================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q/A-1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
Commission File Number 000-24737
-----------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation or
organization)
510 Bering Drive 77057-1457
Suite 500 (Zip Code)
Houston, Texas
(Address of principal
executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
-----------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at May 1, 2002: 220,388,579
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CROWN CASTLE INTERNATIONAL CORP.
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 2001 and March 31, 2002............................ 3
Consolidated Statement of Operations and Comprehensive Loss for the three months ended
March 31, 2001 and 2002....................................................................... 4
Consolidated Statement of Cash Flows for the three months ended March 31, 2001 and 2002....... 5
Condensed Notes to Consolidated Financial Statements.......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 17
Signatures........................................................................................ 27
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, March 31,
2001 2002
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 804,602 $ 780,018
Receivables:
Trade, net of allowance for doubtful accounts of $24,785 and $21,878 at
December 31, 2001 and March 31, 2002, respectively........................ 188,496 186,311
Other....................................................................... 2,364 7,920
Short-term investments.......................................................... 72,963 72,463
Inventories..................................................................... 102,771 105,387
Prepaid expenses and other current assets....................................... 44,865 50,491
---------- -----------
Total current assets..................................................... 1,216,061 1,202,590
Property and equipment, net of accumulated depreciation of $566,837 and $635,607
at December 31, 2001 and March 31, 2002, respectively............................ 4,844,912 4,811,688
Investments........................................................................ 128,500 91,500
Goodwill, net of accumulated amortization of $152,451 at December 31, 2001......... 1,036,914 1,035,498
Deferred financing costs and other assets, net of accumulated amortization of
$32,859 and $35,594 at December 31, 2001 and March 31, 2002, respectively........ 149,071 141,202
---------- -----------
$7,375,458 $ 7,282,478
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 104,149 $ 93,485
Accrued interest................................................................ 60,081 41,772
Accrued compensation and related benefits....................................... 13,553 10,823
Deferred rental revenues and other accrued liabilities.......................... 204,584 229,629
Long-term debt, current maturities.............................................. 29,086 342,737
---------- -----------
Total current liabilities................................................ 411,453 718,446
Long-term debt..................................................................... 3,394,011 3,095,192
Other liabilities.................................................................. 157,549 159,711
---------- -----------
Total liabilities........................................................ 3,963,013 3,973,349
---------- -----------
Commitments and contingencies
Minority interests................................................................. 168,936 166,826
Redeemable preferred stock......................................................... 878,861 888,596
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized; shares issued:
December 31, 2001--218,804,363 and March 31, 2002--220,386,829................ 2,188 2,204
Additional paid-in capital...................................................... 3,301,023 3,312,811
Accumulated other comprehensive loss............................................ (43,246) (42,493)
Accumulated deficit............................................................. (895,317) (1,018,815)
---------- -----------
Total stockholders' equity............................................... 2,364,648 2,253,707
---------- -----------
$7,375,458 $ 7,282,478
========== ===========
See condensed notes to consolidated financial statements.
3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended
March 31,
-------------------
2001 2002
-------- ---------
Net revenues:
Site rental and broadcast transmission.................................... $134,042 $ 160,264
Network services and other................................................ 78,911 60,353
-------- ---------
212,953 220,617
-------- ---------
Operating expenses:
Costs of operations (exclusive of depreciation and amortization):
Site rental and broadcast transmission................................ 57,739 62,066
Network services and other............................................ 55,456 43,725
General and administrative................................................ 25,895 21,788
Corporate development..................................................... 3,453 2,239
Restructuring charges..................................................... -- 5,852
Asset write-down charges.................................................. -- 31,941
Non-cash general and administrative compensation charges.................. 1,395 1,314
Depreciation and amortization............................................. 74,091 71,715
-------- ---------
218,029 240,640
-------- ---------
Operating income (loss)...................................................... (5,076) (20,023)
Other income (expense):
Interest and other income (expense)....................................... 3,092 (6,090)
Interest expense and amortization of deferred financing costs............. (66,655) (76,319)
-------- ---------
Loss before income taxes and minority interests.............................. (68,639) (102,432)
Provision for income taxes................................................... (60) (4,659)
Minority interests........................................................... 644 3,698
-------- ---------
Net loss..................................................................... (68,055) (103,393)
Dividends on preferred stock................................................. (19,505) (20,105)
-------- ---------
Net loss after deduction of dividends on preferred stock..................... $(87,560) $(123,498)
======== =========
Net loss..................................................................... $(68,055) $(103,393)
Other comprehensive income (loss):
Foreign currency translation adjustments.................................. (27,593) (2,206)
Derivative instruments:
Net change in fair value of cash flow hedging instruments............. (3,341) 1,540
Amounts reclassified into results of operations....................... (222) 1,419
-------- ---------
Comprehensive loss before cumulative effect of change in accounting principle (99,211) (102,640)
Cumulative effect of change in accounting principle for derivative financial
instruments................................................................ 178 --
-------- ---------
Comprehensive loss........................................................... $(99,033) $(102,640)
======== =========
Loss per common share--basic and diluted..................................... $ (0.41) $ (0.56)
======== =========
Common shares outstanding--basic and diluted (in thousands).................. 211,195 219,420
======== =========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Three Months Ended
March 31,
--------------------
2001 2002
--------- ---------
Cash flows from operating activities:
Net loss....................................................................... $ (68,055) $(103,393)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................ 74,091 71,715
Asset write-down charges..................................................... -- 31,941
Amortization of deferred financing costs and discounts on long-term debt..... 22,161 24,254
Non-cash general and administrative compensation charges..................... 1,395 1,314
Minority interests........................................................... (644) (3,698)
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in deferred rental revenues and other liabilities................. 107,159 28,976
Decrease in accrued interest............................................... (30,020) (18,041)
Decrease in accounts payable............................................... (15,945) (9,940)
Increase in receivables.................................................... (29,170) (3,879)
Increase in inventories, prepaid expenses and other assets................. (16,083) (3,208)
--------- ---------
Net cash provided by operating activities................................ 44,889 16,041
--------- ---------
Cash flows from investing activities:
Maturities of investments...................................................... 111,000 116,500
Purchases of investments....................................................... (73,500) (79,000)
Capital expenditures........................................................... (251,860) (72,981)
Investments in affiliates and other............................................ (10,568) (2,946)
--------- ---------
Net cash used for investing activities................................... (224,928) (38,427)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of capital stock........................................ 350,830 538
Net borrowings under revolving credit agreements............................... 95,548 --
Incurrence of financing costs.................................................. (2,672) --
--------- ---------
Net cash provided by financing activities................................ 443,706 538
--------- ---------
Effect of exchange rate changes on cash......................................... (559) (2,736)
--------- ---------
Net increase (decrease) in cash and cash equivalents............................ 263,108 (24,584)
Cash and cash equivalents at beginning of period................................ 453,833 804,602
--------- ---------
Cash and cash equivalents at end of period...................................... $ 716,941 $ 780,018
========= =========
Supplemental disclosure of cash flow information:
Interest paid.................................................................. $ 74,443 $ 68,960
Income taxes paid.............................................................. 60 89
See condensed notes to consolidated financial statements.
