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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number 000-24737
----------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 Bering Drive
Suite 500
Houston, Texas 77057-1457
(Address of principal executive (Zip Code)
offices)
(713) 570-3000
(Registrant's telephone number, including area code)
----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at May 1, 2002: 220,388,579
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CROWN CASTLE INTERNATIONAL CORP.
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 2001 and March 31, 2002..... 3
Consolidated Statement of Operations and Comprehensive Loss for the
three months ended March 31, 2001 and 2002............................ 4
Consolidated Statement of Cash Flows for the three months ended March
31, 2001 and 2002..................................................... 5
Condensed Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 15
Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 24
PART II--OTHER INFORMATION
Item 5. Other Information................................................ 25
Item 6. Exhibits and Reports on Form 8-K................................. 25
Signatures............................................................... 26
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, March 31,
2001 2002
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................... $ 804,602 $ 780,018
Receivables:
Trade, net of allowance for doubtful accounts of
$24,785 and $21,878 at December 31, 2001 and March
31, 2002, respectively............................... 188,496 186,311
Other................................................. 2,364 7,920
Short-term investments.................................. 72,963 72,463
Inventories............................................. 102,771 105,387
Prepaid expenses and other current assets............... 44,865 50,491
---------- -----------
Total current assets................................ 1,216,061 1,202,590
Property and equipment, net of accumulated depreciation of
$566,837 and $635,607 at December 31, 2001 and March 31,
2002, respectively....................................... 4,844,912 4,811,688
Investments............................................... 128,500 91,500
Goodwill, net of accumulated amortization of $152,451 at
December 31, 2001........................................ 1,036,914 1,035,498
Deferred financing costs and other assets, net of
accumulated amortization of $32,859 and $35,594 at
December 31, 2001 and March 31, 2002, respectively....... 149,071 141,202
---------- -----------
$7,375,458 $ 7,282,478
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 104,149 $ 93,485
Accrued interest........................................ 60,081 41,772
Accrued compensation and related benefits............... 13,553 10,823
Deferred rental revenues and other accrued liabilities.. 204,584 229,629
Long-term debt, current maturities...................... 29,086 342,737
---------- -----------
Total current liabilities........................... 411,453 718,446
Long-term debt............................................ 3,394,011 3,095,192
Other liabilities......................................... 157,549 159,711
---------- -----------
Total liabilities................................... 3,963,013 3,973,349
---------- -----------
Commitments and contingencies
Minority interests........................................ 168,936 166,826
Redeemable preferred stock................................ 878,861 888,596
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares
authorized; shares issued: December 31, 2001--
218,804,363 and March 31, 2002--220,386,829............ 2,188 2,204
Additional paid-in capital.............................. 3,301,023 3,312,811
Accumulated other comprehensive loss.................... (43,246) (42,493)
Accumulated deficit..................................... (895,317) (1,018,815)
---------- -----------
Total stockholders' equity.......................... 2,364,648 2,253,707
---------- -----------
$7,375,458 $ 7,282,478
========== ===========
See condensed notes to consolidated financial statements.
3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended
March 31,
-------------------
2001 2002
-------- ---------
Net revenues:
Site rental and broadcast transmission................. $134,042 $ 160,264
Network services and other............................. 78,911 60,353
-------- ---------
212,953 220,617
-------- ---------
Operating expenses:
Costs of operations (exclusive of depreciation and
amortization):
Site rental and broadcast transmission............... 57,739 62,066
Network services and other........................... 55,456 43,725
General and administrative............................. 25,895 21,788
Corporate development.................................. 3,453 2,239
Restructuring charges.................................. -- 5,852
Asset write-down charges............................... -- 31,941
Non-cash general and administrative compensation
charges............................................... 1,395 1,314
Depreciation and amortization.......................... 74,091 71,715
-------- ---------
218,029 240,640
-------- ---------
Operating income (loss).................................. (5,076) (20,023)
Other income (expense):
Interest and other income (expense).................... 3,092 (6,090)
Interest expense and amortization of deferred financing
costs................................................. (66,655) (76,319)
-------- ---------
Loss before income taxes and minority interests.......... (68,639) (102,432)
Provision for income taxes............................... (60) (4,659)
Minority interests....................................... 644 3,698
-------- ---------
Net loss................................................. (68,055) (103,393)
Dividends on preferred stock............................. (19,505) (20,105)
-------- ---------
Net loss after deduction of dividends on preferred
stock................................................... $(87,560) $(123,498)
======== =========
Net loss................................................. $(68,055) $(103,393)
Other comprehensive income (loss):
Foreign currency translation adjustments............... (27,593) (2,206)
Derivative instruments:
Net change in fair value of cash flow hedging
instruments......................................... (3,341) 1,540
Amounts reclassified into results of operations...... (222) 1,419
-------- ---------
Comprehensive loss before cumulative effect of change in
accounting principle.................................... (99,211) (102,640)
Cumulative effect of change in accounting principle for
derivative financial instruments 178 --
-------- ---------
Comprehensive loss....................................... $(99,033) $(102,640)
======== =========
Loss per common share--basic and diluted................. $ (0.41) $ (0.56)
======== =========
Common shares outstanding--basic and diluted (in
thousands).............................................. 211,195 219,420
======== =========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Three Months Ended
March 31,
--------------------
2001 2002
--------- ---------
Cash flows from operating activities:
