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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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
Suite 500
Houston, Texas 77057-1457
(Address of principal (Zip Code)
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 August 1, 2002: 212,990,370
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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 June 30, 2002............................ 3
Consolidated Statement of Operations and Comprehensive Loss for the three and six months
ended June 30, 2001 and 2002............................................................... 4
Consolidated Statement of Cash Flows for the six months ended June 30, 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.... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 33
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders...................................... 34
Item 5. Other Information........................................................................ 34
Item 6. Exhibits and Reports on Form 8-K......................................................... 35
Signatures and Certifications.................................................................... 36
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, June 30,
2001 2002
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 804,602 $ 701,375
Receivables:
Trade, net of allowance for doubtful accounts of $24,785 and $25,194 at
December 31, 2001 and June 30, 2002, respectively......................... 188,496 170,752
Other....................................................................... 2,364 7,934
Short-term investments.......................................................... 72,963 87,460
Inventories..................................................................... 102,771 102,695
Prepaid expenses and other current assets....................................... 44,865 54,504
---------- -----------
Total current assets..................................................... 1,216,061 1,124,720
Property and equipment, net of accumulated depreciation of $566,837 and $721,060
at December 31, 2001 and June 30, 2002, respectively............................. 4,844,912 4,926,574
Investments........................................................................ 128,500 56,500
Goodwill, net of accumulated amortization of $152,451 at December 31, 2001......... 1,036,914 1,040,283
Deferred financing costs and other assets, net of accumulated amortization of
$32,859 and $39,344 at December 31, 2001 and June 30, 2002, respectively......... 149,071 151,958
---------- -----------
$7,375,458 $ 7,300,035
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 104,149 $ 77,072
Accrued interest................................................................ 60,081 51,220
Accrued compensation and related benefits....................................... 13,553 10,333
Deferred rental revenues and other accrued liabilities.......................... 204,584 246,318
Long-term debt, current maturities.............................................. 29,086 351,710
---------- -----------
Total current liabilities................................................ 411,453 736,653
Long-term debt, less current maturities............................................ 3,394,011 3,117,257
Other liabilities.................................................................. 157,549 164,958
---------- -----------
Total liabilities........................................................ 3,963,013 4,018,868
---------- -----------
Commitments and contingencies
Minority interests................................................................. 168,936 170,511
Redeemable preferred stock......................................................... 878,861 898,630
Stockholders' equity:
Common stock, $.01 par value; 689,100,000 shares authorized; shares issued:
December 31, 2001--218,804,363 and June 30, 2002--221,469,520................. 2,188 2,215
Additional paid-in capital...................................................... 3,301,023 3,320,927
Accumulated other comprehensive loss............................................ (43,246) (2,842)
Accumulated deficit............................................................. (895,317) (1,108,274)
---------- -----------
Total stockholders' equity............................................... 2,364,648 2,212,026
---------- -----------
$7,375,458 $ 7,300,035
========== ===========
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,
------------------- --------------------
2001 2002 2001 2002
--------- -------- --------- ---------
Net revenues:
Site rental and broadcast transmission.............................. $ 139,800 $171,952 $ 273,842 $ 332,216
Network services and other.......................................... 89,616 53,579 168,527 113,932
--------- -------- --------- ---------
229,416 225,531 442,369 446,148
--------- -------- --------- ---------
Operating expenses:
Costs of operations (exclusive of depreciation and amortization):
Site rental and broadcast transmission........................... 59,555 65,946 117,294 128,012
Network services and other....................................... 63,551 45,847 119,007 89,572
General and administrative.......................................... 30,465 28,732 56,360 50,520
Corporate development............................................... 3,758 1,733 7,211 3,972
Restructuring charges............................................... -- 100 -- 5,952
Asset write-down charges............................................ 12,272 765 12,272 32,706
Non-cash general and administrative compensation charges............ 1,380 1,326 2,775 2,640
Depreciation and amortization....................................... 74,756 76,172 148,847 147,887
--------- -------- --------- ---------
245,737 220,621 463,766 461,261
--------- -------- --------- ---------
Operating income (loss)................................................. (16,321) 4,910 (21,397) (15,113)
Other income (expense):
Interest and other income (expense)................................. 4,544 3,840 7,636 (2,250)
Interest expense and amortization of deferred financing costs....... (73,175) (76,388) (139,830) (152,707)
--------- -------- --------- ---------
Loss before income taxes and minority interests......................... (84,952) (67,638) (153,591) (170,070)
Provision for income taxes.............................................. -- (684) (60) (5,343)
Minority interests...................................................... 219 (276) 863 3,422
--------- -------- --------- ---------
Net loss................................................................ (84,733) (68,598) (152,788) (171,991)
Dividends on preferred stock............................................ (20,265) (20,861) (39,770) (40,966)
--------- -------- --------- ---------
Net loss after deduction of dividends on preferred stock................ $(104,998) $(89,459) $(192,558) $(212,957)
========= ======== ========= =========
Net loss................................................................ $ (84,733) $(68,598) $(152,788) $(171,991)
Other comprehensive income (loss):
Foreign currency translation adjustments............................ (17,872) 42,396 (45,465) 40,190
Derivative instruments:
Net change in fair value of cash flow hedging instruments........ 323 (4,193) (3,018) (2,653)
Amounts reclassified into results of operations.................. 356 1,448 134 2,867
--------- -------- --------- ---------
Comprehensive loss before cumulative effect of change in accounting
principle.............................................................. (101,926) (28,947) (201,137) (131,587)
Cumulative effect of change in accounting principle for derivative
financial instruments.................................................. -- -- 178 --
--------- -------- --------- ---------
Comprehensive loss...................................................... $(101,926) $(28,947) $(200,959) $(131,587)
========= ======== ========= =========
Loss per common share--basic and diluted................................ $ (0.49) $ (0.41) $ (0.91) $ (0.97)
========= ======== ========= =========
Common shares outstanding--basic and diluted (in thousands)............. 214,059 220,897 212,627 220,159
========= ======== ========= =========
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,
---------------------
2001 2002
---------- ---------
Cash flows from operating activities:
Net loss....................................................................... $ (152,788) $(171,991)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................ 148,847 147,887
Amortization of deferred financing costs and discounts on long-term debt..... 44,878 49,197
Asset write-down charges..................................................... 12,272 32,706
Non-cash general and administrative compensation charges..................... 2,775 2,640
Minority interests........................................................... (863) (3,422)
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase in deferred rental revenues and other liabilities................. 81,190 32,376
(Increase) decrease in receivables......................................... (32,475) 16,284
(Increase) decrease in inventories, prepaid expenses and other assets...... (37,414) 2,487
Decrease in accounts payable............................................... (5,142) (28,924)
Decrease in accrued interest............................................... (8,403) (9,250)
---------- ---------
Net cash provided by operating activities................................ 52,877 69,990
---------- ---------
Cash flows from investing activities:
Maturities of investments...................................................... 175,000 173,500
Capital expenditures........................................................... (408,694) (199,276)
Purchases of investments....................................................... (137,500) (115,997)
Investments in affiliates and other, including escrow deposit.................. (415,249) (21,122)
Acquisitions of businesses and assets, net of cash acquired.................... (151,129) --
---------- ---------
Net cash used for investing activities................................... (937,572) (162,895)
---------- ---------
Cash flows from financing activities:
Proceeds from issuance of capital stock........................................ 352,295 867
Principal payments on long-term debt........................................... -- (15,245)
Purchase of capital stock...................................................... -- (3,996)
Proceeds from issuance of long-term debt....................................... 450,000 --
Net borrowings under revolving credit agreements............................... 281,829 --
Proceeds from issuance of subsidiary stock to minority shareholder............. 16,434 --
Incurrence of financing costs.................................................. (11,791) --
---------- ---------
Net cash provided by (used for) financing activities..................... 1,088,767 (18,374)
---------- ---------
Effect of exchange rate changes on cash......................................... 1,129 8,052
---------- ---------
Net increase (decrease) in cash and cash equivalents............................ 205,201 (103,227)
Cash and cash equivalents at beginning of period................................ 453,833 804,602
---------- ---------
Cash and cash equivalents at end of period...................................... $ 659,034 $ 701,375
========== =========
Supplemental disclosure of cash flow information:
Interest paid.................................................................. $ 104,267 $ 111,771
Income taxes paid.............................................................. 60 190
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 June 30, 2002, the
consolidated results of operations for the three and six months ended June 30,
2001 and 2002, and the consolidated cash flows for the six months ended June
30, 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 $5,900,000 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.