5
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The information contained in the following notes to the consolidated
financial statements is condensed from that which would appear in the annual
consolidated financial statements; accordingly, the consolidated financial
statements included herein should be reviewed in conjunction with the
consolidated financial statements for the fiscal year ended December 31, 2001,
and related notes thereto, included in the Annual Report on Form 10-K (the
"Form 10-K") filed by Crown Castle International Corp. with the Securities and
Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31, 2002 and
the consolidated results of operations and consolidated cash flows for the
three months ended March 31, 2001 and 2002. Accounting measurements at interim
dates inherently involve greater reliance on estimates than at year end. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the entire year. Certain
reclassifications have been made to the prior period's financial statements to
be consistent with the presentation in the current period.
2. New Accounting Pronouncements
Derivative Instruments
On January 1, 2001, the Company adopted the requirements of Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that derivative
instruments be recognized as either assets or liabilities in the consolidated
balance sheet based on their fair values. Changes in the fair values of such
derivative instruments are recorded either in results of operations or in other
comprehensive income (loss), depending on the intended use of the derivative
instrument. The initial application of SFAS 133 is reported as the effect of a
change in accounting principle. The adoption of SFAS 133 resulted in a net
transition adjustment gain of approximately $178,000 in accumulated other
comprehensive income (loss), the recognition of approximately $363,000 of
derivative instrument assets and the recognition of approximately $185,000 of
derivative instrument liabilities. The amounts for this transition adjustment
are based on current fair value measurements at the date of adoption of SFAS
133. The Company expects that the adoption of SFAS 133 will increase the
volatility of other comprehensive income (loss) as reported in its future
financial statements.
The derivative instruments recognized upon the Company's adoption of SFAS
133 consist of interest rate swap agreements. Such agreements are used to
manage interest rate risk on a portion of the Company's floating rate
indebtedness, and are designated as cash flow hedging instruments in accordance
with SFAS 133. The interest rate swap agreements have notional amounts
aggregating $150,000,000 and effectively convert the interest payments on an
equal amount of debt from a floating rate to a fixed rate. As such, the Company
is protected from future increases in market interest rates on that portion of
its indebtedness. To the extent that the interest rate swap agreements are
effective in hedging the Company's interest rate risk, the changes in their
fair values are recorded as other comprehensive income (loss). Amounts recorded
as other comprehensive income (loss) are reclassified into results of
operations in the same periods that the hedged interest costs are recorded in
interest expense. The Company estimates that such reclassified amounts will be
approximately $5,300,000 for the year ending December 31, 2002. To the extent
that any portions of the interest rate swap agreements are deemed ineffective,
the related changes in fair values are recognized in results of operations. As
of March 31, 2002, the accumulated other comprehensive loss in consolidated
stockholders' equity includes $5,033,000 in losses related to derivative
instruments.
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business Combinations, Goodwill and Long-Lived Assets
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use of the
pooling-of-interests method of accounting for business combinations, and
requires that the purchase method be used for all business combinations after
June 30, 2001. SFAS 141 also changes the manner in which acquired intangible
assets are identified and recognized apart from goodwill. Further, SFAS 141
requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. The
Company has used the purchase method of accounting since its inception, so the
adoption of SFAS 141 will not change its method of accounting for business
combinations. The Company has adopted the other recognition and disclosure
requirements of SFAS 141 as of July 1, 2001 for any future business
combinations. The transition provisions of SFAS 141 require that the carrying
amounts for goodwill and other intangible assets acquired in prior purchase
method business combinations be reviewed and reclassified in accordance with
the new recognition rules; such reclassifications are to be made in conjunction
with the adoption of SFAS 142. The application of these transition provisions
of SFAS 141 as of January 1, 2002 resulted in a reclassification of other
intangible assets with finite useful lives (the value of site rental contracts
from the acquisition of Crown Communication) to deferred financing costs and
other assets on the Company's consolidated balance sheet. The gross carrying
amount, accumulated amortization and net book value of such reclassified
intangible assets were $26,000,000, $11,483,000 and $14,517,000, respectively.
The net book value of these intangible assets will be amortized using a revised
life of 10 years, resulting in amortization expense of $1,452,000 for each of
the years ending December 31, 2002 through 2006. The Company has no other
intangible assets from prior business combinations.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with the Company's existing policies. SFAS 142
requires disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of intangible asset amortization expense for the next five
years. The provisions of SFAS 142 are effective for fiscal years beginning
after December 15, 2001. In addition, the nonamortization provisions of SFAS
142 were to be immediately applied for goodwill and other intangible assets
acquired in business combinations subsequent to June 30, 2001. The Company has
adopted the requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires
that transitional impairment tests be performed at its adoption, and provides
that resulting impairment losses for goodwill and other intangible assets with
indefinite useful lives be reported as the effect of a change in accounting
principle. The Company has not yet completed its transitional impairment tests
but, based on preliminary results of those tests, does not currently believe
that an impairment loss for goodwill and other intangible assets will be
recorded upon the adoption of SFAS 142. The Company expects that its
depreciation and amortization expense will decrease by approximately
$60,617,000 per year as a result of the adoption of SFAS 142. If amortization
of goodwill had not been recorded, and if amortization of other intangible
assets had been recorded using the revised life, the Company's net loss and
loss per share for the three months ended March 31, 2001 would have been as
follows (in thousands of dollars, except per share amounts):
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net loss, as reported.............................................................. $(68,055)
Add back: amortization of goodwill................................................. 15,091
Adjust: amortization of other intangible assets.................................... 287
--------
Net loss, as adjusted.............................................................. (52,677)
Dividends on preferred stock....................................................... (19,505)
--------
Net loss applicable to common stock for basic and diluted computations, as adjusted $(72,182)
========
Per common share--basic and diluted:
Net loss, as reported........................................................... $ (0.41)
Amortization of goodwill........................................................ 0.07
Adjustment for amortization of other intangible assets.......................... --
--------
Net loss, as adjusted........................................................... $ (0.34)
========
A summary of goodwill by operating segment is as follows:
Three Months Ended March 31, 2002
---------------------------------------
Crown Consolidated
CCUSA CCUK Atlantic Total
-------- -------- -------- ------------
(In thousands of dollars)
Balance at beginning of period. $164,023 $817,514 $55,377 $1,036,914
Effect of exchange rate changes -- (1,416) -- (1,416)
-------- -------- ------- ----------
Balance at end of period....... $164,023 $816,098 $55,377 $1,035,498
======== ======== ======= ==========
In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS
144"). SFAS 144 supersedes Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of ("SFAS 121"), but retains many of its fundamental provisions.
SFAS 144 also clarifies certain measurement and classification issues from SFAS
121. In addition, SFAS 144 supersedes the accounting and reporting provisions
for the disposal of a business segment as found in Accounting Principles Board
Opinion No. 30, Reporting the Results of Operations--Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions ("APB 30"). However, SFAS 144
retains the requirement in APB 30 to separately report discontinued operations,
and broadens the scope of such requirement to include more types of disposal
transactions. The scope of SFAS 144 excludes goodwill and other intangible
assets that are not to be amortized, as the accounting for such items is
prescribed by SFAS 142. The provisions of SFAS 144 are effective for fiscal
years beginning after December 15, 2001, and are to be applied prospectively.
The adoption of the requirements of SFAS 144 as of January 1, 2002 had no
impact on the Company's consolidated financial statements.
