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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 March 31, 2003
Commission File Number 000-24737
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CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other
jurisdiction 76-0470458
of incorporation or (I.R.S. Employer
organization) Identification No.)
510 Bering Drive
Suite 500
Houston, Texas
(Address of principal 77057-1457
executive offices) (Zip Code)
(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 [_]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [_]
Number of shares of common stock outstanding at May 2, 2003: 217,998,476
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CROWN CASTLE INTERNATIONAL CORP.
INDEX
Page
----
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 2002 and March 31, 2003.......................... 3
Consolidated Statement of Operations and Comprehensive Loss for the three months ended
March 31, 2002 and 2003................................................................... 4
Consolidated Statement of Cash Flows for the three months ended March 31, 2002 and 2003..... 5
Condensed Notes to Consolidated Financial Statements........................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 28
Item 4. Controls and Procedures................................................................ 28
PART II--OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................................... 29
Signatures and Certifications................................................................... 30
2
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
December 31, March 31,
2002 2003
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents....................................................... $ 516,172 $ 476,950
Receivables:
Trade, net of allowance for doubtful accounts of $15,309 and $14,629 at
December 31, 2002 and March 31, 2003, respectively........................ 125,950 123,610
Other....................................................................... 9,914 8,937
Short-term investments.......................................................... 115,697 78,264
Inventories..................................................................... 45,616 41,216
Prepaid expenses and other current assets....................................... 53,732 58,032
----------- -----------
Total current assets..................................................... 867,081 787,009
Property and equipment, net of accumulated depreciation of $880,711 and $956,572
at December 31, 2002 and March 31, 2003, respectively............................ 4,828,033 4,796,141
Goodwill........................................................................... 1,067,041 1,050,975
Deferred financing costs and other assets, net of accumulated amortization of
$47,453 and $50,621 at December 31, 2002 and March 31, 2003, respectively........ 130,446 124,929
----------- -----------
$ 6,892,601 $ 6,759,054
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 63,852 $ 50,744
Accrued interest................................................................ 59,811 31,229
Accrued compensation and related benefits....................................... 14,661 12,632
Deferred rental revenues and other accrued liabilities.......................... 208,195 218,168
Long-term debt, current maturities.............................................. 14,250 19,000
----------- -----------
Total current liabilities................................................ 360,769 331,773
Long-term debt, less current maturities............................................ 3,212,710 3,193,277
Other liabilities.................................................................. 183,227 184,661
----------- -----------
Total liabilities........................................................ 3,756,706 3,709,711
----------- -----------
Commitments and contingencies
Minority interests................................................................. 171,383 174,793
Redeemable preferred stock......................................................... 756,014 751,537
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized;
shares issued: December 31, 2002--215,983,294 and March 31, 2003--
223,664,034................................................................... 2,160 2,237
Additional paid-in capital...................................................... 3,315,215 3,347,009
Accumulated other comprehensive income (loss)................................... 39,323 28,794
Unearned stock compensation..................................................... -- (23,440)
Accumulated deficit............................................................. (1,148,200) (1,231,587)
----------- -----------
Total stockholders' equity............................................... 2,208,498 2,123,013
----------- -----------
$ 6,892,601 $ 6,759,054
=========== ===========
See condensed notes to consolidated financial statements.
3
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
Three Months Ended
March 31,
-------------------
2002 2003
--------- --------
Net revenues:
Site rental and broadcast transmission.......................................................... $ 160,264 $184,960
Network services and other...................................................................... 60,353 31,764
--------- --------
220,617 216,724
--------- --------
Operating expenses:
Costs of operations (exclusive of depreciation, amortization and accretion):
Site rental and broadcast transmission....................................................... 62,066 73,360
Network services and other................................................................... 43,725 24,942
General and administrative...................................................................... 21,788 22,192
Corporate development........................................................................... 2,239 1,620
Restructuring charges........................................................................... 5,852 --
Asset write-down charges........................................................................ 31,941 --
Non-cash general and administrative compensation charges........................................ 1,314 2,431
Depreciation, amortization and accretion........................................................ 71,715 80,357
--------- --------
240,640 204,902
--------- --------
Operating income (loss)............................................................................. (20,023) 11,822
Other income (expense):
Interest and other income (expense)............................................................. (6,090) (1,642)
Interest expense and amortization of deferred financing costs................................... (76,319) (72,638)
--------- --------
Loss before income taxes, minority interests and cumulative effect of change in accounting
principle.......................................................................................... (102,432) (62,458)
Provision for income taxes.......................................................................... (4,659) (3,966)
Minority interests.................................................................................. 3,698 (557)
--------- --------
Loss before cumulative effect of change in accounting principle..................................... (103,393) (66,981)
Cumulative effect of change in accounting principle for asset retirement obligations, net of related
income tax benefits of $636........................................................................ -- (2,035)
--------- --------
Net loss............................................................................................ (103,393) (69,016)
Dividends on preferred stock, net of gains on repurchases of preferred stock........................ (20,105) (14,371)
--------- --------
Net loss after deduction of dividends on preferred stock, net of gains on repurchases of preferred
stock.............................................................................................. $(123,498) $(83,387)
========= ========
Net loss............................................................................................ $(103,393) $(69,016)
Other comprehensive income (loss):
Foreign currency translation adjustments........................................................ (2,206) (11,477)
Derivative instruments:
Net change in fair value of cash flow hedging instruments.................................... 1,540 (711)
Amounts reclassified into results of operations.............................................. 1,419 1,659
--------- --------
Comprehensive loss.................................................................................. $(102,640) $(79,545)
========= ========
Per common share--basic and diluted:
Loss before cumulative effect of change in accounting principle................................. $ (0.56) $ (0.37)
Cumulative effect of change in accounting principle............................................. -- (0.01)
--------- --------
Net loss........................................................................................ $ (0.56) $ (0.38)
========= ========
Common shares outstanding--basic and diluted (in thousands)......................................... 219,420 216,958
========= ========
See condensed notes to consolidated financial statements.
4
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
Three Months Ended
March 31,
-------------------
2002 2003
--------- --------
Cash flows from operating activities:
Net loss....................................................................... $(103,393) $(69,016)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation, amortization and accretion..................................... 71,715 80,357
Amortization of deferred financing costs and discounts on long-term debt..... 24,254 17,488
Equity in losses (earnings) and write-downs of unconsolidated affiliates..... 8,101 2,453
Non-cash general and administrative compensation charges..................... 1,314 2,431
Cumulative effect of change in accounting principle.......................... -- 2,035
Minority interests........................................................... (3,698) 557
Asset write-down charges..................................................... 31,941 --
Changes in assets and liabilities:
Increase in deferred rental revenues and other liabilities................. 28,976 8,051
(Increase) decrease in receivables......................................... (3,879) 2,595
Decrease in accrued interest............................................... (18,041) (28,307)
Decrease in accounts payable............................................... (9,940) (12,248)
Increase in inventories, prepaid expenses and other assets................. (11,309) (464)
--------- --------
Net cash provided by operating activities................................ 16,041 5,932
--------- --------
Cash flows from investing activities:
Maturities of investments...................................................... 116,500 93,496
Proceeds from disposition of property and equipment............................ -- 7,472
Purchases of investments....................................................... (79,000) (56,063)
Capital expenditures........................................................... (72,981) (52,849)
Investments in affiliates and other............................................ (2,946) (250)
--------- --------
Net cash used for investing activities................................... (38,427) (8,194)
--------- --------
Cash flows from financing activities:
Proceeds from issuance of capital stock........................................ 538 1,055
Net borrowings (payments) under revolving credit agreements.................... -- (22,895)
Purchases of capital stock..................................................... -- (13,558)
--------- --------
Net cash provided by (used for) financing activities..................... 538 (35,398)
--------- --------
Effect of exchange rate changes on cash......................................... (2,736) (1,562)
--------- --------
Net decrease in cash and cash equivalents....................................... (24,584) (39,222)
Cash and cash equivalents at beginning of period................................ 804,602 516,172
--------- --------
Cash and cash equivalents at end of period...................................... $ 780,018 $476,950
========= ========
Supplemental disclosure of cash flow information:
Interest paid.................................................................. $ 68,960 $ 81,415
Income taxes paid.............................................................. 89 117
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, 2002,
and related notes thereto, included in the Annual Report on Form 10-K (the
"Form 10-K") filed by Crown Castle International Corp. with the Securities and
Exchange Commission. All references to the "Company" include Crown Castle
International Corp. and its subsidiary companies unless otherwise indicated or
the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at March 31, 2003 and
the consolidated results of operations and consolidated cash flows for the
three months ended March 31, 2002 and 2003. 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.