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of June 30, 2002, the accumulated other comprehensive loss in
consolidated stockholders' equity includes $7,778,000 in losses related to
derivative instruments.
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 at January 1,
2002, respectively, and $26,000,000, $12,209,000 and $13,791,000 at June 30,
2002, 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 completed its transitional impairment tests and has
determined that no impairment losses for goodwill and other intangible assets
will be recorded as a result of the adoption of SFAS 142. The Company expects
that its depreciation and amortization expense will decrease by approximately
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$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 and six months ended June 30, 2001 would have been
as follows:
Three Months Six Months
Ended Ended
June 30, June 30,
2001 2001
------------ ----------
(In thousand of dollars, except
per share amounts)
Net loss, as reported.................................................. $(84,733) $(152,788)
Add back: amortization of goodwill..................................... 15,048 30,139
Adjust: amortization of other intangible assets........................ 287 574
-------- ---------
Net loss, as adjusted.................................................. (69,398) (122,075)
Dividends on preferred stock........................................... (20,265) (39,770)
-------- ---------
Net loss applicable to common stock for basic and diluted computations,
as adjusted.......................................................... $(89,663) $(161,845)
======== =========
Per common share--basic and diluted:
Net loss, as reported........................................... $ (0.49) $ (0.91)
Amortization of goodwill........................................ 0.07 0.14
Adjustment for amortization of other intangible assets.......... -- 0.01
-------- ---------
Net loss, as adjusted........................................... $ (0.42) $ (0.76)
======== =========
A summary of goodwill by operating segment is as follows:
Six Months Ended June 30, 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 -- 3,369 -- 3,369
-------- -------- ------- ----------
Balance at end of period....... $164,023 $820,883 $55,377 $1,040,283
======== ======== ======= ==========
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)
Other Pronouncements
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections ("SFAS 145"). SFAS 145 amends or
rescinds a number of authoritative pronouncements, including Statement of
Financial Accounting Standards No. 4, Reporting Gains and Losses from
Extinguishment of Debt ("SFAS 4"). SFAS 4 required that gains and losses from
extinguishment of debt that were included in the determination of net income or
loss be aggregated and, if material, classified as an extraordinary item, net
of related income tax effect. Upon adoption of SFAS 145, gains and losses from
extinguishment of debt will no longer be classified as an extraordinary item,
but rather will generally be classified as part of other income (expense) on
the Company's consolidated statement of operations. Any such gains or losses
classified as an extraordinary item in prior periods will be reclassified in
future financial statement presentations. The provisions of SFAS 145 related to
the rescission of SFAS 4 are effective for fiscal years beginning after May 15,
2002, with early application encouraged. The Company will adopt the provisions
of SFAS 145 no later than January 1, 2003.
In July 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities
("SFAS 146"). SFAS 146 replaces the previous accounting guidance provided by
Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). SFAS 146 requires
that costs associated with exit or disposal activities be recognized when they
are incurred, rather than at the date of a commitment to an exit or disposal
plan (as provided by EITF 94-3). Examples of costs covered by SFAS 146 include
certain employee severance costs and lease termination costs that are
associated with a restructuring or discontinued operation. The provisions of
SFAS 146 are effective for exit or disposal activities initiated after December
31, 2002, and are to be applied prospectively. The Company will adopt the
requirements of SFAS 146 as of January 1, 2003.
3. Long-term Debt
Long-term debt consists of the following:
December 31, June 30,
2001 2002
------------ ----------
(In thousands of dollars)
2000 Credit Facility................................... $ 700,000 $ 700,000
CCUK Credit Facility................................... 172,050 165,439
Crown Atlantic Credit Facility......................... 300,000 300,000
9% Guaranteed Bonds due 2007........................... 177,401 186,271
10 5/8% Senior Discount Notes due 2007, net of discount 229,321 241,504
10 3/8% Senior Discount Notes due 2011, net of discount 393,320 413,723
9% Senior Notes due 2011............................... 180,000 180,000
111/4% Senior Discount Notes due 2011, net of discount. 196,005 207,030
91/2% Senior Notes due 2011............................ 125,000 125,000
103/4% Senior Notes due 2011........................... 500,000 500,000
9 3/8% Senior Notes due 2011........................... 450,000 450,000
---------- ----------
3,423,097 3,468,967
Less: current maturities............................... (29,086) (351,710)
---------- ----------
$3,394,011 $3,117,257
========== ==========
CCUK Credit Facility
In April 2002, ITV Digital ("ITVD"), a significant customer of CCUK,
announced plans to liquidate its assets and returned its digital terrestrial
television licenses to the UK Independent Television Commission (See
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9). The termination of the ITVD 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 June 30, 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 June 30, 2002. None of the Company's other debt instruments,
including the public debt securities and the two U.S. bank credit facilities,
contain default provisions related to the ITVD transmission contract.
Furthermore, none of these other debt instruments contain cross default
provisions with either of the CCUK debt instruments. As such, the events of
default under the two CCUK debt instruments do not constitute events of default
under any of the Company's other debt instruments.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 123/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
June 30, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 188,590 $ 512,785 $ -- $ 701,375
Other current assets.................... 287,642 135,703 -- 423,345
Property and equipment, net............. 3,334,405 1,592,169 -- 4,926,574
Investments............................. 56,500 -- -- 56,500
Investments in Unrestricted Subsidiaries 2,117,542 -- (2,117,542) --
Goodwill................................ 164,023 876,260 -- 1,040,283
Other assets, net....................... 124,611 27,347 -- 151,958
---------- ---------- ----------- ----------
$6,273,313 $3,144,264 $(2,117,542) $7,300,035
========== ========== =========== ==========
Current liabilities..................... $ 212,082 $ 524,571 $ -- $ 736,653
Long-term debt, less current maturities. 2,817,257 300,000 -- 3,117,257
Other liabilities....................... 38,063 126,895 -- 164,958
Minority interests...................... 95,255 75,256 -- 170,511
Redeemable preferred stock.............. 898,630 -- -- 898,630
Stockholders' equity.................... 2,212,026 2,117,542 (2,117,542) 2,212,026
---------- ---------- ----------- ----------
$6,273,313 $3,144,264 $(2,117,542) $7,300,035
========== ========== =========== ==========
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended June 30, 2002 Six Months Ended June 30, 2002
------------------------------------- -------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues.................. $124,572 $100,959 $225,531 $ 246,820 $199,328 $ 446,148
Costs of operations (exclusive
of depreciation and
amortization)............... 60,027 51,766 111,793 116,594 100,990 217,584
General and administrative.... 21,304 7,428 28,732 39,588 10,932 50,520
Corporate development......... 1,733 -- 1,733 3,972 -- 3,972
Restructuring charges......... 96 4 100 2,222 3,730 5,952
Asset write-down charges...... 597 168 765 24,318 8,388 32,706
Non-cash general and
administrative
compensation charges........ 872 454 1,326 1,744 896 2,640
Depreciation and
amortization................ 50,840 25,332 76,172 98,624 49,263 147,887
-------- -------- -------- --------- -------- ---------
Operating income (loss)....... (10,897) 15,807 4,910 (40,242) 25,129 (15,113)
Interest and other income
(expense)................... (6,883) 10,723 3,840 (7,482) 5,232 (2,250)
Interest expense and
amortization of deferred
financing costs............. (65,231) (11,157) (76,388) (129,348) (23,359) (152,707)
Provision for income taxes.... (102) (582) (684) (190) (5,153) (5,343)
Minority interests............ 1,032 (1,308) (276) 2,555 867 3,422
-------- -------- -------- --------- -------- ---------
Net income (loss)............. $(82,081) $ 13,483 $(68,598) $(174,707) $ 2,716 $(171,991)
======== ======== ======== ========= ======== =========
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 111/4% Discount Notes, the 91/2% Senior Notes, the 103/4% 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 June 30, 2002........ $ 50,753 $ 50,753
========= =========
Consolidated Cash Flow, for the twelve months ended June 30, 2002 $ 174,585 $ 182,737
Less: Tower Cash Flow, for the twelve months ended June 30, 2002. (185,198) (185,198)
Plus: four times Tower Cash Flow, for the three months ended
June 30, 2002.................................................. 203,012 203,012
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended
June 30, 2002.................................................. $ 192,399 $ 200,551
========= =========
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
CCUK Letter of Credit
In April 2002, CCUK issued a letter of credit to one of its customers in
connection with a site development agreement. The letter of credit was issued
through one of CCUSA's lenders in the amount of (Pounds)50,000,000
(approximately $76,225,000) and expires on March 31, 2003.
4. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, June 30,
2001 2002
------------ --------
(In thousands of dollars)
123/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 2001--291,444 and June 30, 2002--310,320 (stated at
mandatory redemption and aggregate liquidation value)............... $292,992 $311,968
81/4% 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)............. 195,793 195,999
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)........................ 390,076 390,663
-------- --------
$878,861 $898,630
======== ========
In June of 2002, the Company paid its quarterly dividend on the 81/4%
Convertible Preferred Stock by issuing 900,000 shares of its common stock. As
allowed by the Deposit Agreement relating to dividend payments on the 81/4%
Convertible Preferred Stock, the Company then repurchased the 900,000 shares of
common stock from the dividend paying agent for $3,996,000 in cash. The Company
utilized cash from an Unrestricted investment subsidiary to effect the stock
repurchase. The Company may choose to continue such issuances and repurchases
of stock in the future in order to avoid further dilution caused by the
issuance of common stock as dividends on its preferred stock.
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.
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,
------------------------ ------------------------
2001 2002 2001 2002
--------- -------- --------- ---------
(In thousands of dollars, except per share amounts)
Net loss......................................... $ (84,733) $(68,598) $(152,788) $(171,991)
Dividends on preferred stock..................... (20,265) (20,861) (39,770) (40,966)
--------- -------- --------- ---------
Net loss applicable to common stock for basic and
diluted computations........................... $(104,998) $(89,459) $(192,558) $(212,957)
========= ======== ========= =========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands)............ 214,059 220,897 212,627 220,159
========= ======== ========= =========
Loss per common share--basic and diluted......... $ (0.49) $ (0.41) $ (0.91) $ (0.97)
========= ======== ========= =========
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of June 30, 2002: (1) options
to purchase 23,927,996 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 81/4% 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.
13
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 June 30, 2002
-----------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 80,321 $ 6,170 $ 62,409 $ 23,052 $ -- $ 171,952
Network services and other....... 37,505 576 8,934 6,564 -- 53,579
---------- -------- ---------- -------- -------- ----------
117,826 6,746 71,343 29,616 -- 225,531
---------- -------- ---------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization).... 57,580 2,447 38,385 13,381 -- 111,793
General and administrative.......... 15,686 1,518 6,346 993 4,189 28,732
Corporate development............... -- -- -- -- 1,733 1,733
---------- -------- ---------- -------- -------- ----------
Adjusted EBITDA..................... 44,560 2,781 26,612 15,242 (5,922) 83,273
Restructuring charges (credits)..... (277) -- 4 -- 373 100
Asset write-down charges............ 597 -- -- 168 -- 765
Non-cash general and administrative
compensation charges.............. 531 -- 454 -- 341 1,326
Depreciation and amortization....... 47,006 3,433 14,926 10,344 463 76,172
---------- -------- ---------- -------- -------- ----------
Operating income (loss)............. (3,297) (652) 11,228 4,730 (7,099) 4,910
Interest and other income
(expense)......................... (572) 133 1,119 190 2,970 3,840
Interest expense and amortization of
deferred financing costs.......... (9,852) (863) (6,409) (4,748) (54,516) (76,388)
Provision for income taxes.......... -- (102) (582) -- -- (684)
Minority interests.................. 457 575 -- (1,308) -- (276)
---------- -------- ---------- -------- -------- ----------
Net income (loss)................... $ (13,264) $ (909) $ 5,356 $ (1,136) $(58,645) $ (68,598)
========== ======== ========== ======== ======== ==========
Capital expenditures................ $ 31,354 $ 1,187 $ 87,476 $ 6,278 $ -- $ 126,295
========== ======== ========== ======== ======== ==========
Total assets (at period end)........ $3,498,942 $279,621 $1,867,318 $904,904 $749,250 $7,300,035
========== ======== ========== ======== ======== ==========
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Six Months Ended June 30, 2002
------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $159,574 $11,183 $115,864 $45,595 $ -- $ 332,216
Network services and other....... 74,854 1,209 24,879 12,990 -- 113,932
-------- ------- -------- ------- --------- ---------
234,428 12,392 140,743 58,585 -- 446,148
-------- ------- -------- ------- --------- ---------
Costs of operations (exclusive of
depreciation and amortization).... 111,512 5,082 75,241 25,749 -- 217,584
General and administrative.......... 28,915 2,779 8,073 2,730 8,023 50,520
Corporate development............... -- -- -- -- 3,972 3,972
-------- ------- -------- ------- --------- ---------
Adjusted EBITDA..................... 94,001 4,531 57,429 30,106 (11,995) 174,072
Restructuring charges (credits)..... (277) -- 3,730 -- 2,499 5,952
Asset write-down charges............ 24,318 -- 431 7,957 -- 32,706
Non-cash general and administrative
compensation charges.............. 1,063 -- 896 -- 681 2,640
Depreciation and amortization....... 91,250 6,619 28,399 20,613 1,006 147,887
-------- ------- -------- ------- --------- ---------
Operating income (loss)............. (22,353) (2,088) 23,973 1,536 (16,181) (15,113)
Interest and other income (expense). (1,315) 295 (4,450) 171 3,049 (2,250)
Interest expense and amortization of
deferred financing costs.......... (19,147) (1,689) (13,961) (9,398) (108,512) (152,707)
Provision for income taxes.......... -- (190) (5,153) -- -- (5,343)
Minority interests.................. 1,276 1,279 -- 867 -- 3,422
-------- ------- -------- ------- --------- ---------
Net income (loss)................... $(41,539) $(2,393) $ 409 $(6,824) $(121,644) $(171,991)
======== ======= ======== ======= ========= =========
Capital expenditures................ $ 72,985 $ 4,143 $105,144 $16,675 $ 329 $ 199,276
======== ======= ======== ======= ========= =========
15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended June 30, 2001
-----------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 64,609 $ 4,471 $ 50,694 $20,026 $ -- $139,800
Network services and other....... 74,325 525 6,240 8,526 -- 89,616
-------- ------- -------- ------- -------- --------
138,934 4,996 56,934 28,552 -- 229,416
-------- ------- -------- ------- -------- --------
Costs of operations (exclusive of
depreciation and amortization).... 76,106 2,271 31,663 13,066 -- 123,106
General and administrative.......... 16,872 1,735 5,316 2,536 4,006 30,465
Corporate development............... -- -- -- -- 3,758 3,758
-------- ------- -------- ------- -------- --------
Adjusted EBITDA..................... 45,956 990 19,955 12,950 (7,764) 72,087
Asset write-down charges............ 3,969 -- 3,785 767 3,751 12,272
Non-cash general and administrative
compensation charges.............. 532 -- 508 -- 340 1,380
Depreciation and amortization....... 39,255 3,064 22,051 9,938 448 74,756
-------- ------- -------- ------- -------- --------
Operating income (loss)............. 2,200 (2,074) (6,389) 2,245 (12,303) (16,321)
Interest and other income (expense). 665 219 815 155 2,690 4,544
Interest expense and amortization of
deferred financing costs.......... (13,798) (752) (6,497) (5,148) (46,980) (73,175)
Provision for income taxes.......... -- -- -- -- -- --
Minority interests.................. (171) 853 -- (463) -- 219
-------- ------- -------- ------- -------- --------
Net loss............................ $(11,104) $(1,754) $(12,071) $(3,211) $(56,593) $(84,733)
======== ======= ======== ======= ======== ========
Capital expenditures................ $ 98,475 $ 171 $ 28,818 $27,248 $ 2,122 $156,834
======== ======= ======== ======= ======== ========
