<PAGE>
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
---------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission File Number 333-43873
----------------------
CROWN CASTLE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Delaware 76-0470458
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
510 Bering Drive 77057-1457
Suite 500 (Zip Code)
Houston, Texas
(Address of principal executive offices)
(713) 570-3000
(Registrant's telephone number, including area code)
--------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days .
Yes [X] No [_]
Number of shares of common stock outstanding at November 1, 1998:
Common Stock - 82,907,223
Class A Common Stock - 11,340,000
- -------------------------------------------------------------------------------
<PAGE>
CROWN CASTLE INTERNATIONAL CORP.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1997 and September 30, 1998......... 3
Consolidated Statement of Operations and Comprehensive Loss for the three
and nine months ended September 30, 1997 and 1998............................. 4
Consolidated Statement of Cash Flows for the nine months ended
September 30, 1997 and 1998................................................... 5
Condensed Notes to Consolidated Financial Statements........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................... 22
Item 6. Exhibits and Reports on Form 8-K........................................ 22
Signatures....................................................................... 23
</TABLE>
2
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In thousands of dollars, except share amounts)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---- ----
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 55,078 $ 201,349
Receivables:
Trade, net of allowance for doubtful accounts of $177 and $232 at
December 31, 1997 and September 30, 1998, respectively 9,264 33,834
Other 811 665
Inventories 1,322 5,209
Prepaid expenses and other current assets 681 2,883
-------- ----------
Total current assets 67,156 243,940
Property and equipment, net of accumulated depreciation of $4,852 and
$13,180 at December 31, 1997 and September 30, 1998, respectively 81,968 544,486
Investments in affiliates 59,082 2,221
Goodwill and other intangible assets, net of accumulated amortization
of $3,997 and $12,633 at December 31, 1997 and September 30, 1998,
respectively 152,541 563,706
Deferred financing costs and other assets, net of accumulated
amortization of $743 and $1,441 at December 31, 1997 and September
30, 1998, respectively 10,644 15,586
-------- ----------
$371,391 $1,369,939
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,760 $ 30,271
Accrued compensation and related benefits 1,792 2,122
Accrued interest - 9,998
Deferred rental revenues and other accrued liabilities 2,398 34,958
-------- ----------
Total current liabilities 11,950 77,349
Long-term debt 156,293 494,324
Other liabilities 607 4,620
-------- ----------
Total liabilities 168,850 576,293
-------- ----------
Commitments and contingencies
Minority interests - 38,529
Redeemable preferred stock, $.01 par value; 10,000,000 shares
authorized (none issued at September 30, 1998):
Senior Convertible Preferred Stock; 657,495 shares issued at
December 31, 1997 (stated at redemption value; aggregate
liquidation value of $68,916) 67,948 -
Series A Convertible Preferred Stock; 1,383,333 shares issued at
December 31, 1997 (stated at redemption and aggregate liquidation
value) 8,300 -
Series B Convertible Preferred Stock; 864,568 shares issued at
December 31, 1997 (stated at redemption and aggregate liquidation
value) 10,375 -
Series C Convertible Preferred Stock; 3,529,832 shares issued at
December 31, 1997 (stated at redemption and aggregate liquidation
value) 74,126 -
-------- ----------
Total redeemable preferred stock 160,749 -
-------- ----------
Stockholders' equity:
Common stock, $.01 par value; 690,000,000 shares authorized:
Class A Common Stock; shares issued: December 31, 1997 - 1,041,565
and September 30, 1998 - none 2 -
Class B Common Stock; shares issued: December 31, 1997 - 9,367,165
and September 30, 1998 - none 19 -
Common Stock; shares issued: December 31, 1997 - none and
September 30, 1998 - 82,548,545 - 825
Class A Common Stock; shares issued: December 31, 1997 - none and
September 30, 1998 - 11,340,000 - 113
Additional paid-in capital 58,248 800,973
Cumulative foreign currency translation adjustment 562 5,069
Accumulated deficit (17,039) (51,863)
-------- ----------
Total stockholders' equity 41,792 755,117
-------- ----------
$371,391 $1,369,939
======== ==========
</TABLE>
See condensed notes to consolidated financial statements.