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Long-term Debt
Long-term debt consists of the following:
December 31, March 31,
2001 2002
------------ ----------
(In thousands of dollars)
2000 Credit Facility...................................... $ 700,000 $ 700,000
CCUK Credit Facility...................................... 172,050 168,767
Crown Atlantic Credit Facility............................ 300,000 300,000
9% Guaranteed Bonds due 2007.............................. 177,401 173,970
10 5/8% Senior Discount Notes due 2007, net of discount... 229,321 235,333
10 3/8% Senior Discount Notes due 2011, net of discount... 393,320 403,391
9% Senior Notes due 2011.................................. 180,000 180,000
11 1/4% Senior Discount Notes due 2011, net of discount... 196,005 201,468
9 1/2% Senior Notes due 2011.............................. 125,000 125,000
10 3/4% Senior Notes due 2011............................. 500,000 500,000
9 3/8% Senior Notes due 2011.............................. 450,000 450,000
---------- ----------
3,423,097 3,437,929
Less: current maturities.................................. (29,086) (342,737)
---------- ----------
$3,394,011 $3,095,192
========== ==========
CCUK Credit Facility
In April 2002, ITVdigital ("ITV") announced plans to liquidate its assets,
and it is anticipated that the liquidation will commence in the near future
(see Note 9). The termination of the ITV transmission contract is a Termination
Event (a defined event of default) under the CCUK Credit Facility. The Company
has entered into discussions with the banks in order to obtain an amendment to
the CCUK Credit Facility such that the Termination Event would be cured. Based
on these preliminary discussions, the Company does not currently believe that
it will be required to prepay the outstanding borrowings under the CCUK Credit
Facility as a result of this event of default. However, there can be no
assurance that such an amendment can be obtained. As a result, the Company has
reclassified all the outstanding borrowings under the CCUK Credit Facility as
current liabilities on its consolidated balance sheet as of March 31, 2002.
If the Company is unable to obtain an amendment to the CCUK Credit Facility
as discussed above, the uncured Termination Event would result in an event of
default under the trust deed governing the 9% Guaranteed Bonds due 2007 (the
"CCUK Bonds"). As a result, the Company has also reclassified the principal
amount of the CCUK Bonds as a current liability on its consolidated balance
sheet as of March 31, 2002.
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.
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
March 31, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 188,450 $ 591,568 $ -- $ 780,018
Other current assets.................... 279,253 143,319 -- 422,572
Property and equipment, net............. 3,339,096 1,472,592 -- 4,811,688
Investments............................. 91,500 -- -- 91,500
Investments in Unrestricted Subsidiaries 2,077,745 -- (2,077,745) --
Goodwill................................ 164,023 871,475 -- 1,035,498
Other assets, net....................... 128,292 12,910 -- 141,202
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Current liabilities..................... $ 201,283 $ 517,163 $ -- $ 718,446
Long-term debt, less current maturities. 2,795,192 300,000 -- 3,095,192
Other liabilities....................... 36,703 123,008 -- 159,711
Minority interests...................... 92,878 73,948 -- 166,826
Redeemable preferred stock.............. 888,596 -- -- 888,596
Stockholders' equity.................... 2,253,707 2,077,745 (2,077,745) 2,253,707
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Three Months Ended March 31, 2002
-------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues.................................................... $122,248 $ 98,369 $ 220,617
Costs of operations (exclusive of depreciation and amortization) 56,567 49,224 105,791
General and administrative...................................... 18,284 3,504 21,788
Corporate development........................................... 2,239 -- 2,239
Restructuring charges........................................... 2,126 3,726 5,852
Asset write-down charges........................................ 23,721 8,220 31,941
Non-cash general and administrative compensation charges........ 872 442 1,314
Depreciation and amortization................................... 47,784 23,931 71,715
-------- -------- ---------
Operating income (loss)......................................... (29,345) 9,322 (20,023)
Interest and other income (expense)............................. (599) (5,491) (6,090)
Interest expense and amortization of deferred financing costs... (64,117) (12,202) (76,319)
Provision for income taxes...................................... (88) (4,571) (4,659)
Minority interests.............................................. 1,523 2,175 3,698
-------- -------- ---------
Net loss........................................................ $(92,626) $(10,767) $(103,393)
======== ======== =========
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Discount Notes and the Certificate (the "1997 and 1998 Securities") and
(2) the indentures governing the 10 3/8% Discount Notes, the 9% Senior Notes,
the 11 1/4%
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Discount Notes, the 9 1/2% Senior Notes, the 10 3/4% Senior Notes and the
9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended March 31, 2002................. $ 50,150 $ 50,150
========= =========
Consolidated Cash Flow, for the twelve months ended March 31, 2002......... $ 173,100 $ 182,436
Less: Tower Cash Flow, for the twelve months ended March 31, 2002.......... (170,240) (170,240)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2002 200,600 200,600
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2002 $ 203,460 $ 212,796
========= =========
4. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, March 31,
2001 2002
------------ ---------
(In thousands of dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 2001--291,444 and March 31, 2002--300,734 (stated at mandatory
redemption and aggregate liquidation value).................................. $292,992 $302,331
8 1/4% Cumulative Convertible Redeemable Preferred Stock; shares issued:
200,000 (stated net of unamortized value of warrants; mandatory redemption and
aggregate liquidation value of $200,000)..................................... 195,793 195,896
6.25% Convertible Preferred Stock; shares issued:
8,050,000 (stated net of unamortized issue costs; mandatory redemption and
aggregate liquidation value of $402,500)..................................... 390,076 390,369
-------- --------
$878,861 $888,596
======== ========
5. Per Share Information
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the numerators and denominators of the basic and diluted
per share computations is as follows:
Three Months Ended
March 31,
------------------------
2001 2002
-------- ---------
(In thousands of dollars,
except per share
amounts)
Net loss............................................................................ $(68,055) $(103,393)
Dividends on preferred stock........................................................ (19,505) (20,105)
-------- ---------
Net loss applicable to common stock for basic and diluted computations.............. $(87,560) $(123,498)
======== =========
Weighted-average number of common shares outstanding during the period for basic and
diluted computations (in thousands)............................................... 211,195 219,420
======== =========
Loss per common share--basic and diluted............................................ $ (0.41) $ (0.56)
======== =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of March 31, 2002: (1) options
to purchase 23,775,862 shares of common stock at exercise prices ranging from
$-0- to $39.75 per share, (2) warrants to purchase 639,990 shares of common
stock at an exercise price of $7.50 per share, (3) warrants to purchase
1,000,000 shares of common stock at an exercise price of $26.875 per share, (4)
shares of the Company's 8 1/4% Cumulative Convertible Redeemable Preferred
Stock which are convertible into 7,441,860 shares of common stock and (5)
shares of the Company's 6.25% Convertible Preferred Stock which are convertible
into 10,915,254 shares of common stock. The inclusion of such potential common
shares in the diluted per share computations would be antidilutive since the
Company incurred net losses for all periods presented.
6. Commitments and Contingencies
The Company is involved in various claims, lawsuits and proceedings arising
in the ordinary course of business. While there are uncertainties inherent in
the ultimate outcome of such matters and it is impossible to presently
determine the ultimate costs that may be incurred, management believes the
resolution of such uncertainties and the incurrence of such costs should not
have a material adverse effect on the Company's consolidated financial position
or results of operations.