16
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Six Months Ended June 30, 2001
-------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $126,785 $ 7,461 $100,062 $ 39,534 $ -- $ 273,842
Network services and other....... 134,930 525 16,016 17,056 -- 168,527
-------- ------- -------- -------- --------- ---------
261,715 7,986 116,078 56,590 -- 442,369
-------- ------- -------- -------- --------- ---------
Costs of operations (exclusive of
depreciation and amortization).... 142,207 3,366 63,692 27,036 -- 236,301
General and administrative.......... 33,194 3,226 7,019 5,181 7,740 56,360
Corporate development............... -- -- 48 -- 7,163 7,211
-------- ------- -------- -------- --------- ---------
Adjusted EBITDA..................... 86,314 1,394 45,319 24,373 (14,903) 142,497
Asset write-down charges............ 3,969 -- 3,785 767 3,751 12,272
Non-cash general and administrative
compensation charges.............. 1,063 -- 1,031 -- 681 2,775
Depreciation and amortization....... 78,882 4,760 44,270 20,069 866 148,847
-------- ------- -------- -------- --------- ---------
Operating income (loss)............. 2,400 (3,366) (3,767) 3,537 (20,201) (21,397)
Interest and other income (expense). 1,539 75 1,746 170 4,106 7,636
Interest expense and amortization of
deferred financing costs.......... (27,265) (795) (13,532) (10,163) (88,075) (139,830)
Provision for income taxes.......... -- -- (27) (33) -- (60)
Minority interests.................. (369) 1,776 -- (544) -- 863
-------- ------- -------- -------- --------- ---------
Net loss............................ $(23,695) $(2,310) $(15,580) $ (7,033) $(104,170) $(152,788)
======== ======= ======== ======== ========= =========
Capital expenditures................ $212,338 $ 657 $139,647 $ 53,349 $ 2,703 $ 408,694
======== ======= ======== ======== ========= =========
8. Restructuring Charges and Asset Write-Down Charges
The Company recorded asset write-down charges of $12,272,000 during the six
months ended June 30, 2001 in connection with the restructuring of its business
announced in July 2001. Such non-cash charges related to the write-down of
certain inventories, property and equipment, and other assets that were deemed
to have no value as a result of the restructuring. A summary of the asset
write-down charges by operating segment is as follows:
Six Months Ended June 30, 2001
---------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
------ ------ -------- --------- ------------
(In thousands of dollars)
Inventories........... $ -- $3,785 $ -- $ -- $ 3,785
Property and equipment 3,969 -- 767 456 5,192
Other assets.......... -- -- -- 3,295 3,295
------ ------ ---- ------ -------
$3,969 $3,785 $767 $3,751 $12,272
====== ====== ==== ====== =======
17
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the six months ended June 30, 2002, the Company recorded cash charges of
$3,730,000 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 six months ended June 30,
2002, the Company also recorded cash charges of $2,499,000 related to
additional employee severance payments at its corporate office in connection
with the July 2001 restructuring. At December 31, 2001 and June 30, 2002, other
accrued liabilities includes $6,591,000 and $1,786,000, respectively, related
to restructuring charges. A summary of the restructuring charges by operating
segment is as follows:
Six Months Ended June 30, 2002
-----------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and 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 (credited) to expense:
Employee severance........................ -- 3,399 -- 2,397 5,796
Costs of office closures and other........ (277) 331 -- 102 156
------ ------- ----- ------- --------
Total restructuring charges (credits)... (277) 3,730 -- 2,499 5,952
------ ------- ----- ------- --------
Amounts paid:
Employee severance........................ (685) (3,450) (153) (5,882) (10,170)
Costs of office closures and other........ (185) (278) (55) (69) (587)
------ ------- ----- ------- --------
(870) (3,728) (208) (5,951) (10,757)
------ ------- ----- ------- --------
Amounts accrued at end of period:
Employee severance........................ 441 306 77 83 907
Costs of office closures and other........ 613 53 180 33 879
------ ------- ----- ------- --------
$1,054 $ 359 $ 257 $ 116 $ 1,786
====== ======= ===== ======= ========
During the six months ended June 30, 2002, the Company abandoned a portion
of its construction in process related to certain open projects and recorded
related asset write-down charges of $24,318,000 for CCUSA and $7,957,000 for
Crown Atlantic. For the six months ended June 30, 2002, the Company also
recorded asset write-down charges of $431,000 for CCUK related to certain
inventories and property and equipment.
9. ITV Digital
From 1999 to March 2002, pursuant to a digital transmission contract with an
original term of twelve years, CCUK was responsible for the transmission of the
ITV Digital ("ITVD") signal through the CCUK-owned digital terrestrial
television ("DTT") network to approximately 1.2 million subscribers in the U.K.
In April 2002, after a U.K. court approved an application by ITVD to be placed
into administration (similar to a Chapter 11 bankruptcy proceeding in the
United States) and unsuccessful efforts by the administrator to sell the ITVD
business as a going concern, ITVD announced plans to liquidate its assets and
returned its DTT licenses to the UK Independent Television Commission ("ITC").
CCUK had gross revenues of approximately $27,600,000 annually under the ITVD
transmission contract. ITVD represented approximately 12% of the 2001 gross
revenues of CCUK and approximately 3% of the 2001 consolidated gross revenues
of the Company.
18
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following the return of the licenses by ITVD, the ITC announced a process
for reawarding the three digital multiplex licenses which ITVD previously held.
In June 2002, CCUK and the BBC submitted linked applications for these
licenses. On July 4, 2002, the ITC conditionally awarded the license for one
multiplex to the BBC and the license for two multiplexes to CCUK. No license
fees were paid to the UK government with respect to the award of the multiplex
licenses other than an approximately $38,000 application fee per multiplex.
CCUK has entered into a preliminary agreement with the BBC to provide a
transmission and distribution service for the multiplex awarded to the BBC.
CCUK has also entered into a preliminary agreement with BSkyB to provide a
transmission, distribution and multiplexing service in relation to 75% of the
available capacity of one of the multiplexes awarded to CCUK. CCUK expects to
enter into additional agreements to provide transmission, distribution and
multiplexing services to channel providers for the other multiplex capacity
awarded to CCUK. Starting in the first quarter of 2003, CCUK expects to
generate annual revenues from the BBC, BSkyB and other broadcasters of between
approximately $26,000,000 and $30,000,000 from the provision of transmission,
distribution and multiplexing services related to the new multiplex licenses.
CCUK has already invested, as a result of its previous contract with ITVD,
substantially all of the capital required to provide the services described
above. CCUK expects to invest approximately an additional $3,000,000 to
increase the power of the transmission network at a number of sites. CCUK is
already incurring, again by virtue of its previous contract with ITVD,
substantially all of the operating costs required to provide these services
(including payments to British Telecom for distribution circuits and payments
to NTL for site rental). In total, CCUK is incurring annual operating expenses
of between approximately $20,000,000 and $23,000,000 from the provision of
transmission, distribution and multiplexing services to the BBC, BSkyB and
other broadcasters related to the new multiplex licenses. The termination of
the ITVD transmission contract is a Termination Event under the CCUK credit
facility (see Note 3).
