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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission File Number 000-24737
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CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other (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)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [_]
Number of shares of common stock outstanding at November 1, 2002: 214,047,006
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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 September 30, 2002........................ 3
Consolidated Statement of Operations and Comprehensive Loss for the three and nine months
ended September 30, 2001 and 2002........................................................... 4
Consolidated Statement of Cash Flows for the nine months ended September 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.... 24
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................... 39
Item 4. Controls and Procedures.................................................................. 39
PART II--OTHER INFORMATION
Item 5. Other Information........................................................................ 40
Item 6. Exhibits and Reports on Form 8-K......................................................... 41
Signatures and Certifications..................................................................... 42
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, September 30,
2001 2002
------------ -------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 804,602 $ 605,319
Receivables:
Trade, net of allowance for doubtful accounts of $24,785 and $24,792 at
December 31, 2001 and September 30, 2002, respectively.................... 188,496 163,289
Other....................................................................... 2,364 7,886
Short-term investments.......................................................... 72,963 78,804
Inventories..................................................................... 102,771 77,556
Prepaid expenses and other current assets....................................... 44,865 58,446
---------- -----------
Total current assets................................................. 1,216,061 991,300
Property and equipment, net of accumulated depreciation of $566,837 and $799,416
at December 31, 2001 and September 30, 2002, respectively........................ 4,844,912 4,856,346
Investments........................................................................ 128,500 29,500
Goodwill, net of accumulated amortization of $152,451 at December 31, 2001......... 1,036,914 1,039,657
Deferred financing costs and other assets, net of accumulated amortization of
$32,859 and $42,431 at December 31, 2001 and September 30, 2002,
respectively..................................................................... 149,071 127,662
---------- -----------
$7,375,458 $ 7,044,465
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 104,149 $ 75,684
Accrued interest................................................................ 60,081 32,122
Accrued compensation and related benefits....................................... 13,553 12,157
Deferred rental revenues and other accrued liabilities.......................... 204,584 218,506
Long-term debt, current maturities.............................................. 29,086 369,091
---------- -----------
Total current liabilities............................................ 411,453 707,560
Long-term debt, less current maturities............................................ 3,394,011 2,998,418
Other liabilities.................................................................. 157,549 166,948
---------- -----------
Total liabilities.................................................... 3,963,013 3,872,926
---------- -----------
Commitments and contingencies
Minority interests................................................................. 168,936 169,174
Redeemable preferred stock......................................................... 878,861 837,552
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized; shares issued:
December 31, 2001--218,804,363 and September 30, 2002--
215,356,606................................................................... 2,188 2,153
Additional paid-in capital...................................................... 3,301,023 3,309,280
Accumulated other comprehensive loss............................................ (43,246) (2,650)
Accumulated deficit............................................................. (895,317) (1,143,970)
---------- -----------
Total stockholders' equity........................................... 2,364,648 2,164,813
---------- -----------
$7,375,458 $ 7,044,465
========== ===========
See condensed notes to consolidated financial statements.
3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
2001 2002 2001 2002
--------- -------- --------- ---------
Net revenues:
Site rental and broadcast transmission............................... $ 146,222 $166,343 $ 420,064 $ 498,559
Network services and other........................................... 72,174 61,081 240,701 175,013
--------- -------- --------- ---------
218,396 227,424 660,765 673,572
--------- -------- --------- ---------
Operating expenses:
Costs of operations (exclusive of depreciation and amortization):
Site rental and broadcast transmission............................ 58,856 70,591 176,150 198,603
Network services and other........................................ 50,241 47,388 169,248 136,960
General and administrative........................................... 21,458 21,461 77,818 71,981
Corporate development................................................ 2,679 2,060 9,890 6,032
Restructuring charges................................................ 19,252 657 19,252 6,609
Asset write-down charges............................................. 3,738 14,540 16,010 47,246
Non-cash general and administrative compensation charges............. 1,949 1,351 4,724 3,991
Depreciation and amortization........................................ 78,525 77,280 227,372 225,167
--------- -------- --------- ---------
236,698 235,328 700,464 696,589
--------- -------- --------- ---------
Operating income (loss).................................................. (18,302) (7,904) (39,699) (23,017)
Other income (expense):
Interest and other income (expense).................................. (1,462) 20,579 6,174 18,329
Interest expense and amortization of deferred financing costs........ (79,091) (78,127) (218,921) (230,834)
--------- -------- --------- ---------
Loss before income taxes and minority interests.......................... (98,855) (65,452) (252,446) (235,522)
Provision for income taxes............................................... (11,727) (101) (11,787) (5,444)
Minority interests....................................................... 252 (75) 1,115 3,347
--------- -------- --------- ---------
Net loss................................................................. (110,330) (65,628) (263,118) (237,619)
Dividends on preferred stock, net of gains on repurchases of preferred
stock................................................................... (19,000) 29,932 (58,770) (11,034)
--------- -------- --------- ---------
Net loss after deduction of dividends on preferred stock, net of gains on
repurchases of preferred stock.......................................... $(129,330) $(35,696) $(321,888) $(248,653)
========= ======== ========= =========
Net loss................................................................. $(110,330) $(65,628) $(263,118) $(237,619)
Other comprehensive income (loss):
Foreign currency translation adjustments............................. 37,776 2,963 (7,689) 43,153
Derivative instruments:
Net change in fair value of cash flow hedging instruments......... (6,986) (4,325) (10,004) (6,978)
Amounts reclassified into results of operations................... 786 1,554 920 4,421
--------- -------- --------- ---------
Comprehensive loss before cumulative effect of change in accounting...... (78,754) (65,436) (279,891) (197,023)
Cumulative effect of change in accounting principle for derivative
financial instruments................................................... -- -- 178 --
--------- -------- --------- ---------
Comprehensive loss....................................................... $ (78,754) $(65,436) $(279,713) $(197,023)
========= ======== ========= =========
Loss per common share--basic and diluted................................. $ (0.60) $ (0.16) $ (1.51) $ (1.14)
========= ======== ========= =========
Common shares outstanding--basic and diluted (in thousands).............. 214,986 216,656 213,413 218,991
========= ======== ========= =========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Nine Months Ended
September 30,
----------------------
2001 2002
----------- ---------
Cash flows from operating activities:
Net loss........................................................................ $ (263,118) $(237,619)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization................................................. 227,372 225,167
Amortization of deferred financing costs and discounts on long-term debt...... 68,085 74,859
Asset write-down charges...................................................... 16,010 47,246
Equity in losses and write-downs of unconsolidated affiliates................. 3,002 27,710
Non-cash general and administrative compensation charges...................... 4,724 3,991
Gains on purchases of long-term debt.......................................... -- (29,998)
Minority interests............................................................ (1,115) (3,347)
Changes in assets and liabilities, excluding the effects of acquisitions:
(Increase) decrease in receivables........................................... (42,501) 31,812
(Increase) decrease in inventories, prepaid expenses and other assets........ (68,911) 6,447
Increase (decrease) in accounts payable...................................... 811 (31,133)
Decrease in accrued interest................................................. (2,624) (28,467)
Increase (decrease) in deferred rental revenues and other liabilities........ 136,973 (4,295)
----------- ---------
Net cash provided by operating activities.................................. 78,708 82,373
----------- ---------
Cash flows from investing activities:
Maturities of investments....................................................... 211,000 250,963
Proceeds from disposition of property and equipment............................. -- 22,476
Capital expenditures............................................................ (561,112) (237,279)
Purchases of investments........................................................ (173,500) (157,804)
Investments in affiliates and other, including escrow deposit................... (415,249) (13,940)
Acquisitions of businesses and assets, net of cash acquired..................... (152,127) (1,197)
----------- ---------
Net cash used for investing activities..................................... (1,090,988) (136,781)
----------- ---------
Cash flows from financing activities:
Proceeds from issuance of capital stock......................................... 352,724 909
Net borrowings (payments) under revolving credit agreements..................... 281,829 (50,000)
Purchases of capital stock...................................................... -- (45,453)
Purchases of long-term debt..................................................... -- (45,300)
Principal payments on long-term debt............................................ -- (15,245)
Proceeds from issuance of long-term debt........................................ 450,000 --
Proceeds from issuance of subsidiary stock to minority shareholder.............. 16,434 --
Incurrence of financing costs................................................... (12,058) --
----------- ---------
Net cash provided by (used for) financing activities....................... 1,088,929 (155,089)
----------- ---------
Effect of exchange rate changes on cash........................................... 6,213 10,214
----------- ---------
Net increase (decrease) in cash and cash equivalents.............................. 82,862 (199,283)
Cash and cash equivalents at beginning of period.................................. 453,833 804,602
----------- ---------
Cash and cash equivalents at end of period........................................ $ 536,695 $ 605,319
=========== =========
Supplemental disclosure of cash flow information:
Interest paid................................................................... $ 154,938 $ 183,128
Income taxes paid............................................................... 60 298
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/A-1 (the
"Form 10-K/A-1") filed by Crown Castle International Corp. with the Securities
and Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at September 30,
2002, the consolidated results of operations for the three and nine months
ended September 30, 2001 and 2002, and the consolidated cash flows for the nine
months ended September 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 September 30, 2002, the accumulated other comprehensive loss in
consolidated stockholders' equity includes $10,549,000 in losses related to
derivative instruments.