Net loss................................................ $ (68,055) $(103,393)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization.......................... 74,091 71,715
Asset write-down charges............................... -- 31,941
Amortization of deferred financing costs and discounts
on long-term debt..................................... 22,161 24,254
Non-cash general and administrative compensation
charges............................................... 1,395 1,314
Minority interests..................................... (644) (3,698)
Changes in assets and liabilities, excluding the
effects of acquisitions:
Increase in deferred rental revenues and other
liabilities.......................................... 107,159 28,976
Decrease in accrued interest.......................... (30,020) (18,041)
Decrease in accounts payable.......................... (15,945) (9,940)
Increase in receivables............................... (29,170) (3,879)
Increase in inventories, prepaid expenses and other
assets............................................... (16,083) (3,208)
--------- ---------
Net cash provided by operating activities............ 44,889 16,041
--------- ---------
Cash flows from investing activities:
Maturities of investments............................... 111,000 116,500
Purchases of investments................................ (73,500) (79,000)
Capital expenditures.................................... (251,860) (72,981)
Investments in affiliates and other..................... (10,568) (2,946)
--------- ---------
Net cash used for investing activities............... (224,928) (38,427)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of capital stock................. 350,830 538
Net borrowings under revolving credit agreements........ 95,548 --
Incurrence of financing costs........................... (2,672) --
--------- ---------
Net cash provided by financing activities............ 443,706 538
--------- ---------
Effect of exchange rate changes on cash.................. (559) (2,736)
--------- ---------
Net increase (decrease) in cash and cash equivalents..... 263,108 (24,584)
Cash and cash equivalents at beginning of period......... 453,833 804,602
--------- ---------
Cash and cash equivalents at end of period............... $ 716,941 $ 780,018
========= =========
Supplemental disclosure of cash flow information:
Interest paid........................................... $ 74,443 $ 68,960
Income taxes paid....................................... 60 89
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, 2001,
and related notes thereto, included in the Annual Report on Form 10-K (the
"Form 10-K") filed by Crown Castle International Corp. with the Securities and
Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31, 2002
and the consolidated results of operations and consolidated cash flows for the
three months ended March 31, 2001 and 2002. 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. Certain
reclassifications have been made to the prior period's financial statements to
be consistent with the presentation in the current period.
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 $5,300,000 for the year ending December 31,
2002. 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 March 31, 2002, the accumulated other
comprehensive loss in consolidated stockholders' equity includes $5,033,000 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 has adopted 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 application of these transition
provisions of SFAS 141 as of January 1, 2002 resulted in a reclassification of
other intangible assets with finite useful lives (the value of site rental
contracts from the acquisition of Crown Communication) to deferred financing
costs and other assets on the Company's consolidated balance sheet. The net
book value of such reclassified intangible assets was $14,517,000.
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. In addition, the nonamortization provisions of SFAS
142 were to be immediately applied for goodwill and other intangible assets
acquired in business combinations subsequent to June 30, 2001. The Company has
adopted the requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires
that transitional impairment tests be performed at its adoption, and provides
that resulting impairment losses for goodwill and other intangible assets with
indefinite useful lives be reported as the effect of a change in accounting
principle. The Company has not yet completed its transitional impairment tests
but, based on preliminary results of those tests, does not currently believe
that an impairment loss for goodwill and other intangible assets will be
recorded upon the adoption of SFAS 142. The Company expects that its
depreciation and amortization expense will decrease by approximately
$62,068,000 per year as a result of the adoption of SFAS 142. If amortization
of goodwill and other intangible assets had not been recorded during the three
months ended March 31, 2001, the Company's net loss for that period would have
been $52,314,000, or $0.34 per share.
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
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 adoption of the requirements of SFAS 144 as of January 1, 2002 had no
impact on the Company's consolidated financial statements.
3. Long-term Debt
Long-term debt consists of the following:
December 31, March 31,
2001 2002
------------ ----------
(In thousands of
dollars)
2000 Credit Facility.............................. $ 700,000 $ 700,000
CCUK Credit Facility.............................. 172,050 168,767
Crown Atlantic Credit Facility.................... 300,000 300,000
9% Guaranteed Bonds due 2007...................... 177,401 173,970
10 5/8% Senior Discount Notes due 2007, net of
discount......................................... 229,321 235,333
10 3/8% Senior Discount Notes due 2011, net of
discount......................................... 393,320 403,391
9% Senior Notes due 2011.......................... 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of
discount......................................... 196,005 201,468
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...................... 450,000 450,000
---------- ----------
3,423,097 3,437,929
Less: current maturities.......................... (29,086) (342,737)
---------- ----------
$3,394,011 $3,095,192
========== ==========
CCUK Credit Facility
In April 2002, ITVdigital ("ITV") announced plans to liquidate its assets,
and it is anticipated that the liquidation will commence in the near future
(see Note 9). The termination of the ITV transmission contract is a
Termination Event (a defined event of default) under the CCUK Credit Facility.
The Company has entered into discussions with the banks in order to obtain an
amendment to the CCUK Credit Facility such that the Termination Event would be
cured. Based on these preliminary discussions, the Company does not currently
believe that it will be required to prepay the outstanding borrowings under
the CCUK Credit Facility as a result of this event of default. However, there
can be no assurance that such an amendment can be obtained. As a result, the
Company has reclassified all the outstanding borrowings under the CCUK Credit
Facility as current liabilities on its consolidated balance sheet as of March
31, 2002.