10. Subsequent Event
In July of 2002, the Company repurchased 8,500,000 shares of its common
stock for $18,275,000 in cash. The shares purchased by the Company represented
all of the remaining shares previously owned by affiliates of France Telecom.
The purchase was conducted through a privately negotiated transaction. The
Company utilized cash from an Unrestricted investment subsidiary to effect the
stock repurchase.
19
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 June 30, 2002 and our consolidated
results of operations for the three- and six-month periods ended June 30, 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, assumptions 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.
. Sales or issuances, including as dividends, of a substantial number of
shares of our common stock could adversely affect the market price of our
common stock.
20
. 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 and six months
ended June 30, 2001 are not comparable to the results of operations for the
three and six months ended June 30, 2002.
During the first six months of 2002, the level of capital expenditures from
US wireless carriers for new tower sites has generally been less than levels
experienced in 2001. As a result, the pace at which we have been able to add
new tenants to our sites has decreased during 2002.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 2001 June 30, 2002 June 30, 2001 June 30, 2002
------------------ ------------------ ------------------- -------------------
Percent of Percent of Percent of Percent of
Net Net Net Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
-------- ---------- -------- ---------- --------- ---------- --------- ----------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission............... $139,800 60.9% $171,952 76.2% $ 273,842 61.9% $ 332,216 74.5%
Network services and other.. 89,616 39.1 53,579 23.8 168,527 38.1 113,932 25.5
-------- ----- -------- ----- --------- ----- --------- -----
Total net revenues...... 229,416 100.0 225,531 100.0 442,369 100.0 446,148 100.0
-------- ----- -------- ----- --------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission.............. 59,555 42.6 65,946 38.4 117,294 42.8 128,012 38.5
Network services and
other..................... 63,551 70.9 45,847 85.6 119,007 70.6 89,572 78.6
-------- -------- --------- ---------
Total costs of
operations............. 123,106 53.7 111,793 49.6 236,301 53.4 217,584 48.8
General and administrative.. 30,465 13.3 28,732 12.7 56,360 12.7 50,520 11.3
Corporate development....... 3,758 1.6 1,733 0.8 7,211 1.6 3,972 0.9
Restructuring charges....... -- -- 100 -- -- -- 5,952 1.3
Asset write-down charges.... 12,272 5.3 765 0.3 12,272 2.8 32,706 7.3
Non-cash general and
administrative
compensation charges....... 1,380 0.6 1,326 0.6 2,775 0.6 2,640 0.6
Depreciation and
amortization............... 74,756 32.6 76,172 33.8 148,847 33.7 147,887 33.2
-------- ----- -------- ----- --------- ----- --------- -----
Operating income (loss)....... (16,321) (7.1) 4,910 2.2 (21,397) (4.8) (15,113) (3.4)
Other income (expense):
Interest and other income
(expense).................. 4,544 2.0 3,840 1.7 7,636 1.7 (2,250) (0.5)
Interest expense and
amortization of deferred
financing costs............ (73,175) (31.9) (76,388) (33.9) (139,830) (31.6) (152,707) (34.2)
-------- ----- -------- ----- --------- ----- --------- -----
Loss before income taxes and
minority interests........... (84,952) (37.0) (67,638) (30.0) (153,591) (34.7) (170,070) (38.1)
Provision for income taxes.... -- -- (684) (0.3) (60) -- (5,343) (1.2)
Minority interests............ 219 0.1 (276) (0.1) 863 0.2 3,422 0.7
-------- ----- -------- ----- --------- ----- --------- -----
Net loss...................... $(84,733) (36.9)% $(68,598) (30.4)% $(152,788) (34.5)% $(171,991) (38.6)%
======== ===== ======== ===== ========= ===== ========= =====
21
Comparison of Three Months Ended June 30, 2002 and 2001
Consolidated revenues for the three months ended June 30, 2002 were $225.5
million, a decrease of $3.9 million from the three months ended June 30, 2001.
This decrease was primarily attributable to:
(1) a $36.8 million decrease in network services and other revenues from
CCUSA and
(2) a $2.0 million decrease in network services and other revenues from
Crown Atlantic, partially offset by
(3) a $32.2 million, or 23.0%, increase in site rental and broadcast
transmission revenues, of which $11.7 million was attributable to
CCUK, $3.0 million was attributable to Crown Atlantic, $1.7 million
was attributable to CCAL and $15.7 million was attributable to CCUSA,
and
(4) a $2.7 million increase in network services and other revenues from
CCUK.
The following is a summary of tenant leasing activity on our tower sites:
Three Months
Ended June 30,
-------------
2001 2002
------ ------
New tenants added on existing, newly constructed and acquired tower sites, net:
CCUSA (includes 130 tenants from acquired tower sites in 2001).............. 1,058 479
Crown Atlantic.............................................................. 192 75
CCUK (includes 459 tenants from acquired tower sites in 2001)............... 1,156 379
CCAL (includes 1,054 tenants from acquired tower sites in 2001)............. 1,141 112
------ ------
3,547 1,045
====== ======
Average monthly lease rate per new tenant added on existing tower sites:
CCUSA and Crown Atlantic.................................................... $1,498 $1,476
CCUK........................................................................ 686 1,078
CCAL........................................................................ 608 650
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 June 30, 2002 were $111.8
million, a decrease of $11.3 million from the three months ended June 30, 2001.
This decrease was primarily attributable to:
(1) a $21.1 million decrease in network services costs related to CCUSA
and
(2) a $0.5 million decrease in network services costs from Crown
Atlantic, partially offset by
(3) a $6.4 million increase in site rental and broadcast transmission
costs, of which $2.7 million was attributable to CCUK, $0.8 million
was attributable to Crown Atlantic, $0.3 million was attributable to
CCAL and $2.6 million was attributable to CCUSA, and
(4) a $4.0 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 38.4% for the
three months ended June 30, 2002 from 42.6% for the three months ended June 30,
2001, because of higher margins attributable to incremental revenues from the
CCUSA, CCUK, Crown Atlantic and CCAL operations. Costs of operations for
network services and other as a percentage of network services and other
revenues increased to 85.6% for the three months ended June 30, 2002 from 70.9%
for the three months ended June 30, 2001 because of lower margins from the
CCUSA, CCUK and Crown Atlantic operations.
22
General and administrative expenses for the three months ended June 30, 2002
were $28.7 million, a decrease of $1.7 million from the three months ended June
30, 2001. This decrease was primarily attributable to:
(1) a $1.2 million decrease in expenses related to the CCUSA operations,
(2) a $1.5 million decrease in expenses at Crown Atlantic, and
(3) a $0.2 million decrease in expenses at CCAL, partially offset by
(4) a $1.0 million increase in expenses at CCUK, and
(5) a $0.2 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, partially offset by a charge of approximately $2.6 million for a bad debt
provision at CCUK related to the ITV Digital liquidation (see "Item 5. Other
Information"). General and administrative expenses as a percentage of revenues
decreased to 12.7% for the three months ended June 30, 2002 from 13.3% for the
three months ended June 30, 2001 because of lower overhead costs as a
percentage of revenues for CCAL, CCUK and Crown Atlantic.
Corporate development expenses for the three months ended June 30, 2002 were
$1.7 million, compared to $3.8 million for the three months ended June 30,
2001. This decrease was attributable to a decrease in expenses at our corporate
office.
During the three months ended June 30, 2002, we recorded asset write-down
charges of $0.6 million for CCUSA and $0.2 million for Crown Atlantic. For the
three months ended June 30, 2001, we recorded asset write-down charges of $12.3
million in connection with the July 2001 restructuring. Such non-cash charges
related to write-downs of certain inventories, property and equipment, and
other assets. See "--Restructuring Charges and Asset Write-Down Charges".
For the three months ended June 30, 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 June 30, 2001.