Business Combinations, Goodwill and Long-Lived Assets
In June 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, $12,572,000 and $13,428,000 at September
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 September 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 were to be recorded upon the adoption of SFAS 142. The
Company expects that its depreciation and amortization expense will decrease by
approximately $60,617,000 per year as a result of the adoption of SFAS 142. If
amortization of goodwill had not been recorded,
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 nine
months ended September 30, 2001 would have been as follows:
Three Months Nine Months
Ended Ended
September 30, September 30,
2001 2001
------------- -------------
(In thousand of dollars, except
per share amounts)
Net loss, as reported............................................. $(110,330) $(263,118)
Add back: amortization of goodwill................................ 15,209 45,348
Adjust: amortization of other intangible assets................... 287 861
--------- ---------
Net loss, as adjusted............................................. (94,834) (216,909)
Dividends on preferred stock...................................... (19,000) (58,770)
--------- ---------
Net loss applicable to common stock for basic and diluted
computations, as adjusted....................................... $(113,834) $(275,679)
========= =========
Per common share--basic and diluted:..............................
Net loss, as reported...................................... $ (0.60) $ (1.51)
Amortization of goodwill................................... 0.07 0.21
Adjustment for amortization of other intangible assets..... -- 0.01
--------- ---------
Net loss, as adjusted...................................... $ (0.53) $ (1.29)
========= =========
A summary of goodwill by operating segment is as follows:
Nine Months Ended September 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 -- 2,743 -- 2,743
-------- -------- ------- ----------
Balance at end of period....... $164,023 $820,257 $55,377 $1,039,657
======== ======== ======= ==========
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). SFAS 143
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the related asset retirement
costs. The fair value of a liability for an asset retirement obligation is to
be recognized in the period in which it is incurred and can be reasonably
estimated. Such asset retirement costs are to be capitalized as part of the
carrying amount of the related long-lived asset and depreciated over the
asset's estimated useful life. Fair value estimates of liabilities for asset
retirement obligations will generally involve discounted future cash flows.
Periodic accretion of such liabilities due to the passage of time is to be
recorded as an operating expense. The provisions of SFAS 143 are effective for
fiscal years beginning after June 15, 2002, with initial application as of the
beginning of the fiscal year. The Company has not yet determined the effect
that the adoption of SFAS 143 will have on its consolidated financial
statements.
In August 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
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
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 has adopted the provisions
of SFAS 145 as of January 1, 2002. See Note 3.
In June 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.
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Long-term Debt
Long-term debt consists of the following:
December 31, September 30,
2001 2002
------------ -------------
(In thousands of dollars)
2000 Credit Facility................................... $ 700,000 $ 700,000
CCUK Credit Facility................................... 172,050 169,129
Crown Atlantic Credit Facility......................... 300,000 250,000
9% Guaranteed Bonds due 2007........................... 177,401 190,462
10 5/8% Senior Discount Notes due 2007, net of discount 229,321 244,438
10 3/8% Senior Discount Notes due 2011, net of discount 393,320 408,617
9% Senior Notes due 2011............................... 180,000 174,000
111/4% Senior Discount Notes due 2011, net of discount. 196,005 185,833
91/2% Senior Notes due 2011............................ 125,000 121,115
103/4% Senior Notes due 2011........................... 500,000 486,040
9 3/8% Senior Notes due 2011........................... 450,000 437,875
---------- ----------
3,423,097 3,367,509
Less: current maturities............................... (29,086) (369,091)
---------- ----------
$3,394,011 $2,998,418
========== ==========
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 multiplex licenses to the UK Independent Television Commission (See
Note 10). 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 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 September 30, 2002.
If the Company is unable to obtain an amendment to the CCUK Credit Facility
as discussed above, the uncured Termination Event could 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 September 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.
Crown Atlantic Credit Facility
In September 2002, Crown Atlantic repaid $50,000,000 in outstanding
borrowings under the Crown Atlantic Credit Facility. Crown Atlantic utilized
cash provided by its operations to effect this repayment.
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Repurchases of the Company's Debt Securities
In August and September of 2002, the Company began repurchasing its stock
(both common and preferred) and debt securities in public market transactions
(see Notes 4 and 5). Through September 30, 2002, the Company repurchased debt
securities with an aggregate principal amount (at maturity) of $90,860,000.
Such debt securities had an aggregate carrying value (net of unamortized
discounts) of $81,856,000. The Company utilized $50,329,000 in cash from an
Unrestricted investment subsidiary to effect these debt repurchases. The debt
repurchases resulted in gains of $29,998,000 ($0.14 per share for both the
three and nine months ended September 30, 2002). Such gains are included in
interest and other income (expense) on the Company's consolidated statement of
operations. The Company repurchased additional debt securities in October 2002
(see Note 11).
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:
September 30, 2002
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 200,808 $ 404,511 $ -- $ 605,319
Other current assets.................... 240,780 145,201 -- 385,981
Property and equipment, net............. 3,256,883 1,599,463 -- 4,856,346
Investments............................. 29,500 -- -- 29,500
Investments in Unrestricted Subsidiaries 2,061,815 -- (2,061,815) --
Goodwill................................ 164,023 875,634 -- 1,039,657
Other assets, net....................... 103,654 24,008 -- 127,662
---------- ---------- ----------- ----------
$6,057,463 $3,048,817 $(2,061,815) $7,044,465
========== ========== =========== ==========
Current liabilities..................... $ 177,491 $ 530,069 $ -- $ 707,560
Long-term debt, less current maturities. 2,748,418 250,000 -- 2,998,418
Other liabilities....................... 36,168 130,780 -- 166,948
Minority interests...................... 93,021 76,153 -- 169,174
Redeemable preferred stock.............. 837,552 -- -- 837,552
Stockholders' equity.................... 2,164,813 2,061,815 (2,061,815) 2,164,813
---------- ---------- ----------- ----------
$6,057,463 $3,048,817 $(2,061,815) $7,044,465
========== ========== =========== ==========
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended September 30, 2002 Nine Months Ended September 30, 2002
------------------------------------- -------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues.................. $121,958 $105,466 $227,424 $ 368,778 $304,794 $ 673,572
Costs of operations (exclusive
of depreciation and
amortization)............... 61,462 56,517 117,979 178,056 157,507 335,563
General and administrative.... 18,299 3,162 21,461 57,887 14,094 71,981
Corporate development......... 2,060 -- 2,060 6,032 -- 6,032
Restructuring charges......... 423 234 657 2,645 3,964 6,609
Asset write-down charges...... 11,954 2,586 14,540 36,272 10,974 47,246
Non-cash general and
administrative
compensation charges........ 872 479 1,351 2,616 1,375 3,991
Depreciation and
amortization................ 50,368 26,912 77,280 148,992 76,175 225,167
-------- -------- -------- --------- -------- ---------
Operating income (loss)....... (23,480) 15,576 (7,904) (63,722) 40,705 (23,017)
Interest and other income
(expense)................... 30,802 (10,223) 20,579 23,320 (4,991) 18,329
Interest expense and
amortization of deferred
financing costs............. (65,899) (12,228) (78,127) (195,247) (35,587) (230,834)
Provision for income taxes.... (108) 7 (101) (298) (5,146) (5,444)
Minority interests............ 822 (897) (75) 3,377 (30) 3,347
-------- -------- -------- --------- -------- ---------
Net income (loss)............. $(57,863) $ (7,765) $(65,628) $(232,570) $ (5,049) $(237,619)
======== ======== ======== ========= ======== =========
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 September 30, 2002........ $ 48,977 $ 48,977
========= =========
Consolidated Cash Flow, for the twelve months ended September 30, 2002 $ 172,299 $ 180,276
Less: Tower Cash Flow, for the twelve months ended September 30, 2002. (194,483) (194,483)
Plus: four times Tower Cash Flow, for the three months ended
September 30, 2002.................................................. 195,908 195,908
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended
September 30, 2002.................................................. $ 173,724 $ 181,701
========= =========
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Letters of Credit
In April 2002, CCUK issued a letter of credit to British Telecom in
connection with a site acquisition agreement. The letter of credit was issued
through one of CCUSA's lenders in the amount of (Pounds)50,000,000
(approximately $77,875,000) and expires on March 31, 2003.
In September 2002, the Company issued a letter of credit to one of its
insurers in connection with certain contingent retirement obligations under
various tower site land leases. The letter of credit was issued through one of
CCUSA's lenders in the amount of $7,450,000 and expires on August 22, 2003.
4. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, September 30,
2001 2002
------------ -------------
(In thousands of dollars)
123/4% Senior Exchangeable Preferred Stock; shares issued:
December 31, 2001--291,444 and September 30, 2002--311,442
(stated at mandatory redemption and aggregate liquidation value).... $292,992 $313,097
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)............. 195,793 196,101
6.25% Convertible Preferred Stock; shares issued:
December 31, 2001--8,050,000 and September 30, 2002--6,761,000
(stated net of unamortized issue costs; mandatory redemption and
aggregate liquidation value: December 31, 2001--$402,500 and
September 30, 2002--$338,050)....................................... 390,076 328,354
-------- --------
$878,861 $837,552
======== ========
In August and September of 2002, the Company began repurchasing its stock
(both common and preferred) and debt securities in public market transactions
(see Notes 3 and 5). Through September 30, 2002, the Company repurchased shares
of preferred stock with an aggregate redemption amount of $73,219,000. Such
shares of preferred stock had an aggregate carrying value (net of unamortized
issue costs) of $71,352,000. The Company utilized $21,546,000 in cash from an
Unrestricted investment subsidiary to effect these preferred stock repurchases.
The preferred stock repurchases resulted in gains of $49,806,000. Such gains
are offset against dividends on preferred stock in determining the net loss
applicable to common stock for the calculation of loss per common share. The
Company repurchased additional shares of preferred stock in October 2002 (see
Note 11).
