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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 June 30, 1999
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)
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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 August 1, 1999:
Common Stock - 139,993,196
Class A Common Stock - 11,340,000
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CROWN CASTLE INTERNATIONAL CORP.
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1998 and June 30, 1999 3
Consolidated Statement of Operations and Comprehensive Loss for the
three and six months ended June 30, 1998 and 1999 4
Consolidated Statement of Cash Flows for the six months ended
June 30, 1998 and 1999 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 27
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 28
Item 4. Submission of Matters to a Vote of Security Holders 28
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, June 30,
1998 1999
------------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 296,450 $ 705,924
Receivables:
Trade, net of allowance for doubtful accounts of $1,535 and $1,192 at
December 31, 1998 and June 30, 1999, respectively 32,130 28,655
Other 4,290 12,354
Inventories 6,599 12,591
Prepaid expenses and other current assets 2,647 7,951
---------- ----------
Total current assets 342,116 767,475
Property and equipment, net of accumulated depreciation of $22,780 and
$55,822 at December 31, 1998 and June 30, 1999, respectively 592,594 1,615,646
Goodwill and other intangible assets, net of accumulated amortization of
$20,419 and $36,498 at December 31, 1998 and June 30, 1999, respectively 569,740 608,800
Deferred financing costs and other assets, net of accumulated amortization of
$1,722 and $2,448 at December 31, 1998 and June 30, 1999, respectively 18,780 37,173
---------- ----------
$1,523,230 $3,029,094
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,020 $ 22,690
Accrued interest 15,677 6,554
Accrued compensation and related benefits 5,188 3,969
Deferred rental revenues and other accrued liabilities 26,002 52,626
---------- ----------
Total current liabilities 92,887 85,839
Long-term debt 429,710 1,194,681
Other liabilities 22,823 45,991
---------- ----------
Total liabilities 545,420 1,326,511
---------- ----------
Commitments and contingencies
Minority interests 39,185 52,100
Redeemable preferred stock, $.01 par value; 10,000,000 shares authorized:
12 3/4% Senior Exchangeable Preferred Stock; shares issued: December 31,
1998 - 200,000 and June 30, 1999 - 212,953 (stated at mandatory
redemption and aggregate liquidation value) 201,063 214,085
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized:
Common Stock; shares issued: December 31, 1998 - 83,123,873 and
June 30, 1999 - 130,396,618 831 1,304
Class A Common Stock; shares issued: 11,340,000 113 113
Additional paid-in capital 795,153 1,551,595
Cumulative foreign currency translation adjustment 1,690 (6,630)
Accumulated deficit (60,225) (109,984)
---------- ----------
Total stockholders' equity 737,562 1,436,398
---------- ----------
$1,523,230 $3,029,094
========== ==========
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 Six Months Ended
June 30, June 30,
---------------------- -----------------------------
1998 1999 1998 1999
--------- ---------- ---------- ----------------
Net revenues:
Site rental and broadcast transmission $ 5,387 $ 62,177 $ 10,448 $107,503
Network services and other 6,143 15,350 12,919 25,133
------- -------- -------- --------
11,530 77,527 23,367 132,636
------- -------- -------- --------
Operating expenses:
Costs of operations (exclusive of depreciation and
amortization):
Site rental and broadcast transmission 1,246 26,557 2,418 45,084
Network services and other 2,734 8,175 7,155 15,157
General and administrative 4,965 9,238 8,768 17,542
Corporate development 691 2,066 2,022 2,940
Restructuring charges -- -- -- 1,814
Non-cash compensation charges -- 504 -- 1,171
Depreciation and amortization 4,091 29,863 7,695 49,519
------- -------- -------- --------
13,727 76,403 28,058 133,227
------- -------- -------- --------
Operating income (loss) (2,197) 1,124 (4,691) (591)
Other income (expense):
Equity in earnings of unconsolidated affiliate 624 -- 525 --
Interest and other income (expense) 664 4,539 1,370 4,879
Interest expense and amortization of deferred financing costs (5,321) (26,556) (10,027) (37,842)
------- -------- -------- --------
Loss before income taxes, minority interests and cumulative
effect of change in accounting principle (6,230) (20,893) (12,823) (33,554)
Provision for income taxes (196) (70) (209) (197)
Minority interests -- 113 -- (572)
------- -------- -------- --------
Loss before cumulative effect of change in accounting
principle (6,426) (20,850) (13,032) (34,323)
Cumulative effect of change in accounting principle for costs
of start-up activities -- -- -- (2,414)
------- -------- -------- --------
Net loss (6,426) (20,850) (13,032) (36,737)
Dividends on preferred stock (2,077) (6,614) (4,132) (13,022)
------- -------- -------- --------
Net loss after deduction of dividends on preferred stock $(8,503) $(27,464) $(17,164) $(49,759)
======= ======== ======== ========
Net loss $(6,426) $(20,850) $(13,032) $(36,737)
Other comprehensive income:
Foreign currency translation adjustments 1,086 (3,577) 1,757 (8,320)
------- -------- -------- --------
Comprehensive loss $(5,340) $(24,427) $(11,275) $(45,057)
======= ======== ======== ========
Per common share - basic and diluted:
Loss before cumulative effect of change in accounting
principle $(0.78) $(0.22) $(1.57) $(0.43)
Cumulative effect of change in accounting principle -- -- -- (0.02)
------- -------- -------- --------
Net loss $ (0.78) $ (0.22) $ (1.57) $ (0.45)
======= ======== ======== ========
Common shares outstanding - basic and diluted (in thousands) 10,954 124,849 10,954 109,791
======= ======== ======== ========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
Six Months Ended
June 30,
-------------------------
1998 1999
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(13,032) $ (36,737)
Adjustments to reconcile net loss to net cash provided by (used for) operating
activities:
Depreciation and amortization 7,695 49,519
Amortization of deferred financing costs and discounts on long-term debt 8,538 13,979
Cumulative effect of change in accounting principle -- 2,414
Non-cash compensation charges -- 1,171
Minority interests -- 572
Equity in earnings of unconsolidated affiliate (525) --
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in deferred rental revenues and other liabilities 411 52,194
Decrease in accounts payable (1,449) (21,966)
Increase in inventories, prepaid expenses and other assets (2,145) (11,624)
Decrease in accrued interest -- (8,748)
Increase in receivables (1,465) (5,655)
-------- ----------
Net cash provided by (used for) operating activities (1,972) 35,119
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired -- (545,050)
Capital expenditures (52,752) (127,564)
Other -- 750
-------- ----------
Net cash used for investing activities (52,752) (671,864)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt -- 481,695
Proceeds from issuance of capital stock -- 477,095
Net borrowings under revolving credit agreements 52,550 104,558
Incurrence of financing costs (1,646) (15,661)
-------- ----------
Net cash provided by financing activities 50,904 1,047,687
-------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH -- (1,468)
-------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,820) 409,474
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 55,078 296,450
-------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 51,258 $ 705,924
======== ==========
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 $ -- $1,018,185
Issuance of long-term debt -- 180,000
Minority interests -- 14,330
Issuance of common stock -- 278,805
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 1,464 $ 32,076
Income taxes paid 249 172
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, 1998,
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 June 30, 1999, the
consolidated results of operations for the three and six months ended June 30,
1998 and 1999 and consolidated cash flows for the six months ended June 30, 1998
and 1999. Accounting measurements at interim dates inherently involve greater
reliance on estimates than at year end. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 requires that such deferred costs be charged to results of operations
upon its adoption. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted the requirements of SOP 98-5 as of
January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 resulted in a charge to results of operations for
$2,414,000 in the Company's financial statements for the three months ended
March 31, 1999.
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that
derivative instruments be recognized as either assets or liabilities in the
consolidated balance sheet based on their fair values. Changes in the fair
values of such derivative instruments will be recorded either in results of
operations or in other comprehensive income, depending on the intended use of
the derivative instrument. The initial application of SFAS 133 will be reported
as the effect of a change in accounting principle. SFAS 133, as amended, is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
The Company will adopt the requirements of SFAS 133 in its financial statements
for the three months ending March 31, 2001. The Company has not yet determined
the effect that the adoption of SFAS 133 will have on its consolidated financial
statements.
2. ACQUISITIONS
Agreement with Bell Atlantic Mobile ("BAM")
On December 8, 1998, the Company entered into an agreement with BAM to form a
joint venture ("Crown Atlantic") to own and operate a significant majority of
BAM's towers. Upon formation of Crown Atlantic on March 31, 1999, (i) the
Company contributed to Crown Atlantic $250,000,000 in cash and 15,597,783 shares
of its Common Stock in exchange for a 61.5% ownership interest in Crown
Atlantic; (ii) Crown Atlantic
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
borrowed $180,000,000 under a committed $250,000,000 revolving credit facility
(see Note 3); and (iii) BAM contributed to Crown Atlantic approximately 1,458
towers in exchange for a cash distribution of $380,000,000 from Crown Atlantic
and a 38.5% ownership interest in Crown Atlantic. Upon dissolution of Crown
Atlantic, BAM will receive (i) the shares of the Company's Common Stock
contributed to Crown Atlantic and (ii) a payment (either in cash or in shares of
the Company's Common Stock, at the Company's election) equal to approximately
15.6% of the fair market value of Crown Atlantic's other net assets; the Company
would then receive the remaining assets and liabilities of Crown Atlantic. The
Company has accounted for its investment in Crown Atlantic as an acquisition
using the purchase method, and will include Crown Atlantic's results of
operations and cash flows in the Company's consolidated financial statements for
periods subsequent to formation. The Company recognized goodwill of
approximately $59,631,000 in connection with this acquisition.