7. Operating Segments
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization, as adjusted ("Adjusted
EBITDA"). The Company defines Adjusted EBITDA as operating income (loss) plus
depreciation and amortization, non-cash general and administrative compensation
charges, asset write-down charges and restructuring charges. Adjusted 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 Adjusted EBITDA may not be comparable
to similarly titled measures of other companies. There are no significant
revenues resulting from transactions between the Company's operating segments.
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The financial results for the Company's operating segments are as follows:
Three Months Ended March 31, 2002
------------------------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCAL CCUK Atlantic Other Total
---------- -------- ---------- -------- ---------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 79,253 $ 5,013 $ 53,455 $ 22,543 $ -- $ 160,264
Network services and other....... 37,349 633 15,945 6,426 -- 60,353
---------- -------- ---------- -------- -------- ----------
116,602 5,646 69,400 28,969 -- 220,617
---------- -------- ---------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization).... 53,932 2,635 36,856 12,368 -- 105,791
General and administrative.......... 13,229 1,261 1,727 1,737 3,834 21,788
Corporate development............... -- -- -- -- 2,239 2,239
---------- -------- ---------- -------- -------- ----------
Adjusted EBITDA..................... 49,441 1,750 30,817 14,864 (6,073) 90,799
Restructuring charges............... -- -- 3,726 -- 2,126 5,852
Asset write-down charges............ 23,721 -- 431 7,789 -- 31,941
Non-cash general and administrative
compensation charges.............. 532 -- 442 -- 340 1,314
Depreciation and amortization....... 44,244 3,186 13,473 10,269 543 71,715
---------- -------- ---------- -------- -------- ----------
Operating income (loss)............. (19,056) (1,436) 12,745 (3,194) (9,082) (20,023)
Interest and other income
(expense)......................... (743) 162 (5,569) (19) 79 (6,090)
Interest expense and amortization of
deferred financing costs.......... (9,295) (826) (7,552) (4,650) (53,996) (76,319)
Provision for income taxes.......... -- (88) (4,571) -- -- (4,659)
Minority interests.................. 819 704 -- 2,175 -- 3,698
---------- -------- ---------- -------- -------- ----------
Net loss............................ $ (28,275) $ (1,484) $ (4,947) $ (5,688) $(62,999) $ (103,393)
========== ======== ========== ======== ======== ==========
Capital expenditures................ $ 41,631 $ 2,956 $ 17,668 $ 10,397 $ 329 $ 72,981
========== ======== ========== ======== ======== ==========
Total assets (at period end)........ $3,510,721 $267,963 $1,816,235 $894,789 $792,770 $7,282,478
========== ======== ========== ======== ======== ==========
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended March 31, 2001
------------------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCAL CCUK Atlantic Other Total
-------- ------- -------- -------- ---------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 62,176 $ 2,990 $ 49,368 $19,508 $ -- $134,042
Network services and other....... 60,605 -- 9,776 8,530 -- 78,911
-------- ------- -------- ------- -------- --------
122,781 2,990 59,144 28,038 -- 212,953
-------- ------- -------- ------- -------- --------
Costs of operations (exclusive of
depreciation and amortization).... 66,101 1,095 32,029 13,970 -- 113,195
General and administrative.......... 16,322 1,491 1,703 2,645 3,734 25,895
Corporate development............... -- -- 48 -- 3,405 3,453
-------- ------- -------- ------- -------- --------
Adjusted EBITDA..................... 40,358 404 25,364 11,423 (7,139) 70,410
Non-cash general and administrative
compensation charges.............. 531 -- 523 -- 341 1,395
Depreciation and amortization....... 39,627 1,696 22,219 10,131 418 74,091
-------- ------- -------- ------- -------- --------
Operating income (loss)............. 200 (1,292) 2,622 1,292 (7,898) (5,076)
Interest and other income (expense). 874 (144) 931 15 1,416 3,092
Interest expense and amortization of
deferred financing costs.......... (13,467) (43) (7,035) (5,015) (41,095) (66,655)
Provision for income taxes.......... -- -- (27) (33) -- (60)
Minority interests.................. (198) 923 -- (81) -- 644
-------- ------- -------- ------- -------- --------
Net loss............................ $(12,591) $ (556) $ (3,509) $(3,822) $(47,577) $(68,055)
======== ======= ======== ======= ======== ========
Capital expenditures................ $113,863 $ 486 $110,829 $26,101 $ 581 $251,860
======== ======= ======== ======= ======== ========
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Restructuring Charges and Asset Write-Down Charges
For the three months ended March 31, 2002, the Company recorded cash charges
of $3,726,000 in connection with a restructuring of its CCUK business announced
in March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. The Company expects that the total charges reflected in
its 2002 results of operations for this CCUK restructuring will be between
approximately $7,000,000 and $13,000,000. For the three months ended March 31,
2002, the Company also recorded cash charges of $2,126,000 related to
additional employee severance payments at its corporate office in connection
with the July 2001 restructuring. At December 31, 2001 and March 31, 2002,
other accrued liabilities includes $6,591,000 and $7,222,000, respectively,
related to restructuring charges. A summary of the restructuring charges by
operating segment is as follows:
Three Months Ended March 31, 2002
-------------------------------------------
Corporate
Crown Office and
CCUSA CCUK Atlantic Other Total
------ ------ -------- ---------- -------
(In thousands of dollars)
Amounts accrued at beginning of period:
Employee severance.................. $1,126 $ 357 $ 230 $ 3,568 $ 5,281
Costs of office closures and other.. 1,075 -- 235 -- 1,310
------ ------ ----- ------- -------
2,201 357 465 3,568 6,591
------ ------ ----- ------- -------
Amounts charged to expense:
Employee severance.................. -- 3,395 -- 2,126 5,521
Costs of office closures and other.. -- 331 -- -- 331
------ ------ ----- ------- -------
Total restructuring charges..... -- 3,726 -- 2,126 5,852
------ ------ ----- ------- -------
Amounts paid:
Employee severance.................. (290) (371) (113) (4,306) (5,080)
Costs of office closures and other.. (129) -- (12) -- (141)
------ ------ ----- ------- -------
(419) (371) (125) (4,306) (5,221)
------ ------ ----- ------- -------
Amounts accrued at end of period:
Employee severance.................. 836 3,381 117 1,388 5,722
Costs of office closures and other.. 946 331 223 -- 1,500
------ ------ ----- ------- -------
$1,782 $3,712 $ 340 $ 1,388 $ 7,222
====== ====== ===== ======= =======
During the three months ended March 31, 2002, the Company abandoned a
portion of its construction in process related to certain open projects and
recorded related asset write-down charges of $23,721,000 for CCUSA and
$7,789,000 for Crown Atlantic. For the three months ended March 31, 2002, the
Company also recorded asset write-down charges of $431,000 for CCUK related to
certain inventories and property and equipment.