3
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1997 1998 1997 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Site rental and broadcast
transmission $ 3,402 $ 18,008 $ 6,743 $ 28,456
Network services and other 8,079 10,886 11,503 23,805
------- -------- ------- --------
11,481 28,894 18,246 52,261
------- -------- ------- --------
Operating expenses:
Costs of operations (exclusive of
depreciation and amortization):
Site rental and broadcast
transmission 817 5,980 1,422 8,398
Network services and other 5,016 7,079 7,187 14,234
General and administrative 2,350 6,254 3,841 15,022
Corporate development 872 816 4,654 2,838
Non-cash compensation charges - 11,361 - 11,361
Depreciation and amortization 2,365 9,410 3,295 17,105
------- -------- ------- --------
11,420 40,900 20,399 68,958
------- -------- ------- --------
Operating income (loss) 61 (12,006) (2,153) (16,697)
Other income (expense):
Equity in earnings (losses) of
unconsolidated affiliate (968) 1,530 (1,189) 2,055
Interest and other income (expense) 98 923 1,606 2,293
Interest expense and amortization of
deferred financing costs (3,172) (7,554) (4,368) (17,581)
------- -------- ------- --------
Loss before income taxes and minority
interests (3,981) (17,107) (6,104) (29,930)
Provision for income taxes (20) (9) (46) (218)
Minority interests - (328) - (328)
------- -------- ------- --------
Net loss (4,001) (17,444) (6,150) (30,476)
Dividends on Senior Convertible
Preferred Stock (461) (216) (461) (4,348)
------- -------- ------- --------
Net loss after deduction of dividends
on Senior Convertible Preferred Stock $(4,462) $(17,660) $(6,611) $(34,824)
======= ======== ======= ========
Net loss $(4,001) $(17,444) $(6,150) $(30,476)
Other comprehensive income:
Foreign currency translation adjustments (1,624) 2,750 (546) 4,507
------- -------- ------- --------
Comprehensive loss $(5,625) $(14,694) $(6,696) $(25,969)
======= ======== ======= ========
Loss per common share - basic and diluted $(0.62) $(0.33) $(1.42) $(1.38)
======= ======== ======= ========
Common shares outstanding - basic and
diluted (in thousands) 7,254 53,879 4,672 25,262
======= ======== ======= ========
</TABLE>
See condensed notes to consolidated financial statements.
4
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1997 1998
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (6,150) $(30,476)
Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
Depreciation and amortization 3,295 17,105
Amortization of deferred financing costs and discount on long-term debt 112 13,069
Non-cash compensation charges - 11,361
Minority interests - 328
Equity in losses (earnings) of unconsolidated affiliate 1,189 (2,055)
Changes in assets and liabilities, excluding the effects of acquisitions:
Increase (decrease) in deferred rental revenues and other liabilities (191) 3,550
Decrease (increase) in receivables 2,709 (5,464)
Increase in inventories, prepaid expenses and other assets (670) (3,311)
Decrease in accounts payable (3,129) (644)
Increase (decrease) in accrued interest 774 (111)
-------- --------
Net cash provided by (used for) operating activities (2,061) 3,352
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,295) (77,728)
Acquisitions of businesses, net of cash acquired (32,460) 997
Investments in affiliates (59,487) -
-------- --------
Net cash used for investing activities (97,242) (76,731)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock 103,236 149,097
Net borrowings under revolving credit agreements 7,471 72,712
Incurrence of financing costs (732) (1,699)
Purchase of capital stock (2,132) (884)
Principal payments on long-term debt (2,788) -
-------- --------
Net cash provided by financing activities 105,055 219,226
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - 424
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,752 146,271
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,343 55,078
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,095 $201,349
======== ========
SUPPLEMENTARY SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of stockholder's Convertible Secured Subordinated Notes to Series A Convertible
Preferred Stock $ 3,657 $ -
Amounts recorded in connection with acquisitions:
Fair value of net assets acquired, including goodwill and other intangible assets 195,733 417,703
Issuance of long-term debt 78,102 -
Assumption of long-term debt 27,982 -
Issuance of common stock 56,777 418,700
Amounts due to seller 412 -
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 3,309 $ 4,984
Income taxes paid 23 286
</TABLE>
See condensed notes to consolidated financial statements.