BellSouth Mobility Inc. and BellSouth Telecommunications Inc. ("BellSouth")
In March 1999, the Company entered into an agreement with BellSouth to
acquire the operating rights for approximately 1,850 of their towers. The
transaction is structured as a lease agreement and will be treated as a sale of
the towers for tax purposes. The Company will pay BellSouth total consideration
of $610,000,000, consisting of $430,000,000 in cash and $180,000,000 in shares
of its common stock. As of June 30, 1999, the Company has closed on 273 of the
towers and has paid $71,979,000 in cash and issued 1,340,508 shares of its
common stock. The Company is accounting for this transaction as a purchase of
tower assets. The transaction is expected to close over a period of up to eight
months beginning from the second quarter of 1999.
Powertel, Inc. ("Powertel")
In March 1999, the Company entered into an agreement with Powertel to
purchase approximately 650 of their towers and related assets. The total
purchase price for these towers will be $275,000,000 in cash. As of June 30,
1999, the Company has closed on 619 of the towers and has paid $261,885,000 in
cash. The Company is accounting for this transaction as an acquisition using
the purchase method.
3. LONG-TERM DEBT
Long-term debt consists of the following:
December 31, June 30,
1998 1999
------------ -----------
(In thousands of dollars)
Senior Credit Facility $ 5,500 $ 71,000
CTI Credit Facility 55,177 90,453
Crown Atlantic Credit Facility -- 180,000
10 5/8% Senior Discount Notes due 2007, net of discount 168,099 177,029
10 3/8% Senior Discount Notes due 2011, net of discount -- 305,433
9% Senior Notes due 2011 -- 180,000
9% Guaranteed Bonds due 2007 200,934 190,766
-------- ----------
$429,710 $1,194,681
======== ==========
CTI Credit Facility
In June 1999, the CTI Credit Facility was amended to (i) increase the
available borrowings to (Pounds)150,000,000 (approximately $236,475,000) and
(ii) extend the maturity date to June 2006. The amended facility comprises (i)
a seven year (Pounds)100,000,000 (approximately $157,650,000) revolving loan
facility which converts into a term loan facility on the third anniversary of
the amendment date and (ii) a seven year (Pounds)50,000,000 (approximately
$78,825,000) revolving loan facility. As of June 30, 1999, unused borrowing
availability under the CTI Credit
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Facility amounted to approximately (Pounds)90,000,000 (approximately
$141,885,000). Borrowings under the amended CTI Credit Facility bear interest at
a rate per annum equal to a Eurodollar interbank offered rate (LIBOR) plus 1.5%.
The interest rate margin may be reduced by up to 0.875% (non-cumulatively) based
on a financial test.
On the third anniversary of the amendment date, the amount drawn under the
(Pounds)100,000,000 revolving loan facility is converted into a term loan
facility and is amortized in equal semi-annual installments on June 30 and
December 31 of each year, with the final installment being due on the seventh
anniversary of the amendment date. The (Pounds)50,000,000 revolving loan
facility expires on the seventh anniversary of the amendment date.
Crown Atlantic Credit Facility
Crown Atlantic has a credit agreement with a bank (the "Crown Atlantic Credit
Facility") which consists of a $250,000,000 secured revolving line of credit.
Available borrowings under the Crown Atlantic Credit Facility are generally to
be used to construct new towers and to finance a portion of the purchase price
for towers and related assets of Crown Atlantic. The amount of available
borrowings is determined based on the current financial performance (as defined)
of Crown Atlantic's assets. In addition, up to $25,000,000 of borrowing
availability under the Crown Atlantic Credit Facility can be used for letters of
credit.
On March 31, 1999, Crown Atlantic borrowed $180,000,000 under the Crown
Atlantic Credit Facility to fund a portion of the cash payment to BAM (see Note
2). As of June 30, 1999, approximately $4,000,000 of borrowings was available
under the Crown Atlantic Credit Facility, all of which was available for letters
of credit. There were no letters of credit outstanding as of June 30, 1999.
The amount of available borrowings under the Crown Atlantic Credit Facility
will decrease by a stated amount at the end of each calendar quarter beginning
on September 30, 2001 until March 31, 2006, at which time any remaining
borrowings must be repaid. Under certain circumstances, Crown Atlantic may be
required to make principal prepayments under the Crown Atlantic Credit Facility
in an amount equal to 50% of excess cash flow (as defined), the net cash
proceeds from certain asset sales or the net cash proceeds from certain sales of
equity or debt securities.
The Crown Atlantic Credit Facility is secured by a pledge of the membership
interest in Crown Atlantic and a security interest in Crown Atlantic's tenant
leases. Borrowings under the Crown Atlantic Credit Facility bear interest at a
rate per annum, at Crown Atlantic's election, equal to the bank's prime rate
plus 1.25% or a Eurodollar interbank offered rate (LIBOR) plus 2.75%. The
interest rate margins may be reduced by up to 1.75% (non-cumulatively) based on
a financial test, determined quarterly. Interest on prime rate loans is due
quarterly, while interest on LIBOR loans is due at the end of the period (from
one to three months) for which such LIBOR rate is in effect. The Crown Atlantic
Credit Facility requires Crown Atlantic to maintain certain financial covenants
and places restrictions on Crown Atlantic's ability to, among other things,
incur debt and liens, pay dividends, make capital expenditures, dispose of
assets, undertake transactions with affiliates and make investments.
Interest Rate Swap Agreement
In April 1999, the Company entered into an interest rate swap agreement in
connection with amounts borrowed under the Crown Atlantic Credit Facility. This
interest rate swap agreement has an initial notional amount of $100,000,000,
decreasing on a quarterly basis beginning September 30, 2003 until the
termination of the agreement on March 31, 2006. The Company will pay a fixed
rate of 5.79% on the notional amount and received a floating rate based on
LIBOR. This agreement effectively changes the interest rate on a portion of the
borrowings under the Crown Atlantic Credit Facility from a floating rate to a
fixed rate of 5.79% plus the
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
applicable margin. The Company does not believe there is any significant
exposure to credit risk due to the creditworthiness of the counterparty. In the
event of nonperformance by the counterparty, the Company's loss would be limited
to any unfavorable interest rate differential.
10 3/8% Senior Discount Notes due 2011 (the "10 3/8% Discount Notes") and 9%
Senior Notes due 2011 (the "9% Notes")
On May 12, 1999, the Company issued (i) $500,000,000 aggregate principal
amount (at maturity) of its 10 3/8% Discount Notes for proceeds of $292,644,000
(net of original issue discount of $198,305,000 and after underwriting discounts
of $9,051,000) and (ii) $180,000,000 aggregate principal amount of its 9% Notes
for proceeds of $174,600,000 (after underwriting discounts of $5,400,000). The
Company used a portion of the proceeds from the sale of these securities to
repay $100,000,000 in outstanding borrowings, including accrued interest
thereon, under a term loan credit facility (see Note 4).
The 10 3/8% Discount Notes will not pay any interest until November 15, 2004,
at which time semi-annual interest payments will commence and become due on each
May 15 and November 15 thereafter. Semi-annual interest payments for the 9%
Notes are due on each May 15 and November 15, commencing on November 15, 1999.
The maturity date of the 10 3/8% Discount Notes and the 9% Notes is May 15,
2011.
The 10 3/8% Discount Notes and the 9% Notes are redeemable at the option of
the Company, in whole or in part, on or after May 15, 2004 at prices of 105.187%
and 104.5%, respectively, of the principal amount plus accrued interest. The
redemption prices are reduced annually until May 15, 2007, after which time the
10 3/8% Discount Notes and the 9% Notes are redeemable at par. Prior to May 15,
2002, the Company may redeem up to 35% of the aggregate principal amount of the
10 3/8% Discount Notes and the 9% Notes, at prices of 110.375% and 109%,
respectively, of the accreted value thereof, with the net cash proceeds from a
public offering of the Company's common stock.
The 10 3/8% Discount Notes and the 9% Notes are senior indebtedness of the
Company; however, they are unsecured and effectively subordinate to the
liabilities of the Company's subsidiaries, which include outstanding borrowings
under the Senior Credit Facility, the CTI Credit Facility, the Crown Atlantic
Credit Facility and the CTI Bonds. The indentures governing the 10 3/8%
Discount Notes and the 9% Notes place restrictions on the Company's ability to,
among other things, pay dividends and make capital distributions, make
investments, incur additional debt and liens, issue additional preferred stock,
dispose of assets and undertake transactions with affiliates.
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.