9. Subsequent Events
Since 1999, CCUK has provided digital transmission services to ITVdigital
("ITV"). On March 27, 2002, a U.K. court approved an application by ITV to be
placed into administration (a proceeding, similar to a Chapter 11 bankruptcy
proceeding in the United States, designed to protect the applicant from the
claims of its creditors while it reorganizes its business). In April 2002,
after unsuccessful efforts by the administrator to sell the ITV business as a
going concern, ITV announced plans to liquidate its assets. It is anticipated
that the liquidation will commence in the near future. With the ITV liquidation
and suspension of service, further on-going collections under the ITV
transmission contract are not expected. CCUK had gross revenues of
approximately $27,600,000 annually under the ITV transmission contact. If
current efforts to re-market the CCUK network prove
15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
unsuccessful, CCUK expects Adjusted EBITDA to be impacted negatively by
approximately $16,000,000 in 2002 and approximately $23,000,000 annually
thereafter assuming no significant mitigation of costs. ITV represented
approximately 10% of the 2001 gross revenues of CCUK and approximately 3% of
the 2001 consolidated gross revenues of the Company. The termination of the ITV
transmission contract is a Termination Event under the CCUK Credit Facility
(see Note 3).
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of March 31, 2002 and our consolidated
results of operations for the three-month periods ended March 31, 2001 and
2002. The statements in this discussion regarding the industry outlook, our
expectations regarding the future performance of our businesses and the other
nonhistorical statements in this discussion are forward-looking statements.
These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
decisions on capital expenditures to be made in the future by wireless carriers
and broadcasters, the success or failure of our efforts to implement our
business strategy and the following:
. Our substantial level of indebtedness could adversely affect our ability
to react to changes in our business and limit our ability to use debt to
fund future capital needs.
. If we are unable to service our indebtedness, our indebtedness may be
accelerated.
. Our business depends on the demand for wireless communications, which may
be lower or slower than anticipated.
. The continuation of the current economic and telecommunications industry
slowdown could materially and adversely affect our business and the
business of our customers.
. We may be unable to manage our significant growth.
. The loss, consolidation or financial instability of any of our limited
number of customers could materially decrease revenues.
. Restrictive covenants on our debt instruments may limit our ability to
take actions that may be in our best interests.
. We operate in an increasingly competitive industry and many of our
competitors have significantly more resources than we do.
. Technology changes may significantly reduce the demand for towers.
. 2.5G/3G and other technologies may not deploy or be adopted by customers
as rapidly or in the manner projected.
. Carrier consolidation or reduced carrier expansion may significantly
reduce the demand for towers and wireless communication sites.
. Network sharing and other agreements among our customers may act as
alternatives to leasing sites from us.
. We may not be able to construct or acquire new towers at the pace and in
the locations that we desire.
. Demand for our network services business is very volatile which causes
our network services operating results to vary significantly for any
particular period.
. We anticipate significant capital expenditures and may need additional
financing which may not be available.
. We generally lease or sublease the land under our towers and may not be
able to maintain these leases.
. Extensive regulations, which could change at any time, govern our
business and industry, and we could fail to comply with these regulations.
. We could suffer from future claims if radio frequency emissions from
equipment on our towers are demonstrated to cause negative health effects.
. Our international operations expose us to changes in foreign currency
exchange rates.
. We are heavily dependent on our senior management.
17
. Disputes with customers and suppliers have recently increased.
. Economic viability or acceptance of digital terrestrial broadcasting.
Should one or more of these risks materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
expected. More information about potential factors which could affect the
Company's financial results is included in the Risk Factors sections of the
Company's filings with the Securities and Exchange Commission.
The following discussion should be read in conjunction with the response to
Part I, Item 1 of this report and the consolidated financial statements of the
Company, including the related notes, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Form 10-K.
Any capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
Results of Operations
During 2001 we completed the transactions with BellSouth and BellSouth DCS.
Results of operations of these acquired towers are included in our consolidated
financial statements for the periods subsequent to the respective dates of
acquisition. As such, our results of operations for the three months ended
March 31, 2001 are not comparable to the results of operations for the three
months ended March 31, 2002.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2002
-------------------- ---------------------
Percent of Percent of
Amount Net Revenues Amount Net Revenues
-------- ------------ --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission................. $134,042 62.9% $ 160,264 72.6%
Network services and other............................. 78,911 37.1 60,353 27.4
-------- ----- --------- -----
Total net revenues............................... 212,953 100.0 220,617 100.0
-------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast transmission............... 57,739 43.1 62,066 38.7
Network services and other........................... 55,456 70.3 43,725 72.4
-------- ----- --------- -----
Total costs of operations........................ 113,195 53.2 105,791 47.9
General and administrative............................. 25,895 12.2 21,788 9.9
Corporate development.................................. 3,453 1.6 2,239 1.0
Restructuring charges.................................. -- -- 5,852 2.7
Asset write-down charges............................... -- -- 31,941 14.5
Non-cash general and administrative compensation
charges.............................................. 1,395 0.6 1,314 0.6
Depreciation and amortization.......................... 74,091 34.8 71,715 32.5
-------- ----- --------- -----
Operating income (loss)................................. (5,076) (2.4) (20,023) (9.1)
Other income (expense):
Interest and other income (expense).................... 3,092 1.5 (6,090) (2.8)
Interest expense and amortization of deferred financing
costs................................................ (66,655) (31.3) (76,319) (34.6)
-------- ----- --------- -----
Loss before income taxes and minority interests......... (68,639) (32.2) (102,432) (46.5)
Provision for income taxes.............................. (60) (0.1) (4,659) (2.1)
Minority interests...................................... 644 0.3 3,698 1.7
-------- ----- --------- -----
Net loss................................................ $(68,055) (32.0)% $(103,393) (46.9)%
======== ===== ========= =====
18
Comparison of Three Months Ended March 31, 2002 and 2001
Consolidated revenues for the three months ended March 31, 2002 were $220.6
million, an increase of $7.7 million from the three months ended March 31,
2001. This increase was primarily attributable to:
(1) a $26.2 million, or 19.6%, increase in site rental and broadcast
transmission revenues, of which $4.1 million was attributable to
CCUK, $3.0 million was attributable to Crown Atlantic, $2.0 million
was attributable to CCAL and $17.1 million was attributable to CCUSA,
(2) a $6.2 million increase in network services and other revenues from
CCUK, partially offset by
(3) a $23.3 million decrease in network services and other revenues from
CCUSA, and
(4) a $2.1 million decrease in network services and other revenues from
Crown Atlantic.
The following is a summary of tenant leasing activity on our tower sites:
Three Months
Ended March 31,
---------------
2001 2002
------ ------
New tenants added on existing, newly constructed and acquired tower sites, net:
CCUSA....................................................................... 931 762
Crown Atlantic.............................................................. 185 139
CCUK........................................................................ 626 399
CCAL........................................................................ 139 96
------ ------
1,881 1,396
====== ======
Average monthly lease rate per new tenant added on existing tower sites:
CCUSA and Crown Atlantic.................................................... $1,476 $1,479
CCUK........................................................................ 496 1,070
CCAL........................................................................ 629 558
The increases in site rental and broadcast transmission revenues reflect the
new tenant additions on our tower sites. The increases or decreases in network
services and other revenues reflect fluctuations in demand for antenna
installation from our tenants along with fluctuations in third party service
work.
Costs of operations for the three months ended March 31, 2002 were $105.8
million, a decrease of $7.4 million from the three months ended March 31, 2001.