5
<PAGE>
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, 1997,
and related notes thereto, included in the Registration Statement on Form S-1,
as amended (Reg. No. 333-57283), filed by Crown Castle International Corp. with
the Securities and Exchange Commission. All references to the "Company" include
Crown Castle International Corp. and its subsidiary companies unless otherwise
indicated or the context indicates otherwise.
The consolidated financial statements included herein are unaudited;
however, they include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary to present
fairly the consolidated financial position of the Company at September 30, 1998,
the consolidated results of operations for the three and nine months ended
September 30, 1997 and 1998 and consolidated cash flows for the nine months
ended September 30, 1997 and 1998. Accounting measurements at interim dates
inherently involve greater reliance on estimates than at year end. The results
of operations for the interim periods presented are not necessarily indicative
of the results to be expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). SFAS 128 establishes new standards for computing and presenting
earnings per share ("EPS") amounts for companies with publicly held common stock
or potential common stock. The new standards require the presentation of both
basic and diluted EPS amounts for companies with complex capital structures.
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from such convertible securities.
SFAS 128 is effective for periods ending after December 15, 1997. The Company
has adopted the requirements of SFAS 128 in its financial statements for the
year ended December 31, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
has adopted the requirements of SFAS 130 in its financial statements for the
three months ended March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt the requirements of SFAS 131 in its financial statements
for the year ending December 31, 1998.
6
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations in
the Company's financial statements for the three months ended March 31, 1999; it
is currently estimated that such charge will amount to approximately $2,300,000.
2. ACQUISITIONS
On May 12, 1997, the Company acquired all of the common stock of TEA Group
Incorporated and TeleStructures, Inc. (collectively, "TEA"). On August 15,
1997, the Company acquired (i) substantially all of the assets, net of
outstanding liabilities, of Crown Communications ("CCM") and (ii) all of the
outstanding common stock of Crown Network Systems, Inc. ("CNS") and Crown Mobile
Systems, Inc. ("CMS") (collectively, "Crown"). These business acquisitions were
accounted for using the purchase method. Results of operations and cash flows
of the acquired businesses are included in the consolidated financial statements
for the periods subsequent to the respective dates of acquisition.
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of Castle Transmission Services (Holdings) Ltd ("CTI")
pursuant to which certain of CTI's shareholders agreed to exchange their shares
of CTI for shares of the Company. On August 18, 1998, the exchange was
consummated and the Company's ownership of CTI increased from approximately
34.3% to 80%. The Company issued 20,867,700 shares of its Common Stock and
11,340,000 shares of its Class A Common Stock, with such shares valued at an
aggregate of $418,700,000 (based on the price per share to the public in the
Company's initial public offering as discussed in Note 4). The Company
recognized goodwill of $343,898,000 in connection with this transaction, which
was accounted for as an acquisition using the purchase method. CTI's results of
operations and cash flows are included in the consolidated financial statements
for the period subsequent to the date the exchange was consummated.
The following unaudited pro forma summary presents consolidated results of
operations for the Company as if (i) the TEA and Crown acquisitions had been
consummated as of January 1, 1997 and (ii) the share exchange with CTI's
shareholders had been consummated as of January 1 for both 1997 and 1998.
Appropriate adjustments have been reflected for depreciation and amortization,
interest expense, amortization of deferred financing costs, income taxes and
certain nonrecurring income and expenses recorded by the Company in connection
with the investment in CTI in 1997. The pro forma information does not
necessarily reflect the actual results that would have been achieved, not is it
necessarily indicative of future consolidated results for the Company.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1997 1998
---- ----
(In thousands of dollars,
except per share amounts)
<S> <C> <C>
Net revenues $135,745 $149,224
Net loss (24,641) (39,218)
Loss per common share - basic and diluted (0.43) (0.60)
</TABLE>
7
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
------------- -------------
(In thousands of dollars)
<S> <C> <C>
Senior Credit Facility $ 4,700 $ 69,000
10 5/8% Senior Discount Notes due 2007, net of discount 151,593 163,803
CTI Credit Facility - 56,294
9% Guaranteed Bonds due 2007 - 205,227
-------- --------
$156,293 $494,324
======== ========
</TABLE>
Reporting Requirements Under the Indenture Governing the 10 5/8% Senior
Discount Notes due 2007 (the "Indenture")
The following information (as such capitalized terms are defined in the
Indenture) is presented solely as a requirement of the Indenture; 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.