The Company has designated Crown Atlantic as an Unrestricted Subsidiary (see
Note 2). Summarized financial information for (i) the Company and its
Restricted Subsidiaries and (ii) the Company's Unrestricted Subsidiaries is as
follows:
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
June 30, 1999
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
Cash and cash equivalents $ 641,483 $ 64,441 $ -- $ 705,924
Other current assets 29,325 32,226 -- 61,551
Property and equipment, net 564,339 1,051,307 -- 1,615,646
Investments in Unrestricted Subsidiaries 989,506 -- (989,506) --
Goodwill and other intangible assets, net 139,157 469,643 -- 608,800
Other assets, net 32,777 4,396 -- 37,173
---------- ---------- --------- ----------
$2,396,587 $1,622,013 $(989,506) $3,029,094
========== ========== ========= ==========
Current liabilities $ 10,717 $ 75,122 $ -- $ 85,839
Long-term debt 733,462 461,219 -- 1,194,681
Other liabilities 1,925 44,066 -- 45,991
Minority interests -- 52,100 -- 52,100
Redeemable preferred stock 214,085 -- -- 214,085
Stockholders' equity 1,436,398 989,506 (989,506) 1,436,398
---------- ---------- --------- ----------
$2,396,587 $1,622,013 $(989,506) $3,029,094
========== ========== ========= ==========
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
--------------------------------------------- ------------------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------- ------------- ------------- ------------- ------------- -----------------
(In thousands of dollars)
Net revenues $ 17,793 $ 59,734 $ 77,527 $ 30,047 $102,589 $132,636
Costs of operations
(exclusive of depreciation
and amortization) 6,617 28,115 34,732 11,342 48,899 60,241
General and administrative 6,790 2,448 9,238 13,414 4,128 17,542
Corporate development 1,411 655 2,066 2,252 688 2,940
Restructuring charges -- -- -- 1,814 -- 1,814
Non-cash compensation charges 341 163 504 724 447 1,171
Depreciation and amortization 6,092 23,771 29,863 10,609 38,910 49,519
-------- -------- -------- -------- -------- --------
Operating income (loss) (3,458) 4,582 1,124 (10,108) 9,517 (591)
Interest and other income
(expense) 949 3,590 4,539 (1,379) 6,258 4,879
Interest expense and
amortization of deferred
financing costs (15,643) (10,913) (26,556) (21,390) (16,452) (37,842)
Provision for income taxes (70) -- (70) (197) -- (197)
Minority interests -- 113 113 -- (572) (572)
Cumulative effect of change
in accounting principle for
costs of start-up activities -- -- -- (2,414) -- (2,414)
-------- -------- -------- -------- -------- --------
Net loss $(18,222) $ (2,628) $(20,850) $(35,488) $ (1,249) $(36,737)
======== ======== ======== ======== ======== ========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (i) the indenture governing the
10 3/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (ii) the indentures governing the 10 3/8% Discount Notes and
the 9% Notes (the "1999 Securities"):
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended June 30, 1999 $ 5,553 $ 5,553
======== ========
Consolidated Cash Flow, for the twelve months ended June 30, 1999 $ 5,868 $ 10,723
Less: Tower Cash Flow, for the twelve months ended June 30, 1999 (17,079) (17,079)
Plus: four times Tower Cash Flow, for the three months ended June 30, 1999 22,212 22,212
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 1999 $ 11,001 $ 15,856
======== ========
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. STOCKHOLDERS' EQUITY
On May 12, 1999, the Company sold shares of its common stock and debt
securities in concurrent underwritten public offerings (collectively, the
"Offerings") (see Note 3). The Company sold 21,000,000 shares of its common
stock at a price of $17.50 per share and received proceeds of $352,800,000
(after underwriting discounts of $14,700,000). The Company had granted the
underwriters for the Offerings an over-allotment option to purchase an
additional 3,150,000 shares of the Company's common stock. On May 13, 1999, the
underwriters exercised this over-allotment option in full. As a result, the
Company received additional proceeds of $52,920,000 (after underwriting
discounts of $2,205,000). The proceeds from the Offerings will be used to pay
the remaining purchase price for the BellSouth and Powertel transactions, to
fund the initial interest payments on the 9% Notes and for general corporate
purposes.
On June 15, 1999, the Company sold shares of its common stock to a subsidiary
of TeleDiffusion de France International S.A. ("TDF") pursuant to TDF's
preemptive rights related to two recent acquisitions. The Company sold
5,395,539 shares at $12.63 per share and 125,066 shares at $13.00 per share. The
aggregate proceeds of approximately $69,772,000 will be used for general
corporate purposes.
5. RESTRUCTURING CHARGES
In connection with the formation of Crown Atlantic (see Note 2), the Company
completed a restructuring of its United States operations during the first
quarter of 1999. The objective of this restructuring was to transition from a
centralized organization to a regionally-based organization in the United
States. Coincident with the restructuring, the Company incurred one-time
charges of $1,814,000 related to severance payments for staff reductions, as
well as costs related to non-cancelable leases of excess office space.
6. PER SHARE INFORMATION
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
12
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 Six Months Ended
June 30, June 30,
---------------------- ------------------------------
1998 1999 1998 1999
--------- ---------- ---------- -----------------
(In thousands of dollars, except per share amounts)
Loss before cumulative effect of change in
accounting principle $(6,426) $(20,850) $(13,032) $(34,323)
Dividends on preferred stock (2,077) (6,614) (4,132) (13,022)
------- -------- -------- --------
Loss before cumulative effect of change in
accounting principle applicable to common stock
for basic and diluted computations (8,503) (27,464) (17,164) (47,345)
Cumulative effect of change in accounting principle -- -- -- (2,414)
------- -------- -------- --------
Net loss applicable to common stock for basic and
diluted computations $(8,503) $(27,464) $(17,164) $(49,759)
======= ======== ======== ========
Weighted-average number of common shares
outstanding during the period for basic and diluted
computations (in thousands) 10,954 124,849 10,954 109,791
======= ======== ======== ========
Per common share - basic and diluted:
Loss before cumulative effect of change in
accounting principle $ (0.78) $ (0.22) $ (1.57) $ (0.43)
Cumulative effect of change in accounting
principle -- -- -- (0.02)
------- -------- -------- --------
Net loss $ (0.78) $ (0.22) $ (1.57) $ (0.45)
======= ======== ======== ========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of June 30, 1999: (i) options
to purchase 18,772,187 shares of common stock at exercise prices ranging from
$-0- to $25.62 per share; (ii) warrants to purchase 1,194,990 shares of common
stock at an exercise price of $7.50 per share; and (iii) shares of Castle
Transmission Services (Holdings) Ltd ("CTI") stock which are convertible into
17,443,500 shares of common stock. The inclusion of such potential common shares
in the diluted per share computations would be antidilutive since the Company
incurred net losses for all periods presented.
7. CONTINGENCIES
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently determine
the ultimate costs that may be incurred, management believes the resolution of
such uncertainties and the incurrence of such costs should not have a material
adverse effect on the Company's consolidated financial position or results of
operations.
8. OPERATING SEGMENTS
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The Company defines
EBITDA as operating income (loss) plus depreciation and amortization, non-cash
compensation charges and restructuring charges. EBITDA is not intended as an
alternative measure of operating results or cash flow from operations (as
determined in accordance with generally accepted accounting principles), and the
Company's measure of EBITDA may not be comparable to similarly titled measures
of other
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
companies. There are no significant revenues resulting from transactions between
the Company's operating segments.
