other assets, net........ 118,767 18,506 -- 137,273
---------- ---------- ----------- ----------
$6,549,656 $3,064,155 $(2,090,622) $7,523,189
========== ========== =========== ==========
Current liabilities...... $ 320,971 $ 171,792 $ -- $ 492,763
Long-term debt, less
current maturities...... 2,752,697 622,006 -- 3,374,703
Other liabilities........ 42,295 103,851 -- 146,146
Minority interests....... 91,973 75,884 -- 167,857
Redeemable preferred
stock................... 869,415 -- -- 869,415
Stockholders' equity..... 2,472,305 2,090,622 (2,090,622) 2,472,305
---------- ---------- ----------- ----------
$6,549,656 $3,064,155 $(2,090,622) $7,523,189
========== ========== =========== ==========
25
Three Months Ended September 30, 2001 Nine Months Ended September 30, 2001
-------------------------------------- --------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues............ $131,142 $ 87,254 $ 218,396 $ 400,843 $259,922 $ 660,765
Costs of operations
(exclusive of
depreciation and
amortization).......... 68,597 40,500 109,097 214,170 131,228 345,398
General and
administrative......... 17,887 3,571 21,458 62,047 15,771 77,818
Corporate development... 2,235 444 2,679 8,557 1,333 9,890
Restructuring charges... 16,444 2,808 19,252 16,444 2,808 19,252
Asset write-down
charges................ 3,738 -- 3,738 11,458 4,552 16,010
Non-cash general and
administrative
compensation charges... 872 1,077 1,949 2,616 2,108 4,724
Depreciation and
amortization........... 44,731 33,794 78,525 129,239 98,133 227,372
-------- -------- --------- --------- -------- ---------
Operating income
(loss)................. (23,362) 5,060 (18,302) (43,688) 3,989 (39,699)
Interest and other
income (expense)....... (496) (966) (1,462) 3,393 2,781 6,174
Interest expense and
amortization of
deferred financing
costs.................. (66,526) (12,565) (79,091) (182,661) (36,260) (218,921)
Provision for income
taxes.................. -- (11,727) (11,727) -- (11,787) (11,787)
Minority interests...... 996 (744) 252 2,403 (1,288) 1,115
-------- -------- --------- --------- -------- ---------
Net loss................ $(89,388) $(20,942) $(110,330) $(220,553) $(42,565) $(263,118)
======== ======== ========= ========= ======== =========
Tower Cash Flow and Adjusted Consolidated Cash Flow for CCIC and our
Restricted Subsidiaries is as follows under (1) the indenture governing the 10
5/8% 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, the 9 1/2% Senior Notes, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of
dollars)
Tower Cash Flow, for the three months ended September
30, 2001............................................... $ 39,692 $ 39,692
======== ========
Consolidated Cash Flow, for the twelve months ended
September 30, 2001..................................... $148,122 $160,630
Less: Tower Cash Flow, for the twelve months ended
September 30, 2001..................................... (135,366) (135,366)
Plus: four times Tower Cash Flow, for the three months
ended September 30, 2001............................... 158,768 158,768
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months
ended
September 30, 2001..................................... $171,524 $184,032
======== ========
Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use
of the pooling-of-interests method of accounting for business combinations,
and requires that the purchase method be used for all business combinations
after June 30, 2001. SFAS 141 also changes the manner in which acquired
26
intangible assets are identified and recognized apart from goodwill. Further,
SFAS 141 requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. We
have used the purchase method of accounting since our inception, so the
adoption of SFAS 141 will not change our method of accounting for business
combinations. We will adopt the other recognition and disclosure requirements
of SFAS 141 as of July 1, 2001 for any future business combinations. The
transition provisions of SFAS 141 require that the carrying amounts for
goodwill and other intangible assets acquired in prior purchase method
business combinations be reviewed and reclassified in accordance with the new
recognition rules; such reclassifications are to be made in conjunction with
the adoption of SFAS 142. We will apply these transition provisions of SFAS
141 as of January 1, 2002, and have not yet determined the effect that they
will have on our consolidated financial statements.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with our existing policies. SFAS 142 requires
disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of intangible asset amortization expense for the next five
years. The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001. We will adopt the requirements of SFAS 142 as of
January 1, 2002. In addition, the nonamortization provisions of SFAS 142 are
to be immediately applied for goodwill and other intangible assets acquired in
business combinations subsequent to June 30, 2001. SFAS 142 requires that
transitional impairment tests be performed at its adoption, and provides that
resulting impairment losses for goodwill and other intangible assets be
reported as the effect of a change in accounting principle. We have not yet
determined the effect that the adoption of SFAS 142 will have on our
consolidated financial statements.
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets ("SFAS 144"). SFAS 144 supersedes Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of ("SFAS 121"), but retains many of its
fundamental provisions. SFAS 144 also clarifies certain measurement and
classification issues from SFAS 121. In addition, SFAS 144 supersedes the
accounting and reporting provisions for the disposal of a business segment as
found in Accounting Principles Board Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions
("APB 30"). However, SFAS 144 retains the requirement in APB 30 to separately
report discontinued operations, and broadens the scope of such requirement to
include more types of disposal transactions. The scope of SFAS 144 excludes
goodwill and other intangible assets that are not to be amortized, as the
accounting for such items is prescribed by SFAS 142. The provisions of SFAS
144 are effective for fiscal years beginning after December 15, 2001, and are
to be applied prospectively. We will adopt the requirements of SFAS 144 as of
January 1, 2002.
27
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
one percentage point in 2001 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 or the Australian dollar, which are the functional
currencies of CCUK and CCAL, respectively. As a result of CCUK's and CCAL's
transactions being denominated and settled in such functional currencies, 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.
As discussed in "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources", we
have deposited approximately $383.8 million in cash into a Euro-denominated
escrow account in connection with the RaiWay transaction. At the time of the
deposit, the funds were exchanged at an average rate of Euro 1.00 = $0.8984.
On September 30, 2001, the balance in the escrow account was translated into
U.S. dollars for financial reporting purposes using an exchange rate of Euro
1.00 = $0.9099, resulting in a foreign currency translation gain of
approximately $4.9 million. This currency translation gain has been recorded
in our financial statements in other comprehensive income (loss). Since
approval of the transaction was not received from the Italian regulatory
authorities, the escrow deposit was returned to us in November 2001. As a
result, we will recognize a foreign exchange gain in the fourth quarter of
2001 of approximately $0.8 million in our results of operations as other
income (expense).
28
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K dated August 15, 2001
with the SEC on August 23, 2001 reporting under Item 5 thereof the appointment
of John P. Kelly as President and Chief Executive Officer of the Company
effective August 20, 2001.
29
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: November 12, 2001 /s/ W. Benjamin Moreland
By: _________________________________
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial Officer)
Date: November 12, 2001 /s/ Wesley D. Cunningham
By: _________________________________
Wesley D. Cunningham
Senior Vice President, Chief
Accounting
Officer and Corporate Controller
(Principal Accounting Officer)
30