Stock-Based Compensation
The Company used the "intrinsic value based method" of accounting for its
stock-based employee compensation plans until December 31, 2002. This method
does not result in the recognition of compensation expense when employee stock
options are granted if the exercise price of the options equals or exceeds the
fair market value of the stock at the date of grant. The exercise prices for
the substantial portion of the options granted during the three months ended
March 31, 2002 were equal to or in excess of the market value of the Company's
common stock at the date of grant. As such, no compensation cost was recognized
for the substantial portion of the stock options granted during that period. On
January 1, 2003, the Company adopted the fair value method of accounting (using
the "prospective" method of transition) for stock-based employee compensation
awards granted on or after that date (see Note 2). The following table shows
the pro forma effect on the Company's net loss and loss per share as if
compensation cost had been recognized for all stock options based on their fair
value at the date of grant. The pro forma effect of stock options on the
Company's net loss for those periods may not be representative of the pro forma
effect for future periods due to the impact of vesting and potential future
awards.
Three Months Ended
March 31,
------------------------
2002 2003
--------- --------
(In thousands of dollars,
except per share
amounts)
Net loss, as reported.............................................................. $(103,393) $(69,016)
Add: Stock-based employee compensation expense included in reported net loss....... 1,314 2,431
Deduct: Total stock-based employee compensation expense determined under fair value
based method for all awards...................................................... (8,054) (6,221)
--------- --------
Net loss, as adjusted.............................................................. (110,133) (72,806)
Dividends on preferred stock, net of gains on repurchases of preferred stock....... (20,105) (14,371)
--------- --------
Net loss applicable to common stock for basic and diluted computations, as adjusted $(130,238) $(87,177)
========= ========
Loss per common share--basic and diluted:
As reported..................................................................... $ (0.56) $ (0.38)
========= ========
As adjusted..................................................................... $ (0.59) $ (0.40)
========= ========
6
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board (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 adopted the requirements of SFAS 143 as of January 1, 2003. The
adoption of SFAS 143 resulted in the recognition of liabilities amounting to
$4,062,000 for contingent retirement obligations under certain tower site land
leases (included in other long-term liabilities on the Company's consolidated
balance sheet), the recognition of asset retirement costs amounting to
$1,391,000 (included in property and equipment on the Company's consolidated
balance sheet), and the recognition of a charge for the cumulative effect of
the change in accounting principle amounting to $2,035,000 (net of related
income tax benefits of $636,000). Accretion expense related to liabilities for
contingent retirement obligations (included in depreciation, amortization and
accretion on the Company's consolidated statement of operations) amounted to
$103,000 for the three months ended March 31, 2003. At March 31, 2003,
liabilities for contingent retirement obligations amounted to $4,107,000.
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 has adopted the
requirements of SFAS 146 as of January 1, 2003.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation--Transition and
Disclosure ("SFAS 148"). SFAS 148 amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the provisions of SFAS 123 to require more prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results of operations. The Company has adopted the disclosure
requirements of SFAS 148 as of December 31, 2002 (see Note 1). On January 1,
2003, the Company adopted the fair value method of accounting for stock-based
employee compensation using the "prospective" method of transition as provided
by SFAS 148. Under this transition method, the Company will recognize
compensation cost for all employee awards granted on or after January 1, 2003.
The adoption of this new accounting method did not have a significant effect on
the Company's consolidated financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). FIN 46 clarifies existing accounting
literature regarding the consolidation of entities in which a company holds a
"controlling financial interest". A majority voting interest in an entity has
generally been
7
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
considered indicative of a controlling financial interest. FIN 46 specifies
other factors ("variable interests") which must be considered when determining
whether a company holds a controlling financial interest in, and therefore must
consolidate, an entity ("variable interest entities"). The provisions of FIN 46
are immediately effective for variable interest entities created, or invested
in, after January 31, 2003. For variable interest entities created prior to
February 1, 2003, the provisions of FIN 46 are effective as of the beginning of
the first interim period after June 15, 2003. The Company will adopt the
provisions of FIN 46 as of July 1, 2003, and does not expect that such adoption
will have a significant effect on its consolidated financial statements.
3. Goodwill and Other Intangible Assets
A summary of goodwill by operating segment is as follows:
Three Months Ended March 31, 2003
---------------------------------------
Crown Consolidated
CCUSA CCUK Atlantic Total
-------- -------- -------- ------------
(In thousands of dollars)
Balance at beginning of period. $164,023 $847,641 $55,377 $1,067,041
Effect of exchange rate changes -- (16,066) -- (16,066)
-------- -------- ------- ----------
Balance at end of period....... $164,023 $831,575 $55,377 $1,050,975
======== ======== ======= ==========
During the fourth quarter of 2002, the Company performed its annual update
of the impairment test for goodwill. The results of this test indicated that
goodwill was not impaired at any of the Company's reporting units. However, the
amount by which the estimated fair value for CCUSA exceeded its carrying value
had declined since January 1, 2002. This decline is a function of the Company's
reduced forecasts for site leasing and antenna installation revenues, as
indicated by its operating results for 2002. Further declines in the site
leasing and network services business at CCUSA could result in an impairment of
goodwill in the future. Furthermore, if an impairment at CCUSA were to occur in
the future, the Company believes that the calculations to measure the
impairment could result in the write-off of substantially all of CCUSA's
goodwill ($164,023,000). Due to the continued weakness in the
telecommunications industry, the Company intends to closely monitor the
performance of its reporting units in 2003 in order to assess whether a
goodwill impairment is indicated.
The value of site rental contracts from the acquisition of Crown
Communication are accounted for as other intangible assets with finite useful
lives, and are included in 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 intangible assets were $26,000,000,
$12,935,000 and $13,065,000 at December 31, 2002, respectively, and
$26,000,000, $13,298,000 and $12,702,000 at March 31, 2003, respectively.
Amortization expense for these intangible assets was $363,000 for the three
months ended March 31, 2003, and will be $1,452,000 for each of the years
ending December 31, 2003 through 2007.
8
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Long-term Debt
Long-term debt consists of the following:
December 31, March 31,
2002 2003
------------ ----------
(In thousands of dollars)
2000 Credit Facility................................... $ 700,000 $ 700,000
CCUK Credit Facility................................... 144,855 134,215
Crown Atlantic Credit Facility......................... 250,000 235,000
9% Guaranteed Bonds due 2007........................... 201,188 197,375
10 5/8% Senior Discount Notes due 2007................. 239,160 239,160
10 3/8% Senior Discount Notes due 2011, net of discount 390,905 400,914
9% Senior Notes due 2011............................... 165,700 165,700
11 1/4% Senior Discount Notes due 2011, net of discount 170,777 175,538
9 1/2% Senior Notes due 2011........................... 114,265 114,265
10 3/4% Senior Notes due 2011.......................... 442,885 442,885
9 3/8% Senior Notes due 2011........................... 407,225 407,225
---------- ----------
3,226,960 3,212,277
Less: current maturities............................... (14,250) (19,000)
---------- ----------
$3,212,710 $3,193,277
========== ==========
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, the Company's measure of the following information
may not be comparable to similarly titled measures of other companies.