This decrease was primarily attributable to:
(1) a $13.1 million decrease in network services costs related to CCUSA
and
(2) a $2.2 million decrease in network services costs from Crown
Atlantic, partially offset by
(3) a $4.3 million increase in site rental and broadcast transmission
costs, of which $1.7 million was attributable to CCUK, $0.6 million
was attributable to Crown Atlantic, $1.1 million was attributable to
CCAL and $0.9 million was attributable to CCUSA, and
(4) a $3.2 million increase in network services costs from CCUK.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues decreased to 38.7% for the
three months ended March 31, 2002 from 43.1% for the three months ended March
31, 2001, because of higher margins attributable to incremental revenues from
the CCUSA, Crown Atlantic and CCAL operations. Costs of operations for network
services and other as a percentage of network services and other revenues
increased to 72.4% for the three months ended March 31, 2002 from 70.3% for the
three months ended March 31, 2001 because of lower margins from the CCUSA
operations, partially offset by higher margins from the CCUK and Crown Atlantic
operations.
19
General and administrative expenses for the three months ended March 31,
2002 were $21.8 million, a decrease of $4.1 million from the three months ended
March 31, 2001. This decrease was primarily attributable to:
(1) a $3.1 million decrease in expenses related to the CCUSA operations,
(2) a $0.9 million decrease in expenses at Crown Atlantic, and
(3) a $0.2 million decrease in expenses at CCAL, partially offset by
(4) a $0.1 million increase in expenses at our corporate office.
The decreases in general and administrative expenses resulted primarily from
lower staffing levels after the restructuring of our business announced in July
2001. General and administrative expenses as a percentage of revenues decreased
to 9.9% for the three months ended March 31, 2002 from 12.2% for the three
months ended March 31, 2001 because of lower overhead costs as a percentage of
revenues for CCUSA, CCAL, CCUK and Crown Atlantic.
Corporate development expenses for the three months ended March 31, 2002
were $2.2 million, compared to $3.5 million for the three months ended March
31, 2001. This decrease was primarily attributable to a decrease in expenses at
our corporate office.
For the three months ended March 31, 2002, we recorded cash charges of $3.7
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. We expect that the total charges reflected in our 2002
results of operations for this CCUK restructuring will be between approximately
$7.0 million and $13.0 million. For the three months ended March 31, 2002, we
also recorded cash charges of $2.1 million related to additional employee
severance payments at our corporate office in connection with the July 2001
restructuring. See "--Restructuring Charges and Asset Write-Down Charges".
During the three months ended March 31, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $23.7 million for CCUSA and $7.8 million for Crown
Atlantic. For the three months ended March 31, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment. See "--Restructuring Charges and Asset Write-Down
Charges".
For the three months ended March 31, 2002, we recorded non-cash general and
administrative compensation charges of $1.3 million related to the issuance of
stock and stock options to certain employees and executives, compared to $1.4
million for the three months ended March 31, 2001.
Depreciation and amortization for the three months ended March 31, 2002 was
$71.7 million, a decrease of $2.4 million from the three months ended March 31,
2001. This decrease was primarily attributable to:
(1) a $15.7 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $3.1 million was attributable to CCUSA,
$11.8 million was attributable to CCUK and $0.8 million was
attributable to Crown Atlantic (see "--Impact of Recently Issued
Accounting Standards"), partially offset by
(2) a $3.1 million increase in depreciation related to property and
equipment from CCUK,
(3) a $7.7 million increase in depreciation related to property and
equipment from CCUSA,
(4) a $1.5 million increase in depreciation related to property and
equipment from CCAL, and
(5) a $0.9 million increase in depreciation related to property and
equipment from Crown Atlantic.
20
Interest and other income (expense) for the three months ended March 31,
2002 resulted primarily from:
(1) a charge of approximately $7.0 million for the write-down of an
investment in an unconsolidated affiliate,
(2) our share of losses incurred by unconsolidated affiliates and
(3) costs incurred in connection with unsuccessful network acquisitions,
partially offset by
(4) the investment of the net proceeds from our recent offerings.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 2002 was $76.3 million, an increase of $9.7 million, or
14.5%, from the three months ended March 31, 2001. This increase was primarily
attributable to interest on indebtedness at CCUSA, CCUK and Crown Atlantic, and
interest on the 9 3/8% senior notes.
The provision for income taxes of $4.7 million for the three months ended
March 31, 2002 consists primarily of a non-cash deferred tax liability
recognized by CCUK. CCUK's deferred tax liability resulted from differences
between book and tax basis for its property and equipment.
Minority interests represent the minority partner's 43.1% interest in Crown
Atlantic's operations, the minority partner's 17.8% interest in the operations
of the GTE joint venture and the minority shareholder's 22.4% interest in the
CCAL operations.
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures in
connection with the expansion of our tower portfolios by pursuing build-to-suit
opportunities in the markets in which we currently operate.
Since its inception, CCIC has generally funded its activities, other than
acquisitions and investments, through excess proceeds from contributions of
equity capital and cash provided by operations. CCIC has financed acquisitions
and investments with the proceeds from equity contributions, borrowings under
our senior credit facilities and issuances of debt securities. Since its
inception, CCUK has generally funded its activities, other than the acquisition
of the BBC home service transmission business, through cash provided by
operations and borrowings under CCUK's credit facility. CCUK financed the
acquisition of the BBC home service transmission business with the proceeds
from equity contributions and the issuance of the CCUK bonds.
For the three months ended March 31, 2001 and 2002, our net cash provided by
operating activities was $44.9 million and $16.0 million, respectively. For the
three months ended March 31, 2001 and 2002, our net cash provided by financing
activities was $443.7 million and $0.5 million, respectively.
Capital expenditures were $73.0 million for the three months ended March 31,
2002, of which $0.3 million were for CCIC, $41.6 million were for CCUSA, $10.4
million were for Crown Atlantic, $17.7 million were for CCUK and $3.0 million
were for CCAL. We anticipate that we will build, through the end of 2002,
approximately 250 to 350 towers in the United States at a cost of approximately
$81 million and approximately 450 to 550 towers in the United Kingdom at a cost
of approximately $50 million. In addition, we are obligated to pay a site
access fee to British Telecom in the amount of (Pounds)100.0 million ($142.5
million). In April 2002, we reached agreement with British Telecom to defer
until March 2003 payment of (Pounds)50.0 million ($71.3 million) of the
(Pounds)100.0 million originally due March 2002. We also expect to spend
approximately $125 million in the United States for tower improvements,
including enhancements to the structural capacity of our domestic towers in
order to support the anticipated leasing.
We expect that the execution of our new tower build, or build-to-suit,
program will have a material impact on our liquidity. We expect that once
integrated, these new towers will have a positive impact on liquidity, but will
require some period of time to offset the initial adverse impact on liquidity.
In addition, we believe that as new towers become operational and we begin to
add tenants, they should result in a long-term increase in liquidity.
21
To fund the execution of our business strategy, including the construction
of new towers, we expect to use the net proceeds of our recent offerings and
cash provided by operations. We do not currently expect to utilize further
borrowings available under our U.S. and U.K. credit facilities in any
significant amounts. We will have additional cash needs to fund our operations
in the future. We may also have additional cash needs in the future if
additional tower acquisitions or build-to-suit opportunities arise. If we do
not otherwise have cash available, or borrowings under our credit facilities
have otherwise been utilized, when our cash need arises, we would be forced to
seek additional debt or equity financing or to forego the opportunity. In the
event we determine to seek additional debt or equity financing, there can be no
assurance that any such financing will be available, on commercially acceptable
terms or at all, or permitted by the terms of our existing indebtedness.