The Company is presenting the financial results of Crown Atlantic as a
reportable operating segment for periods subsequent to its formation (see Note
2). The financial results for the Company's operating segments are as follows:
Three Months Ended June 30, 1999
-----------------------------------------------------------------
Corporate
Crown Office Consolidated
CCI CTI Atlantic and Other Total
---------- ---------- ---------- ---------- -------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission $ 8,563 $ 41,727 $ 11,887 $ -- $ 62,177
Network services and other 8,718 5,621 499 512 15,350
-------- -------- -------- -------- ----------
17,281 47,348 12,386 512 77,527
-------- -------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization) 6,177 22,267 5,848 440 34,732
General and administrative 5,594 1,380 1,068 1,196 9,238
Corporate development -- 655 -- 1,411 2,066
-------- -------- -------- -------- ----------
EBITDA 5,510 23,046 5,470 (2,535) 31,491
Non-cash compensation charges -- 163 -- 341 504
Depreciation and amortization 5,798 15,982 7,789 294 29,863
-------- -------- -------- -------- ----------
Operating income (loss) (288) 6,901 (2,319) (3,170) 1,124
Interest and other income (expense) 75 429 3,161 874 4,539
Interest expense and amortization of
deferred financing costs (1,125) (6,988) (3,925) (14,518) (26,556)
Provision for income taxes (14) -- -- (56) (70)
Minority interests -- (911) 1,024 -- 113
-------- -------- -------- -------- ----------
Net loss $ (1,352) $ (569) $ (2,059) $(16,870) $ (20,850)
======== ======== ======== ======== ==========
Capital expenditures $ 26,047 $ 23,834 $ 1,118 $ 202 $ 51,201
======== ======== ======== ======== ==========
Total assets (at period end) $739,961 $918,086 $703,927 $667,120 $3,029,094
======== ======== ======== ======== ==========
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Six Months Ended June 30, 1999
--------------------------------------------------------------
Corporate
Crown Office Consolidated
CCI CTI Atlantic and Other Total
--------- --------- --------- ---------- -------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission $14,879 $ 80,737 $11,887 $ -- $107,503
Network services and other 13,885 9,466 499 1,283 25,133
------- -------- ------- -------- --------
28,764 90,203 12,386 1,283 132,636
------- -------- ------- -------- --------
Costs of operations (exclusive of
depreciation and amortization) 10,385 43,051 5,848 957 60,241
General and administrative 10,888 3,060 1,068 2,526 17,542
Corporate development -- 688 -- 2,252 2,940
------- -------- ------- -------- --------
EBITDA 7,491 43,404 5,470 (4,452) 51,913
Restructuring charges 1,814 -- -- -- 1,814
Non-cash compensation charges 67 447 -- 657 1,171
Depreciation and amortization 10,036 31,121 7,789 573 49,519
------- -------- ------- -------- --------
Operating income (loss) (4,426) 11,836 (2,319) (5,682) (591)
Interest and other income (expense) (458) 254 3,161 1,922 4,879
Interest expense and amortization of
deferred financing costs (1,810) (12,527) (3,925) (19,580) (37,842)
Provision for income taxes (45) -- -- (152) (197)
Minority interests -- (1,596) 1,024 -- (572)
Cumulative effect of change in
accounting principle for costs of
start-up activities (2,014) -- -- (400) (2,414)
------- -------- ------- -------- --------
Net loss $(8,753) $ (2,033) $(2,059) $(23,892) $(36,737)
======= ======== ======= ======== ========
Capital expenditures $43,218 $ 82,639 $ 1,118 $ 589 $127,564
======= ======== ======= ======== ========
15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
-------------------------------------- -------------------------------------
Corporate Corporate
Office Consolidated Office Consolidated
CCI and Other Total CCI and Other Total
--------- ---------- ------------- --------- ---------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission $ 5,387 $ -- $ 5,387 $10,448 $ -- $ 10,448
Network services and other 6,043 100 6,143 12,720 199 12,919
------- ------- ------- ------- ------- --------
11,430 100 11,530 23,168 199 23,367
------- ------- ------- ------- ------- --------
Costs of operations (exclusive
of depreciation and
amortization) 3,980 -- 3,980 9,573 -- 9,573
General and administrative 4,066 899 4,965 7,436 1,332 8,768
Corporate development -- 691 691 -- 2,022 2,022
------- ------- ------- ------- ------- --------
EBITDA 3,384 (1,490) 1,894 6,159 (3,155) 3,004
Depreciation and amortization 3,901 190 4,091 7,441 254 7,695
------- ------- ------- ------- ------- --------
Operating loss (517) (1,680) (2,197) (1,282) (3,409) (4,691)
Equity in earnings of
unconsolidated affiliate -- 624 624 -- 525 525
Interest and other income (4) 668 664 11 1,359 1,370
(expense)
Interest expense and
amortization of deferred
financing costs (1,067) (4,254) (5,321) (1,639) (8,388) (10,027)
Provision for income taxes (196) -- (196) (209) -- (209)
------- ------- ------- ------- ------- --------
Net loss $(1,784) $(4,642) $(6,426) $(3,119) $(9,913) $(13,032)
======= ======= ======= ======= ======= ========
Capital expenditures $27,533 $ 680 $28,213 $51,257 $ 1,495 $ 52,752
======= ======= ======= ======= ======= ========
9. SUBSEQUENT EVENTS
Acquisitions
On July 1, 1999 and August 3, 1999, the Company closed on an additional 256
of the BellSouth towers (see Note 2). In connection with these closing, the
Company paid $58,121,000 in cash and issued 1,257,032 shares of its common
stock.
In July 1999, the Company entered into an agreement with certain affiliates
of BellSouth ("BellSouth DCS") to acquire the operating rights for approximately
773 of their towers. The transaction is structured as a lease agreement and
will be treated as a sale of the towers for tax purposes. The Company will pay
BellSouth DCS total consideration of $316,930,000 in cash. On August 3, 1999,
the Company closed on 448 of these towers and paid $183,761,000 in cash. The
Company is accounting for this transaction as a purchase of tower assets.
Sales of Securities
On July 20, 1999, the Company sold shares of its common stock to a subsidiary
of TDF pursuant to TDF's preemptive rights related to the Offerings. The Company
sold 8,351,791 shares at $16.80 per share. The aggregate proceeds of
approximately $140,310,000 will be used for general corporate purposes.
On July 27, 1999, the Company sold debt securities in a private placement.
The Company sold (i) $260,000,000 aggregate principal amount (at maturity) of
its 11 1/4% Senior Discount Notes due 2011 (the "11 1/4% Discount Notes") for
proceeds of $147,501,000 (net of original issue discount of $109,489,000 and
after underwriting discounts of $3,010,000) and (ii) $125,000,000 aggregate
principle amount of its 9 1/2% Senior Notes due 2011 (the "9 1/2% Notes") for
proceeds of $122,500,000 (after underwriting discounts of $2,500,000). The
proceeds from the sale of these securities will be used to pay the purchase
price for the BellSouth DCS transaction, to fund the initial interest payments
on the 9 1/2% Notes and for general corporate purposes.
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the Company's
consolidated financial condition as of June 30, 1999 and its results of
operations for the three- and six-month periods ended June 30, 1998 and 1999.
The statements in this discussion regarding the industry outlook, the Company's
expectations regarding the future performance of its 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
capital expenditures decisions to be made in the future by wireless
communications carriers and broadcasters and the risks and uncertainties
described in "Risk Factors" in the Company's Registration Statement on Form S-1,
as amended (Reg. No. 333-74553) (the "Registration Statement") filed with the
Securities and Exchange Commission. This discussion should be read in
conjunction with the response to Part I, Item 1 of this report and the
consolidated financial statements of the Company, including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Form 10-K. Any capitalized terms used but not
defined in this Item have the same meaning given to them in the Form 10-K.
RESULTS OF OPERATIONS
In August 1998, the Company consummated a share exchange with the
shareholders of CTI, pursuant to which the Company's ownership of CTI increased
from approximately 34.3% to 80%. Results of operations of CTI are included in
the Company's consolidated financial statements for the periods subsequent to
the date the exchange was consummated. On March 31, 1999, the Company formed
Crown Atlantic, and in June 1999, the Company closed on the initial tower
purchases from the BellSouth and Powertel transactions. Results of operations
of Crown Atlantic are included in the Company's consolidated financial
statements subsequent to the date of formation, and results of operations from
the BellSouth and Powertel towers are included subsequent to the respective
purchase dates. As a result of these transactions, the Company's results of
operations for the three and six months ended June 30, 1998 are not comparable
to the results of operations for the three and six months ended June 30, 1999.
The following information is derived from the Company's Consolidated
Statements of Operations for the periods indicated.
17
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 1998 June 30, 1999 June 30, 1998 June 30, 1999
---------------------- ----------------------- ----------------------- ------------------------
Percent Percent Percent Percent
of of of of
Net Net Net Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
---------- --------- ----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
Net revenues:
Site rental and broadcast
transmission $ 5,387 46.7% $ 62,177 80.2% $ 10,448 44.7% $107,503 81.1%
Network services and other 6,143 53.3 15,350 19.8 12,919 55.3 25,133 18.9
------- ------ -------- ------ -------- ------ -------- ------
Total net revenues 11,530 100.0 77,527 100.0 23,367 100.0 132,636 100.0
------- ------ -------- ------ -------- ------ -------- ------
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission 1,246 23.1 26,557 42.7 2,418 23.1 45,084 41.9
Network services and other 2,734 44.5 8,175 53.3 7,155 55.4 15,157 60.3
------- -------- -------- --------
Total costs of operations 3,980 34.5 34,732 44.8 9,573 41.0 60,241 45.4
General and administrative 4,965 43.1 9,238 11.9 8,768 37.5 17,542 13.2
Corporate development 691 6.0 2,066 2.7 2,022 8.7 2,940 2.2
Restructuring charges -- -- -- -- -- -- 1,814 1.4
Non-cash compensation
charges -- -- 504 0.7 -- -- 1,171 0.9
Depreciation and
amortization 4,091 35.5 29,863 38.5 7,695 32.9 49,519 37.3
------- ------ -------- ------ -------- ------ -------- ------
Operating income (loss) (2,197) (19.1) 1,124 1.4 (4,691) (20.1) (591) (0.4)
Other income (expense):
Equity in earnings of
unconsolidated affiliate 624 5.4 -- -- 525 2.2 -- --
Interest and other income
(expense) 664 5.8 4,539 5.9 1,370 5.9 4,879 3.6
Interest expense and
amortization of deferred
financing costs (5,321) (46.1) (26,556) (34.3) (10,027) (42.9) (37,842) (28.5)
------- ------ -------- ------ -------- ------ -------- ------
Loss before income taxes,
minority interests and
cumulative effect of change
in accounting principle (6,230) (54.0) (20,893) (27.0) (12,823) (54.9) (33,554) (25.3)
Provision for income taxes (196) (1.7) (70) (0.1) (209) (0.9) (197) (0.2)
Minority interests -- -- 113 0.2 -- -- (572) (0.4)
------- ------ -------- ------ -------- ------ -------- ------
Loss before cumulative
effect of change in
accounting principle (6,426) (55.7) (20,850) (26.9) (13,032) (55.8) (34,323) (25.9)
Cumulative effect of change
in accounting principle for
costs of start-up activities -- -- -- -- -- -- (2,414) (1.8)
------- ------ -------- ------ -------- ------ -------- ------
Net loss $(6,426) (55.7)% $(20,850) (26.9)% $(13,032) (55.8)% $(36,737) (27.7)%
======= ====== ======== ====== ======== ====== ======== ======
Comparison of Three Months Ended June 30, 1999 and 1998
Consolidated revenues for the three months ended June 30, 1999 were $77.5
million, an increase of $66.0 million from the three months ended June 30, 1998.