9
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial information for (1) the Company and its Restricted
Subsidiaries and (2) the Company's Unrestricted Subsidiaries is as follows:
March 31, 2003
----------------------------------------------------
Company and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 256,662 $ 220,288 $ -- $ 476,950
Other current assets.................... 154,508 155,551 -- 310,059
Property and equipment, net............. 3,168,889 1,627,252 -- 4,796,141
Investments in Unrestricted Subsidiaries 1,944,800 -- (1,944,800) --
Goodwill................................ 164,023 886,952 -- 1,050,975
Other assets, net....................... 100,523 24,406 -- 124,929
---------- ---------- ----------- ----------
$5,789,405 $2,914,449 $(1,944,800) $6,759,054
========== ========== =========== ==========
Current liabilities..................... $ 151,616 $ 180,157 $ -- $ 331,773
Long-term debt, less current maturities. 2,626,687 566,590 -- 3,193,277
Other liabilities....................... 40,587 144,074 -- 184,661
Minority interests...................... 95,965 78,828 -- 174,793
Redeemable preferred stock.............. 751,537 -- -- 751,537
Stockholders' equity.................... 2,123,013 1,944,800 (1,944,800) 2,123,013
---------- ---------- ----------- ----------
$5,789,405 $2,914,449 $(1,944,800) $6,759,054
========== ========== =========== ==========
Three Months Ended March 31, 2003
-------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues............................................................ $103,121 $113,603 $216,724
Costs of operations (exclusive of depreciation, amortization and
accretion)............................................................ 40,781 57,521 98,302
General and administrative.............................................. 17,620 4,572 22,192
Corporate development................................................... 1,620 -- 1,620
Non-cash general and administrative compensation charges................ 1,834 597 2,431
Depreciation, amortization and accretion................................ 50,935 29,422 80,357
-------- -------- --------
Operating income (loss)................................................. (9,669) 21,491 11,822
Interest and other income (expense)..................................... (780) (862) (1,642)
Interest expense and amortization of deferred financing costs........... (59,770) (12,868) (72,638)
Provision for income taxes.............................................. (116) (3,850) (3,966)
Minority interests...................................................... 680 (1,237) (557)
Cumulative effect of change in accounting principle for asset retirement
obligations........................................................... (451) (1,584) (2,035)
-------- -------- --------
Net income (loss)....................................................... $(70,106) $ 1,090 $(69,016)
======== ======== ========
10
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Discount Notes and the Certificate (the "1997 and 1998 Securities") and
(2) the indentures governing the 10 3/8% Discount Notes, the 9% Senior Notes,
the 11 1/4% Discount Notes, the 9 1/2% Senior Notes, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of dollars)
Tower Cash Flow, for the three months ended March 31, 2003................. $ 52,239 $ 52,239
========= =========
Consolidated Cash Flow, for the twelve months ended March 31, 2003......... $ 166,988 $ 173,852
Less: Tower Cash Flow, for the twelve months ended March 31, 2003.......... (205,749) (205,749)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2003 208,956 208,956
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2003 $ 170,195 $ 177,059
========= =========
Letters of Credit
In March of 2003, CCUK issued a revised 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)28,800,000
(approximately $45,475,000) and expires in June of 2003.
5. Redeemable Preferred Stock
Redeemable preferred stock ($.01 par value, 20,000,000 shares authorized)
consists of the following:
December 31, March 31,
2002 2003
------------ ---------
(In thousands of dollars)
12 3/4% Senior Exchangeable Preferred Stock; shares issued and outstanding:
December 31, 2002--249,325 and March 31, 2003--244,540 (stated at mandatory
redemption and aggregate liquidation value)..................................... $250,650 $245,839
8 1/4% Cumulative Convertible Redeemable Preferred Stock; shares issued and
outstanding: 200,000 (stated net of unamortized value of warrants; mandatory
redemption and aggregate liquidation value of $200,000)........................ 196,204 196,306
6.25% Convertible Preferred Stock; shares issued and outstanding: 6,361,000 (stated
net of unamortized issue costs; mandatory redemption and aggregate liquidation
value of $318,050)............................................................. 309,160 309,392
-------- --------
$756,014 $751,537
======== ========
In March of 2003, the Company repurchased 12,733 shares of its 12 3/4%
Senior Exchangeable Preferred Stock in a public market transaction. Such shares
of preferred stock had an aggregate redemption amount and carrying value of
$12,733,000. The Company utilized $9,422,000 in cash from an Unrestricted
investment subsidiary to effect this preferred stock repurchase. The preferred
stock repurchase resulted in a gain of $3,311,000. Such gain is offset against
dividends on preferred stock in determining the net loss applicable to common
stock for the calculation of loss per common share.
In March of 2003, the Company paid its quarterly dividend on the 8 1/4%
Convertible Preferred Stock by issuing a total of 905,000 shares of its common
stock. As allowed by the Deposit Agreement relating to dividend
11
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
payments on the 8 1/4% Convertible Preferred Stock, the Company repurchased the
905,000 shares of common stock from the dividend paying agent for a total of
$4,136,000 in cash. The Company utilized cash from an Unrestricted investment
subsidiary to effect the stock repurchase. The Company may choose to continue
such issuances and repurchases of stock in the future in order to avoid further
dilution caused by the issuance of common stock as dividends on its preferred
stock.
6. Stockholders' Equity
During the first quarter of 2003, the Company granted 5,840,187 shares of
restricted common stock to its executives and certain employees. These
restricted shares have a weighted-average grant-date fair value of $4.15 per
share. The restrictions on the shares will expire in various annual amounts
over the vesting period of five years, with provisions for accelerated vesting
based on the market performance of the Company's common stock. In connection
with these restricted shares, the Company will recognize non-cash general and
administrative compensation charges of approximately $24,240,000 over the
vesting period. Such charges will be reduced in the event that any of the
restricted shares are forfeited before they become vested. At March 31, 2003,
future charges related to the restricted shares amounted to $23,440,000
(presented as unearned stock compensation in stockholders' equity on the
Company's consolidated balance sheet). See Note 11.
In February of 2003, the Company issued 105,000 shares of common stock to
the non-executive members of its Board of Directors. These shares have a
grant-date fair value of $3.95 per share. In connection with these shares, the
Company recognized non-cash general and administrative compensation charges of
approximately $415,000 for the first quarter of 2003.
7. 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
March 31,
------------------------
2002 2003
--------- --------
(In thousands of dollars,
except per share
amounts)
Loss before cumulative effect of change in accounting principle..................... $(103,393) $(66,981)
Dividends on preferred stock........................................................ (20,105) (14,371)
--------- --------
Loss before cumulative effect of change in accounting principle applicable to common
stock for basic and diluted computations.......................................... (123,498) (81,352)
Cumulative effect of change in accounting principle................................. -- (2,035)
--------- --------
Net loss applicable to common stock for basic and diluted computations.............. $(123,498) $(83,387)
========= ========
Weighted-average number of common shares outstanding during the period for basic and
diluted computations (in thousands)............................................... 219,420 216,958
========= ========
Per common share--basic and diluted:
Loss before cumulative effect of change in accounting principle.................. $ (0.56) $ (0.37)
Cumulative effect of change in accounting principle.............................. -- (0.01)
--------- --------
Net loss......................................................................... $ (0.56) $ (0.38)
========= ========
12
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of March 31, 2003: (1) options
to purchase 22,371,623 shares of common stock at exercise prices ranging from
$-0- to $39.75 per share, (2) warrants to purchase 639,990 shares of common
stock at an exercise price of $7.50 per share, (3) warrants to purchase
1,000,000 shares of common stock at an exercise price of $26.875 per share, (4)
shares of the Company's 8 1/4% Cumulative Convertible Redeemable Preferred
Stock which are convertible into 7,441,860 shares of common stock, (5) shares
of the Company's 6.25% Convertible Preferred Stock which are convertible into
8,625,084 shares of common stock and (6) 5,816,847 shares of restricted 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.
8. 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.
9. 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, amortization and accretion, non-cash general and administrative
compensation charges, asset write-down charges and restructuring charges.
Adjusted EBITDA is not intended as an alternative measure of operating results
or cash flow from operations (as determined in accordance with generally
accepted accounting principles), and the Company's measure of Adjusted EBITDA
may not be comparable to similarly titled measures of other companies. There
are no significant revenues resulting from transactions between the Company's
operating segments.