In June and September of 2002, the Company paid its quarterly dividends on
the 81/4% Convertible Preferred Stock by issuing a total of 2,565,000 shares of
its common stock. As allowed by the Deposit Agreement relating to dividend
payments on the 81/4% Convertible Preferred Stock, the Company repurchased the
2,565,000 shares of common stock from the dividend paying agent for a total of
$8,109,000 in cash. The Company utilized cash from an Unrestricted investment
subsidiary to effect the stock repurchases. 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 (see note 5).
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Stockholders' Equity
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.
In August and September of 2002, the Company began repurchasing its stock
(both common and preferred) and debt securities in public market transactions
(see Notes 3 and 4). Through September 30, 2002, the Company repurchased a
total of 201,300 shares of common stock. The Company utilized $399,000 in cash
from an Unrestricted investment subsidiary to effect these common stock
repurchases. The Company repurchased additional shares of common stock in
October 2002 (see Note 11).
6. Per Share Information
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
A reconciliation of the numerators and denominators of the basic and diluted
per share computations is as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2001 2002 2001 2002
--------- -------- --------- ---------
(In thousands of dollars, except per share amounts)
Net loss............................................. $(110,330) $(65,628) $(263,118) $(237,619)
Dividends on preferred stock......................... (19,000) (19,874) (58,770) (60,840)
Gains on repurchases of preferred stock.............. -- 49,806 -- 49,806
--------- -------- --------- ---------
Net loss applicable to common stock for basic and
diluted computations............................... $(129,330) $(35,696) $(321,888) $(248,653)
========= ======== ========= =========
Weighted-average number of common shares
outstanding during the period for basic and diluted
computations (in thousands)........................ 214,986 216,656 213,413 218,991
========= ======== ========= =========
Loss per common share - basic and diluted............ $ (0.60) $ (0.16) $ (1.51) $ (1.14)
========= ======== ========= =========
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of September 30, 2002: (1)
options to purchase 23,614,871 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 9,167,457 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.
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
7. 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.
8. Operating Segments
The measurement of profit or loss currently used to evaluate the results of
operations for the Company and its operating segments is earnings before
interest, taxes, depreciation and amortization, 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.
15
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 September 30, 2002
-----------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
---------- -------- ---------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 80,950 $ 6,350 $ 55,230 $ 23,813 $ -- $ 166,343
Network services and other....... 34,031 627 19,226 7,197 -- 61,081
---------- -------- ---------- -------- -------- ----------
114,981 6,977 74,456 31,010 -- 227,424
---------- -------- ---------- -------- -------- ----------
Costs of operations (exclusive of
depreciation and amortization).... 58,902 2,560 43,752 12,765 -- 117,979
General and administrative.......... 13,690 1,328 1,342 1,328 3,773 21,461
Corporate development............... -- -- -- -- 2,060 2,060
---------- -------- ---------- -------- -------- ----------
Adjusted EBITDA..................... 42,389 3,089 29,362 16,917 (5,833) 85,924
Restructuring charges (credits)..... (151) -- 284 (50) 574 657
Asset write-down charges............ 9,601 -- -- 2,586 2,353 14,540
Non-cash general and administrative
compensation charges.............. 532 -- 479 -- 340 1,351
Depreciation and amortization....... 46,401 3,547 16,464 10,386 482 77,280
---------- -------- ---------- -------- -------- ----------
Operating income (loss)............. (13,994) (458) 12,135 3,995 (9,582) (7,904)
Interest and other income
(expense)......................... (57) (14) 1,017 79 19,554 20,579
Interest expense and amortization of
deferred financing costs.......... (9,658) (864) (7,419) (4,809) (55,377) (78,127)
Provision for income taxes.......... -- (108) 7 -- -- (101)
Minority interests.................. 74 748 -- (897) -- (75)
---------- -------- ---------- -------- -------- ----------
Net income (loss)................... $ (23,635) $ (696) $ 5,740 $ (1,632) $(45,405) $ (65,628)
========== ======== ========== ======== ======== ==========
Capital expenditures................ $ 8,791 $ 420 $ 23,259 $ 5,471 $ 62 $ 38,003
========== ======== ========== ======== ======== ==========
Total assets (at period end)........ $3,441,970 $267,595 $1,909,749 $846,317 $578,834 $7,044,465
========== ======== ========== ======== ======== ==========
16
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 2002
-------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $240,524 $17,533 $171,094 $ 69,408 $ -- $ 498,559
Network services and other....... 108,885 1,836 44,105 20,187 -- 175,013
-------- ------- -------- -------- --------- ---------
349,409 19,369 215,199 89,595 -- 673,572
-------- ------- -------- -------- --------- ---------
Costs of operations (exclusive of
depreciation and amortization).... 170,414 7,642 118,993 38,514 -- 335,563
General and administrative.......... 42,605 4,107 9,415 4,058 11,796 71,981
Corporate development............... -- -- -- -- 6,032 6,032
-------- ------- -------- -------- --------- ---------
Adjusted EBITDA..................... 136,390 7,620 86,791 47,023 (17,828) 259,996
Restructuring charges (credits)..... (428) -- 4,014 (50) 3,073 6,609
Asset write-down charges............ 33,919 -- 431 10,543 2,353 47,246
Non-cash general and administrative
compensation charges.............. 1,595 -- 1,375 -- 1,021 3,991
Depreciation and amortization....... 137,651 10,166 44,863 30,999 1,488 225,167
-------- ------- -------- -------- --------- ---------
Operating income (loss)............. (36,347) (2,546) 36,108 5,531 (25,763) (23,017)
Interest and other income (expense). (1,372) 281 (3,433) 250 22,603 18,329
Interest expense and amortization of
deferred financing costs.......... (28,805) (2,553) (21,380) (14,207) (163,889) (230,834)
Provision for income taxes.......... -- (298) (5,146) -- -- (5,444)
Minority interests.................. 1,350 2,027 -- (30) -- 3,347
-------- ------- -------- -------- --------- ---------
Net income (loss)................... $(65,174) $(3,089) $ 6,149 $ (8,456) $(167,049) $(237,619)
======== ======= ======== ======== ========= =========
Capital expenditures................ $ 81,776 $ 4,563 $128,403 $ 22,146 $ 391 $ 237,279
======== ======= ======== ======== ========= =========
17
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended September 30, 2001
-----------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 68,888 $ 4,563 $ 52,013 $20,758 $ -- $ 146,222
Network services and other....... 57,070 621 5,972 8,511 -- 72,174
-------- ------- -------- ------- -------- ---------
125,958 5,184 57,985 29,269 -- 218,396
-------- ------- -------- ------- -------- ---------
Costs of operations (exclusive of
depreciation and amortization).... 66,178 2,419 27,975 12,525 -- 109,097
General and administrative.......... 12,570 1,464 2,045 1,526 3,853 21,458
Corporate development............... -- -- -- -- 2,679 2,679
-------- ------- -------- ------- -------- ---------
Adjusted EBITDA..................... 47,210 1,301 27,965 15,218 (6,532) 85,162
Restructuring charges............... 7,142 -- 1,839 969 9,302 19,252
Asset write-down charges............ 1,733 -- -- -- 2,005 3,738
Non-cash general and administrative
compensation charges.............. 532 -- 1,077 -- 340 1,949
Depreciation and amortization....... 41,040 3,290 23,695 10,099 401 78,525
-------- ------- -------- ------- -------- ---------
Operating income (loss)............. (3,237) (1,989) 1,354 4,150 (18,580) (18,302)
Interest and other income (expense). (20) 90 1,535 73 (3,140) (1,462)
Interest expense and amortization of
deferred financing costs.......... (12,799) (823) (6,566) (5,999) (52,904) (79,091)
Provision for income taxes.......... -- -- (11,727) -- -- (11,727)
Minority interests.................. 98 898 -- (744) -- 252
-------- ------- -------- ------- -------- ---------
Net loss............................ $(15,958) $(1,824) $(15,404) $(2,520) $(74,624) $(110,330)
======== ======= ======== ======= ======== =========
Capital expenditures................ $ 83,119 $ 2,419 $ 42,828 $23,091 $ 961 $ 152,418
======== ======= ======== ======= ======== =========
18
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Nine Months Ended September 30, 2001
-------------------------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCAL CCUK Atlantic and Other Total
-------- ------- -------- -------- --------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $195,673 $12,024 $152,075 $ 60,292 $ -- $ 420,064
Network services and other....... 192,000 1,146 21,988 25,567 -- 240,701
-------- ------- -------- -------- --------- ---------
387,673 13,170 174,063 85,859 -- 660,765
-------- ------- -------- -------- --------- ---------
Costs of operations (exclusive of
depreciation and amortization).... 208,385 5,785 91,667 39,561 -- 345,398
General and administrative.......... 45,764 4,690 9,064 6,707 11,593 77,818
Corporate development............... -- -- 48 -- 9,842 9,890
-------- ------- -------- -------- --------- ---------
Adjusted EBITDA..................... 133,524 2,695 73,284 39,591 (21,435) 227,659
Restructuring charges............... 7,142 -- 1,839 969 9,302 19,252
Asset write-down charges............ 5,702 -- 3,785 767 5,756 16,010
Non-cash general and administrative
compensation charges.............. 1,595 -- 2,108 -- 1,021 4,724
Depreciation and amortization....... 119,922 8,050 67,965 30,168 1,267 227,372
-------- ------- -------- -------- --------- ---------
Operating income (loss)............. (837) (5,355) (2,413) 7,687 (38,781) (39,699)
Interest and other income (expense). 1,519 165 3,281 243 966 6,174
Interest expense and amortization of
deferred financing costs.......... (40,064) (1,618) (20,098) (16,162) (140,979) (218,921)
Provision for income taxes.......... -- -- (11,754) (33) -- (11,787)
Minority interests.................. (271) 2,674 -- (1,288) -- 1,115
-------- ------- -------- -------- --------- ---------
Net loss............................ $(39,653) $(4,134) $(30,984) $ (9,553) $(178,794) $(263,118)
======== ======= ======== ======== ========= =========
Capital expenditures................ $295,457 $ 3,076 $182,475 $ 76,440 $ 3,664 $ 561,112
======== ======= ======== ======== ========= =========
9. Restructuring Charges and Asset Write-Down Charges
In July 2001, the Company announced a restructuring of its business in order
to increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, the Company reduced its global staff by
approximately 312 full-time employees, closed five offices in the United States
and closed its development offices in Brazil and Europe. The actions taken for
the restructuring were substantially completed as of the end of 2001. In
connection with the restructuring, the Company recorded non-recurring cash
charges of $19,252,000 for the nine months ended September 30, 2001 related to
employee severance payments ($13,742,000) and costs of office closures
($5,510,000).