This increase was primarily attributable to (i) a $56.8 million, or 1,054.2%,
increase in site rental and broadcast transmission revenues, of which $41.7
million was attributable to CTI, $11.9 million was attributable to Crown
Atlantic and $3.2 million was attributable to the Crown operations; (ii) a $2.7
million increase in network services and other revenues from the Crown
operations; and (iii) $5.6 million in network services and other revenues from
CTI.
Costs of operations for the three months ended June 30, 1999 were $34.7
million, an increase of $30.8 million from the three months ended June 30, 1998.
This increase was primarily attributable to (i) a $25.3 million increase in site
rental and broadcast transmission costs, of which $18.5 million was attributable
to CTI, $5.6 million was attributable to Crown Atlantic and $1.2 million was
attributable to the Crown operations; (ii) a $1.0 million increase in network
services costs related to the Crown operations; and (iii) $3.8 million in
network services costs from CTI. Costs of operations for site rental and
broadcast transmission as a percentage of site rental and broadcast transmission
revenues increased to 42.7% for the three months ended June 30, 1999 from 23.1%
for the three months ended June 30, 1998 because of higher costs attributable to
the CTI, Crown Atlantic and Crown operations. Costs of operations for network
services and other as a percentage of network services and other revenues
increased to 53.3% for the three months ended June 30, 1999 from 44.5% for the
three months ended June 30, 1998, primarily due to lower margins from the CTI
operations. Margins from the Crown network services operations increased for
the three months ended June 30, 1999 as compared to the three months ended June
30, 1998.
General and administrative expenses for the three months ended June 30, 1999
were $9.2 million, an increase of $4.3 million from the three months ended June
30, 1998. This increase was primarily attributable to (i) a $1.5 million
increase in expenses related to the Crown operations; (ii) a $0.3 million
increase in expenses
18
at the Company's corporate office; (iii) $1.4 million in expenses at CTI; and
(iv) $1.1 million in expenses at Crown Atlantic. General and administrative
expenses as a percentage of revenues decreased for the three months ended June
30, 1999 to 11.9% from 43.1% for the three months ended June 30, 1998 because of
lower overhead costs as a percentage of revenues for CTI, Crown Atlantic and
Crown.
Corporate development expenses for the three months ended June 30, 1999 were
$2.1 million, compared to $0.7 million for the three months ended June 30, 1998.
This increase was attributable to (i) a $0.7 million increase in expenses at the
Company's corporate office and (ii) $0.7 million in expenses at CTI.
For the three months ended June 30, 1999, the Company has recorded non-cash
compensation charges of $0.5 million related to the issuance of stock options to
certain employees and executives.
Depreciation and amortization for the three months ended June 30, 1999 was
$29.9 million, an increase of $25.8 million from the three months ended June 30,
1998. This increase was primarily attributable to (i) $16.0 million of
depreciation and amortization related to the property and equipment and goodwill
from CTI; (ii) $7.8 million of depreciation and amortization related to the
property and equipment and goodwill from Crown Atlantic; and (iii) a $1.9
million increase in depreciation and amortization related to the property and
equipment, goodwill and other intangible assets related to the Crown operations.
The equity in earnings of unconsolidated affiliate represents the Company's
34.3% share of CTI's net earnings (losses) for the periods prior to August 1998
(at which time the share exchange with CTI's shareholders was consummated). For
the three months ended June 30, 1998, after making appropriate adjustments to
CTI's results of operations for such period to conform to generally accepted
accounting principles of the United States, CTI had net revenues, operating
income, interest expense (including amortization of deferred financing costs)
and net income of $37.6 million, $6.7 million, $5.1 million and $1.9 million,
respectively. Included in CTI's results of operations for such period are non-
cash compensation charges for approximately $0.3 million related to the issuance
of stock options to certain members of CTI's management.
Interest and other income (expense) for the three months ended June 30, 1999
resulted primarily from (i) the investment of the remaining portion of the cash
contribution from the formation of Crown Atlantic in March 1999; (ii) the
investment of the excess proceeds from the sale of the Company's 12 3/4% Senior
Exchangeable Preferred Stock due 2010 (the "Exchangeable Preferred Stock") in
December 1998; and (iii) the investment of the excess proceeds from the sale of
the Company's common stock, 10 3/8% Discount Notes and 9% Notes in May 1999;
largely offset by a loss incurred upon the disposition of an investment in an
affiliate. Interest and other income (expense) for the three months ended June
30, 1998 resulted primarily from the investment of the excess proceeds from the
sale of the 10 5/8% Senior Discount Notes (the "10 5/8% Discount Notes").
Interest expense and amortization of deferred financing costs for the three
months ended June 30, 1999 was $26.6 million, an increase of $21.2 million, or
399.1%, from the three months ended June 30, 1998. This increase was primarily
attributable to interest on indebtedness at CTI and Crown Atlantic, amortization
of the original issue discount on the 10 3/8% Discount Notes, interest on the 9%
Notes and interest and fees on the term loans used to finance the escrow
deposits for the BellSouth and Powertel transactions.
Minority interests represent the minority shareholder's 20% interest in CTI's
operations and the minority partner's 38.5% interest in Crown Atlantic's
operations.
Comparison of Six Months Ended June 30, 1999 and 1998
Consolidated revenues for the six months ended June 30, 1999 were $132.6
million, an increase of $109.3 million from the six months ended June 30, 1998.
This increase was primarily attributable to (i) a $97.1 million, or 928.9%,
increase in site rental and broadcast transmission revenues, of which $80.7
million was attributable to CTI, $11.9 million was attributable to Crown
Atlantic and $4.5 million was attributable to the Crown
19
operations; (ii) a $1.2 million increase in network services and other revenues
from the Crown operations; and (iii) $9.5 million in network services and other
revenues from CTI.
Costs of operations for the six months ended June 30, 1999 were $60.2
million, an increase of $50.7 million from the six months ended June 30, 1998.
This increase was primarily attributable to (i) a $42.7 million increase in site
rental and broadcast transmission costs, of which $35.4 million was attributable
to CTI, $5.6 million was attributable to Crown Atlantic and $1.7 million was
attributable to the Crown operations; (ii) a $0.8 million decrease in network
services costs related to the Crown operations; and (iii) $7.7 million in
network services costs from CTI. Costs of operations for site rental and
broadcast transmission as a percentage of site rental and broadcast transmission
revenues increased to 41.9% for the six months ended June 30, 1999 from 23.1%
for the six months ended June 30, 1998 because of higher costs attributable to
the CTI, Crown Atlantic and Crown operations. Costs of operations for network
services and other as a percentage of network services and other revenues
increased to 60.3% for the six months ended June 30, 1999 from 55.4% for the six
months ended June 30, 1998, primarily due to lower margins from the CTI
operations. Margins from the Crown network services operations increased for
the six months ended June 30, 1999 as compared to the six months ended June 30,
1998.
General and administrative expenses for the six months ended June 30, 1999
were $17.5 million, an increase of $8.8 million from the six months ended June
30, 1998. This increase was primarily attributable to (i) a $3.4 million
increase in expenses related to the Crown operations; (ii) a $1.2 million
increase in expenses at the Company's corporate office; (iii) $3.1 million in
expenses at CTI; and (iv) $1.1 million in expenses at Crown Atlantic. General
and administrative expenses as a percentage of revenues decreased for the six
months ended June 30, 1999 to 13.2% from 37.5% for the six months ended June 30,
1998 because of lower overhead costs as a percentage of revenues for CTI and
Crown Atlantic, partially offset by an increase in costs at Crown.
Corporate development expenses for the six months ended June 30, 1999 were
$2.9 million, compared to $2.0 million for the six months ended June 30, 1998.
This increase was attributable to (i) a $0.2 million increase in expenses at the
Company's corporate office and (ii) $0.7 million in expenses at CTI. Corporate
development expenses for the six months ended June 30, 1998 include
discretionary bonuses related to the Company's performance totaling
approximately $0.8 million for certain members of the Company's management.