Upon consummation of the share exchange with CTI's shareholders (see Note
2), which increased the Company's ownership interest in CTI to 80%, the Company
designated CTI as an Unrestricted Subsidiary. In addition, the net proceeds from
the Company's initial public offering of common stock (see Note 4) were placed
into a newly formed subsidiary that was also designated as an Unrestricted
Subsidiary. Prior to these transactions, the Company did not have any
Unrestricted Subsidiaries. Summarized financial information for (i) the Company
and its Restricted Subsidiaries and (ii) the Company's Unrestricted Subsidiaries
is as follows:
<TABLE>
<CAPTION>
September 30, 1998
-------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------ ------------- ------------
(In thousands of dollars)
<S> <C> <C> <C>
Cash and cash equivalents $ 34,116 $ 167,233 $ 201,349
Other current assets 16,051 26,540 42,591
Property and equipment, net 142,211 402,275 544,486
Goodwill and other intangible assets, net 146,115 417,591 563,706
Other assets, net 15,600 2,207 17,807
-------- ---------- ----------
$354,093 $1,015,846 $1,369,939
======== ========== ==========
Current liabilities $ 11,183 $ 66,166 $ 77,349
Long-term debt 232,803 261,521 494,324
Other liabilities 684 3,936 4,620
Minority interests - 38,529 38,529
Stockholders' equity 109,423 645,694 755,117
-------- ---------- ----------
$354,093 $1,015,846 $1,369,939
======== ========== ==========
</TABLE>
8
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998 Nine Months Ended September 30, 1998
---------------------------------------------- ------------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ -----------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 14,626 $14,268 $ 28,894 $ 37,993 $14,268 $ 52,261
Costs of operations (exclusive
of depreciation and
amortization) 6,804 6,255 13,059 16,377 6,255 22,632
General and administrative 5,502 752 6,254 14,270 752 15,022
Corporate development 816 -- 816 2,838 - 2,838
Non-cash compensation
charges 9,384 1,977 11,361 9,384 1,977 11,361
Depreciation and
amortization 4,347 5,063 9,410 12,042 5,063 17,105
-------- ------- -------- -------- ------- --------
Operating income (loss) (12,227) 221 (12,006) (16,918) 221 (16,697)
Equity in earnings
of unconsolidated affiliate 1,530 - 1,530 2,055 - 2,055
Interest and other
income (expense) 16 907 923 1,386 907 2,293
Interest expense and
amortization of deferred
financing costs (5,877) (1,677) (7,554) (15,904) (1,677) (17,581)
Provision for income taxes (9) - (9) (218) - (218)
Minority interests - (328) (328) - (328) (328)
-------- ------- -------- -------- ------- --------
Net loss $(16,567) $ (877) $(17,444) $(29,599) $ (877) $(30,476)
======== ======= ======== ======== ======= ========
</TABLE>
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows:
(In
thousands
of
dollars)
---------
Tower Cash Flow, for the three months ended September 30, 1998 $ 3,560
========
Consolidated Cash Flow, for the twelve months ended September
30, 1998 $ 7,571
Less: Tower Cash Flow, for the twelve months ended September 30,
1998 (14,564)
Plus: four times Tower Cash Flow, for the three months ended
September 30, 1998 14,240
---------
Adjusted Consolidated Cash Flow, for the twelve months ended
September 30, 1998 $ 7,247
========
4. STOCKHOLDERS' EQUITY
On August 18, 1998, the Company consummated its initial public offering of
common stock at a price to the public of $13 per share (the "Offering"). The
Company sold 12,320,000 shares of its common stock and received proceeds of
$151,043,000 (after underwriting discounts of $9,117,000 but before other
expenses of the Offering, which are expected to total approximately $3,800,000).
The net proceeds from the Offering are currently invested in short-term
investments.
In anticipation of the Offering, the Company (i) amended and restated the
1995 Stock Option Plan to, among other things, authorize the issuance of up to
18,000,000 shares of common stock pursuant to awards made thereunder and (ii)
approved an amendment to its certificate of incorporation to increase the number
of authorized shares of common and preferred stock to 690,000,000 shares and
10,000,000 shares, respectively,
9
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and to effect a five-for-one stock split for the shares of common stock then
outstanding. The effect of the stock split has been presented retroactively in
the Company's consolidated financial statements for all periods presented.