13
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The financial results for the Company's operating segments are as follows:
Three Months Ended March 31, 2003
------------------------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCAL CCUK Atlantic Other Total
---------- -------- ---------- -------- ---------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission................... $ 82,899 $ 5,986 $ 71,125 $ 24,950 $ -- $ 184,960
Network services and other....... 13,452 784 14,845 2,683 -- 31,764
---------- -------- ---------- -------- -------- ----------
96,351 6,770 85,970 27,633 -- 216,724
---------- -------- ---------- -------- -------- ----------
Costs of operations (exclusive of
depreciation, amortization and
accretion)........................ 37,923 2,858 46,083 11,438 -- 98,302
General and administrative.......... 12,284 1,700 1,674 1,621 4,913 22,192
Corporate development............... -- -- -- -- 1,620 1,620
---------- -------- ---------- -------- -------- ----------
Adjusted EBITDA..................... 46,144 2,212 38,213 14,574 (6,533) 94,610
Non-cash general and administrative
compensation charges.............. 1,184 -- 537 60 650 2,431
Depreciation, amortization and
accretion......................... 46,874 3,723 18,894 10,466 400 80,357
---------- -------- ---------- -------- -------- ----------
Operating income (loss)............. (1,914) (1,511) 18,782 4,048 (7,583) 11,822
Interest and other income
(expense)......................... 88 182 921 24 (2,857) (1,642)
Interest expense and amortization of
deferred financing costs.......... (8,549) (895) (8,927) (3,941) (50,326) (72,638)
Provision for income taxes.......... -- (116) (3,850) -- -- (3,966)
Minority interests.................. (156) 836 -- (1,237) -- (557)
Cumulative effect of change in
accounting principle for asset
retirement obligations............ (394) (57) (1,484) (100) -- (2,035)
---------- -------- ---------- -------- -------- ----------
Net income (loss)................... $ (10,925) $ (1,561) $ 5,442 $ (1,206) $(60,766) $ (69,016)
========== ======== ========== ======== ======== ==========
Capital expenditures................ $ 3,346 $ 983 $ 46,228 $ 2,207 $ 85 $ 52,849
========== ======== ========== ======== ======== ==========
Total assets (at period end)........ $3,260,841 $293,670 $1,930,627 $809,485 $464,431 $6,759,054
========== ======== ========== ======== ======== ==========
14
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended March 31, 2002
-----------------------------------------------------------
Corporate
Crown Office and Consolidated
CCUSA CCAL CCUK Atlantic Other Total
-------- ------- ------- -------- ---------- ------------
(In thousands of dollars)
Net revenues:
Site rental and broadcast
transmission............................ $ 79,253 $ 5,013 $53,455 $22,543 $ -- $ 160,264
Network services and other................ 37,349 633 15,945 6,426 -- 60,353
-------- ------- ------- ------- -------- ---------
116,602 5,646 69,400 28,969 -- 220,617
-------- ------- ------- ------- -------- ---------
Costs of operations (exclusive of
depreciation and amortization)............. 53,932 2,635 36,856 12,368 -- 105,791
General and administrative................... 13,229 1,261 1,727 1,737 3,834 21,788
Corporate development........................ -- -- -- -- 2,239 2,239
-------- ------- ------- ------- -------- ---------
Adjusted EBITDA.............................. 49,441 1,750 30,817 14,864 (6,073) 90,799
Restructuring charges........................ -- -- 3,726 -- 2,126 5,852
Asset write-down charges..................... 23,721 -- 431 7,789 -- 31,941
Non-cash general and administrative
compensation charges....................... 532 -- 442 -- 340 1,314
Depreciation and amortization................ 44,244 3,186 13,473 10,269 543 71,715
-------- ------- ------- ------- -------- ---------
Operating income (loss)...................... (19,056) (1,436) 12,745 (3,194) (9,082) (20,023)
Interest and other income (expense).......... (743) 162 (5,569) (19) 79 (6,090)
Interest expense and amortization of deferred
financing costs............................ (9,295) (826) (7,552) (4,650) (53,996) (76,319)
Provision for income taxes................... -- (88) (4,571) -- -- (4,659)
Minority interests........................... 819 704 -- 2,175 -- 3,698
-------- ------- ------- ------- -------- ---------
Net loss..................................... $(28,275) $(1,484) $(4,947) $(5,688) $(62,999) $(103,393)
======== ======= ======= ======= ======== =========
Capital expenditures......................... $ 41,631 $ 2,956 $17,668 $10,397 $ 329 $ 72,981
======== ======= ======= ======= ======== =========
15
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Restructuring Charges and Asset Write-Down Charges
For the three months ended March 31, 2002, the Company recorded cash charges
of $3,726,000 in connection with a restructuring of its CCUK business announced
in March 2002. Such charges relate to staff redundancies ($3,395,000) and the
disposition of certain service lines ($331,000). For the three months ended
March 31, 2002, the Company also recorded cash charges of $2,126,000 related to
additional employee severance payments at its corporate office in connection
with the 2001 restructuring. At December 31, 2002 and March 31, 2003, other
accrued liabilities includes $5,839,000 and $3,929,000, respectively, related
to restructuring charges. A summary of the restructuring charges by operating
segment is as follows:
Three Months Ended March 31, 2003
----------------------------------------------
Corporate
Crown Office Consolidated
CCUSA CCUK Atlantic and Other Total
------- ----- -------- --------- ------------
(In thousands of dollars)
Amounts accrued at beginning of period:
Employee severance.................. $ 1,295 $ 360 $ 464 $341 $ 2,460
Costs of office closures and other.. 2,480 525 374 -- 3,379
------- ----- ----- ---- -------
3,775 885 838 341 5,839
------- ----- ----- ---- -------
Amounts paid:
Employee severance.................. (758) (150) (215) (91) (1,214)
Costs of office closures and other.. (250) (350) (96) -- (696)
------- ----- ----- ---- -------
(1,008) (500) (311) (91) (1,910)
------- ----- ----- ---- -------
Amounts accrued at end of period:
Employee severance.................. 537 210 249 250 1,246
Costs of office closures and other.. 2,230 175 278 -- 2,683
------- ----- ----- ---- -------
$ 2,767 $ 385 $ 527 $250 $ 3,929
======= ===== ===== ==== =======
During the three months ended March 31, 2002, the Company abandoned a
portion of its construction in process related to certain open projects and
recorded related asset write-down charges of $23,721,000 for CCUSA and
$7,789,000 for Crown Atlantic. For the three months ended March 31, 2002, the
Company also recorded asset write-down charges of $431,000 for CCUK related to
certain inventories and property and equipment.
11. Subsequent Events
Stockholders' Equity
On April 29, 2003, the market performance of the Company's common stock
reached the first target level for accelerated vesting of the restricted common
shares that had been issued during the first quarter of 2003 (see Note 6). As a
result, the restrictions expired with respect to one third of such outstanding
shares during the second quarter of 2003. The acceleration of the vesting for
these shares will result in the recognition of non-cash general and
administrative compensation charges of approximately $7,300,000 during the
second quarter of 2003. Most of the executives and employees elected to sell a
portion of their vested shares in order to pay their respective tax
liabilities, and the Company arranged to repurchase these shares in order to
facilitate the stock sales. The Company repurchased approximately 575,000 of
such shares of common stock for a total of $3,574,000 in cash. The Company
utilized cash from an Unrestricted investment subsidiary to effect the stock
repurchase.
16
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Minority Interests
On May 2, 2003, the Company entered into several agreements (the
"Agreements"), dated effective May 1, 2003, relating to the Company's two joint
ventures with Verizon Communications ("Verizon"), the Crown Castle Atlantic
Joint Venture ("Crown Atlantic") and the Crown Castle GT Joint Venture ("Crown
Castle GT"). Pursuant to the Agreements, the Company acquired all of Verizon's
equity interests in Crown Castle GT in exchange for consideration consisting of
(1) $31,000,000, representing the purchase (at a negotiated price of $6.122 per
share) of the 5,063,731 shares of the Company's common stock previously held by
Crown Castle GT for the benefit of that venture's Verizon partner, (2) the
transfer to a Verizon affiliate of a 13.3% equity interest in Crown Atlantic,
representing consideration for the Verizon partner's interest in the operating
assets held by Crown Castle GT, and (3) $5,675,000, representing the working
capital of Crown Castle GT allocable to the Verizon partner's interest reduced
by the working capital of Crown Atlantic allocable to the 13.3% equity interest
in Crown Atlantic transferred to the Verizon affiliate.