If the Company is unable to obtain an amendment to the CCUK Credit Facility
as discussed above, the uncured Termination Event would result in an event of
default under the trust deed governing the 9% Guaranteed Bonds due 2007 (the
"CCUK Bonds"). As a result, the Company has also reclassified the principal
amount of the CCUK Bonds as a current liability on its consolidated balance
sheet as of March 31, 2002.
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
March 31, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 188,450 $ 591,568 $ -- $ 780,018
Other current assets..... 279,253 143,319 -- 422,572
Property and equipment,
net..................... 3,339,096 1,472,592 -- 4,811,688
Investments.............. 91,500 -- -- 91,500
Investments in
Unrestricted
Subsidiaries............ 2,077,745 -- (2,077,745) --
Goodwill................. 164,023 871,475 -- 1,035,498
Other assets, net........ 128,292 12,910 -- 141,202
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Current liabilities...... $ 201,283 $ 517,163 $ -- $ 718,446
Long-term debt, less
current maturities...... 2,795,192 300,000 -- 3,095,192
Other liabilities........ 36,703 123,008 -- 159,711
Minority interests....... 92,878 73,948 -- 166,826
Redeemable preferred
stock................... 888,596 -- -- 888,596
Stockholders' equity..... 2,253,707 2,077,745 (2,077,745) 2,253,707
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Three Months Ended March 31, 2002
--------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues........................... $122,248 $ 98,369 $ 220,617
Costs of operations (exclusive of
depreciation and amortization)........ 56,567 49,224 105,791
General and administrative............. 18,284 3,504 21,788
Corporate development.................. 2,239 -- 2,239
Restructuring charges.................. 2,126 3,726 5,852
Asset write-down charges............... 23,721 8,220 31,941
Non-cash general and administrative
compensation charges.................. 872 442 1,314
Depreciation and amortization.......... 47,784 23,931 71,715
-------- -------- ---------
Operating income (loss)................ (29,345) 9,322 (20,023)
Interest and other income (expense).... (599) (5,491) (6,090)
Interest expense and amortization of
deferred financing costs.............. (64,117) (12,202) (76,319)
Provision for income taxes............. (88) (4,571) (4,659)
Minority interests..................... 1,523 2,175 3,698
-------- -------- ---------
Net loss............................... $(92,626) $(10,767) $(103,393)
======== ======== =========
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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% 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 March 31,
2002.................................................. $ 50,150 $ 50,150
========= =========
Consolidated Cash Flow, for the twelve months ended
March 31, 2002........................................ $ 173,100 $ 182,436
Less: Tower Cash Flow, for the twelve months ended
March 31, 2002........................................ (170,240) (170,240)
Plus: four times Tower Cash Flow, for the three months
ended March 31, 2002.................................. 200,600 200,600
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months
ended March 31, 2002.................................. $ 203,460 $ 212,796
========= =========
4. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, March 31,
2001 2002
------------ ---------
(In thousands of
dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares
issued:
December 31, 2001--291,444 and March 31, 2002--300,734
(stated at mandatory redemption and aggregate
liquidation value)................................... $292,992 $302,331
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)......................................... 195,793 195,896
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)......................................... 390,076 390,369
-------- --------
$878,861 $888,596
======== ========
5. 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.
10
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
March 31,
-------------------
2001 2002
-------- ---------
(In thousands of
dollars, except
per share amounts)
Net loss................................................. $(68,055) $(103,393)
Dividends on preferred stock............................. (19,505) (20,105)
-------- ---------
Net loss applicable to common stock for basic and diluted
computations............................................ $(87,560) $(123,498)
======== =========
Weighted-average number of common shares outstanding
during the period for basic and diluted computations (in
thousands).............................................. 211,195 219,420
======== =========
Loss per common share--basic and diluted................. $ (0.41) $ (0.56)
======== =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of March 31, 2002: (1)
options to purchase 23,775,862 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.
6. Commitments and 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.
7. 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
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.
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The financial results for the Company's operating segments are as follows:
Three Months Ended March 31, 2002
-------------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 79,253 $ 5,013 $ 53,455 $ 22,543 $ -- $ 160,264
Network services and
other................ 37,349 633 15,945 6,426 -- 60,353
---------- -------- ---------- -------- -------- ----------
116,602 5,646 69,400 28,969 -- 220,617
---------- -------- ---------- -------- -------- ----------
Costs of operations
(exclusive of
depreciation and
amortization).......... 53,932 2,635 36,856 12,368 -- 105,791
General and
administrative......... 13,229 1,261 1,727 1,737 3,834 21,788
Corporate development... -- -- -- -- 2,239 2,239
---------- -------- ---------- -------- -------- ----------
EBITDA.................. 49,441 1,750 30,817 14,864 (6,073) 90,799
Restructuring charges... -- -- 3,726 -- 2,126 5,852
Asset write-down
charges................ 23,721 -- 431 7,789 -- 31,941
Non-cash general and
administrative
compensation charges... 532 -- 442 -- 340 1,314
Depreciation and
amortization........... 44,244 3,186 13,473 10,269 543 71,715
---------- -------- ---------- -------- -------- ----------
Operating income
(loss)................. (19,056) (1,436) 12,745 (3,194) (9,082) (20,023)
Interest and other
income (expense)....... (743) 162 (5,569) (19) 79 (6,090)
Interest expense and
amortization of
deferred financing