During the period from April 24, 1998 through July 15, 1998, the Company
granted options to employees and executives for the purchase of 3,236,980 shares
of its common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares vested upon consummation of the Offering and the
remaining options for 1,426,250 shares will vest at 20% per year over five
years, beginning one year from the date of grant. In addition, the Company has
assigned its right to repurchase shares of its common stock from a stockholder
(at a price of $6.26 per share) to two individuals (including a newly-elected
director) with respect to 100,000 of such shares. Since the granting of these
options and the assignment of these rights to repurchase shares occurred
subsequent to the date of the share exchange agreement with CTI's shareholders
and at prices substantially below the price to the public in the Offering, the
Company has recorded a non-cash compensation charge related to these options and
shares based upon the difference between the respective exercise and purchase
prices and the price to the public in the Offering. Such compensation charge
will total approximately $18.4 million, of which approximately $10.6 million was
recognized upon consummation of the Offering (for such options and shares which
vested upon consummation of the Offering), and the remaining $7.8 million is
being recognized over five years (approximately $1.6 million per year) through
the second quarter of 2003. An additional $1.6 million in non-cash compensation
charges will be recognized through the third quarter of 2001 for stock options
issued to certain members of CTI's management prior to the consummation of the
share exchange.
In July 1998, all of the holders of the Company's Senior Convertible
Preferred Stock converted such shares into an aggregate of 9,629,200 shares of
the Company's common stock. Upon consummation of the Offering, all of the
holders of the Company's then-existing shares of Class A Common Stock, Class B
Common Stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock converted such shares
into an aggregate of 39,842,290 shares of the Company's common stock.
5. PER SHARE INFORMATION
Per share information is based on the weighted-average number of common
shares outstanding during each period for the basic computation and, if
dilutive, the weighted-average number of potential common shares resulting from
the assumed conversion of outstanding stock options, warrants and convertible
preferred stock for the diluted computation.
10
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A reconciliation of the numerators and denominators of the basic and
diluted per share computations is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -----------------
1997 1998 1997 1998
---- ---- ---- ----
(In thousands of dollars, except per
share amounts)
<S> <C> <C> <C> <C>
Net loss $(4,001) $(17,444) $(6,150) $(30,476)
Dividends on Senior Convertible
Preferred Stock (461) (216) (461) (4,348)
------- -------- ------- --------
Net loss applicable to common stock
for basic and diluted computations $(4,462) $(17,660) $(6,611) $(34,824)
======= ======== ======= ========
Weighted-average number of common
shares outstanding during the
period for basic and diluted
computations (in thousands) 7,254 53,879 4,672 25,262
======= ======== ======= ========
Loss per common share - basic and diluted $ (0.62) $ (0.33) $ (1.42) $ (1.38)
======= ======== ======= ========
</TABLE>
The calculations of common shares outstanding for the diluted computations
exclude the following potential common shares as of September 30, 1998: (i)
options to purchase 16,254,142 shares of common stock at exercise prices ranging
from $.40 to $13.00 per share; (ii) warrants to purchase 1,314,990 shares of
common stock at an exercise price of $7.50 per share; and (iii) shares of CTI
stock which are convertible into 17,443,500 shares of common stock. The
inclusion of such potential common shares in the diluted per share computations
would be antidilutive since the Company incurred net losses for all periods
presented.
6. 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's consolidated financial condition as of September 30, 1998 and its
results of operations for the three- and nine-month periods ended September 30,
1997 and 1998. The statements in this discussion regarding the industry outlook,
the Company's expectations regarding the future performance of its businesses,
and the other nonhistorical statements in this discussion are forward-looking
statements. These forward-looking statements are subject to numerous risks and
uncertainties, including but not limited to the uncertainties relating to
capital expenditures decisions to be made in the future by wireless
communications carriers and broadcasters and the risks and uncertainties
described in "Risk Factors" in the Company's Registration Statement on Form S-1,
as amended (Reg. No. 333-57283) (the "Registration Statement") filed with the
Securities and Exchange Commission. This discussion should be read in
conjunction with the response to Part I, Item 1 of this report and the
consolidated financial statements of the Company, including the notes thereto,
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in the Registration Statement. Any capitalized terms used
but not defined in this Item have the same meaning given to them in the
Registration Statement.