In addition, pursuant to the Agreements, Crown Atlantic distributed
15,597,783 shares of the Company's common stock previously held by Crown
Atlantic to that venture's Verizon partner, resulting in a reduction in
Verizon's interest in Crown Atlantic by a fixed percentage of 19%. The fixed
percentage reduction was agreed upon at the time of the formation of Crown
Atlantic. Pursuant to the registration rights contained in the Crown Atlantic
Formation Agreement dated December 8, 1998, as amended by the Agreements, the
Company contemplates that it will file a registration statement relating to the
sale of such distributed shares during the summer of 2003.
After giving effect to the foregoing transactions, the Company owns 100% of
Crown Castle GT and 62.8% of Crown Atlantic. Verizon will retain certain
protective rights regarding the tower networks held by both Crown Atlantic and
Crown Castle GT. These protective rights will remain in place after the Crown
Atlantic put or call right described below is exercised.
The Company also agreed with Verizon to extend and convert certain
termination rights relating to Verizon's interest in Crown Atlantic to put and
call rights exercisable on or after July 1, 2007. Upon the exercise of the put
right by Verizon or the call right by the Company, the Company will be required
to purchase all of the Verizon partner's equity interests in Crown Atlantic for
cash equal to the then fair market value of such interest. Prior to the
extension and conversion of such rights, the Verizon partner could have
exercised its termination right at any time after March 31, 2002, requiring the
Company to meet the applicable payment obligations.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion is intended to assist in understanding our
consolidated financial condition as of March 31, 2003 and our consolidated
results of operations for the three-month periods ended March 31, 2002 and
2003. 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 has
been and may continue to be lower and 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 and
wireless communications sites.
. 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.
. Demand for our network services business is very volatile which causes
our network services operating results to vary significantly for any
particular period.
. We may need additional financing for strategic growth opportunities which
may not be available.
. 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.
. Laws and regulations, which could change at any time, govern our business
and industry, and we could fail to comply with these laws and 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.
. Certain provisions of our certificate of incorporation, bylaws and
operative agreements and domestic and international competition laws
could make it more difficult for a third party to acquire control of us
or for us to acquire control of a third party, even if such a change in
control would be beneficial to our stockholders.
. 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.
. Disputes with customers and suppliers may adversely affect our results.
. 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.
18
Should one or more of these risks materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those expected. More
information about potential factors which could affect the Company's financial
results is included in the Risk Factors sections of the Company's filings with
the Securities and Exchange Commission.
The following discussion should be read in conjunction with the response to
Part I, Item 1 of this report and the consolidated financial statements of the
Company, including the related notes, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the Form 10-K.
Any capitalized terms used but not defined in this Item have the same meaning
given to them in the Form 10-K.
Results of Operations
The following information is derived from our historical Consolidated
Statements of Operations for the periods indicated.
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2003
----------------- ----------------
Percent Percent
of Net of Net
Amount Revenues Amount Revenues
--------- -------- -------- --------
(In thousands of dollars)
Net revenues:
Site rental and broadcast transmission......................... $ 160,264 72.6% $184,960 85.3%
Network services and other..................................... 60,353 27.4 31,764 14.7
--------- ----- -------- -----
Total net revenues......................................... 220,617 100.0 216,724 100.0
--------- ----- -------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast transmission......................... 62,066 38.7 73,360 39.7
Network services and other..................................... 43,725 72.4 24,942 78.5
--------- ----- -------- -----
Total costs of operations.................................. 105,791 47.9 98,302 45.4
General and administrative..................................... 21,788 9.9 22,192 10.2
Corporate development.......................................... 2,239 1.0 1,620 0.7
Restructuring charges.......................................... 5,852 2.7 -- --
Asset write-down charges....................................... 31,941 14.5 -- --
Non-cash general and administrative compensation charges....... 1,314 0.6 2,431 1.1
Depreciation, amortization and accretion....................... 71,715 32.5 80,357 37.1
--------- ----- -------- -----
Operating income (loss)........................................... (20,023) (9.1) 11,822 5.5
Other income (expense):
Interest and other income (expense)............................ (6,090) (2.8) (1,642) (0.8)
Interest expense and amortization of deferred financing
costs........................................................ (76,319) (34.6) (72,638) (33.5)
--------- ----- -------- -----
Loss before income taxes, minority interests and cumulative effect
of change in accounting principle............................... (102,432) (46.5) (62,458) (28.8)
Provision for income taxes........................................ (4,659) (2.1) (3,966) (1.8)
Minority interests................................................ 3,698 1.7 (557) (0.3)
--------- ----- -------- -----
Loss before cumulative effect of change in accounting principle... (103,393) (46.9) (66,981) (30.9)
Cumulative effect of change in accounting principle for asset
retirement obligations.......................................... -- -- (2,035) (0.9)
--------- ----- -------- -----
Net loss.......................................................... $(103,393) (46.9)% $(69,016) (31.8)%
========= ===== ======== =====
19
Comparison of Three Months Ended March 31, 2003 and 2002
Consolidated revenues for the three months ended March 31, 2003 were $216.7
million, a decrease of $3.9 million from the three months ended March 31, 2002.
This decrease was primarily attributable to:
(1) a $23.9 million decrease in network services and other revenues from
CCUSA,
(2) a $3.7 million decrease in network services and other revenues from
Crown Atlantic, and
(3) a $1.1 million decrease in network services and other revenues from
CCUK, partially offset by
(4) a $24.7 million, or 15.4%, increase in site rental and broadcast
transmission revenues, of which $17.7 million was attributable to CCUK,
$2.4 million was attributable to Crown Atlantic, $1.0 million was
attributable to CCAL and $3.6 million was attributable to CCUSA, and
(5) a $0.2 million increase in network services and other revenues from CCAL.
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 installations from our tenants,
along with our strategic decision to reduce our US network services offerings
to primarily the management of antenna installations on our sites and radio
frequency planning and testing. We expect that network services and other
revenues will continue to decline as a percentage of total revenues for CCUSA
and Crown Atlantic.
Costs of operations for the three months ended March 31, 2003 were $98.3
million, a decrease of $7.5 million from the three months ended March 31, 2002.
This decrease was primarily attributable to:
(1) an $18.3 million decrease in network services costs related to CCUSA and
(2) a $1.8 million decrease in network services costs from Crown Atlantic,
partially offset by
(3) an $11.3 million increase in site rental and broadcast transmission
costs, of which $8.0 million was attributable to CCUK, $0.9 million was
attributable to Crown Atlantic and $2.3 million was attributable to
CCUSA,
(4) a $1.2 million increase in network services costs from CCUK, and
(5) a $0.2 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 increased to
39.7% for the three months ended March 31, 2003 from 38.7% for the three months
ended March 31, 2002, because of lower margins from the CCUSA operations,
partially offset by higher margins from the CCUK and Crown Atlantic operations.
Costs of operations for network services and other as a percentage of network
services and other revenues increased to 78.5% for the three months ended March
31, 2003 from 72.4% for the three months ended March 31, 2002 because of lower
margins from the CCUK and Crown Atlantic operations, partially offset by higher
margins from the CCUSA operations.
General and administrative expenses for the three months ended March 31,
2003 were $22.2 million, an increase of $0.4 million from the three months
ended March 31, 2002. This increase was primarily attributable to:
(1) a $1.1 million increase in expenses at our corporate office segment, and
(2) a $0.4 million increase in expenses at CCAL, partially offset by
(3) a $0.9 million decrease in expenses related to the CCUSA operations,
(4) a $0.1 million decrease in expenses at Crown Atlantic, and
(5) a $0.1 million decrease in expenses at CCUK.
20
General and administrative expenses as a percentage of revenues increased to
10.2% for the three months ended March 31, 2003 from 9.9% for the three months
ended March 31, 2002, primarily because of overhead costs incurred at a
subsidiary included in our corporate office segment.