Depreciation and amortization for the three months ended June 30, 2002 was
$76.2 million, an increase of $1.4 million from the three months ended June 30,
2001. This increase was primarily attributable to:
(1) a $10.2 million increase in depreciation related to property and
equipment and amortization of other intangible assets from CCUSA,
(2) a $4.7 million increase in depreciation related to property and
equipment from CCUK,
(3) a $1.2 million increase in depreciation related to property and
equipment from Crown Atlantic, and
(4) a $0.4 million increase in depreciation related to property and
equipment from CCAL, partially offset by
(5) a $15.0 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $2.4 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").
23
Interest and other income (expense) for the three months ended June 30, 2002
resulted primarily from:
(1) interest income and foreign exchange gains from invested cash
balances, partially offset by
(2) charges of approximately $5.0 million for the write-down of
investments in unconsolidated affiliates,
(3) our share of losses incurred by unconsolidated affiliates and
(4) costs incurred in connection with unsuccessful network acquisitions.
Interest expense and amortization of deferred financing costs for the three
months ended June 30, 2002 was $76.4 million, an increase of $3.2 million, or
4.4%, from the three months ended June 30, 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 $0.7 million for the three months ended
June 30, 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.
Comparison of Six Months Ended June 30, 2002 and 2001
Consolidated revenues for the six months ended June 30, 2002 were $446.1
million, an increase of $3.8 million from the six months ended June 30, 2001.
This increase was primarily attributable to:
(1) a $58.4 million, or 21.3%, increase in site rental and broadcast
transmission revenues, of which $15.8 million was attributable to
CCUK, $6.1 million was attributable to Crown Atlantic, $3.7 million
was attributable to CCAL and $32.8 million was attributable to CCUSA,
(2) an $8.9 million increase in network services and other revenues from
CCUK, and
(3) a $0.7 million increase in network services and other revenues from
CCAL, partially offset by
(4) a $60.1 million decrease in network services and other revenues from
CCUSA, and
(5) a $4.1 million decrease in network services and other revenues from
Crown Atlantic.
The following is a summary of tenant leasing activity on our tower sites:
Six Months
Ended June 30,
-------------
2001 2002
------ ------
New tenants added on existing, newly constructed and acquired tower sites, net:
CCUSA (includes 130 tenants from acquired tower sites in 2001).............. 1,989 1,241
Crown Atlantic.............................................................. 377 214
CCUK (includes 459 tenants from acquired tower sites in 2001)............... 1,782 778
CCAL (includes 1,054 tenants from acquired tower sites in 2001)............. 1,280 208
------ ------
5,428 2,441
====== ======
Average monthly lease rate per new tenant added on existing tower sites:
CCUSA and Crown Atlantic.................................................... $1,487 $1,478
CCUK........................................................................ 619 1,074
CCAL........................................................................ 622 610
24
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 six months ended June 30, 2002 were $217.6
million, a decrease of $18.7 million from the six months ended June 30, 2001.
This decrease was primarily attributable to:
(1) a $34.2 million decrease in network services costs related to CCUSA
and
(2) a $2.7 million decrease in network services costs from Crown
Atlantic, partially offset by
(3) a $10.7 million increase in site rental and broadcast transmission
costs, of which $4.4 million was attributable to CCUK, $1.4 million
was attributable to Crown Atlantic, $1.4 million was attributable to
CCAL and $3.5 million was attributable to CCUSA,
(4) a $7.1 million increase in network services costs from CCUK, and
(5) a $0.3 million increase in network services costs from CCAL.
Costs of operations for site rental and broadcast transmission as a
percentage of site rental and broadcast transmission revenues decreased to
38.5% for the six months ended June 30, 2002 from 42.8% for the six months
ended June 30, 2001, because of higher margins attributable to incremental
revenues from the CCUSA, CCUK, Crown Atlantic and CCAL operations. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 78.6% for the six months ended June 30, 2002
from 70.6% for the six months ended June 30, 2001 because of lower margins from
the CCUSA operations, partially offset by higher margins from the CCUK and
Crown Atlantic operations.
General and administrative expenses for the six months ended June 30, 2002
were $50.5 million, a decrease of $5.8 million from the six months ended June
30, 2001. This decrease was primarily attributable to:
(1) a $4.3 million decrease in expenses related to the CCUSA operations,
(2) a $2.5 million decrease in expenses at Crown Atlantic, and
(3) a $0.4 million decrease in expenses at CCAL, partially offset by
(4) a $1.1 million increase in expenses at CCUK, and
(5) a $0.3 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, partially offset by a charge of approximately $2.6 million for a bad debt
provision at CCUK related to the ITV Digital liquidation (see "Item 5. Other
Information"). General and administrative expenses as a percentage of revenues
decreased to 11.3% for the six months ended June 30, 2002 from 12.7% for the
six months ended June 30, 2001 because of lower overhead costs as a percentage
of revenues for CCUSA, CCAL, CCUK and Crown Atlantic.
Corporate development expenses for the six months ended June 30, 2002 were
$4.0 million, compared to $7.2 million for the six months ended June 30, 2001.
This decrease was primarily attributable to a decrease in expenses at our
corporate office.
For the six months ended June 30, 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 six months ended June 30, 2002, we also
recorded cash charges of $2.5 million related primarily to additional employee
severance payments at our corporate office in connection with the July 2001
restructuring. See "--Restructuring Charges and Asset Write-Down Charges".
25
During the six months ended June 30, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $24.3 million for CCUSA and $8.0 million for Crown
Atlantic. For the six months ended June 30, 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 six months ended June 30, 2001, we recorded asset write-down
charges of $12.3 million in connection with the July 2001 restructuring. Such
non-cash charges related to write-downs of certain inventories, property and
equipment, and other assets.
For the six months ended June 30, 2002, we recorded non-cash general and
administrative compensation charges of $2.6 million related to the issuance of
stock and stock options to certain employees and executives, compared to $2.8
million for the six months ended June 30, 2001.
Depreciation and amortization for the six months ended June 30, 2002 was
$147.9 million, a decrease of $1.0 million from the six months ended June 30,
2001. This decrease was primarily attributable to:
(1) a $30.1 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $4.9 million was attributable to CCUSA,
$23.7 million was attributable to CCUK and $1.6 million was
attributable to Crown Atlantic (see "--Impact of Recently Issued
Accounting Standards"), partially offset by
(2) a $7.8 million increase in depreciation related to property and
equipment from CCUK,
(3) a $17.3 million increase in depreciation related to property and
equipment and amortization of other intangible assets from CCUSA,
(4) a $1.9 million increase in depreciation related to property and
equipment from CCAL, and
(5) a $2.1 million increase in depreciation related to property and
equipment from Crown Atlantic.
Interest and other income (expense) for the six months ended June 30, 2002
resulted primarily from:
(1) charges of approximately $12.0 million for the write-down of
investments in unconsolidated affiliates,
(2) our share of losses incurred by unconsolidated affiliates and
(3) costs incurred in connection with unsuccessful network acquisitions,
partially offset by
(4) interest income and foreign exchange gains from invested cash
balances.
Interest expense and amortization of deferred financing costs for the six
months ended June 30, 2002 was $152.7 million, an increase of $12.9 million, or
9.2%, from the six months ended June 30, 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 $5.3 million for the six months ended June
30, 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.
26
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures,
although reduced from previous years' levels, in connection with the selective
expansion of our tower portfolios in the markets in which we currently operate.
During the remainder of 2002 and continuing into 2003, we expect that the
majority of our capital expenditures will occur at CCUK in connection with the
development of the sites acquired from British Telecom.
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 six months ended June 30, 2001 and 2002, our net cash provided by
operating activities was $52.9 million and $70.0 million, respectively. For the
six months ended June 30, 2001 and 2002, our net cash provided by (used for)
financing activities was $1,088.8 million and $(18.4) million, respectively.
For the remaining six months of 2002, we expect that our net cash provided by
operating activities will be between approximately $90 million and $110 million.