costs.................. (9,295) (826) (7,552) (4,650) (53,996) (76,319)
Provision for income
taxes.................. -- (88) (4,571) -- -- (4,659)
Minority interests...... 819 704 -- 2,175 -- 3,698
---------- -------- ---------- -------- -------- ----------
Net loss................ $ (28,275) $ (1,484) $ (4,947) $ (5,688) $(62,999) $ (103,393)
========== ======== ========== ======== ======== ==========
Capital expenditures.... $ 41,631 $ 2,956 $ 17,668 $ 10,397 $ 329 $ 72,981
========== ======== ========== ======== ======== ==========
Total assets (at period
end)................... $3,510,721 $267,963 $1,816,235 $894,789 $792,770 $7,282,478
========== ======== ========== ======== ======== ==========
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended March 31, 2001
-------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------ -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and
broadcast
transmission......... $ 62,176 $2,990 $ 49,368 $19,508 $ -- $134,042
Network services and
other................ 60,605 -- 9,776 8,530 -- 78,911
-------- ------ -------- ------- -------- --------
122,781 2,990 59,144 28,038 -- 212,953
-------- ------ -------- ------- -------- --------
Costs of operations
(exclusive of
depreciation and
amortization).......... 66,101 1,095 32,029 13,970 -- 113,195
General and
administrative......... 16,322 1,491 1,703 2,645 3,734 25,895
Corporate development... -- -- 48 -- 3,405 3,453
-------- ------ -------- ------- -------- --------
EBITDA.................. 40,358 404 25,364 11,423 (7,139) 70,410
Non-cash general and
administrative
compensation charges... 531 -- 523 -- 341 1,395
Depreciation and
amortization........... 39,627 1,696 22,219 10,131 418 74,091
-------- ------ -------- ------- -------- --------
Operating income
(loss)................. 200 (1,292) 2,622 1,292 (7,898) (5,076)
Interest and other
income (expense)....... 874 (144) 931 15 1,416 3,092
Interest expense and
amortization of
deferred financing
costs.................. (13,467) (43) (7,035) (5,015) (41,095) (66,655)
Provision for income
taxes.................. -- -- (27) (33) -- (60)
Minority interests...... (198) 923 -- (81) -- 644
-------- ------ -------- ------- -------- --------
Net loss................ $(12,591) $ (556) $ (3,509) $(3,822) $(47,577) $(68,055)
======== ====== ======== ======= ======== ========
Capital expenditures.... $113,863 $ 486 $110,829 $26,101 $ 581 $251,860
======== ====== ======== ======= ======== ========
8. Restructuring Charges and Asset Write-Down Charges
For the three months ended March 31, 2002, the Company recorded cash
charges of $3,726,000 in connection with a restructuring of its CCUK business
announced in March 2002. Such charges relate to staff redundancies and the
disposition of certain service lines. The Company expects that the total
charges reflected in its 2002 results of operations for this CCUK
restructuring will be between approximately $7,000,000 and $13,000,000. For
the three months ended March 31, 2002, the Company also recorded cash charges
of $2,126,000 related to additional employee severance payments at its
corporate office in connection with the July 2001 restructuring. At December
31, 2001 and March 31, 2002, other accrued liabilities includes $6,591,000 and
$7,222,000, respectively, related to restructuring charges.
During the three months ended March 31, 2002, the Company abandoned a
portion of its construction in process related to certain open projects and
recorded related asset write-down charges of $23,721,000 for CCUSA and
$7,789,000 for Crown Atlantic. For the three months ended March 31, 2002, the
Company also recorded asset write-down charges of $431,000 for CCUK related to
certain inventories and property and equipment.
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Subsequent Events
Since 1999, CCUK has provided digital transmission services to ITVdigital
("ITV"). On March 27, 2002, a U.K. court approved an application by ITV to be
placed into administration (a proceeding, similar to a Chapter 11 bankruptcy
proceeding in the United States, designed to protect the applicant from the
claims of its creditors while it reorganizes its business). In April 2002,
after unsuccessful efforts by the administrator to sell the ITV business as a
going concern, ITV announced plans to liquidate its assets. It is anticipated
that the liquidation will commence in the near future. With the ITV liquidation
and suspension of service, further on-going collections under the ITV
transmission contract are not expected. CCUK had gross revenues of
approximately $27,600,000 annually under the ITV transmission contact. If
current efforts to re-market the CCUK network prove unsuccessful, CCUK expects
EBITDA to be impacted negatively by approximately $16,000,000 in 2002 and
approximately $23,000,000 annually thereafter assuming no significant
mitigation of costs. ITV represented approximately 10% of the 2001 gross
revenues of CCUK and approximately 3% of the 2001 consolidated gross revenues
of the Company. The termination of the ITV transmission contract is a
Termination Event under the CCUK Credit Facility (see Note 3).
14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of March 31, 2002 and our consolidated
results of operations for the three-month periods ended March 31, 2001 and
2002. 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 business strategy and the following:
. 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.
. Our business depends on the demand for wireless communications, which
may be lower or slower than anticipated.
. The continuation of the current economic and telecommunications industry
slowdown could materially and adversely affect our business and the
business of our customers.
. We may be unable to manage our significant growth.
. The loss, consolidation or financial instability of any of our limited
number of customers could materially decrease revenues.
. Restrictive covenants on our debt instruments may limit our ability to
take actions that may be in our best interests.
. 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.
. 2.5G/3G and other technologies may not deploy or be adopted by customers
as rapidly or in the manner projected.
. Carrier consolidation or reduced carrier expansion 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.
. We may not be able to construct or acquire new towers at the pace and in
the locations that we desire.
. Demand for our network services business is very volatile which causes
our network services operating results to vary significantly for any
particular period.