Corporate development expenses for the three months ended March 31, 2003
were $1.6 million, compared to $2.2 million for the three months ended March
31, 2002. This decrease was primarily attributable to a decrease in salary
costs at our corporate office.
For the three months ended March 31, 2002, we recorded cash charges of $3.7
million in connection with a restructuring of our CCUK business announced in
March 2002. Such charges relate to staff redundancies and the disposition of
certain service lines. For the three months ended March 31, 2002, we also
recorded cash charges of $2.1 million related to additional employee severance
payments at our corporate office in connection with the July 2001 restructuring.
During the three months ended March 31, 2002, we abandoned a portion of our
construction in process related to certain open projects and recorded related
asset write-down charges of $23.7 million for CCUSA and $7.8 million for Crown
Atlantic. For the three months ended March 31, 2002, we also recorded asset
write-down charges of $0.4 million for CCUK related to certain inventories and
property and equipment.
During the fourth quarter of 2002, we performed our annual update of the
impairment test for goodwill. The results of this test indicated that goodwill
was not impaired at any of our reporting units. However, the amount by which
the estimated fair value for CCUSA exceeded its carrying value had declined
since January 1, 2002. This decline is a function of our reduced forecasts for
site leasing and antenna installation revenues, as indicated by our operating
results for 2002. Further declines in our site leasing and network services
business at CCUSA could result in an impairment of goodwill in the future.
Furthermore, if an impairment at CCUSA were to occur in the future, we believe
that the calculations to measure the impairment could result in the write-off
of substantially all of CCUSA's goodwill ($164.0 million). Due to the continued
weakness in the telecommunications industry, we intend to closely monitor the
performance of our reporting units in 2003 in order to assess whether a
goodwill impairment is indicated.
For the three months ended March 31, 2003, we recorded non-cash general and
administrative compensation charges of $2.4 million related to the issuance of
stock and stock options to certain employees and executives, compared to $1.3
million for the three months ended March 31, 2002. This increase was primarily
attributable to the issuance, during the first quarter of 2003, of restricted
common stock to our executives and certain employees and the issuance of common
stock to the non-executive members of our Board of Directors. On April 29,
2003, the market performance of our common stock reached the first target level
for accelerated vesting of the restricted common shares that had been issued
during the first quarter of 2003. As a result, the restrictions expired with
respect to one third of such outstanding shares during the second quarter of
2003. The acceleration of the vesting for these shares will result in the
recognition of non-cash general and administrative compensation charges of
approximately $7.3 million during the second quarter of 2003.
Depreciation, amortization and accretion for the three months ended March
31, 2003 was $80.4 million, an increase of $8.6 million from the three months
ended March 31, 2002. This increase was primarily attributable to:
(1) a $5.4 million increase in depreciation related to property and
equipment from CCUK,
(2) a $2.6 million increase in depreciation related to property and
equipment from CCUSA,
(3) a $0.5 million increase in depreciation related to property and
equipment from CCAL, and
(4) a $0.2 million increase in depreciation related to property and
equipment from Crown Atlantic.
Interest and other income (expense) for the three months ended March 31,
2003 resulted primarily from:
(1) our share of losses incurred by unconsolidated affiliates, and
21
(2) costs incurred in connection with unsuccessful investment projects,
partially offset by
(3) interest income from invested cash balances.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 2003 was $72.6 million, a decrease of $3.7 million, or
4.8%, from the three months ended March 31, 2002. This decrease was primarily
attributable to:
(1) repurchases of our debt securities in 2002,
(2) reductions in outstanding bank indebtedness at CCUK and Crown Atlantic,
and
(3) lower interest rates on bank indebtedness at CCUSA and Crown Atlantic.
The provision for income taxes of $4.0 million for the three months ended
March 31, 2003 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.
The cumulative effect of change in accounting principle for the three months
ended March 31, 2003 resulted from the adoption of a new accounting standard
for asset retirement obligations. See "--Impact of Recently Issued Accounting
Standards".
Liquidity and Capital Resources
Our business strategy contemplates substantial capital expenditures,
although significantly reduced from previous years' levels, in connection with
the selective expansion of our tower portfolios in the markets in which we
currently operate. During 2003, we expect that the majority of our
discretionary capital expenditures (excluding the required (Pounds)50.0 million
site access fee payment due to British Telecom) 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.
Our goal is to maximize net cash from operating activities and fund
substantially all capital spending and debt service from our operating cash
flow 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 three months ended March 31, 2002 and 2003, our net cash provided by
operating activities was $16.0 million and $5.9 million, respectively. For the
three months ended March 31, 2002 and 2003, our net cash provided by (used for)
financing activities was $0.5 million and $(35.4) million, respectively. For
the year ending December 31, 2003, we expect that our net cash provided by
operating activities will be between approximately $160 million and $200
million.
Capital expenditures were $52.8 million for the three months ended March 31,
2003, of which $0.1 million were for CCIC, $3.3 million were for CCUSA, $2.2
million were for Crown Atlantic, $46.2 million were for CCUK and $1.0 million
were for CCAL. We anticipate that we will build, through the end of 2003,
approximately 10 to 20 towers in the United States at a cost of approximately
$4.4 million and approximately 220 to 260 towers in the United Kingdom at a
cost of approximately $14.4 million. We also expect to spend
22
approximately $40 million for tower improvements, including enhancements to the
structural capacity of our towers in order to support the anticipated leasing,
and approximately $40 million for maintenance activities. For the year ending
December 31, 2003, we expect that our total capital expenditures will be
between approximately $128 million and $148 million. As such, we expect that
our capital expenditures for this period, excluding the payment to British
Telecom, will be fully funded by net cash from operating activities, as
discussed above.
In March 2003, CCUK paid (Pounds)21.2 million (approximately $33.2 million)
of the (Pounds)50.0 million site access fee payment due to British Telecom. In
addition, CCUK reached agreement with British Telecom to defer the remaining
(Pounds)28.8 million (approximately $45.5 million) payment until the end of
June 2003. We are currently in discussions with British Telecom regarding
certain potential amendments to the lease arrangement, but there can be no
assurance as to the outcome of these discussions.
We expect that the construction of new towers will continue to have an
impact on our liquidity. We expect that once integrated, these new towers will
have a positive impact on liquidity, but will require some period of time to
offset the initial adverse impact on liquidity. In addition, we believe that as
new towers become operational and we begin to add tenants, they should result
in a long-term increase in liquidity. Our decisions regarding the construction
of new towers are discretionary, and depend upon expectations of achieving
acceptable rates of return given current market conditions. Such decisions are
influenced by the availability of capital and expected returns on alternative
investments. We have increased our minimum acceptable level for internal rates
of return on new tower builds given current market conditions, and expect to
continue to decrease the number of new towers built in the foreseeable 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,
build-to-suit or other opportunities arise. If we do not otherwise have cash
available, or borrowings under our credit facilities have otherwise been
utilized, when our cash need arises, we would be forced to seek additional debt
or equity financing or to forego the opportunity. In the event we determine to
seek additional debt or equity financing, there can be no assurance that any
such financing will be available, on commercially acceptable terms or at all,
or permitted by the terms of our existing indebtedness.
As of March 31, 2003, we had consolidated cash and cash equivalents of
$477.0 million (including $67.0 million at CCUSA, $60.2 million at CCUK, $7.1
million at Crown Atlantic, $16.9 million at CCAL, $152.9 million in an
unrestricted investment subsidiary and $172.7 million at CCIC and a restricted
investment subsidiary), consolidated liquid investments (consisting of
marketable securities) of $78.3 million, consolidated long-term debt of
$3,212.3 million, consolidated redeemable preferred stock of $751.5 million and
consolidated stockholders' equity of $2,123.0 million.
In the first quarter of 2003, Crown Atlantic and CCUK repaid $15.0 million
and $7.9 million, respectively, in outstanding borrowings under their credit
facilities. In April of 2003, CCUK repaid an additional $15.8 million in
outstanding borrowings under its credit facility. Crown Atlantic and CCUK
utilized cash provided by their operations to effect these repayments.