19
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company recorded asset write-down charges of $16,010,000 during the nine
months ended September 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:
Nine Months Ended September 30, 2001
---------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
------ ------ -------- --------- ------------
(In thousands of dollars)
Inventories........... $ -- $3,785 $ -- $ -- $ 3,785
Property and equipment 5,702 -- 767 1,226 7,695
Other assets.......... -- -- -- 4,530 4,530
------ ------ ---- ------ -------
$5,702 $3,785 $767 $5,756 $16,010
====== ====== ==== ====== =======
For the nine months ended September 30, 2002, the Company recorded cash
charges of $4,014,000 in connection with a restructuring of its CCUK business
announced in March 2002. Such charges relate to staff reductions 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 $6,000,000 and $8,000,000. For the nine months
ended September 30, 2002, the Company also recorded cash charges of $3,073,000
related primarily to additional employee severance payments at its corporate
office in connection with the July 2001 restructuring. At December 31, 2001 and
September 30, 2002, other accrued liabilities includes $6,591,000 and
$1,667,000, respectively, related to restructuring charges. A summary of the
restructuring charges by operating segment is as follows:
Nine Months Ended September 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............................ -- 3,683 -- 2,971 6,654
Costs of office closures and other............ (428) 331 (50) 102 (45)
------- ------- ----- ------- --------
Total restructuring charges (credits)..... (428) 4,014 (50) 3,073 6,609
------- ------- ----- ------- --------
Amounts paid:
Employee severance............................ (893) (3,727) (168) (5,952) (10,740)
Costs of office closures and other............ (364) (278) (82) (69) (793)
------- ------- ----- ------- --------
(1,257) (4,005) (250) (6,021) (11,533)
------- ------- ----- ------- --------
Amounts accrued at end of period:
Employee severance............................ 233 313 62 587 1,195
Costs of office closures and other............ 283 53 103 33 472
------- ------- ----- ------- --------
$ 516 $ 366 $ 165 $ 620 $ 1,667
======= ======= ===== ======= ========
20
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During the nine months ended September 30, 2002, the Company abandoned a
portion of its construction in process related to certain open projects,
cancelled certain build-to-suit agreements and wrote down the value of the
related construction in process, wrote down the value of certain inventories,
and wrote down the value of three office buildings. As a result, the Company
has recorded asset write-down charges of $33,919,000 for CCUSA, $10,543,000 for
Crown Atlantic and $2,353,000 for the corporate office. For the nine months
ended September 30, 2002, the Company also recorded asset write-down charges of
$431,000 for CCUK related to certain inventories and property and equipment.
10. Digital Terrestrial Television Network
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, ITVD announced plans to liquidate its assets and returned its
DTT multiplex 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.
Following the return of the licenses by ITVD, the ITC conditionally awarded
the license for one multiplex to the BBC and the licenses 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. The licenses were formally granted on August 16, 2002 for a
term of twelve years, and CCUK has the right to renew the licenses for an
additional term of twelve years subject to satisfaction of certain performance
criteria. On October 30, 2002, the BBC and CCUK launched their multi-channel
digital TV and radio broadcasting services, under the brand "Freeview". Digital
TV Services Ltd ("DTVSL"), a joint venture in which CCUK, the BBC and British
Sky Broadcasting ("BSkyB") are equal shareholders, has been created
specifically to market Freeview. In addition to being the licensed broadcast
operator of the two multiplexes awarded to CCUK, CCUK provides the transmission
of the DTT program signals for the two CCUK and two BBC multiplexes through the
CCUK-owned DTT network.
Following the award of the DTT licenses and in connection with the launch of
Freeview, in August 2002 CCUK entered into an agreement with the BBC to provide
transmission and distribution service for the multiplex awarded to the BBC.
Also in August 2002, CCUK entered into an agreement with BSkyB to provide
transmission, distribution and multiplexing service in relation to 75% of the
capacity of one of the CCUK multiplexes. Both of these agreements are for an
initial period of six years with an option by the BBC and BSkyB for an
additional six-year term. In addition, CCUK has entered into agreements to
provide transmission, distribution and multiplexing services to a number of TV
and radio content providers (EMAP, Flextech, Guardian Media Group, Viacom,
Oneword and UKTV) through the two multiplexes awarded to CCUK. Agreements with
the TV channel providers are also for six-year terms, with renewal options,
while agreements with radio providers are generally for shorter terms. Through
such agreements, CCUK is currently providing content with respect to
approximately 90% of its licensed capacity and is currently in negotiations
with content providers with respect to the remaining capacity. CCUK has
contracted annual revenues of at least $37,500,000 for the provision of
transmission, distribution and multiplexing services related to the new
multiplex licenses in 2003.
CCUK has invested, as a result of its previous contract with ITVD,
substantially all of the capital required to provide the services described
above. CCUK is already incurring, again by virtue of its previous contract with
ITVD, a large proportion of the operating costs required to provide these
services (including payments to British
21
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Telecom for distribution circuits and payments to NTL for site rental). Since
CCUK will offer a more complete end-to-end service to content providers than
was provided to ITVD, CCUK expects to incur certain additional operating costs
including (1) payments to BBC's technology division for multiplexing services
and (2) payments to DTVSL for marketing and operational services to the
platform. CCUK will incur additional annual operating expenses of between
approximately $7,500,000 and $9,000,000, above the costs incurred for the
provision of broadcast services to ITVD, in 2003. The termination of the ITVD
transmission contract is a Termination Event under the CCUK credit facility
(see Note 3).
11. Subsequent Events
Repurchases of the Company's Stock and Debt Securities
In October of 2002, the Company continued repurchasing its stock (both
common and preferred) and debt securities in public market transactions (see
Notes 3, 4 and 5). During October 2002, the Company repurchased debt securities
with an aggregate principal amount (at maturity) of $150,280,000. Such debt
securities had an aggregate carrying value (net of unamortized discounts) of
$141,661,000. The Company utilized $90,214,000 in cash ($46,180,000 from an
Unrestricted investment subsidiary and $44,034,000 from CCIC) to effect these
October debt repurchases. The October debt repurchases resulted in gains of
$48,472,000. For the period from August through October of 2002, the Company's
repurchases of its debt securities were as follows:
Cash Paid
-----------------------------
Principal Carrying Unrestricted Gains on
Amount Value CCIC Subsidiary Total Repurchases
--------- -------- ------- ------------ -------- -----------
(In thousands of dollars)
10 5/8% Senior Discount Notes due
2007........................... $ 11,840 $ 11,701 $ 4,335 $ 4,149 $ 8,484 $ 2,859
10 3/8% Senior Discount Notes due
2011........................... 47,425 40,296 10,430 12,188 22,618 16,994
9% Senior Notes due 2011......... 14,300 14,300 3,105 5,798 8,903 5,054
111/4% Senior Discount Notes due
2011........................... 56,950 46,595 11,587 15,304 26,891 19,137
91/2% Senior Notes due 2011...... 10,735 10,735 1,718 5,296 7,014 3,537
103/4% Senior Notes due 2011..... 57,115 57,115 12,859 26,520 39,379 16,178
9 3/8% Senior Notes due 2011..... 42,775 42,775 -- 27,254 27,254 14,711
-------- -------- ------- ------- -------- -------
$241,140 $223,517 $44,034 $96,509 $140,543 $78,470
======== ======== ======= ======= ======== =======
During October 2002, the Company repurchased shares of preferred stock with
an aggregate redemption amount of $87,634,000. Such shares of preferred stock
had an aggregate carrying value (net of unamortized issue costs) of
$87,060,000. The Company utilized $38,043,000 in cash from an Unrestricted
investment subsidiary to effect these October preferred stock repurchases. The
October preferred stock repurchases resulted in gains of $49,017,000. For the
period from August through October of 2002, the Company's repurchases of its
preferred stock were as follows:
Cash Paid
From
Redemption Carrying Unrestricted Gains on
Shares Amount Value Subsidiary Repurchases
--------- ---------- -------- ------------ -----------
(In thousands of dollars)
123/4% Senior Exchangeable
Preferred Stock.......... 76,403 $ 76,403 $ 76,403 $35,344 $41,059
6.25% Convertible Preferred
Stock.................... 1,689,000 84,450 82,009 24,245 57,764
-------- -------- ------- -------
$160,853 $158,412 $59,589 $98,823
======== ======== ======= =======
22
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During October 2002, the Company repurchased a total of 1,309,600 shares of
common stock. The Company utilized $2,568,000 in cash from an Unrestricted
investment subsidiary to effect these common stock repurchases.