. We anticipate significant capital expenditures and may need additional
financing which may not be available.
. We generally lease or sublease the land under our towers and may not be
able to maintain these leases.
. 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 are 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.
15
. Disputes with customers and suppliers have recently increased.
. Economic viability or acceptance of digital terrestrial broadcasting.
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.
Results of Operations
During 2001 we completed the transactions with BellSouth and BellSouth DCS.
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 months
ended March 31, 2001 are not comparable to the results of operations for the
three months ended March 31, 2002.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2002
---------------------- -----------------------
Percent of Percent of
Amount Net Revenues Amount Net Revenues
-------- ------------ --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission.................. $134,042 62.9% $ 160,264 72.6%
Network services and other..... 78,911 37.1 60,353 27.4
-------- ----- --------- -----
Total net revenues.......... 212,953 100.0 220,617 100.0
-------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission................. 57,739 43.1 62,066 38.7
Network services and other.... 55,456 70.3 43,725 72.4
-------- ----- --------- -----
Total costs of operations... 113,195 53.2 105,791 47.9
General and administrative..... 25,895 12.2 21,788 9.9
Corporate development.......... 3,453 1.6 2,239 1.0
Restructuring charges.......... -- -- 5,852 2.7
Asset write-down charges....... -- -- 31,941 14.5
Non-cash general and
administrative compensation
charges....................... 1,395 0.6 1,314 0.6
Depreciation and amortization.. 74,091 34.8 71,715 32.5
-------- ----- --------- -----
Operating income (loss)......... (5,076) (2.4) (20,023) (9.1)
Other income (expense):
Interest and other income
(expense)..................... 3,092 1.5 (6,090) (2.8)
Interest expense and
amortization of deferred
financing costs............... (66,655) (31.3) (76,319) (34.6)
-------- ----- --------- -----
Loss before income taxes and
minority interests............. (68,639) (32.2) (102,432) (46.5)
Provision for income taxes...... (60) (0.1) (4,659) (2.1)
Minority interests.............. 644 0.3 3,698 1.7
-------- ----- --------- -----
Net loss........................ $(68,055) (32.0)% $(103,393) (46.9)%
======== ===== ========= =====
16
Comparison of Three Months Ended March 31, 2002 and 2001
Consolidated revenues for the three months ended March 31, 2002 were $220.6
million, an increase of $7.7 million from the three months ended March 31,
2001. This increase was primarily attributable to:
(1) a $26.2 million, or 19.6%, increase in site rental and broadcast
transmission revenues, of which $4.1 million was attributable to
CCUK, $3.0 million was attributable to Crown Atlantic, $2.0 million
was attributable to CCAL and $17.1 million was attributable to
CCUSA,
(2) a $6.2 million increase in network services and other revenues from
CCUK, partially offset by
(3) a $23.3 million decrease in network services and other revenues from
CCUSA, and
(4) a $2.1 million decrease in network services and other revenues from
Crown Atlantic.
The following is a summary of tenant leasing activity on our tower sites:
Three Months
Ended March
31,
-------------
2001 2002
------ ------
New tenants added on existing, newly constructed and
acquired tower sites, net:
CCUSA..................................................... 931 762
Crown Atlantic............................................ 185 139
CCUK...................................................... 626 399
CCAL...................................................... 139 96
------ ------
1,881 1,396
====== ======
Average monthly lease rate per new tenant added on existing
tower sites:
CCUSA and Crown Atlantic.................................. $1,476 $1,479
CCUK...................................................... 496 1,070
CCAL...................................................... 629 558
The increases in site rental and broadcast transmission revenues reflect the
new tenant additions on our tower sites. The increases or decreases in network
services and other revenues reflect fluctuations in demand for antenna
installation from our tenants along with fluctuations in third party service
work.
Costs of operations for the three months ended March 31, 2002 were $105.8
million, a decrease of $7.4 million from the three months ended March 31,
2001. This decrease was primarily attributable to:
(1) a $13.1 million decrease in network services costs related to CCUSA
and
(2) a $2.2 million decrease in network services costs from Crown
Atlantic, partially offset by
(3) a $4.3 million increase in site rental and broadcast transmission
costs, of which $1.7 million was attributable to CCUK, $0.6 million
was attributable to Crown Atlantic, $1.1 million was attributable to
CCAL and $0.9 million was attributable to CCUSA, and
(4) a $3.2 million increase 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 decreased to 38.7% for the
three months ended March 31, 2002 from 43.1% for the three months ended March
31, 2001, because of higher margins attributable to incremental revenues from
the CCUSA, Crown Atlantic and CCAL operations. Costs of operations for network
services and other as a percentage of network services and other revenues
increased to 72.4% for the three months ended March 31, 2002 from 70.3% for
the three months ended March 31, 2001 because of lower margins from the CCUSA
operations, partially offset by higher margins from the CCUK and Crown
Atlantic operations.
17
General and administrative expenses for the three months ended March 31,
2002 were $21.8 million, a decrease of $4.1 million from the three months
ended March 31, 2001. This decrease was primarily attributable to:
(1) a $3.1 million decrease in expenses related to the CCUSA operations,
(2) a $0.9 million decrease in expenses at Crown Atlantic, and
(3) a $0.2 million decrease in expenses at CCAL, partially offset by
(4) a $0.1 million increase in expenses at our corporate office.