In connection with the formation of Crown Atlantic, the Company completed a
restructuring of its United States operations during the first quarter of 1999.
The objective of this restructuring was to transition from a centralized
organization to a regionally-based organization in the United States. For the
six months ended June 30, 1999, the Company has recorded one-time charges of
$1.8 million related to severance payments for staff reductions, as well as
costs related to non-cancelable leases of excess office space.
For the six months ended June 30, 1999, the Company has recorded non-cash
compensation charges of $1.2 million related to the issuance of stock options to
certain employees and executives.
Depreciation and amortization for the six months ended June 30, 1999 was
$49.5 million, an increase of $41.8 million from the six months ended June 30,
1998. This increase was primarily attributable to (i) $31.1 million of
depreciation and amortization related to the property and equipment and goodwill
from CTI; (ii) $7.8 million of depreciation and amortization related to the
property and equipment and goodwill from Crown Atlantic; and (iii) a $2.6
million increase in depreciation and amortization related to the property and
equipment, goodwill and other intangible assets related to the Crown operations.
The equity in earnings of unconsolidated affiliate represents the Company's
34.3% share of CTI's net earnings (losses) for the periods prior to August 1998
(at which time the share exchange with CTI's shareholders was consummated). For
the six months ended June 30, 1998, after making appropriate adjustments to
CTI's results of operations for such period to conform to generally accepted
accounting principles of the United States, CTI had net revenues, operating
income, interest expense (including amortization of deferred financing costs)
and net income of $71.8 million, $11.2 million, $10.3 million and $1.5 million,
respectively.
20
Included in CTI's results of operations for such period are non-cash
compensation charges for approximately $3.2 million related to the issuance of
stock options to certain members of CTI's management.
Interest and other income (expense) for the six months ended June 30, 1999
resulted primarily from (i) the investment of the net proceeds from the
Company's initial public offering of common stock (the "IPO") in August 1998;
(ii) the investment of the excess proceeds from the sale of the Exchangeable
Preferred Stock in December 1998; and (iii) the investment of the excess
proceeds from the sale of the Company's common stock, 10 3/8% Discount Notes and
9% Notes in May 1999; largely offset by costs incurred in connection with
unsuccessful acquisition attempts and a loss incurred upon the disposition of an
investment in an affiliate. Interest and other income (expense) for the six
months ended June 30, 1998 resulted primarily from the investment of the excess
proceeds from the sale of the 10 5/8% Discount Notes.
Interest expense and amortization of deferred financing costs for the six
months ended June 30, 1999 was $37.8 million, an increase of $27.8 million, or
277.4%, from the six months ended June 30, 1998. This increase was primarily
attributable to interest on indebtedness at CTI and Crown Atlantic, amortization
of the original issue discount on the 10 3/8% Discount Notes, interest on the 9%
Notes and interest and fees on the term loans used to finance the escrow
deposits for the BellSouth and Powertel transactions.
Minority interests represent the minority shareholder's 20% interest in CTI's
operations and the minority partner's 38.5% interest in Crown Atlantic's
operations.
The cumulative effect of the change in accounting principle for costs of
start-up activities represents the charge recorded by the Company upon the
adoption of SOP 98-5 on January 1, 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had consolidated cash and cash equivalents
of $705.9 million (including $11.7 million at CTI and $52.8 million at Crown
Atlantic), consolidated long-term debt of $1,194.7 million, consolidated
redeemable preferred stock of $214.1 million and consolidated stockholders'
equity of $1,436.4 million.
The Company's business strategy contemplates substantial capital expenditures
(i) in connection with the expansion of its tower portfolios by partnering with
wireless carriers to assume ownership or control of their existing towers, by
pursuing build-to-suit opportunities and by pursuing other tower acquisition
opportunities and (ii) to acquire existing transmission networks globally as
opportunities arise. Since its inception, the Company has generally funded its
activities (other than acquisitions and investments) through excess proceeds
from contributions of equity capital. The Company has financed acquisitions and
investments with the proceeds from equity contributions, borrowings under the
Senior Credit Facility, issuances of debt securities and the issuance of
promissory notes to sellers. Since its inception, CTI has generally funded its
activities (other than the acquisition of the BBC Home Service Transmission
Business) through cash provided by operations and borrowings under the CTI
Credit Facility. CTI financed the acquisition of the BBC Home Service
Transmission Business with the proceeds from equity contributions and the
issuance of the CTI Bonds.
For the six months ended June 30, 1998 and 1999, the Company's net cash
provided by (used for) operating activities was ($2.0 million) and $35.1
million, respectively. For the six months ended June 30, 1998 and 1999, the
Company's net cash provided by financing activities was $50.9 million and
$1,047.7 million, respectively. The Company's primary financing-related
activities in the first half of 1999 were borrowings under revolving credit
agreements amounting to $104.6 million and the consummation of the Offerings.
On May 12, 1999, the Company consummated the Offerings. The Company sold (i)
21,000,000 shares of its common stock at a price of $17.50 per share and
received proceeds of $352.8 million (after underwriting discounts of $14.7
million); (ii) $500.0 million aggregate principal amount (at maturity) of its
10 3/8% Discount Notes for proceeds of $292.6 million (net of original issue
discount of $198.3 million and after underwriting
21
discounts of $9.1 million); and (iii) $180.0 million aggregate principle amount
of its 9% Notes for proceeds of $174.6 million (after underwriting discounts of
$5.4 million). The Company had granted the underwriters for the Offerings an
over-allotment option to purchase an additional 3,150,000 shares of the
Company's common stock. On May 13, 1999, the underwriters exercised this over-
allotment option in full. As a result, the Company received additional proceeds
of $52.9 million (after underwriting discounts of $2.2 million). A portion of
the proceeds from the Offerings was used to repay amounts drawn under the term
loans in connection with the BellSouth and Powertel transactions. The remaining
proceeds from the Offerings will be used to pay the remaining purchase price for
such transactions, to fund the initial interest payments on the 9% Notes and for
general corporate purposes.
On June 15, 1999, the Company sold shares of its common stock to a subsidiary
of TDF pursuant to TDF's preemptive rights related to two recent acquisitions.
The Company sold 5,395,539 shares at $12.63 per share and 125,066 shares at
$13.00 per share. The aggregate proceeds of approximately $69.8 million will be
used for general corporate purposes. On July 20, 1999, the Company sold shares
of its common stock to a subsidiary of TDF pursuant to TDF's preemptive rights
related to the Offerings. The Company sold 8,351,791 shares at $16.80 per share.
The aggregate proceeds of approximately $140.3 million will be used for general
corporate purposes.
On July 27, 1999, the Company sold debt securities in a private placement.
The Company sold (i) $260.0 million aggregate principal amount (at maturity) of
its 11 1/4% Discount Notes for proceeds of $147.5 million (net of original issue
discount of $109.5 million and after underwriting discounts of $3.0 million) and
(ii) $125.0 million aggregate principle amount of its 9 1/2% Notes for proceeds
of $122.5 million (after underwriting discounts of $2.5 million). The proceeds
from the sale of these securities will be used to pay the purchase price for the
BellSouth DCS transaction, to fund the initial interest payments on the 9 1/2%
Notes and for general corporate purposes.
Capital expenditures were $127.6 million for the six months ended June 30,
1999, of which $0.6 million were for CCIC, $43.2 million were for Crown, $1.1
million were for Crown Atlantic and $82.7 million were for CTI. The Company
anticipates that it will build, through the end of 1999, between 900 and 1,200
towers at an aggregate cost of between $170.0 million and $220.0 million. The
Company also expects that the capital expenditure requirements related to the
roll-out of digital broadcast transmission in the United Kingdom will be
approximately (Pounds)40.0 million ($63.1 million).
In addition to capital expenditures in connection with build-to-suits, the
Company expects to apply a significant amount of capital to finance the
remaining cash portion of the consideration being paid in connection with the
recent transactions.
In connection with Crown Atlantic, the Company issued approximately 15.6
million shares of its common stock and contributed $250.0 million in cash to
Crown Atlantic. Crown Atlantic borrowed approximately $180.0 million under the
Crown Atlantic Credit Facility, following which Crown Atlantic made a $380.0
million cash distribution to BAM.
In connection with the BellSouth transaction, through August 3, 1999, the
Company has issued approximately 2.6 million shares of its common stock and paid
BellSouth $130.1 million in cash. The Company expects to (i) issue an
additional 6.5 million shares of its common stock and (ii) use a portion of the
net proceeds from the Offerings to finance the remaining $299.9 million cash
purchase price for this transaction.
In connection with the Powertel acquisition, the Company paid Powertel $261.5
million in cash on June 1, 1999. The Company expects to use a portion of the
net proceeds from the Offerings to finance the remaining $13.5 million cash
purchase price for this transaction.
In connection with the BellSouth DCS transaction, the Company paid BellSouth
DCS $183.8 million in cash on August 3, 1999. The Company expects to use a
portion of the net proceeds from the sale of the 11 1/4% Discount Notes and the
9 1/2% Notes to finance the remaining $133.2 million cash purchase price for
this transaction.