Capital expenditures were $199.3 million for the six months ended June 30,
2002, of which $0.3 million were for CCIC, $73.0 million were for CCUSA, $16.7
million were for Crown Atlantic, $105.1 million were for CCUK and $4.1 million
were for CCAL. We anticipate that we will build, through the end of 2002,
approximately 230 to 250 towers in the United States at a cost of approximately
$88 million and approximately 400 to 430 towers in the United Kingdom at a cost
of approximately $87 million. In addition, we were obligated to pay a site
access fee to British Telecom in the amount of (Pounds)100.0 million ($152.5
million). In April 2002, we reached agreement with British Telecom to defer
until March 2003 payment of (Pounds)50.0 million ($76.2 million) of the
(Pounds)100.0 million originally due March 2002; the other (Pounds)50.0 million
($73.4 million) was paid in the second quarter of 2002. We also expect to spend
approximately $60 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. For the remaining six months of 2002,
we expect that our total capital expenditures will be between approximately $90
million and $110 million. As such, we expect that our capital expenditures for
this period will be fully funded by net cash provided by operating activities,
as discussed above.
We expect that the execution of our new tower build 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. Our decisions regarding the
construction of new towers are discretionary, and depend upon expectations of
achieving acceptable rates of return given current market conditions. Such
decisions are influenced by the availability of capital and expected returns on
alternative investments. We have increased our minimum acceptable level for
internal rates of return on new tower builds given current market conditions,
and may continue to decrease the number of new towers built in the future.
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
27
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 June 30, 2002, we had consolidated cash and cash equivalents of $701.4
million (including $29.2 million at CCUSA, $111.3 million at CCUK, $47.9
million at Crown Atlantic, $13.9 million at CCAL, $353.6 million in an
unrestricted investment subsidiary and $145.5 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $144.0 million, consolidated long-term debt of
$3,469.0 million, consolidated redeemable preferred stock of $898.6 million and
consolidated stockholders' equity of $2,212.0 million.
In June of 2002, we paid our quarterly dividend on the 81/4% Convertible
Preferred Stock by issuing 900,000 shares of our common stock. As allowed by
the Deposit Agreement relating to dividend payments on the 81/4% Convertible
Preferred Stock, we then repurchased the 900,000 shares of common stock from
the dividend paying agent for $4.0 million in cash. We utilized cash from an
Unrestricted investment subsidiary to effect the stock repurchase. We may
choose to continue such issuances and repurchases of stock in the future in
order to avoid further dilution caused by the issuance of common stock as
dividends on our preferred stock.
In July of 2002, we repurchased 8.5 million shares of our common stock for
$18.3 million in cash. The shares purchased by us represented all of the
remaining shares previously owned by affiliates of France Telecom. The purchase
was conducted through a privately negotiated transaction. We utilized cash from
an Unrestricted investment subsidiary to effect the stock repurchase.
We seek to allocate our available capital among the investment alternatives
that provide the greatest returns given current market conditions. As such, we
may continue to acquire sites, build new towers and make improvements to
existing towers when the expected returns from such expenditures meet our
investment criteria. In addition, we may utilize a portion of our available
cash balances to repurchase our own stock (either common or preferred) or debt
securities from time to time as market prices make such investments attractive.
As of August 1, 2002, Crown Atlantic had unused borrowing availability under
its amended credit facility of approximately $45.0 million. As of August 1,
2002, our restricted U.S. and Australian subsidiaries had approximately $435.6
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, ITV Digital ("ITVD") announced plans to liquidate its assets
and returned its digital terrestrial television licenses to the UK Independent
Television Commission (see "Item 5. Other Information"). The termination of the
ITVD 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,
28
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
June 30, 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 June 30, 2002. None of our
other debt instruments, including the public debt securities and the two U.S.
bank credit facilities, contain default provisions related to the ITVD
transmission contract. Furthermore, none of these other debt instruments
contain cross default provisions with either of the CCUK debt instruments. As
such, the events of default under the two CCUK debt instruments do not
constitute events of default under any of our other debt instruments.
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 91/2% senior notes, our 103/4% senior notes and our 9 3/8% senior notes
require annual cash interest payments of approximately $16.2 million, $11.9
million, $53.8 million and $42.2 million, respectively. Prior to November 15,
2002, May 15, 2004 and August 1, 2004, the interest expense on our 10 5/8%
discount notes, our 10 3/8% discount notes and our 111/4% 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 111/4% 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
123/4% 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 ($17.2 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 111/4% 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
June 30, 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
29
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 six months ended June 30, 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 six months ended June 30, 2002, we also
recorded cash charges of $2.5 million related primarily to additional employee
severance payments at our corporate office in connection with the July 2001
restructuring.
During the six months ended June 30, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $24.3 million for CCUSA and $8.0 million for Crown
Atlantic. For the six months ended June 30, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment. For the six months ended June 30, 2001, we recorded
asset write-down charges of $12.3 million in connection with the July 2001
restructuring. Such non-cash charges related to write-downs of certain
inventories ($3.8 million), property and equipment ($5.2 million), and other
assets ($3.3 million) that were deemed to have no value as a result of the
restructuring.
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 123/4% 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.
30
Summarized financial information for (1) CCIC and our Restricted
Subsidiaries and (2) our Unrestricted Subsidiaries is as follows:
June 30, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 188,590 $ 512,785 $ -- $ 701,375
Other current assets.................... 287,642 135,703 -- 423,345
Property and equipment, net............. 3,334,405 1,592,169 -- 4,926,574
Investments............................. 56,500 -- -- 56,500
Investments in Unrestricted Subsidiaries 2,117,542 -- (2,117,542) --
Goodwill................................ 164,023 876,260 -- 1,040,283
Other assets, net....................... 124,611 27,347 -- 151,958
---------- ---------- ----------- ----------
$6,273,313 $3,144,264 $(2,117,542) $7,300,035
========== ========== =========== ==========
Current liabilities..................... $ 212,082 $ 524,571 $ -- $ 736,653
Long-term debt, less current maturities. 2,817,257 300,000 -- 3,117,257
Other liabilities....................... 38,063 126,895 -- 164,958
Minority interests...................... 95,255 75,256 -- 170,511
Redeemable preferred stock.............. 898,630 -- -- 898,630
Stockholders' equity.................... 2,212,026 2,117,542 (2,117,542) 2,212,026
---------- ---------- ----------- ----------
$6,273,313 $3,144,264 $(2,117,542) $7,300,035
========== ========== =========== ==========
Three Months Ended June 30, 2002 Six Months Ended June 30, 2002
------------------------------------- -------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues.................. $124,572 $100,959 $225,531 $ 246,820 $199,328 $ 446,148
Costs of operations (exclusive
of depreciation and
amortization)............... 60,027 51,766 111,793 116,594 100,990 217,584
General and administrative.... 21,304 7,428 28,732 39,588 10,932 50,520
Corporate development......... 1,733 -- 1,733 3,972 -- 3,972
Restructuring charges......... 96 4 100 2,222 3,730 5,952
Asset write-down charges...... 597 168 765 24,318 8,388 32,706
Non-cash general and
administrative
compensation charges........ 872 454 1,326 1,744 896 2,640
Depreciation and
amortization................ 50,840 25,332 76,172 98,624 49,263 147,887
-------- -------- -------- --------- -------- ---------
Operating income (loss)....... (10,897) 15,807 4,910 (40,242) 25,129 (15,113)
Interest and other income
(expense)................... (6,883) 10,723 3,840 (7,482) 5,232 (2,250)
Interest expense and
amortization of deferred
financing costs............. (65,231) (11,157) (76,388) (129,348) (23,359) (152,707)
Provision for income taxes.... (102) (582) (684) (190) (5,153) (5,343)
Minority interests............ 1,032 (1,308) (276) 2,555 867 3,422
-------- -------- -------- --------- -------- ---------
Net loss...................... $(82,081) $ 13,483 $(68,598) $(174,707) $ 2,716 $(171,991)
======== ======== ======== ========= ======== =========
31
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 111/4% Discount Notes, the 91/2% Senior Notes, the 103/4% Senior Notes and
the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1998 1999, 2000 and 2001
Securities Securities
------------- -------------------
(In thousands of dollars)
Tower Cash Flow, for the three months ended June 30, 2002............ $ 50,753 $ 50,753
========= =========
Consolidated Cash Flow, for the twelve months ended June 30, 2002.... $ 174,585 $ 182,737
Less: Tower Cash Flow, for the twelve months ended June 30, 2002..... (185,198) (185,198)
Plus: four times Tower Cash Flow, for the three months ended June 30,
2002............................................................... 203,012 203,012
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended June 30,
2002............................................................... $ 192,399 $ 200,551
========= =========
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 at
January 1, 2002, respectively, and $26.0 million, $12.2 million and $13.8
million at June 30, 2002, 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 our existing policies. SFAS 142 requires
disclosures about goodwill and other intangible assets in the periods
subsequent to their acquisition, including (1) changes in the carrying amount
of goodwill, in total and by operating segment, (2) the carrying amounts of
intangible assets subject to amortization and those which are not subject to
amortization,
32
(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. We have 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. We have completed our transitional impairment tests and have
determined that no impairment losses for goodwill and other intangible assets
will be recorded as a result of the adoption of SFAS 142. We expect that our
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 and loss per share for
the three and six months ended June 30, 2001 would have been $69.4 million
($0.42 per share) and $122.1 million ($0.76 per share), respectively.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of our international operating, investing and financing
activities, we are exposed to market risks, which include changes in foreign
currency exchange rates and interest rates which may adversely affect our
results of operations and financial position. In attempting to minimize the
risks and/or costs associated with such activities, we seek to manage exposure
to changes in interest rates and foreign currency exchange rates where
economically prudent to do so.