As of March 31, 2002, we had consolidated cash and cash equivalents of
$780.0 million (including $20.5 million at CCUSA, $183.1 million at CCUK, $30.5
million at Crown Atlantic, $13.3 million at CCAL, $377.9 million in an
unrestricted investment subsidiary and $154.6 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $164.0 million, consolidated long-term debt of
$3,437.9 million, consolidated redeemable preferred stock of $888.6 million and
consolidated stockholders' equity of $2,253.7 million.
As of May 1, 2002, Crown Atlantic had unused borrowing availability under
its amended credit facility of approximately $45.0 million. As of May 1, 2002,
our restricted U.S. and Australian subsidiaries had approximately $500.0
million of unused borrowing availability under the 2000 credit facility. Our
various credit facilities require our subsidiaries to maintain certain
financial covenants and place restrictions on the ability of our subsidiaries
to, among other things, incur debt and liens, pay dividends, make capital
expenditures, undertake transactions with affiliates and make investments.
These facilities also limit the ability of the borrowing subsidiaries to pay
dividends to CCIC.
The primary factors that determine our subsidiaries' ability to comply with
their debt covenants are (1) their current financial performance (based on
earnings before interest, taxes, depreciation and amortization, or "EBITDA"),
(2) their levels of indebtedness and (3) their debt service requirements. Since
we do not currently expect that our subsidiaries will need to utilize
significant additional borrowings under their credit facilities, the primary
risk of a debt covenant violation would result from a deterioration of a
subsidiary's EBITDA performance. In addition, certain of the credit facilities
will require that EBITDA increase in future years as covenant calculations
become more restrictive. Should a covenant violation occur in the future as a
result of a shortfall in EBITDA performance (or for any other reason), we might
be required to make principal payments earlier than currently scheduled and may
not have access to additional borrowings under these facilities as long as the
covenant violation continues. Any such early principal payments would have to
be made from our existing cash balances.
In April 2002, ITVdigital ("ITV") announced plans to liquidate its assets,
and it is anticipated that the liquidation will commence in the near future
(see "Item 5. Other Information"). The termination of the ITV transmission
contract is a Termination Event (a defined event of default) under the CCUK
credit facility. We have entered into discussions with the banks in order to
obtain an amendment to the CCUK credit facility such that the Termination Event
would be cured. Based on these preliminary discussions, we do not currently
believe that we will be required to prepay the outstanding borrowings under the
CCUK credit facility as a result of this event of default. However, there can
be no assurance that such an amendment can be obtained. As a result, we have
reclassified all the outstanding borrowings under the CCUK credit facility as
current liabilities on our consolidated balance sheet as of March 31, 2002. If
we are unable to obtain an amendment to the CCUK credit facility as discussed
above, the uncured Termination Event would result in an event of default under
the trust deed governing the CCUK bonds. As a result, we have also reclassified
the principal amount of the CCUK bonds as a current liability on our
consolidated balance sheet as of March 31, 2002.
If we are unable to refinance our subsidiary debt or renegotiate the terms
of such debt, we may not be able to meet our debt service requirements,
including interest payments on the notes, in the future. Our 9% senior notes,
our 9 1/2% senior notes, our 10 3/4% senior notes and our 9 3/8% senior notes
require annual cash interest
22
payments of approximately $16.2 million, $11.9 million, $53.8 million and $42.2
million, respectively. Prior to November 15, 2002, May 15, 2004 and August 1,
2004, the interest expense on our 10 5/8% discount notes, our 10 3/8% discount
notes and our 11 1/4% discount notes, respectively, will be comprised solely of
the amortization of original issue discount. Thereafter, the 10 5/8% discount
notes, the 10 3/8% discount notes and the 11 1/4% discount notes will require
annual cash interest payments of approximately $26.7 million, $51.9 million and
$29.3 million, respectively. Prior to December 15, 2003, we do not expect to
pay cash dividends on our 12 3/4% exchangeable preferred stock or, if issued,
cash interest on the exchange debentures. Thereafter, assuming all dividends or
interest have been paid-in-kind, our exchangeable preferred stock or, if
issued, the exchange debentures will require annual cash dividend or interest
payments of approximately $47.8 million. Annual cash interest payments on the
CCUK bonds are (Pounds)11.25 million ($16.0 million). In addition, our various
credit facilities will require periodic interest payments on amounts borrowed
thereunder, which amounts could be substantial.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 11 1/4% discount notes. The terms of the indebtedness of our
subsidiaries significantly limit their ability to distribute cash to CCIC. As a
result, we will be required to apply a portion of the net proceeds from the
recent debt offerings to fund interest payments on the cash-pay notes. If we do
not retain sufficient funds from the offerings or any future financing, we may
not be able to make our interest payments on the cash-pay notes.
Our joint venture agreements with Bell Atlantic Mobile and GTE (both now
part of Verizon Communications) provide that, upon dissolution of either
venture, Verizon Communications will receive (1) the shares of our common stock
contributed to the venture and (2) a payment equal to a percentage of the fair
market value (at the dissolution date) of the venture's other net assets. As of
March 31, 2002, such percentages would be approximately 24.1% for the Bell
Atlantic Mobile venture and 11.0% for the GTE venture. The 24.1% payment for
the Bell Atlantic Mobile venture could be paid either in cash or shares of our
common stock, at our election. The 11.0% payment for the GTE venture could only
be paid in cash. A dissolution of either venture may be triggered (1) by
Verizon Communications at any time following the third anniversary of the
formation of the applicable venture and (2) by us at any time following the
fourth anniversary of such venture's formation (subject to certain penalties if
prior to the seventh anniversary). Our joint venture with Bell Atlantic Mobile
was formed on March 31, 1999, and our joint venture with GTE was formed on
January 31, 2000.
Our ability to make scheduled payments of principal of, or to pay interest
on, our debt obligations, and our ability to refinance any such debt
obligations, will depend on our future performance, which, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control. In addition, our ability to
refinance any indebtedness in the future would depend in part on our
maintaining adequate credit ratings from the commercial rating agencies. Such
credit ratings are dependent on all the liquidity and performance factors
discussed above, as well as general expectations that the rating agencies have
regarding the outlook for our business and our industry. We anticipate that we
may need to refinance a substantial portion of our indebtedness on or prior to
its scheduled maturity. There can be no assurance that we will be able to
effect any required refinancings of our indebtedness on commercially reasonable
terms or at all.
Restructuring Charges and Asset Write-Down Charges
For the three months ended March 31, 2002, we recorded cash charges of $3.7
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. We expect that the total charges reflected in our 2002
results of operations for this CCUK restructuring will be between approximately
$7.0 million and $13.0 million. For the three months ended March 31, 2002, we
also recorded cash charges of $2.1 million related to additional employee
severance payments at our corporate office in connection with the July 2001
restructuring.
During the three months ended March 31, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $23.7 million for CCUSA and $7.8 million for Crown
Atlantic. For the three months ended March 31, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment.
23
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, our measure of the following information may not be
comparable to similarly titled measures of other companies.