The Company expects that the completion of the recent transactions and the
execution of its new tower build, or build-to-suit program, will have a material
impact on its liquidity. The Company expects 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,
the Company believes that as new towers become operational and tenants are
added, they should result in a long-term increase in liquidity.
22
To fund the execution of the Company's business strategy, including the
recent transactions described above and the construction of new towers that the
Company has agreed to build, the Company and its subsidiaries expect to use the
net proceeds from the Offerings, the net proceeds from the sale of the 11 1/4%
Discount Notes and the 9 1/2% Notes, the borrowings available under the Senior
Credit Facility, the borrowings available under the CTI Credit Facility, the
borrowings available under the Crown Atlantic Credit Facility and the remaining
net proceeds from the sale in 1997 of the 10 5/8% Discount Notes. The Company
will have additional cash needs to fund its operations in the future. The
Company may also have additional cash needs in the near-term if additional tower
acquisitions or build-to-suit opportunities arise. Some of the opportunities
that the Company is currently pursuing could require significant additional
capital. In the event the Company does not otherwise have cash available, or
borrowings under its credit facilities have otherwise been utilized, when cash
needs arise, the Company would be forced to seek additional debt or equity
financing or to forego the opportunity. In the event the Company determines 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 the Company's existing indebtedness.
As of August 1, 1999, (i) the Company's subsidiaries had approximately $4.0
million of unused borrowing availability under the Senior Credit Facility; (ii)
CTI had unused borrowing availability under the CTI Credit Facility of
approximately (Pounds)90.0 million ($141.9 million); and (iii) Crown Atlantic
had approximately $4.0 million of unused borrowing availability under the Crown
Atlantic Credit Facility. The Company's various credit facilities require its
subsidiaries to maintain certain financial covenants and place restrictions on
the ability of the Company's 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 the Company.
If the Company is unable to refinance its subsidiary debt or renegotiate the
terms of such debt, it may not be able to meet its debt service requirements,
including interest payments on the notes, in the future. The 9% Notes and the
9 1/2% Notes will require annual cash interest payments of approximately $16.2
million and $11.9 million, respectively. Prior to November 15, 2002, May 15,
2004 and August 1, 2004, the interest expense on the 10 3/8% Discount Notes, the
10 3/8% Discount Notes and the 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, the
Company does not expect to pay cash dividends on the Exchangeable Preferred
Stock or, if issued, cash interest on the exchange debentures. Thereafter,
assuming all dividends or interest have been paid-in-kind, the 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 CTI Bonds are (Pounds)11.25 million ($17.7 million). In
addition, the Senior Credit Facility, the CTI Credit Facility and the Crown
Atlantic Credit Facility will require periodic interest payments on amounts
borrowed thereunder.
As a holding company, the Company 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 5/8%
Discount Notes and the 11 1/4% Discount Notes. As described above, the terms of
the indebtedness of the Company's subsidiaries significantly limit such
subsidiaries' ability to distribute cash to the Company. As a result, the
Company 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 the Company
does not retain sufficient funds from the offerings or any future financing, it
may not be able to make its interest payments on the cash-pay notes.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, its debt obligations, and its ability to refinance any such debt
obligations, will depend on its future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond its control. The Company anticipates that it
may need to refinance all or a portion of its indebtedness (including the
10 5/8% Discount Notes and the CTI Bonds) on or prior to its scheduled maturity.
23
There can be no assurance that the Company will be able to effect any required
refinancings of its indebtedness on commercially reasonable terms or at all.
REPORTING REQUIREMENTS UNDER THE INDENTURES GOVERNING THE COMPANY'S DEBT
SECURITIES (THE "INDENTURES") AND THE CERTIFICATE OF DESIGNATIONS GOVERNING THE
COMPANY'S 12 3/4% SENIOR EXCHANGEABLE PREFERRED STOCK (THE "CERTIFICATE")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
The Company has designated Crown Atlantic as an Unrestricted Subsidiary.
Summarized financial information for (i) the Company and its Restricted
Subsidiaries and (ii) the Company's Unrestricted Subsidiaries is as follows:
June 30, 1999
-----------------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ -------------- ------------
(In thousands of dollars)
Cash and cash equivalents $ 641,483 $ 64,441 $ -- $ 705,924
Other current assets 29,325 32,226 -- 61,551
Property and equipment, net 564,339 1,051,307 -- 1,615,646
Investments in Unrestricted Subsidiaries 989,506 -- (989,506) --
Goodwill and other intangible assets, net 139,157 469,643 -- 608,800
Other assets, net 32,777 4,396 -- 37,173
---------- ---------- --------- ----------
$2,396,587 $1,622,013 $(989,506) $3,029,094
========== ========== ========= ==========
Current liabilities $ 10,717 $ 75,122 $ -- $ 85,839
Long-term debt 733,462 461,219 -- 1,194,681
Other liabilities 1,925 44,066 -- 45,991
Minority interests -- 52,100 -- 52,100
Redeemable preferred stock 214,085 -- -- 214,085
Stockholders' equity 1,436,398 989,506 (989,506) 1,436,398
---------- ---------- --------- ----------
$2,396,587 $1,622,013 $(989,506) $3,029,094
========== ========== ========= ==========
24
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
--------------------------------------------- ----------------------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------- ------------- ------------- ------------- ------------- -------------------
(In thousands of dollars)
Net revenues $ 17,793 $ 59,734 $ 77,527 $ 30,047 $102,589 $132,636
Costs of operations
(exclusive of depreciation
and amortization) 6,617 28,115 34,732 11,342 48,899 60,241
General and administrative 6,790 2,448 9,238 13,414 4,128 17,542
Corporate development 1,411 655 2,066 2,252 688 2,940
Restructuring charges -- -- -- 1,814 -- 1,814
Non-cash compensation charges 341 163 504 724 447 1,171
Depreciation and amortization 6,092 23,771 29,863 10,609 38,910 49,519
-------- -------- -------- -------- -------- --------
Operating income (loss) (3,458) 4,582 1,124 (10,108) 9,517 (591)
Interest and other income
(expense) 949 3,590 4,539 (1,379) 6,258 4,879
Interest expense and
amortization of deferred
financing costs (15,643) (10,913) (26,556) (21,390) (16,452) (37,842)
Provision for income taxes (70) -- (70) (197) -- (197)
Minority interests -- 113 113 -- (572) (572)
Cumulative effect of change
in accounting principle for
costs of start-up activities -- -- -- (2,414) -- (2,414)
-------- -------- -------- -------- -------- --------
Net loss $(18,222) $ (2,628) $(20,850) $(35,488) $ (1,249) $(36,737)
======== ======== ======== ======== ======== ========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (i) the indenture governing the
10 5/8% Senior Discount Notes and the Certificate (the "1997 and 1998
Securities") and (ii) the indentures governing the 10 3/8% Discount Notes and
the 9% Notes (the "1999 Securities"):
1997 and 1998 1999
Securities Securities
-------------- -----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended June 30, 1999 $ 5,553 $ 5,553
======== ========
Consolidated Cash Flow, for the twelve months ended June 30, 1999 $ 5,868 $ 10,723
Less: Tower Cash Flow, for the twelve months ended June 30, 1999 (17,079) (17,079)
Plus: four times Tower Cash Flow, for the three months ended June 30, 1999 22,212 22,212
-------- --------
Adjusted Consolidated Cash Flow, for the twelve months ended June 30, 1999 $ 11,001 $ 15,856
======== ========
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and
25
new geographic markets, and SOP 98-5 requires that such deferred costs be
charged to results of operations upon its adoption. SOP 98-5 is effective for
fiscal years beginning after December 15, 1998. The Company has adopted the
requirements of SOP 98-5 as of January 1, 1999. The cumulative effect of the
change in accounting principle for the adoption of SOP 98-5 resulted in a charge
to results of operations for $2,414,000 in the Company's financial statements
for the three months ended March 31, 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133").
SFAS 133 requires that derivative instruments be recognized as either assets or
liabilities in the consolidated balance sheet based on their fair values.
Changes in the fair values of such derivative instruments will be recorded
either in results of operations or in other comprehensive income, depending on
the intended use of the derivative instrument. The initial application of SFAS
133 will be reported as the effect of a change in accounting principle. SFAS
133, as amended, is effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company will adopt the requirements of SFAS 133 in its
financial statements for the three months ending March 31, 2001. The Company
has not yet determined the effect that the adoption of SFAS 133 will have on its
consolidated financial statements.
YEAR 2000 COMPLIANCE
The year 2000 problem is the result of computer programs having been written
using two digits (rather than four) to define the applicable year. Any of our
computer programs that have date-sensitive software may recognize a date using
"00" as 1900 rather than the year 2000, or may not recognize the date at all.
This could result in a system failure or miscalculations causing disruption of
operations including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
In 1997 we established a year 2000 project to ensure that the issue received
appropriate priority and that necessary resources were made available. This
project includes the replacement of our worldwide business computer systems with
systems that use programs primarily from J.D. Edwards, Inc. The new systems are
expected to make approximately 90% of our business computer systems year 2000
compliant and are in production today. Remaining business software programs,
including those supplied by vendors, will be made year 2000 compliant through
the year 2000 project or they will be retired. None of our other information
technology projects has been delayed due to the implementation of the year 2000
project.