Letter of Credit
In October 2002, the Company issued a letter of credit to one of its
insurers in connection with certain contingent retirement obligations under a
tower site land lease. The letter of credit was issued through one of CCUSA's
lenders in the amount of $1,000,000 and expires on October 8, 2003.
Restructuring Charges
In October 2002, the Company announced a restructuring of its U.S. business
in order to flatten its organizational structure to better align with customer
demand and enhance our regional focus to improve customer service. As part of
the restructuring, the Company is reducing its U.S. workforce by approximately
250 employees and is closing some smaller offices. The actions taken for the
restructuring will be substantially completed by the end of the first quarter
of 2003. In connection with the restructuring, the Company will record cash
charges of approximately $7,000,000 to $10,000,000 in the fourth quarter of
2002 related to employee severance payments and costs of office closures.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of September 30, 2002 and our consolidated
results of operations for the three- and nine-month periods ended September 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 or have less
debt than we do.
. Technology changes may significantly reduce the demand for towers.
. 2.5G/3G and other technologies, including digital terrestrial television,
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 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.
. Future expansion of our business may require significant capital
expenditures, and we may need additional financing which may not be
available at such time.
. We generally lease or sublease the land under our towers and may not be
able to maintain these leases at commercially viable rates. The loss of
any of our ground leases could also result in retirement obligations.
. 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.
. Disputes with customers and suppliers may adversely affect our results.
. 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.
. The carrying value of our sites and related goodwill may be subject to
impairment in the future if we are unable to add sufficient additional
tenants to the sites.
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
24
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/A-1. Any capitalized terms used but not defined in this Item have the same
meaning given to them in the Form 10-K/A-1.
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. In addition, we have various transactions recorded in our
financial statements (as described below) that are non-recurring in nature. As
such, our results of operations for the three and nine months ended September
30, 2001 are not comparable to the results of operations for the three and nine
months ended September 30, 2002.
During the first nine months of 2002, the level of capital expenditures from
US wireless carriers for new communication sites has been significantly 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 by approximately 40% during
2002. Network services revenues have also been adversely impacted in the US due
to reduced installation activity related to the decrease in new tenants.
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2001 September 30, 2002 September 30, 2001 September 30, 2002
----------------- ---------------- ----------------- -----------------
Percent Percent Percent Percent
of Net of Net of Net of Net
Amount Revenues Amount Revenues Amount Revenues Amount Revenues
--------- -------- -------- -------- --------- -------- --------- --------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission.................... $ 146,222 67.0% $166,343 73.1% $ 420,064 63.6% $ 498,559 74.0%
Network services and other....... 72,174 33.0 61,081 26.9 240,701 36.4 175,013 26.0
--------- ----- -------- ----- --------- ----- --------- -----
Total net revenues............ 218,396 100.0 227,424 100.0 660,765 100.0 673,572 100.0
--------- ----- -------- ----- --------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission................... 58,856 40.3 70,591 42.4 176,150 41.9 198,603 39.8
Network services and
other.......................... 50,241 69.6 47,388 77.6 169,248 70.3 136,960 78.3
--------- ----- -------- ----- --------- ----- --------- -----
Total costs of operations..... 109,097 50.0 117,979 51.9 345,398 52.3 335,563 49.8
General and administrative....... 21,458 9.8 21,461 9.4 77,818 11.8 71,981 10.7
Corporate development............ 2,679 1.2 2,060 0.9 9,890 1.5 6,032 0.9
Restructuring charges............ 19,252 8.8 657 0.3 19,252 2.9 6,609 1.0
Asset write-down charges......... 3,738 1.7 14,540 6.4 16,010 2.4 47,246 7.0
Non-cash general and
administrative compensation
charges......................... 1,949 0.9 1,351 0.6 4,724 0.7 3,991 0.6
Depreciation and
amortization.................... 78,525 36.0 77,280 34.0 227,372 34.4 225,167 33.4
--------- ----- -------- ----- --------- ----- --------- -----
Operating income (loss)............. (18,302) (8.4) (7,904) (3.5) (39,699) (6.0) (23,017) (3.4)
Other income (expense):
Interest and other income
(expense)....................... (1,462) (0.7) 20,579 9.1 6,174 0.9 18,329 2.7
Interest expense and
amortization of deferred
financing costs................. (79,091) (36.2) (78,127) (34.4) (218,921) (33.1) (230,834) (34.3)
--------- ----- -------- ----- --------- ----- --------- -----
Loss before income taxes and
minority interests................. (98,855) (45.3) (65,452) (28.8) (252,446) (38.2) (235,522) (35.0)
Provision for income taxes.......... (11,727) (5.3) (101) (0.1) (11,787) (1.8) (5,444) (0.8)
Minority interests.................. 252 0.1 (75) -- 1,115 0.2 3,347 0.5
--------- ----- -------- ----- --------- ----- --------- -----
Net loss............................ $(110,330) (50.5)% $(65,628) (28.9)% $(263,118) (39.8)% $(237,619) (35.3)%
========= ===== ======== ===== ========= ===== ========= =====
25
Comparison of Three Months Ended September 30, 2002 and 2001
Consolidated revenues for the three months ended September 30, 2002 were
$227.4 million, an increase of $9.0 million from the three months ended
September 30, 2001. This increase was primarily attributable to:
(1) a $20.1 million, or 13.8%, increase in site rental and broadcast
transmission revenues, of which $3.2 million was attributable to
CCUK, $3.0 million was attributable to Crown Atlantic, $1.8 million
was attributable to CCAL and $12.1 million was attributable to CCUSA,
and
(2) a $13.3 million increase in network services and other revenues from
CCUK, partially offset by
(3) a $23.0 million decrease in network services and other revenues from
CCUSA and
(4) a $1.3 million decrease in network services and other revenues from
Crown Atlantic.
The following is a summary of tenant leasing activity on our tower sites:
Three Months
Ended
September 30,
-------------
2001 2002
------ ------
New tenants added on existing, newly constructed and acquired tower sites, net:
CCUSA....................................................................... 875 344
Crown Atlantic.............................................................. 134 134
CCUK (includes 84 tenants from acquired tower sites in 2001)................ 560 323
CCAL........................................................................ 87 72
------ ------
1,656 873
====== ======
Average monthly lease rate per new tenant added on existing tower sites:
CCUSA and Crown Atlantic.................................................... $1,425 $1,547
CCUK........................................................................ 980 1,192
CCAL........................................................................ 606 324
The increases in site rental and broadcast transmission revenues reflect the
new tenant additions on our tower sites and contractual escalations on existing
leases. 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 September 30, 2002 were
$118.0 million, an increase of $8.9 million from the three months ended
September 30, 2001. This increase was primarily attributable to:
(1) an $11.7 million increase in site rental and broadcast transmission
costs, of which $5.7 million was attributable to CCUK, $1.8 million
was attributable to Crown Atlantic, $0.3 million was attributable to
CCAL and $3.9 million was attributable to CCUSA, and
(2) a $10.1 million increase in network services costs from CCUK,
partially offset by
(3) an $11.2 million decrease in network services costs related to CCUSA
and
(4) a $1.6 million decrease in network services costs from Crown Atlantic.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues increased to 42.4% for the
three months ended September 30, 2002 from 40.3% for the three months ended
September 30, 2001, because of lower margins attributable to the CCUK and Crown
Atlantic operations. Margins at CCUK were negatively impacted by the loss of
revenues under the ITVD transmission contract (see "Item 5. Other
Information"). Costs of operations for network services and other as a
percentage of network services and other revenues increased to 77.6% for the
three months ended September 30, 2002 from 69.6% for the three months ended
September 30, 2001 because of lower margins from the CCUSA operations. Margins
at CCUSA reflect the nature of the current business environment for network
services.
26
General and administrative expenses for the three months ended September 30,
2002 were $21.5 million, unchanged from the three months ended September 30,
2001. Net activity was attributable to:
(1) a $1.1 million increase in expenses related to the CCUSA operations,
offset by
(2) a $0.2 million decrease in expenses at Crown Atlantic,
(3) a $0.1 million decrease in expenses at CCAL,
(4) a $0.7 million decrease in expenses at CCUK, and
(5) a $0.1 million decrease in expenses at our corporate office.
General and administrative expenses as a percentage of revenues decreased to
9.4% for the three months ended September 30, 2002 from 9.8% for the three
months ended September 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 September 30, 2002
were $2.1 million, compared to $2.7 million for the three months ended
September 30, 2001. This decrease was attributable to a decrease in expenses at
our corporate office.
For the three months ended September 30, 2002, we recorded cash
restructuring charges of $0.7 million, compared to $19.3 million for the three
months ended September 30, 2001. Such charges related to employee severance
payments and costs of office closures. We will incur additional restructuring
charges in the fourth quarter of 2002. See "--Restructuring Charges and Asset
Write-Down Charges".
During the three months ended September 30, 2002, we recorded asset
write-down charges of $9.6 million for CCUSA, $2.6 million for Crown Atlantic
and $2.4 million at our corporate office. Such non-cash charges related to the
abandonment of a portion of our construction in process for certain open
projects, the cancellation of certain build-to-suit agreements and write-downs
of the related construction in process, write-downs of certain inventories, and
write-downs of three office buildings. For the three months ended September 30,
2001, we recorded asset write-down charges of $3.7 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 September 30, 2002, we recorded non-cash general
and administrative compensation charges of $1.4 million related to the issuance
of stock and stock options to certain employees and executives, compared to
$1.9 million for the three months ended September 30, 2001.