In March of 2003, we paid our quarterly dividends on the 8 1/4% Convertible
Preferred Stock by issuing a total of 0.9 million shares of our common stock.
As allowed by the Deposit Agreement relating to dividend payments on the 8 1/4%
Convertible Preferred Stock, we repurchased the 0.9 million shares of common
stock from the dividend paying agent for a total of $4.1 million in cash. We
utilized cash from an unrestricted investment subsidiary to effect the stock
repurchase. We may choose to continue such issuances and repurchases of stock
in the future in order to avoid further dilution caused by the issuance of
common stock as dividends on our preferred stock.
In March of 2003, we repurchased additional shares of our preferred stock in
a public market transaction. Such shares of preferred stock had an aggregate
redemption amount and carrying value of $12.7 million. We
23
utilized $9.4 million in cash from an unrestricted investment subsidiary to
effect this preferred stock repurchase. The preferred stock repurchase resulted
in a gain of $3.3 million. Such gain is offset against dividends on preferred
stock in determining the net loss applicable to common stock for the
calculation of loss per common share.
In April of 2003, the restrictions expired with respect to one third of the
outstanding restricted common shares that had been issued during the first
quarter of 2003 (see "--Results of Operation"). Most of the executives and
employees elected to sell a portion of their vested shares in order to pay
their respective tax liabilities, and we arranged to repurchase these shares in
order to facilitate the stock sales. We repurchased 0.6 million of such shares
of common stock for a total of $3.6 million in cash. We utilized cash from an
unrestricted investment subsidiary to effect the stock repurchase.
We seek to allocate our available capital among the investment alternatives
that provide the greatest risk-adjusted 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 May 1, 2003, Crown Atlantic had unused borrowing availability under
its amended credit facility of approximately $99.5 million and CCUK had unused
borrowing availability under its amended credit facility of approximately
(Pounds)45.0 million ($71.1 million). As of May 1, 2003, our restricted U.S.
and Australian subsidiaries had approximately $125.6 million of unused
borrowing availability under the 2000 credit facility. Our various credit
facilities require our subsidiaries to maintain certain financial covenants and
place restrictions on the ability of our subsidiaries to, among other things,
incur debt and liens, pay dividends, make capital expenditures, undertake
transactions with affiliates and make investments. These facilities also limit
the ability of the borrowing subsidiaries to pay dividends to CCIC.
The primary factors that determine our subsidiaries' ability to comply with
their debt covenants are (1) their current financial performance (as defined in
the various credit agreements), (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 financial performance. In addition,
certain of the credit facilities will require that financial performance
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
financial 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.
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 10 5/8% discount
notes, our 9% senior notes, our 9 1/2% senior notes, our 10 3/4% senior notes
and our 9 3/8% senior notes require annual cash interest payments of
approximately $25.4 million, $14.9 million, $10.9 million, $47.6 million and
$38.2 million, respectively. Prior to May 15, 2004 and August 1, 2004, the
interest expense on our 10 3/8% discount notes and our 11 1/4% discount notes,
respectively, will be comprised solely of the amortization of original issue
discount. Thereafter, the 10 3/8% discount notes and the 11 1/4% discount notes
will require annual cash interest payments of approximately $46.6 million and
$22.8 million, respectively. Prior to December 15, 2003, we do not expect to
pay cash dividends on our 12 3/4% exchangeable preferred stock or, if issued,
cash interest on the exchange debentures. Thereafter, assuming all dividends or
interest have been paid-in-kind, our exchangeable preferred stock or, if
issued, the exchange debentures will require annual cash dividend or interest
payments of approximately $34.3 million. Annual cash interest payments on the
CCUK bonds are (Pounds)11.25 million ($17.8 million). In addition, our various
credit facilities will require periodic interest payments on amounts borrowed
thereunder, which amounts could be substantial.
24
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 3/8% discount notes and the 11 1/4%
discount notes. The terms of the indebtedness of our subsidiaries significantly
limit their ability to distribute cash to CCIC. As a result, we will be
required to apply a portion of the net proceeds from the debt offerings to fund
interest payments on the 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 notes.
We have issued letters of credit to various insurers in connection with
certain contingent retirement obligations under various tower site land leases.
The letters of credit were issued through one of CCUSA's lenders in amounts
aggregating $8.5 million and expire on various dates through October 2003.
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.
Joint Ventures With Verizon Communications
On May 2, 2003, we entered into several agreements (the "Agreements"), dated
effective May 1, 2003, relating to our two joint ventures with Verizon
Communications ("Verizon"), the Crown Castle Atlantic Joint Venture ("CCA") and
the Crown Castle GT Joint Venture ("CCGT"). Pursuant to the Agreements, we
acquired all of Verizon's equity interests in CCGT in exchange for
consideration consisting of (1) approximately $31.0 million, representing the
purchase (at a negotiated price of $6.122 per share) of the 5,063,731 shares of
our common stock previously held by CCGT for the benefit of the Verizon CCGT
partner, (2) the transfer to a Verizon affiliate of a 13.3% equity interest in
CCA, representing consideration for the Verizon CCGT partner's interest in the
operating assets held by CCGT, and (3) approximately $5.7 million, representing
the working capital of CCGT allocable to the Verizon CCGT partner's interest
reduced by the working capital of CCA allocable to the 13.3% equity interest in
CCA transferred to the Verizon affiliate.
In addition, pursuant to the Agreements, CCA distributed 15,597,783 shares
of our common stock previously held by CCA to the Verizon CCA partner,
resulting in a reduction in Verizon's interest in CCA by a fixed percentage of
19%. The fixed percentage reduction was agreed upon at the time of the
formation of CCA. Pursuant to the registration rights contained in the CCA
Formation Agreement dated December 8, 1998, as amended by the Agreements, we
contemplate that we will file a registration statement relating to the sale of
such distributed shares during the summer of 2003.
After giving effect to the foregoing transactions, we own 100% of CCGT and
62.8% of CCA. Verizon will retain certain protective rights regarding the tower
networks held by both CCA and CCGT. These protective rights will remain in
place after the CCA put or call right described below is exercised.
We also agreed with Verizon to extend and convert certain termination rights
relating to Verizon's interest in CCA to put and call rights exercisable on or
after July 1, 2007. Upon the exercise of the put right by Verizon or the call
right by us, we will be required to purchase all of the Verizon partner's
equity interests in CCA for cash equal to the then fair market value of such
interest. Prior to the extension and conversion of such rights, the Verizon CCA
partner could have exercised its termination right at any time after March 31,
2002, requiring us to meet the applicable payment obligations.
25
Reporting Requirements Under the Indentures Governing the Company's Debt
Securities (the "Indentures") and the Certificate of Designations Governing
the Company's 12 3/4% Senior Exchangeable Preferred Stock (the "Certificate")
The following information (as such capitalized terms are defined in the
Indentures and the Certificate) is presented solely as a requirement of the
Indentures and the Certificate; such information is not intended as an
alternative measure of financial position, operating results or cash flow from
operations (as determined in accordance with generally accepted accounting
principles). Furthermore, our measure of the following information may not be
comparable to similarly titled measures of other companies.