The decreases in general and administrative expenses resulted primarily from
lower staffing levels after the restructuring of our business announced in
July 2001. General and administrative expenses as a percentage of revenues
decreased to 9.9% for the three months ended March 31, 2002 from 12.2% for the
three months ended March 31, 2001 because of lower overhead costs as a
percentage of revenues for CCUSA, CCAL, CCUK and Crown Atlantic.
Corporate development expenses for the three months ended March 31, 2002
were $2.2 million, compared to $3.5 million for the three months ended March
31, 2001. This decrease was primarily attributable to a decrease in expenses
at our corporate office.
For the three months ended March 31, 2002, we recorded cash charges of $3.7
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. We expect that the total charges reflected in our 2002
results of operations for this CCUK restructuring will be between
approximately $7.0 million and $13.0 million. For the three months ended March
31, 2002, we also recorded cash charges of $2.1 million related to additional
employee severance payments at our corporate office in connection with the
July 2001 restructuring. See "--Restructuring Charges and Asset Write-Down
Charges".
During the three months ended March 31, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $23.7 million for CCUSA and $7.8 million for Crown
Atlantic. For the three months ended March 31, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment. See "--Restructuring Charges and Asset Write-Down
Charges".
For the three months ended March 31, 2002, we recorded non-cash general and
administrative compensation charges of $1.3 million related to the issuance of
stock and stock options to certain employees and executives, compared to $1.4
million for the three months ended March 31, 2001.
Depreciation and amortization for the three months ended March 31, 2002 was
$71.7 million, a decrease of $2.4 million from the three months ended March
31, 2001. This decrease was primarily attributable to:
(1) a $15.7 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $3.1 million was attributable to CCUSA,
$11.8 million was attributable to CCUK and $0.8 million was
attributable to Crown Atlantic (see "--Impact of Recently Issued
Accounting Standards"), partially offset by
(2) a $3.1 million increase in depreciation related to property and
equipment from CCUK,
(3) a $7.7 million increase in depreciation related to property and
equipment from CCUSA,
(4) a $1.5 million increase in depreciation related to property and
equipment from CCAL, and
(5) a $0.9 million increase in depreciation related to property and
equipment from Crown Atlantic.
18
Interest and other income (expense) for the three months ended March 31,
2002 resulted primarily from:
(1) a charge of approximately $7.0 million for the write-down of an
investment in an unconsolidated affiliate,
(2) our share of losses incurred by unconsolidated affiliates and
(3) costs incurred in connection with unsuccessful network acquisitions,
partially offset by
(4) the investment of the net proceeds from our recent offerings.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 2002 was $76.3 million, an increase of $9.7 million, or
14.5%, from the three months ended March 31, 2001. 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 $4.7 million for the three months ended
March 31, 2002 consists primarily of a non-cash deferred tax liability
recognized by CCUK. CCUK's deferred tax liability resulted from differences
between book and tax basis for its property and equipment.
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.
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 and issuances of debt securities. 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.
For the three months ended March 31, 2001 and 2002, our net cash provided
by operating activities was $44.9 million and $16.0 million, respectively. For
the three months ended March 31, 2001 and 2002, our net cash provided by
financing activities was $443.7 million and $0.5 million, respectively.
Capital expenditures were $73.0 million for the three months ended March
31, 2002, of which $0.3 million were for CCIC, $41.6 million were for CCUSA,
$10.4 million were for Crown Atlantic, $17.7 million were for CCUK and $3.0
million were for CCAL. We anticipate that we will build, through the end of
2002, approximately 250 to 350 towers in the United States at a cost of
approximately $81 million and approximately 450 to 550 towers in the United
Kingdom at a cost of approximately $50 million. In addition, we are obligated
to pay a site access fee to British Telecom in the amount of (Pounds)100.0
million ($142.5 million). In April 2002, we reached agreement with British
Telecom to defer until March 2003 payment of (Pounds)50.0 million ($71.3
million) of the (Pounds)100.0 million originally due March 2002. We also
expect to spend approximately $125 million in the United States for tower
improvements, including enhancements to the structural capacity of our
domestic towers in order to support the anticipated leasing.
We expect that 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 new towers 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.
19
To fund the execution of our business strategy, including the construction
of new towers, we expect to use the net proceeds of our recent offerings and
cash provided by operations. We do not currently expect to utilize further
borrowings available under our U.S. and U.K. credit facilities in any
significant amounts. 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 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 March 31, 2002, we had consolidated cash and cash equivalents of
$780.0 million (including $20.5 million at CCUSA, $183.1 million at CCUK,
$30.5 million at Crown Atlantic, $13.3 million at CCAL, $377.9 million in an
unrestricted investment subsidiary and $154.6 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $164.0 million, consolidated long-term debt of
$3,437.9 million, consolidated redeemable preferred stock of $888.6 million
and consolidated stockholders' equity of $2,253.7 million.
As of May 1, 2002, Crown Atlantic had unused borrowing availability under
its amended credit facility of approximately $45.0 million. As of May 1, 2002,
our restricted U.S. and Australian 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.
The primary factors that determine our subsidiaries' ability to comply with
their debt covenants are (1) their current financial performance (based on
earnings before interest, taxes, depreciation and amortization, or "EBITDA"),
(2) their levels of indebtedness and (3) their debt service requirements.