Our year 2000 project is divided into the following phases: (1) inventorying
year 2000 items; (2) assigning priorities to identified items; (3) assessing the
year 2000 compliance of items determined to be material to us; (4) repairing or
replacing material items that are determined not to be year 2000 compliant; (5)
testing material items; and (6) designing and implementing contingency and
business continuation plans for each organization and company location. We have
completed the inventory, priority assessment and compliance assessment phases.
We are now continuing with the testing phase of the year 2000 project. All
critical broadcast equipment and non-information technology related equipment
has been tested and is either year 2000 compliant or has been designated as year
2000 ready. A year 2000 ready designation implies the equipment or system will
function without adverse effects beyond year 2000 but may not be aware of the
century. All critical information technology systems have been designated year
2000 compliant or are scheduled to be retired or remediated by September 1999.
The testing phase is ongoing as hardware or system software is remediated,
upgraded or replaced. Testing as well as remediation is scheduled for
completion in September 1999. The final phase of our year 2000 project,
contingency planning, will be completed and tested to the extent possible by
September 1999.
We have expended approximately $7.5 million on the year 2000 project through
June 30, 1999, of which approximately $6.8 million related to the implementation
of the J.D. Edwards Systems and related hardware. Funds for the year 2000
project are provided from a separate budget of approximately $0.4 million for
all remaining items.
26
The failure to correct a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the year 2000 problem, resulting in part from the uncertainty of the
year 2000 readiness of third-party suppliers and customers, we are unable to
determine at this time whether the consequences of year 2000 failures will have
a material impact on our results of operations, liquidity or financial
condition. The year 2000 project is expected to significantly reduce our level
of uncertainty about the year 2000 problem and, in particular, about the year
2000 compliance and readiness of our material business partners. We believe
that, with the implementation of new business systems and completion of the
project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, as a result of its international operating, investing and
financing activities, is exposed to market risks, which include changes in
foreign currency exchange rates and interest rates which may adversely affect
its results of operations and financial position. In seeking to minimize the
risks and/or costs associated with such activities, the Company manages exposure
to changes in interest rates and foreign currency exchange rates.
Certain financial instruments used to obtain capital are subject to market
risks from fluctuations in market rates. The majority of our financial
instruments, however, are long-term fixed interest rate notes and debentures.
Therefore, fluctuations in market interest rates of 1% in 1999 would not have a
material effect on the Company's consolidated financial results.
The majority of our foreign currency transactions are denominated in the
British pound sterling, which is the functional currency of CTI. As these
contracts are denominated and settled in the functional currency, risks
associated with currency fluctuations are minimized to foreign currency
translation adjustments. The Company does not currently hedge against foreign
currency translation risks and believes that foreign currency exchange risk is
not significant to its operations.
27
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 31, 1999, the Company contributed via its wholly owned subsidiary,
CCA Investment Corp. ("CCA"), 15,597,783 shares of common stock of the Company
along with $250.0 million in cash to a joint venture ("Crown Atlantic") between
CCA and Cellco Partnership, a Delaware general partnership doing business as
Bell Atlantic Mobile ("BAM"), which owns and operates the wireless communication
towers contributed by BAM to Crown Atlantic. The common stock contributed by
CCA to Crown Atlantic was valued at $197.0 million for purposes of structuring
the transaction. CCA has approximately a 61.5% membership interest in Crown
Atlantic and BAM has approximately a 38.5% membership interest in Crown Atlantic
along with a .001% interest in Crown Atlantic's operating subsidiary. BAM
contributed 1,322 towers along with related assets and liabilities to Crown
Atlantic plus the ecomomic benefit of 136 towers and was distributed $380.0
million in cash. BAM has entered into a global lease for space on the towers
contributed to Crown Atlantic. Crown Atlantic has also entered into a build-to
suit agreement with BAM as to 500 towers for the BAM wireless communication
business and has a right of first refusal on the Company's next 300 build-to-
suit tower opportunities not affiliated with BAM within the region of the
contributed towers. The stock was issued and contributed in an exempt
transaction pursuant to Section 4(2) of the Securities Act of 1933, as amended
(the "Act").
On June 15, 1999, the Company issued 5,520,605 shares of common stock to
Digital Future Investments B.V. ("DFI"), a subsidiary of TeleDiffusion de France
International S.A. ("TDF"), pursuant to preemptive rights contained in the
Governance Agreement between the Company, TDF and DFI. DFI acquired 5,395,539
shares at $12.63 per share pursuant to its preemptive right relating to the
Company's joint venture with BAM which closed on March 31, 1999. The additional
125,066 shares were issued to DFI at $13.00 per share pursuant to its preemptive
right relating to the acquisition of Millennium Communications Limited by CTI in
October 1998. The shares were issued in an exempt transaction pursuant to
Section 4(2) of the Act.
On July 20, 1999, the Company issued 8,351,791 shares of common stock to DFI
pursuant to its preemptive rights relating to the Company's public offering of
common stock in May 1999. The shares were acquired at a price of $16.80. The
shares were issued in an exempt transaction pursuant to Section 4(2) of the Act.
The Company has also issued 2,597,540 shares of common stock to
TeleAggregation Group Inc. ("BellSouth"), an affiliate of BellSouth Corporation,
pursuant to four closings relating to the Agreement to Sublease ("Agreement of
Sublease") dated June 1, 1999 among BellSouth Mobility Inc., BellSouth
Telecommunications, Inc., the transferring entities named therein, the Company
and Crown Castle South Inc. (a wholly owned subsidiary of the Company). The
transactions pursuant to the Agreement of Sublease will involve a series of
closings with approximately 30% of the consideration being Company common stock.
The Company contemplates that up to 9.1 million shares of Company common stock
will be issued to BellSouth pursuant to the Agreement of Sublease. BellSouth was
issued 1,104,814 shares on June 1, 1999, 235,694 shares on June 16, 1999,
1,163,737 shares on July 1, 1999 and 93,295 shares on August 3, 1999. The shares
were issued in an exempt transaction pursuant to Section 4(2) of the Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the stockholders of the Company was held on May 25,
1999, at which meeting the stockholders voted to re-elect its Class I Directors,
ratified the appointment of KPMG LLP as independent auditors for 1999, and
increased the number of authorized shares pursuant to the 1995 Stock Option Plan
as Amended (increasing from 18,000,000 to 28,000,000). The voting results for
each is listed below.
28
RE-ELECTION OF CLASS I DIRECTORS
Carl Ferenbach - 73,131,826 votes for and 129,575 votes withheld.
Jeffrey H. Schutz - 69,070,689 votes for and 4,190,712 votes withheld.
Robert F. McKenzie - 73,131,871 votes for and 129,530 votes withheld.
Note: Class A Common stockholders are not authorized to vote on Class I
Directors.
RATIFICATION OF APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS FOR 1999
84,556,399 votes for, 3,590 votes against and 41,412 votes abstaining.
INCREASE THE NUMBER OF AUTHORIZED SHARES PURSUANT TO 1995 STOCK OPTION PLAN
AS AMENDED (INCREASING FROM 18,000,000 TO 28,000,000)
75,783,034 votes for, 6,896,262 votes against and 49,712 votes abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
4.1 Indenture dated as of August 3, 1999 between Crown Castle
International Corp., as Issuer of 9 1/2% Senior Notes due 2011, and
United States Trust Company of New York, as Trustee (including
exhibits)
4.2 Indenture dated as of August 3, 1999 between Crown Castle
International Corp., as Issuer of 11 1/4% Senior Discount Notes due
2011, and United States Trust Company of New York, as Trustee
(including exhibits)
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K:
The Registrant filed a Current Report on Form 8-K dated June 9, 1999 and
filed with the Securities and Exchange Commission (the "SEC") on June 9, 1999
reporting (i) under Item 2 thereof the acquisition of towers from Powertel;
(ii) under Item 5 thereof the first closing under the BellSouth transaction;
and (iii) under Item 7 thereof that certain financial statements for Powertel
and certain pro forma financial statements for the Company would be filed
separately when available. The Registrant filed a Current Report on Form 8-K/A
dated June 9, 1999 and filed with the SEC on July 23, 1999 reporting under Item
7 thereof certain financial statements for Powertel and certain pro forma
financial statements for the Company.
The Registrant filed a Current Report on Form 8-K dated July 12, 1999 and
filed with the SEC on July 13, 1999 reporting under Item 5 thereof the
execution of a letter agreement with BellSouth DCS for the Sublease of its
towers.
The Registrant filed a Current Report on Form 8-K dated July 22, 1999 and
filed with the SEC on July 22, 1999 reporting under Item 5 thereof the exercise
of preemptive rights to purchase shares of the Company's common stock by
TeleDiffusion de France International S.A.
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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: August 12, 1999 By: /s/ CHARLES C. GREEN, III
--------------------------------------------
Charles C. Green, III
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: August 12, 1999 By: /s/ WESLEY D. CUNNINGHAM
--------------------------------------------
Wesley D. Cunningham
Senior Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
30