Depreciation and amortization for the three months ended September 30, 2002
was $77.3 million, a decrease of $1.2 million from the three months ended
September 30, 2001. This decrease was primarily attributable to:
(1) a $15.2 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $2.5 million was attributable to CCUSA,
$11.9 million was attributable to CCUK and $0.8 million was
attributable to Crown Atlantic (see "--Impact of Recently Issued
Accounting Standards"), largely offset by
(2) a $7.8 million increase in depreciation related to property and
equipment and amortization of other intangible assets from CCUSA,
(3) a $4.7 million increase in depreciation related to property and
equipment from CCUK,
(4) a $1.1 million increase in depreciation related to property and
equipment from Crown Atlantic, and
(5) a $0.3 million increase in depreciation related to property and
equipment from CCAL.
27
Interest and other income (expense) for the three months ended September 30,
2002 resulted primarily from:
(1) interest income from invested cash balances, and
(2) gains of approximately $30.0 million on debt repurchases, partially
offset by
(3) charges of approximately $12.3 million for the write-down of
investments in unconsolidated affiliates,
(4) our share of losses incurred by unconsolidated affiliates and
(5) costs incurred in connection with unsuccessful investment projects.
Interest expense and amortization of deferred financing costs for the three
months ended September 30, 2002 was $78.1 million, a decrease of $1.0 million
from the three months ended September 30, 2001. This decrease was primarily
attributable to lower interest rates on bank indebtedness at CCUSA and Crown
Atlantic.
Minority interests represent the minority partner's 43.1% interest in Crown
Atlantic's operations, the minority partner's 17.8% interest in the operations
of the GTE joint venture and the minority shareholder's 22.4% interest in the
CCAL operations.
Comparison of Nine Months Ended September 30, 2002 and 2001
Consolidated revenues for the nine months ended September 30, 2002 were
$673.6 million, an increase of $12.8 million from the nine months ended
September 30, 2001. This increase was primarily attributable to:
(1) a $78.5 million, or 18.7%, increase in site rental and broadcast
transmission revenues, of which $19.0 million was attributable to
CCUK, $9.1 million was attributable to Crown Atlantic, $5.5 million
was attributable to CCAL and $44.9 million was attributable to CCUSA,
(2) a $22.1 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) an $83.1 million decrease in network services and other revenues from
CCUSA, and
(5) a $5.4 million decrease in network services and other revenues from
Crown Atlantic.
The following is a summary of tenant leasing activity on our tower sites:
Nine Months
Ended
September 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).............. 2,864 1,585
Crown Atlantic.............................................................. 511 348
CCUK (includes 543 tenants from acquired tower sites in 2001)............... 2,342 1,101
CCAL (includes 1,054 tenants from acquired tower sites in 2001)............. 1,367 280
------ ------
7,084 3,314
====== ======
Average monthly lease rate per new tenant added on existing tower sites:
CCUSA and Crown Atlantic.................................................... $1,467 $1,495
CCUK........................................................................ 731 1,110
CCAL........................................................................ 618 497
28
The increases in site rental and broadcast transmission revenues reflect the
new tenant additions on our tower sites and contractual escalations on existing
leases. 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 nine months ended September 30, 2002 were $335.6
million, a decrease of $9.8 million from the nine months ended September 30,
2001. This decrease was primarily attributable to:
(1) a $45.4 million decrease in network services costs related to CCUSA
and
(2) a $4.2 million decrease in network services costs from Crown
Atlantic, partially offset by
(3) a $22.5 million increase in site rental and broadcast transmission
costs, of which $10.1 million was attributable to CCUK, $3.2 million
was attributable to Crown Atlantic, $1.7 million was attributable to
CCAL and $7.4 million was attributable to CCUSA,
(4) a $17.2 million increase in network services costs from CCUK, and
(5) a $0.1 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 39.8% for the
nine months ended September 30, 2002 from 41.9% for the nine months ended
September 30, 2001, because of higher margins attributable to incremental
revenues from the CCUSA, Crown Atlantic and CCAL operations. Costs of
operations for network services and other as a percentage of network services
and other revenues increased to 78.3% for the nine months ended September 30,
2002 from 70.3% for the nine months ended September 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 nine months ended September 30,
2002 were $72.0 million, a decrease of $5.8 million from the nine months ended
September 30, 2001. This decrease was primarily attributable to:
(1) a $3.2 million decrease in expenses related to the CCUSA operations,
(2) a $2.6 million decrease in expenses at Crown Atlantic, and
(3) a $0.6 million decrease in expenses at CCAL, partially offset by
(4) a $0.4 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 10.7% for the nine months ended September 30, 2002 from 11.8% for
the nine months ended September 30, 2001 because of lower overhead costs as a
percentage of revenues for CCAL, CCUK and Crown Atlantic.
Corporate development expenses for the nine months ended September 30, 2002
were $6.0 million, compared to $9.9 million for the nine months ended September
30, 2001. This decrease was primarily attributable to a decrease in expenses at
our corporate office.
For the nine months ended September 30, 2002, we recorded cash restructuring
charges of $6.6 million, compared to $19.3 million for the nine months ended
September 30, 2001. Such charges related to employee severance payments and
costs of office closures. We will incur additional restructuring charges in the
fourth quarter of 2002. See "--Restructuring Charges and Asset Write-Down
Charges".
29
During the nine months ended September 30, 2002, we recorded asset
write-down charges of $33.9 million for CCUSA, $10.5 million for Crown Atlantic
and $2.4 million at our corporate office. Such non-cash charges related to the
abandonment of a portion of our construction in process for certain open
projects, the cancellation of certain build-to-suit agreements and write-downs
of the related construction in process, write-downs of certain inventories, and
write-downs of three office buildings. For the nine months ended September 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 nine months
ended September 30, 2001, we recorded asset write-down charges of $16.0 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 nine months ended September 30, 2002, we recorded non-cash general
and administrative compensation charges of $4.0 million related to the issuance
of stock and stock options to certain employees and executives, compared to
$4.7 million for the nine months ended September 30, 2001.
Depreciation and amortization for the nine months ended September 30, 2002
was $225.2 million, a decrease of $2.2 million from the nine months ended
September 30, 2001. This decrease was primarily attributable to:
(1) a $45.3 million decrease in goodwill amortization resulting from the
adoption of a new accounting standard for goodwill and other
intangible assets, of which $7.3 million was attributable to CCUSA,
$35.6 million was attributable to CCUK and $2.4 million was
attributable to Crown Atlantic (see "--Impact of Recently Issued
Accounting Standards"), partially offset by
(2) a $12.5 million increase in depreciation related to property and
equipment from CCUK,
(3) a $25.1 million increase in depreciation related to property and
equipment and amortization of other intangible assets from CCUSA,
(4) a $2.1 million increase in depreciation related to property and
equipment from CCAL, and
(5) a $3.2 million increase in depreciation related to property and
equipment from Crown Atlantic.
Interest and other income (expense) for the nine months ended September 30,
2002 resulted primarily from:
(1) interest income and foreign exchange gains from invested cash
balances, and
(2) gains of approximately $30.0 million on debt repurchases, partially
offset by
(3) charges of approximately $24.2 million for the write-down of
investments in unconsolidated affiliates,
(4) our share of losses incurred by unconsolidated affiliates and
(5) costs incurred in connection with unsuccessful investment projects.
Interest expense and amortization of deferred financing costs for the nine
months ended September 30, 2002 was $230.8 million, an increase of $11.9
million, or 5.4%, from the nine months ended September 30, 2001. This increase
was primarily attributable to interest on the 9 3/8% senior notes, partially
offset by lower interest rates on bank indebtedness at CCUSA and Crown Atlantic.
The provision for income taxes of $5.4 million for the nine months ended
September 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.
30
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.
During 2002, we have taken actions to reduce, delay or eliminate contractual
obligations for certain capital expenditures. We have accomplished the
following;
(1) the deferral of a (Pounds)50.0 million payment due to British Telecom
from 2002 to 2003, and
(2) the completion and winding up (by mutual agreement) of build-to-suit
contracts with two significant customers of CCUSA, thereby eliminating
future tower construction obligations.
These actions, and others we are pursuing, will serve to increase our financial
flexibility and improve our ability to allocate our capital on a discretionary
basis to the highest yielding investments, including the securities repurchases
as described below. Our goal is to maximize net cash from operating activities
and fund substantially all capital spending and debt repayments from our
operating cash flow beginning in 2003, without reliance on additional borrowing
or the use of our cash and liquid investments. However, due to the risk factors
outlined above, there can be no assurance that this will be possible.
For the nine months ended September 30, 2001 and 2002, our net cash provided
by operating activities was $78.7 million and $82.4 million, respectively. For
the nine months ended September 30, 2001 and 2002, our net cash provided by
(used for) financing activities was $1,088.9 million and $(155.1) million,
respectively. For the year ending December 31, 2002, we expect that our net
cash provided by operating activities will be between approximately $132.0
million and $142.0 million.
Capital expenditures were $237.3 million for the nine months ended September
30, 2002, of which $0.4 million were for CCIC, $81.8 million were for CCUSA,
$22.1 million were for Crown Atlantic, $128.4 million were for CCUK and $4.6
million were for CCAL. We anticipate that we will build, through the end of
2002, approximately 155 to 160 towers in the United States at a cost of
approximately $43.5 million and approximately 358 to 363 towers in the United
Kingdom at a cost of approximately $22.0 million. In addition, we were
obligated to pay a site access fee to British Telecom in the amount of
(Pounds)100.0 million ($151.3 million). In April 2002, we reached agreement
with British Telecom to defer until March 2003 payment of (Pounds)50.0 million
($77.9 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 $45.0 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 three months of 2002, we expect that our total capital expenditures
will be between approximately $35.0 million and $45.0 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
31
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 expect to 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 our available cash balances and cash provided
by future operations. We do not currently expect to utilize further borrowings
available under our U.S. and U.K. credit facilities in any significant amounts.