Since we do not currently expect that our subsidiaries will need to utilize
significant additional borrowings under their credit facilities, the primary
risk of a debt covenant violation would result from a deterioration of a
subsidiary's EBITDA performance. In addition, certain of the credit facilities
will require that EBITDA increase in future years as covenant calculations
become more restrictive. Should a covenant violation occur in the future as a
result of a shortfall in EBITDA performance (or for any other reason), we
might be required to make principal payments earlier than currently scheduled
and may not have access to additional borrowings under these facilities as
long as the covenant violation continues. Any such early principal payments
would have to be made from our existing cash balances.
In April 2002, ITVdigital ("ITV") announced plans to liquidate its assets,
and it is anticipated that the liquidation will commence in the near future
(see "Item 5. Other Information"). The termination of the ITV transmission
contract is a Termination Event (a defined event of default) under the CCUK
credit facility. We have entered into discussions with the banks in order to
obtain an amendment to the CCUK credit facility such that the Termination
Event would be cured. Based on these preliminary discussions, we do not
currently believe that we will be required to prepay the outstanding
borrowings under the CCUK credit facility as a result of this event of
default. However, there can be no assurance that such an amendment can be
obtained. As a result, we have reclassified all the outstanding borrowings
under the CCUK credit facility as current liabilities on our consolidated
balance sheet as of March 31, 2002. If we are unable to obtain an amendment to
the CCUK credit facility as discussed above, the uncured Termination Event
would result in an event of default under the trust deed governing the CCUK
bonds. As a result, we have also reclassified the principal amount of the CCUK
bonds as a current liability on our consolidated balance sheet as of March 31,
2002.
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
20
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 12 3/4%
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 ($16.0 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 joint venture agreements with Bell Atlantic Mobile and GTE (both now
part of Verizon Communications) provide that, upon dissolution of either
venture, Verizon Communications will receive (1) the shares of our common
stock contributed to the venture and (2) a payment equal to a percentage of
the fair market value (at the dissolution date) of the venture's other net
assets. As of March 31, 2002, such percentages would be approximately 24.1%
for the Bell Atlantic Mobile venture and 11.0% for the GTE venture. The 24.1%
payment for the Bell Atlantic Mobile venture could be paid either in cash or
shares of our common stock, at our election. The 11.0% payment for the GTE
venture could only be paid in cash. A dissolution of either venture may be
triggered (1) by Verizon Communications at any time following the third
anniversary of the formation of the applicable venture and (2) by us at any
time following the fourth anniversary of such venture's formation (subject to
certain penalties if prior to the seventh anniversary). Our joint venture with
Bell Atlantic Mobile was formed on March 31, 1999, and our joint venture with
GTE was formed on January 31, 2000.
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. In addition, our
ability to refinance any indebtedness in the future would depend in part on
our maintaining adequate credit ratings from the commercial rating agencies.
Such credit ratings are dependent on all the liquidity and performance factors
discussed above, as well as general expectations that the rating agencies have
regarding the outlook for our business and our industry. We anticipate that we
may need to refinance a substantial 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 and Asset Write-Down Charges
For the three months ended March 31, 2002, we recorded cash charges of $3.7
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. We expect that the total charges reflected in our 2002
results of operations for this CCUK restructuring will be between
approximately $7.0 million and $13.0 million. For the three months ended March
31, 2002, we also recorded cash charges of $2.1 million related to additional
employee severance payments at our corporate office in connection with the
July 2001 restructuring.
During the three months ended March 31, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $23.7 million for CCUSA and $7.8 million for Crown
Atlantic. For the three months ended March 31, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment.
21
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:
March 31, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash
equivalents............. $ 188,450 $ 591,568 $ -- $ 780,018
Other current assets..... 279,253 143,319 -- 422,572
Property and equipment,
net..................... 3,339,096 1,472,592 -- 4,811,688
Investments.............. 91,500 -- -- 91,500
Investments in
Unrestricted
Subsidiaries............ 2,077,745 -- (2,077,745) --
Goodwill................. 164,023 871,475 -- 1,035,498
Other assets, net........ 128,292 12,910 -- 141,202
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Current liabilities...... $ 201,283 $ 517,163 $ -- $ 718,446
Long-term debt, less
current maturities...... 2,795,192 300,000 -- 3,095,192
Other liabilities........ 36,703 123,008 -- 159,711
Minority interests....... 92,878 73,948 -- 166,826
Redeemable preferred
stock................... 888,596 -- -- 888,596
Stockholders' equity..... 2,253,707 2,077,745 (2,077,745) 2,253,707
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Three Months Ended March 31, 2002
--------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues........................... $122,248 $ 98,369 $ 220,617
Costs of operations (exclusive of
depreciation and amortization)........ 56,567 49,224 105,791
General and administrative............. 18,284 3,504 21,788
Corporate development.................. 2,239 -- 2,239
Restructuring charges.................. 2,126 3,726 5,852
Asset write-down charges............... 23,721 8,220 31,941
Non-cash general and administrative
compensation charges.................. 872 442 1,314
Depreciation and amortization.......... 47,784 23,931 71,715
-------- -------- ---------
Operating income (loss)................ (29,345) 9,322 (20,023)
Interest and other income (expense).... (599) (5,491) (6,090)
Interest expense and amortization of
deferred financing costs.............. (64,117) (12,202) (76,319)
Provision for income taxes............. (88) (4,571) (4,659)
Minority interests..................... 1,523 2,175 3,698
-------- -------- ---------
Net loss............................... $(92,626) $(10,767) $(103,393)
======== ======== =========
22
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 March 31,
2002.................................................. $ 50,150 $ 50,150
========= =========
Consolidated Cash Flow, for the twelve months ended
March 31, 2002........................................ $ 173,100 $ 182,436
Less: Tower Cash Flow, for the twelve months ended
March 31, 2002........................................ (170,240) (170,240)
Plus: four times Tower Cash Flow, for the three months
ended March 31, 2002.................................. 200,600 200,600
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months
ended March 31, 2002.................................. $ 203,460 $ 212,796
========= =========
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
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 have adopted 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 application of these transition
provisions of SFAS 141 as of January 1, 2002 resulted in a reclassification of
other intangible assets with finite useful lives (the value of site rental
contracts from the acquisition of Crown Communication) to deferred financing
costs and other assets on our consolidated balance sheet. The net book value
of such reclassified intangible assets was approximately $14.5 million.