Summarized financial information for (1) CCIC and our Restricted
Subsidiaries and (2) our Unrestricted Subsidiaries is as follows:
March 31, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 188,450 $ 591,568 $ -- $ 780,018
Other current assets.................... 279,253 143,319 -- 422,572
Property and equipment, net............. 3,339,096 1,472,592 -- 4,811,688
Investments............................. 91,500 -- -- 91,500
Investments in Unrestricted Subsidiaries 2,077,745 -- (2,077,745) --
Goodwill................................ 164,023 871,475 -- 1,035,498
Other assets, net....................... 128,292 12,910 -- 141,202
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Current liabilities..................... $ 201,283 $ 517,163 $ -- $ 718,446
Long-term debt, less current maturities. 2,795,192 300,000 -- 3,095,192
Other liabilities....................... 36,703 123,008 -- 159,711
Minority interests...................... 92,878 73,948 -- 166,826
Redeemable preferred stock.............. 888,596 -- -- 888,596
Stockholders' equity.................... 2,253,707 2,077,745 (2,077,745) 2,253,707
---------- ---------- ----------- ----------
$6,268,359 $3,091,864 $(2,077,745) $7,282,478
========== ========== =========== ==========
Three Months Ended March 31, 2002
-------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues.................................................... $122,248 $ 98,369 $ 220,617
Costs of operations (exclusive of depreciation and amortization) 56,567 49,224 105,791
General and administrative...................................... 18,284 3,504 21,788
Corporate development........................................... 2,239 -- 2,239
Restructuring charges........................................... 2,126 3,726 5,852
Asset write-down charges........................................ 23,721 8,220 31,941
Non-cash general and administrative compensation charges........ 872 442 1,314
Depreciation and amortization................................... 47,784 23,931 71,715
-------- -------- ---------
Operating income (loss)......................................... (29,345) 9,322 (20,023)
Interest and other income (expense)............................. (599) (5,491) (6,090)
Interest expense and amortization of deferred financing costs... (64,117) (12,202) (76,319)
Provision for income taxes...................................... (88) (4,571) (4,659)
Minority interests.............................................. 1,523 2,175 3,698
-------- -------- ---------
Net loss........................................................ $(92,626) $(10,767) $(103,393)
======== ======== =========
24
Tower Cash Flow and Adjusted Consolidated Cash Flow for CCIC and our
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Discount Notes and the Certificate (the "1997 and 1998 Securities") and
(2) the indentures governing the 10 3/8% Discount Notes, the 9% Senior Notes,
the 11 1/4% Discount Notes, the 9 1/2% Senior Notes, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended March 31, 2002................. $ 50,150 $ 50,150
========= =========
Consolidated Cash Flow, for the twelve months ended March 31, 2002......... $ 173,100 $ 182,436
Less: Tower Cash Flow, for the twelve months ended March 31, 2002.......... (170,240) (170,240)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2002 200,600 200,600
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2002 $ 203,460 $ 212,796
========= =========
Impact of Recently Issued Accounting Standards
In July 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141"), and Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets ("SFAS 142"). SFAS 141 prohibits the use of the
pooling-of-interests method of accounting for business combinations, and
requires that the purchase method be used for all business combinations after
June 30, 2001. SFAS 141 also changes the manner in which acquired intangible
assets are identified and recognized apart from goodwill. Further, SFAS 141
requires additional disclosures regarding the reasons for business
combinations, the allocation of the purchase price to recognized assets and
liabilities and the recognition of goodwill and other intangible assets. We
have used the purchase method of accounting since our inception, so the
adoption of SFAS 141 will not change our method of accounting for business
combinations. We have adopted the other recognition and disclosure requirements
of SFAS 141 as of July 1, 2001 for any future business combinations. The
transition provisions of SFAS 141 require that the carrying amounts for
goodwill and other intangible assets acquired in prior purchase method business
combinations be reviewed and reclassified in accordance with the new
recognition rules; such reclassifications are to be made in conjunction with
the adoption of SFAS 142. The application of these transition provisions of
SFAS 141 as of January 1, 2002 resulted in a reclassification of other
intangible assets with finite useful lives (the value of site rental contracts
from the acquisition of Crown Communication) to deferred financing costs and
other assets on our consolidated balance sheet. The gross carrying amount,
accumulated amortization and net book value of such reclassified intangible
assets were approximately $26.0 million, $11.5 million and $14.5 million,
respectively. The net book value of these intangible assets will be amortized
using a revised life of 10 years, resulting in amortization expense of
approximately $1.5 million for each of the years ending December 31, 2002
through 2006. We have no other intangible assets from prior business
combinations.
SFAS 142 changes the accounting and disclosure requirements for acquired
goodwill and other intangible assets. The most significant provision of SFAS
142 is that goodwill and other intangible assets with indefinite useful lives
will no longer be amortized, but rather will be tested for impairment on an
annual basis. This annual impairment test will involve (1) a step to identify
potential impairment at a reporting unit level based on fair values, and (2) a
step to measure the amount of the impairment, if any. Intangible assets with
finite useful lives will continue to be amortized over such lives, and tested
for impairment in accordance with the Company's existing policies. SFAS 142
requires disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization, (3) information about impairment losses recognized, and (4) the
estimated amount of
25
intangible asset amortization expense for the next five years. The provisions
of SFAS 142 are effective for fiscal years beginning after December 15, 2001.
In addition, the nonamortization provisions of SFAS 142 were to be immediately
applied for goodwill and other intangible assets acquired in business
combinations subsequent to June 30, 2001. The Company has adopted the
requirements of SFAS 142 as of January 1, 2002. SFAS 142 requires that
transitional impairment tests be performed at its adoption, and provides that
resulting impairment losses for goodwill and other intangible assets with
indefinite useful lives be reported as the effect of a change in accounting
principle. The Company has not yet completed its transitional impairment tests
but, based on preliminary results of those tests, does not currently believe
that an impairment loss for goodwill and other intangible assets will be
recorded upon the adoption of SFAS 142. The Company expects that its
depreciation and amortization expense will decrease by approximately $60.6
million per year as a result of the adoption of SFAS 142. If amortization of
goodwill had not been recorded, and if amortization of other intangible assets
had been recorded using the revised life, our net loss for the three months
ended March 31, 2001 would have been approximately $52.7 million, or $0.34 per
share.
26
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, 2002
/S/ W. BENJAMIN MORELAND
By: _________________________________
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: August 12, 2002
/S/ WESLEY D. CUNNINGHAM
By: _________________________________
Wesley D. Cunningham
Senior Vice President, Chief
Accounting Officer
and Corporate Controller
(Principal Accounting Officer)
Certification Pursuant to
18 U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q/A of Crown Castle
International Corp., a Delaware Corporation (the "Company"), for the period
ending March 31, 2002 as filed with the Securities and Exchange Commission on
the date hereof (the "Report"), each of the undersigned officers of the Company
hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of such
officer's knowledge:
1) the Report complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company as of March 31, 2002 (the last date of the period covered by the
Report).
/s/ JOHN P. KELLY
--------------------------------------
John P. Kelly
President and Chief Executive Officer
August 12, 2002
/s/ W. BENJAMIN MORELAND
--------------------------------------
W. Benjamin Moreland
Senior Vice President, Chief Financial
Officer and Treasurer
August 12, 2002
27