We will have additional cash needs to fund our operations in the future. We may
also have additional cash needs in the future if additional tower acquisitions
or build-to-suit opportunities arise. If we do not otherwise have cash
available, or borrowings under our credit facilities have otherwise been
utilized, when our cash need arises, we would be forced to seek additional debt
or equity financing or to forego the opportunity. In the event we determine to
seek additional debt or equity financing, there can be no assurance that any
such financing will be available, on commercially acceptable terms or at all,
or permitted by the terms of our existing indebtedness.
As of September 30, 2002, we had consolidated cash and cash equivalents of
$605.3 million (including $70.9 million at CCUSA, $118.5 million at CCUK, $10.8
million at Crown Atlantic, $13.3 million at CCAL, $275.2 million in an
unrestricted investment subsidiary and $116.6 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $108.3 million, consolidated long-term debt of
$3,367.5 million, consolidated redeemable preferred stock of $837.6 million and
consolidated stockholders' equity of $2,164.8 million. During October of 2002,
we utilized $138.7 million of our cash and cash equivalents ($94.7 million from
an unrestricted investment subsidiary and $44.0 million from CCIC) to (1)
repurchase $141.7 million in carrying value of long-term debt, $87.1 million in
carrying value of redeemable preferred stock and 1.3 million shares of our
common stock for $2.6 million, and (2) settle remaining debt and preferred
stock purchases from September 2002.
In June and September of 2002, we paid our quarterly dividends on the 81/4%
Convertible Preferred Stock by issuing a total of 2.6 million shares of our
common stock. As allowed by the Deposit Agreement relating to dividend payments
on the 81/4% Convertible Preferred Stock, we repurchased the 2.6 million shares
of common stock from the dividend paying agent for a total of $8.1 million in
cash. We utilized cash from an unrestricted investment subsidiary to effect the
stock repurchases. 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.
In September 2002, Crown Atlantic repaid $50.0 million in outstanding
borrowings under its credit facility. Crown Atlantic utilized cash provided by
its operations to effect this repayment.
In August and September of 2002, we began repurchasing our stock (both
common and preferred) and debt securities in public market transactions.
Through October of 2002, we repurchased debt securities with an aggregate
principal amount (at maturity) of $241.1 million. Such debt securities had an
aggregate carrying value (net of unamortized discounts) of $223.5 million. We
utilized $140.5 million in cash ($96.5 million from an unrestricted investment
subsidiary and $44.0 million from CCIC) to effect these debt repurchases. The
debt repurchases resulted in gains of $78.5 million. Through October of 2002,
we repurchased shares of preferred stock with an aggregate redemption amount of
$160.9 million. Such shares of preferred stock had an aggregate
32
carrying value (net of unamortized issue costs) of $158.4 million. We utilized
$59.6 million in cash from an unrestricted investment subsidiary to effect
these preferred stock repurchases. The preferred stock repurchases resulted in
gains of $98.8 million. When the debt and preferred stock repurchases are added
together, we have spent approximately $200.1 million in cash to retire
securities with aggregate principal and redemption amounts (at maturity) of
approximately $402.0 million. These repurchases (at an average discount to par
value of approximately 50%) represent an attractive use of our liquidity, and
the future interest savings will enhance our cash flow from operating
activities. Through October of 2002, we also repurchased a total of 1.5 million
shares of common stock. We utilized $3.0 million in cash from an unrestricted
investment subsidiary to effect these common stock repurchases.
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 continue to 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 November 1, 2002, Crown Atlantic had unused borrowing availability
under its amended credit facility of approximately $95.0 million. As of
November 1, 2002, our restricted U.S. and Australian subsidiaries had
approximately $337.9 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 multiplex 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
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 continued to classify all the outstanding
borrowings under the CCUK credit facility as current liabilities on our
consolidated balance sheet as of September 30, 2002. If we are unable to obtain
an amendment to the CCUK credit facility as discussed above, the uncured
Termination Event could result in an event of default under the trust deed
governing the CCUK bonds. As a result, we have also continued to classify the
principal amount of the CCUK bonds as a current liability on our consolidated
balance sheet as of September 30, 2002. None of our other debt instruments,
including the public debt securities and the
33
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 $14.9 million, $10.9
million, $47.6 million and $38.2 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 $25.4 million, $47.0 million and $22.8 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 $36.4 million. Annual cash interest payments on the CCUK bonds
are (Pounds)11.25 million ($17.5 million). In addition, our various credit
facilities will require periodic interest payments on amounts borrowed
thereunder, which amounts could be substantial.
As a holding company, CCIC will require distributions or dividends from its
subsidiaries, or will be forced to use capital raised in debt and equity
offerings, to fund its debt obligations, including interest payments on the
cash-pay notes and eventually the 10 5/8% discount notes, the 10 3/8% discount
notes and the 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
September 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 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.
34
Restructuring Charges and Asset Write-Down Charges
In July 2001, we announced a restructuring of our business in order to
increase operational efficiency and better align costs with anticipated
revenues. As part of the restructuring, we reduced our global staff by
approximately 312 full-time employees, closed five offices in the United States
and closed our development offices in Brazil and Europe. The actions taken for
the restructuring were substantially completed as of the end of 2001. In
connection with the restructuring, we recorded non-recurring cash charges of
$19.3 million for the nine months ended September 30, 2001 related to employee
severance payments ($13.7 million) and costs of office closures ($5.5 million).
For the nine months ended September 30, 2002, we recorded cash charges of $4.0
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff reductions 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
$6.0 million and $8.0 million. For the nine months ended September 30, 2002, we
also recorded cash charges of $3.1 million related primarily to additional
employee severance payments at our corporate office in connection with the July
2001 restructuring. In October 2002, we announced a restructuring of our U.S.
business in order to flatten its organizational structure to better align with
customer demand and enhance our regional focus to improve customer service. As
part of the restructuring, we are reducing our U.S. workforce by approximately
250 employees and are closing some smaller offices. The actions taken for the
October 2002 restructuring will be substantially completed by the end of the
first quarter of 2003. In connection with this restructuring, we will record
cash charges of approximately $7.0 million to $10.0 million in the fourth
quarter of 2002 related to employee severance payments and costs of office
closures.
For the nine months ended September 30, 2001, we recorded asset write-down
charges of $16.0 million in connection with the July 2001 restructuring. Such
non-cash charges related to the write-down of certain inventories ($3.8
million), property and equipment ($7.7 million), and other assets ($4.5
million) that were deemed to have no value as a result of the restructuring.
During the nine months ended September 30, 2002, we abandoned a portion of our
construction in process related to certain open projects, cancelled certain
build-to-suit agreements and wrote down the value of the related construction
in process, wrote down the value of certain inventories, and wrote down the
value of three office buildings. As a result, we have recorded asset write-down
charges of $33.9 million for CCUSA, $10.5 million for Crown Atlantic and $2.4
million for the corporate office. For the nine months ended September 30, 2002,
we also recorded asset write-down charges of $0.4 million for CCUK related to
certain inventories and property and equipment. We will continue to evaluate
the carrying value of our goodwill and our property and equipment as required
by SFAS 142 and SFAS 144. Implicit in the determination of fair value for such
long-lived assets are certain assumptions regarding the future leasing of our
communication sites. Should future business conditions require the amendment of
previous assumptions, our assets could be deemed impaired and a charge to
earnings would be required.
CCUK Take or Pay Agreements
CCUK is a party to two agreements that contemplate a minimum level of site
leasing and contain certain "take or pay" commitments by the carriers. One
agreement contemplates that at least 1,000 sites will be annually leased for a
total of 4,000 sites by 2005. The other agreement contemplates that at least
1,500 sites will be leased by 2004. In each case, the carrier is not leasing
the number of sites within the time period contemplated by the agreement and it
is likely that the carriers will not need the full number of sites originally
contemplated. CCUK is working with the carriers to resolve differences and to
find viable commercial alternatives to maintain good relationships with such
carriers. However, there can be no assurance that satisfactory results will be
achieved in either situation.
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")
35
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, our measure of the following information may not be
comparable to similarly titled measures of other companies.