Certain of the financial instruments we have used to obtain capital are
subject to market risks from fluctuations in market interest rates. The
majority of our financial instruments, however, are long-term fixed interest
rate notes and debentures. A fluctuation in market interest rates of one
percentage point in 2002 would impact our interest expense by approximately
$10.2 million. As of June 30, 2002, we have approximately $1,165.4 million of
floating rate indebtedness, of which approximately $150.0 million has been
effectively converted to fixed rate indebtedness through the use of interest
rate swap agreements.
The majority of our foreign currency transactions are denominated in the
British pound sterling or the Australian dollar, which are the functional
currencies of CCUK and CCAL, respectively. As a result of CCUK's and CCAL's
transactions being denominated and settled in such functional currencies, the
risks associated with currency fluctuations are generally limited to foreign
currency translation adjustments. We do not currently hedge against foreign
currency translation risks and believe that foreign currency exchange risk is
not significant to our operations.
33
PART II-- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of the stockholders of the Company was held on May 29,
2002, at which meeting the stockholders voted to elect Dale N. Hatfield, Lee W.
Hogan and Robert F. McKenzie as Class I Directors and ratified the appointment
of KPMG LLP as independent public accountants for 2002. The voting results for
each proposal submitted to a vote is listed below.
Election of Class I Directors
Dale N. Hatfield--184,499,212 votes for and 1,225,890 votes withheld.
Lee W. Hogan--185,127,206 votes for and 597,896 votes withheld.
Robert F. McKenzie--183,159,452 votes for and 2,565,650 votes withheld.
Ratification of Appointment of KPMG LLP as Independent Auditors for 2002
184,090,930 votes for, 1,598,600 votes against and 35,572 votes abstaining.
The holders of the Company's 8 1/4% Convertible Preferred Stock were
entitled to vote on an as converted basis on each of the proposals with the
common stock, voting as a single class, and such votes are included in the
voting results of the common stock set forth for each of the proposals above.
ITEM 5. OTHER INFORMATION
From 1999 to March 2002, pursuant to a digital transmission contract with an
original term of twelve years, CCUK was responsible for the transmission of the
ITV Digital ("ITVD") signal through the CCUK-owned digital terrestrial
television ("DTT") network to approximately 1.2 million subscribers in the U.K.
In April 2002, after a U.K. court approved an application by ITVD to be placed
into administration (similar to a Chapter 11 bankruptcy proceeding in the
United States) and unsuccessful efforts by the administrator to sell the ITVD
business as a going concern, ITVD announced plans to liquidate its assets and
returned its DTT licenses to the UK Independent Television Commission ("ITC").
CCUK had gross revenues of approximately $27.6 million annually under the ITVD
transmission contract. ITVD represented approximately 12% of the 2001 gross
revenues of CCUK and approximately 3% of the 2001 consolidated gross revenues
of the Company.
Following the return of the licenses by ITVD, the ITC announced a process
for reawarding the three digital multiplex licenses which ITVD previously held.
In June 2002, CCUK and the BBC submitted linked applications for these
licenses. On July 4, 2002, the ITC conditionally awarded the license for one
multiplex to the BBC and the license for two multiplexes to CCUK. No license
fees were paid to the UK government with respect to the award of the multiplex
licenses other than an approximately $38,000 application fee per multiplex.
CCUK has entered into a preliminary agreement with the BBC to provide a
transmission and distribution service for the multiplex awarded to the BBC.
CCUK has also entered into a preliminary agreement with BSkyB to provide a
transmission, distribution and multiplexing service in relation to 75% of the
available capacity of one of the multiplexes awarded to CCUK. CCUK expects to
enter into additional agreements to provide transmission, distribution and
multiplexing services to channel providers for the other multiplex capacity
awarded to CCUK. Starting in the first quarter of 2003, CCUK expects to
generate annual revenues from the BBC, BSkyB and other broadcasters of between
approximately $26 million and $30 million from the provision of transmission,
distribution and multiplexing services related to the new multiplex licenses.
34
CCUK has already invested, as a result of its previous contract with ITVD,
substantially all of the capital required to provide the services described
above. CCUK expects to invest approximately an additional $3 million to
increase the power of the transmission network at a number of sites. CCUK is
already incurring, again by virtue of its previous contract with ITVD,
substantially all of the operating costs required to provide these services
(including payments to British Telecom for distribution circuits and payments
to NTL for site rental). In total, CCUK is incurring annual operating expenses
of between approximately $20 million and $23 million from the provision of
transmission, distribution and multiplexing services to the BBC, BSkyB and
other broadcasters related to the new multiplex licenses.
The termination of the ITVD 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 June 30, 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 June 30, 2002. None of our other debt instruments, including the
public debt securities and the two U.S. bank credit facilities, contain default
provisions related to the ITVD transmission contract. Furthermore, none of
these other debt instruments contain cross default provisions with either of
the CCUK debt instruments. As such, the events of default under the two CCUK
debt instruments do not constitute events of default under any of our other
debt instruments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of Net Loss Per Common Share
12.1 Computation of Ratios of Earnings to Fixed Charges and Earnings to
Combined Fixed Charges and Preferred Stock Dividends
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K dated May 1, 2002 with the
SEC on May 3, 2002 furnishing under Item 9 further details and a press release
dated May 1, 2002 regarding the potential impact on its U.K. subsidiary, Crown
Castle UK Limited, of liquidation plans of ITVdigital.
The Registrant filed a Current Report on Form 8-K dated May 9, 2002 with the
SEC on May 15, 2002 furnishing under Item 9 revised guidance through 2004 as
disclosed in a press release dated May 9, 2002 setting forth the Registrant's
financial results for the first quarter 2002.
35
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 13, 2002 By: /s/ W. BENJAMIN MORELAND
-------------------------------------
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: August 13, 2002 By: /s/ WESLEY D. CUNNINGHAM
---------------------------------------
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 of Crown Castle
International Corp., a Delaware Corporation (the "Company"), for the period
ending June 30, 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 June 30, 2002 (the last date of the period covered by the
Report).
/s/ JOHN P. KELLY
-----------------------------
John P. Kelly
President and Chief Executive
Officer
August 13, 2002
/s/ W. BENJAMIN MORELAND
-----------------------------
W. Benjamin Moreland
Senior Vice President, Chief
Financial
Officer and Treasurer
August 13, 2002
36