Summarized financial information for (1) CCIC and our Restricted
Subsidiaries and (2) our Unrestricted Subsidiaries is as follows:
March 31, 2003
----------------------------------------------------
Company
and
Restricted Unrestricted Consolidation Consolidated
Subsidiaries Subsidiaries Eliminations Total
------------ ------------ ------------- ------------
(In thousands of dollars)
Cash and cash equivalents............... $ 256,662 $ 220,288 $ -- $ 476,950
Other current assets.................... 154,508 155,551 -- 310,059
Property and equipment, net............. 3,168,889 1,627,252 -- 4,796,141
Investments in Unrestricted Subsidiaries 1,944,800 -- (1,944,800) --
Goodwill................................ 164,023 886,952 -- 1,050,975
Other assets, net....................... 100,523 24,406 -- 124,929
---------- ---------- ----------- ----------
$5,789,405 $2,914,449 $(1,944,800) $6,759,054
========== ========== =========== ==========
Current liabilities..................... $ 151,616 $ 180,157 $ -- $ 331,773
Long-term debt, less current maturities. 2,626,687 566,590 -- 3,193,277
Other liabilities....................... 40,587 144,074 -- 184,661
Minority interests...................... 95,965 78,828 -- 174,793
Redeemable preferred stock.............. 751,537 -- -- 751,537
Stockholders' equity.................... 2,123,013 1,944,800 (1,944,800) 2,123,013
---------- ---------- ----------- ----------
$5,789,405 $2,914,449 $(1,944,800) $6,759,054
========== ========== =========== ==========
Three Months Ended March 31, 2003
-------------------------------------
Company
and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------ ------------
(In thousands of dollars)
Net revenues............................................................ $103,121 $113,603 $216,724
Costs of operations (exclusive of depreciation, amortization and
accretion)............................................................ 40,781 57,521 98,302
General and administrative.............................................. 17,620 4,572 22,192
Corporate development................................................... 1,620 -- 1,620
Non-cash general and administrative compensation charges................ 1,834 597 2,431
Depreciation, amortization and accretion................................ 50,935 29,422 80,357
-------- -------- --------
Operating income (loss)................................................. (9,669) 21,491 11,822
Interest and other income (expense)..................................... (780) (862) (1,642)
Interest expense and amortization of deferred financing costs........... (59,770) (12,868) (72,638)
Provision for income taxes.............................................. (116) (3,850) (3,966)
Minority interests...................................................... 680 (1,237) (557)
Cumulative effect of change in accounting principle for asset retirement
obligations........................................................... (451) (1,584) (2,035)
-------- -------- --------
Net income (loss)....................................................... $(70,106) $ 1,090 $(69,016)
======== ======== ========
26
Tower Cash Flow and Adjusted Consolidated Cash Flow for CCIC and our
Restricted Subsidiaries is as follows under (1) the indenture governing the
10 5/8% Discount Notes and the Certificate (the "1997 and 1998 Securities") and
(2) the indentures governing the 10 3/8% Discount Notes, the 9% Senior Notes,
the 11 1/4% Discount Notes, the 9 1/2% Senior Notes, the 10 3/4% Senior Notes
and the 9 3/8% Senior Notes (the "1999, 2000 and 2001 Securities"):
1997 and 1999, 2000
1998 and 2001
Securities Securities
---------- ----------
(In thousands of dollars)
------------------------
Tower Cash Flow, for the three months ended March 31, 2003................. $ 52,239 $ 52,239
========= =========
Consolidated Cash Flow, for the twelve months ended March 31, 2003......... $ 166,988 $ 173,852
Less: Tower Cash Flow, for the twelve months ended March 31, 2003.......... (205,749) (205,749)
Plus: four times Tower Cash Flow, for the three months ended March 31, 2003 208,956 208,956
--------- ---------
Adjusted Consolidated Cash Flow, for the twelve months ended March 31, 2003 $ 170,195 $ 177,059
========= =========
Impact of Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board (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
adopted the requirements of SFAS 143 as of January 1, 2003. The adoption of
SFAS 143 resulted in the recognition of liabilities amounting to $4.1 million
for contingent retirement obligations under certain tower site land leases
(included in other long-term liabilities on our consolidated balance sheet),
the recognition of asset retirement costs amounting to $1.4 million (included
in property and equipment on our consolidated balance sheet), and the
recognition of a charge for the cumulative effect of the change in accounting
principle amounting to $2.0 million (net of related income tax benefits of $0.6
million). Accretion expense related to liabilities for contingent retirement
obligations (included in depreciation, amortization and accretion on our
consolidated statement of operations) amounted to $0.1 million for the three
months ended March 31, 2003. At March 31, 2003, liabilities for contingent
retirement obligations amounted to $4.1 million.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation--Transition and
Disclosure ("SFAS 148"). SFAS 148 amends Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS 123"), to
provide alternative methods of transition for a voluntary change to the fair
value method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the provisions of SFAS 123 to require more prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results of operations. We have adopted the disclosure
requirements of SFAS 148 as of December 31, 2002. On January 1, 2003, we
adopted the fair value method of accounting for stock-based employee
compensation using the "prospective" method of transition as provided by SFAS
148. Under this transition method, we will recognize compensation cost for all
employee awards granted on or after January 1, 2003. The adoption of this new
accounting method did not have a significant effect on our consolidated
financial statements.
27
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). FIN 46 clarifies existing accounting
literature regarding the consolidation of entities in which a company holds a
"controlling financial interest". A majority voting interest in an entity has
generally been considered indicative of a controlling financial interest. FIN
46 specifies other factors ("variable interests") which must be considered when
determining whether a company holds a controlling financial interest in, and
therefore must consolidate, an entity ("variable interest entities"). The
provisions of FIN 46 are immediately effective for variable interest entities
created, or invested in, after January 31, 2003. For variable interest entities
created prior to February 1, 2003, the provisions of FIN 46 are effective as of
the beginning of the first interim period after June 15, 2003. We will adopt
the provisions of FIN 46 as of July 1, 2003, and do not expect that such
adoption will have a significant effect on our consolidated financial
statements.
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 2003 would impact our interest expense by approximately
$9.2 million. As of March 31, 2003, we have approximately $1,069.2 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.
28
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11.1 Computation of Net Loss Per Common Share
12.1 Computation of Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends
99.1 Certification pursuant to Section 906 of Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
The Registrant filed a Current Report on Form 8-K dated January 7, 2003 with
the SEC on January 8, 2003 reporting under Item 5 the granting of shares of
restricted stock by the Company to certain of its employees and officers.
The Registrant filed a Current Report on Form 8-K dated January 16, 2003
with the SEC on January 17, 2003 furnishing under Item 9 a notice sent to the
Company's directors regarding a trading blackout period as a result of a change
in the Company's 401(k) provider.
The Registrant filed a Current Report on Form 8-K dated February 7, 2003
with the SEC on February 10, 2003 (as amended by a Form 8-K/A filed February
10, 2003) furnishing under Item 9 a notice sent to the Company's directors
regarding the end of the previously announced trading blackout period.
The Registrant filed a Current Report on Form 8-K dated February 26, 2003
with the SEC on February 27, 2003 furnishing under Item 9 a press release dated
February 26, 2003 disclosing the Company's financial results for the fourth
quarter and year-ended 2002.
The Registrant filed a Current Report on Form 8-K dated March 28, 2003 with
the SEC on March 31, 2003 reporting under Item 5 (1) the payment of
(Pounds)21.2 million to British Telecommunications PLC by CCUK against its
remaining obligation relating to the lease of BT rooftop sites and (2) the
deferral until the end of June 2003 of the payment of the remaining
(Pounds)28.8 million, which had been due in March 2003.
The Registrant filed a Current Report on Form 8-K dated May 2, 2003 with the
SEC on May 6, 2003 reporting under Item 5 agreements entered into relating to
the Crown Castle Atlantic Joint Venture and the Crown Castle GT Joint Venture.
The Registrant filed a Current Report on Form 8-K dated May 5, 2003 with the
SEC on May 6, 2003 furnishing under Item 9 a press release dated May 5, 2003
disclosing the Company's financial results for the first quarter of 2003.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CASTLE INTERNATIONAL CORP.
Date: May 13, 2003 By: /s/ W. BENJAMIN MORELAND
------------------------------
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and
Treasurer (Principal
Financial Officer)
Date: May 13, 2003 By: /s/ WESLEY D. CUNNINGHAM
------------------------------
Wesley D. Cunningham
Senior Vice President, Chief
Accounting Officer and
Corporate Controller
(Principal Accounting Officer)
30
Certification
For the Quarterly Period Ended March 31, 2003
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: May 13, 2003
/s/ JOHN P. KELLY
--------------------------------------
John P. Kelly
President and Chief Executive Officer
31
Certification
For the Quarterly Period Ended March 31, 2003
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: May 13, 2003
/s/ W. BENJAMIN MORELAND
--------------------------------------
W. Benjamin Moreland
Senior Vice President, Chief
Financial Officer and Treasurer
32