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. In addition, the nonamortization provisions of SFAS
142 were to be immediately applied for goodwill and other intangible assets
acquired in business combinations subsequent to June 30, 2001. The Company has
adopted the requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires
that transitional impairment tests be performed at its adoption, and provides
that resulting impairment
23
losses for goodwill and other intangible assets with indefinite useful lives
be reported as the effect of a change in accounting principle. The Company has
not yet completed its transitional impairment tests but, based on preliminary
results of those tests, does not currently believe that an impairment loss for
goodwill and other intangible assets will be recorded upon the adoption of
SFAS 142. The Company expects that its depreciation and amortization expense
will decrease by approximately $62,068,000 per year as a result of the
adoption of SFAS 142. If amortization of goodwill and other intangible assets
had not been recorded during the three months ended March 31, 2001, the
Company's net loss for that period would have been $52,314,000, or $0.34 per
share.
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. A fluctuation in market interest rates of one
percentage point in 2002 would impact our interest expense by approximately
$10.2 million. As of March 31, 2002, we have approximately $1,168.8 million of
floating rate indebtedness, of which approximately $150.0 million has been
effectively converted to fixed rate indebtedness through the use of interest
rate swap agreements.
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.
24
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Since 1999, CCUK has provided digital transmission services to ITVdigital
("ITV") through the CCUK-owned digital terrestrial television ("DTT") network
pursuant to a 12 year digital transmission contract. ITV provided a DTT
service on a subscription basis to approximately 1.2 million subscribers in
the U.K. On March 27, 2002, a U.K. court approved an application by ITV to be
placed into administration (a proceeding, similar to a Chapter 11 bankruptcy
proceeding in the United States, designed to protect the applicant from the
claims of its creditors while it reorganizes its business). In April 2002,
after unsuccessful efforts by the administrator to sell the ITV business as a
going concern, ITV announced plans to liquidate its assets. It is anticipated
that the liquidation will commence in the near future. With the ITV pending
liquidation and suspension of service, further on-going collections under the
ITV transmission contract are not expected. CCUK had gross revenues of
approximately $27.6 million annually under the ITV transmission contact. The
U.K. Independent Television Commission has indicated that is plans to re-issue
the licenses previously owned by ITV on an expedited basis. If current efforts
to re-market the CCUK network prove unsuccessful, CCUK expects EBITDA to be
impacted negatively by approximately $16 million in 2002 and approximately $23
million annually thereafter assuming no significant mitigation of costs. ITV
represented approximately 10% of the 2001 gross revenues of CCUK and
approximately 3% of the 2001 consolidated gross revenues of the Company.
The termination of the ITV transmission contract is a Termination Event (a
defined event of default) under the CCUK credit facility. We have entered into
discussions with the banks in order to obtain an amendment to the CCUK credit
facility such that the Termination Event would be cured. Based on these
preliminary discussions, we do not currently believe that we will be required
to prepay the outstanding borrowings under the CCUK credit facility as a
result of this event of default. However, there can be no assurance that such
an amendment can be obtained. As a result, we have reclassified all the
outstanding borrowings under the CCUK credit facility as current liabilities
on our consolidated balance sheet as of March 31, 2002. If we are unable to
obtain an amendment to the CCUK credit facility as discussed above, the
uncured Termination Event would result in an event of default under the trust
deed governing the CCUK bonds. As a result, we have also reclassified the
principal amount of the CCUK bonds as a current liability on our consolidated
balance sheet as of March 31, 2002.
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 January 11, 2002
with the SEC on January 11, 2002 furnishing under Item 9 the slides from a
presentation by John P. Kelly, Chief Executive Officer, and W. Benjamin
Moreland, Chief Financial Officer at the Salomon Smith Barney Entertainment,
Media and Telecommunications Conference on January 9, 2002.
The Registrant filed a Current Report on Form 8-K dated February 28, 2002
with the SEC on March 11, 2002 (i) reporting under Item 5 a non-recurring
restructuring charge and (ii) furnishing under Item 9 revised guidance through
2004 as disclosed in a press release dated February 28, 2002 setting forth the
Registrant's financial results for the fourth quarter and year-end 2001.
The Registrant filed a Current Report on Form 8-K dated May 1, 2002 with
the SEC on May 3, 2002 furnishing under Item 9 further details and a press
release dated May 1, 2002 regarding the potential impact on its U.K.
subsidiary, Crown Castle UK Limited, of liquidation plans of ITVdigital.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Crown Castle International Corp.
Date: May 13, 2002 /s/ W. Benjamin Moreland
By: _________________________________
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
Date: May 13, 2002 /s/ Wesley D. Cunningham
By: _________________________________
Wesley D. Cunningham
Senior Vice President, Chief
Accounting Officer
and Corporate Controller
(Principal Accounting Officer)
26