Summarized financial information for (1) CCIC and our Restricted
Subsidiaries and (2) our Unrestricted Subsidiaries is as follows:
September 30, 2002
----------------------------------------------------
Company
and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 200,808 $ 404,511 $ -- $ 605,319
Other current assets.................... 240,780 145,201 -- 385,981
Property and equipment, net............. 3,256,883 1,599,463 -- 4,856,346
Investments............................. 29,500 -- -- 29,500
Investments in Unrestricted Subsidiaries 2,061,815 -- (2,061,815) --
Goodwill................................ 164,023 875,634 -- 1,039,657
Other assets, net....................... 103,654 24,008 -- 127,662
---------- ---------- ----------- ----------
$6,057,463 $3,048,817 $(2,061,815) $7,044,465
========== ========== =========== ==========
Current liabilities..................... $ 177,491 $ 530,069 $ -- $ 707,560
Long-term debt, less current maturities. 2,748,418 250,000 -- 2,998,418
Other liabilities....................... 36,168 130,780 -- 166,948
Minority interests...................... 93,021 76,153 -- 169,174
Redeemable preferred stock.............. 837,552 -- -- 837,552
Stockholders' equity.................... 2,164,813 2,061,815 (2,061,815) 2,164,813
---------- ---------- ----------- ----------
$6,057,463 $3,048,817 $(2,061,815) $7,044,465
========== ========== =========== ==========
36
Three Months Ended September 30, 2002 Nine Months Ended September 30, 2002
------------------------------------- -------------------------------------
Company Company
and and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
Net revenues..................... $121,958 $105,466 $227,424 $ 368,778 $304,794 $ 673,572
Costs of operations (exclusive of
depreciation and
amortization).................. 61,462 56,517 117,979 178,056 157,507 335,563
General and administrative....... 18,299 3,162 21,461 57,887 14,094 71,981
Corporate development............ 2,060 -- 2,060 6,032 -- 6,032
Restructuring charges............ 423 234 657 2,645 3,964 6,609
Asset write-down charges......... 11,954 2,586 14,540 36,272 10,974 47,246
Non-cash general and
administrative compensation
charges........................ 872 479 1,351 2,616 1,375 3,991
Depreciation and amortization.... 50,368 26,912 77,280 148,992 76,175 225,167
-------- -------- -------- --------- -------- ---------
Operating income (loss).......... (23,480) 15,576 (7,904) (63,722) 40,705 (23,017)
Interest and other income
(expense)...................... 30,802 (10,223) 20,579 23,320 (4,991) 18,329
Interest expense and amortization
of deferred financing costs.... (65,899) (12,228) (78,127) (195,247) (35,587) (230,834)
Provision for income taxes....... (108) 7 (101) (298) (5,146) (5,444)
Minority interests............... 822 (897) (75) 3,377 (30) 3,347
-------- -------- -------- --------- -------- ---------
Net loss......................... $(57,863) $ (7,765) $(65,628) $(232,570) $ (5,049) $(237,619)
======== ======== ======== ========= ======== =========
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 September 30, 2002............ $ 48,977 $ 48,977
========= =========
Consolidated Cash Flow, for the twelve months ended September 30, 2002.... $ 172,299 $ 180,276
Less: Tower Cash Flow, for the twelve months ended September 30, 2002..... (194,483) (194,483)
Plus: four times Tower Cash Flow, for the three months ended September 30,
2002.................................................................... 195,908 195,908
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended September 30,
2002.................................................................... $ 173,724 $ 181,701
========= =========
Impact of Recently Issued Accounting Standards
In June 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
37
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, $12.6
million and $13.4 million at September 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, (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
were to be recorded upon 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 nine months ended September 30, 2001 would have been $94.8
million ($0.53 per share) and $216.9 million ($1.29 per share), respectively.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"). SFAS 143
addresses financial accounting and reporting for obligations associated with
the retirement of tangible long-lived assets and the related asset retirement
costs. The fair value of a liability for an asset retirement obligation is to
be recognized in the period in which it is incurred and can be reasonably
estimated. Such asset retirement costs are to be capitalized as part of the
carrying amount of the related long-lived asset and depreciated over the
asset's estimated useful life. Fair value estimates of liabilities for asset
retirement obligations will generally involve discounted future cash flows.
Periodic accretion of such liabilities due to the passage of time is to be
recorded as an operating expense. The provisions of SFAS 143 are effective for
fiscal years beginning after June 15, 2002, with initial application as of the
beginning of the fiscal year. We have not yet determined the effect that the
adoption of SFAS 143 will have on our consolidated financial statements.
38
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 September 30, 2002, we have approximately $1,119.1 million
of floating rate indebtedness, of which $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.
ITEM 4. CONTROLS AND PROCEDURES
Within 90 days prior to the filing date of this report, the Company
conducted an evaluation, under the supervision and with the participation of
the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of
the Company's disclosure controls and procedures. Based on this evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in alerting them in
a timely manner to material information relating to the Company required to be
included in the Company's periodic SEC reports.
Since the date of the Company's most recent evaluation, there were no
significant changes in the Company's internal controls or in other factors that
could significantly affect these controls, including any corrective actions
with regard to significant deficiencies and material weaknesses.
39
PART II--OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 4, 2002, following the announcement of ITV Digital's ("ITVD") plans
to liquidate and the return of their three ITVD digital terrestrial television
("DTT") multiplex licenses to the UK Independent Television Commission ("ITC"),
the ITC conditionally awarded the license for one multiplex to the BBC and the
licenses for two multiplexes to CCUK. The licenses were formally granted on
August 16, 2002 for a term of twelve years, and CCUK has the right to renew the
licenses for an additional term of twelve years subject to satisfaction of
certain performance criteria. On October 30, 2002, the BBC and CCUK launched
their multi-channel digital TV and radio broadcasting services, under the brand
"Freeview". Digital TV Services Ltd ("DTVSL"), a joint venture in which CCUK,
the BBC and British Sky Broadcasting ("BSkyB") are equal shareholders, has been
created specifically to market Freeview. In addition to being the licensed
broadcast operator of the two multiplexes awarded to CCUK, CCUK provides the
transmission of the DTT program signals for the two CCUK and two BBC
multiplexes through the CCUK-owned DTT network.
Freeview, which encompasses all DTT TV and radio channels transmitted over
all six UK DTT multiplexes (including the channels transmitted on the two other
UK multiplexes not licensed to CCUK or BBC), currently allows approximately 72%
of the UK population to receive 24 digital television channels plus 12 digital
radio stations, with no subscription charge to view, by utilizing an ordinary
rooftop TV antenna and a one-time purchased set-top adaptor box (approximately
$150 retail) with any existing analogue television, or by utilizing an iDTV
digital television (approximately $750 and up retail).
Following the award of the DTT licenses and in connection with the launch of
Freeview, in August 2002 CCUK entered into an agreement with the BBC to provide
transmission and distribution service for the multiplex awarded to the BBC.
Also in August 2002, CCUK entered into an agreement with BSkyB to provide
transmission, distribution and multiplexing service in relation to 75% of the
capacity of one of the CCUK multiplexes. Both of these agreements are for an
initial period of six years with an option by the BBC and BSkyB for an
additional six-year term. In addition, CCUK has entered into agreements to
provide transmission, distribution and multiplexing services to a number of TV
and radio content providers (EMAP, Flextech, Guardian Media Group, Viacom,
Oneword and UKTV) through the two multiplexes awarded to CCUK. Agreements with
the TV channel providers are also for six-year terms, with renewal options,
while agreements with radio providers are generally for shorter terms. Through
such agreements, CCUK is providing content with respect to approximately 90% of
its licensed capacity and is currently in negotiations with content providers
with respect to the remaining capacity. CCUK expects to generate annual
revenues of between approximately $37.5 million and $41.0 million from the
provision of transmission, distribution and multiplexing services related to
the new multiplex licenses in 2003.
CCUK has invested, as a result of its previous contract with ITVD,
substantially all of the capital required to provide the services described
above. CCUK is already incurring, again by virtue of its previous contract with
ITVD, a large proportion of the operating costs required to provide these
services (including payments to British Telecom for distribution circuits and
payments to NTL for site rental). Since CCUK will offer a more complete
end-to-end service to content providers than was provided to ITVD, CCUK expects
to incur certain additional operating costs including (1) payments to BBC's
technology division for multiplexing services and (2) payments to DTVSL for
marketing and operational services to the platform. CCUK will incur additional
annual operating expenses of between approximately $7.5 million and $9.0
million, above the costs incurred for the provision of broadcast services to
ITVD, in 2003.
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
discussions, we do not currently believe that we will be required to prepay the
outstanding borrowings under the CCUK credit facility as
40
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 continued to classify all
the outstanding borrowings under the CCUK credit facility as current
liabilities on our consolidated balance sheet as of September 30, 2002. If we
are unable to obtain an amendment to the CCUK credit facility as discussed
above, the uncured Termination Event could result in an event of default under
the trust deed governing the CCUK bonds. As a result, we have also continued to
classify the principal amount of the CCUK bonds as a current liability on our
consolidated balance sheet as of September 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:
10.1 Form of Option Agreement pursuant to 2001 Stock Incentive Plan
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 October 11, 2002
with the SEC on October 11, 2002 reporting under Item 5 a restructuring of the
Company's U.S. business.
The Registrant filed a Current Report on Form 8-K dated August 8, 2002 with
the SEC on August 23, 2002 furnishing under Item 9 revised guidance through
2004 as disclosed in a press release dated August 8, 2002 setting forth the
Registrant's financial results for the second quarter 2002.
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CASTLE INTERNATIONAL CORP.
Date: November 14, 2002 By:
/s/W. BENJAMIN MORELAND
---------------------------------
W. Benjamin Moreland
Senior Vice President,
Chief Financial Officer
and Treasurer
(Principal Financial
Officer)
Date: November 14, 2002 By: /s/WESLEY D. CUNNINGHAM
---------------------------------
Wesley D. Cunningham
Senior Vice President,
Chief Accounting Officer
and Corporate Controller
(Principal Accounting
Officer)
42
Certification
For the Quarterly Period Ended September 30, 2002
I, John P. Kelly, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crown Castle
international Corp. ("registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002.
/s/ JOHN P. KELLY
--------------------------------------
John P. Kelly
President and Chief Executive Officer
43
Certification
For the Quarterly Period Ended September 30, 2002
I, W. Benjamin Moreland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Crown Castle
international Corp. ("registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 14, 2002.
/s/ W. BENJAMIN MORELAND
--------------------------------------
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and
Treasurer
44