RESULTS OF OPERATIONS
In May 1997, the Company consummated the TEA Acquisition and the
TeleStructures Acquisition. In August 1997, the Company consummated the Crown
Merger. In August 1998, the Company consummated a share exchange with the
shareholders of CTI, pursuant to which the Company's ownership of CTI increased
from approximately 34.3% to 80%. Results of operations of these acquired
businesses are included in the Company's consolidated financial statements for
the periods subsequent to the respective dates of acquisition. As such, the
Company's results of operations for the three and nine months ended September
30, 1997 are not comparable to the results of operations for the three and nine
months ended September 30, 1998.
Discussion of Pro Forma Results of Operations
As discussed above, the historical financial statements included elsewhere
herein do not reflect the results of operations of the businesses of CCIC, Crown
and CTI (the "Businesses") on an aggregate basis for all of the periods
presented. As a result, management believes that the historical financial
statements included elsewhere herein do not, by themselves, provide investors
with sufficient information to adequately assess the recent trends of the
Businesses. The Company is providing the following discussion of the last two
quarters' and the last nine months' pro forma results of operations, therefore,
to supplement the historical financial information included elsewhere herein to
assist investors in evaluating the Businesses' historical results of operations.
The pro forma results of operations discussed below have been derived from
the historical results of operations of the Company for the three months ended
September 30, 1998 and June 30, 1998, and for the nine months ended September
30, 1998, and are adjusted to include CTI's results of operations for periods
prior to the consummation of the share exchange with the shareholders of CTI.
The pro forma results of operations do not purport to present the combined
results of operations that the Businesses would have achieved had they been
under common ownership and control during such periods, nor are they indicative
of the results of operations that may be achieved in the future. The
acquisitions of the acquired businesses (including CTI) by CCIC resulted in new
bases of accounting whereby the assets and liabilities of the acquired
businesses were adjusted to their fair values on their respective dates of
acquisition pursuant to Accounting Principles Board Opinion No. 16. To the
extent such adjustments resulted in charges to depreciation and amortization
expense, such charges do not enter into the determination of costs of
operations, general and administrative expenses or corporate development
expenses.
Discussion of Three Months Ended September 30, 1998 and June 30, 1998
Revenues for the three months ended September 30, 1998 were $54.3 million,
an increase of $5.2 million from the three months ended June 30, 1998. This
increase was primarily attributable to (i) a $3.3 million, or 8.8%, increase in
site rental and broadcast transmission revenues, of which $3.0 million was
attributable to CTI and $0.3 million was attributable to the Crown operations;
and (ii) a $3.0 million increase in network services
12
<PAGE>
revenues from the Crown operations, partially offset by a $0.9 million decrease
in network services revenues from CTI. The increase in site rental and broadcast
transmission revenues at CTI was primarily due to additional digital broadcast
transmission sites coming into service. The increase in site rental revenues at
Crown was primarily due to the addition of 51 towers during the third quarter of
1998. Crown added 50 new tenant leases during the third quarter of 1998,
compared to 43 new tenant leases during the second quarter of 1998. The increase
in network services revenues at Crown was attributable to the completion of 148
tenant antennae installations during the third quarter of 1998, compared to 58
such installations during the second quarter of 1998. The decrease in network
services revenues at CTI was attributable to a decrease in the number of
completed projects during the third quarter of 1998 as compared to the second
quarter of 1998.
The Company expects demand for third-party site acquisition services to
continue to decline. In addition, demand for the Company's network services
fluctuates from period to period and within periods. These fluctuations are
caused by a number of factors, including the timing of customers' capital
expenditures, annual budgetary considerations of customers, the rate and volume
of wireless communications carriers' tower build-outs, timing of existing
customer contracts and general economic conditions. While such demand
fluctuates, the Company must incur certain costs, such as maintaining a staff of
network services employees in anticipation of future contracts, even when there
may be no current business. Consequently, the operating results of the
Company's network services businesses for any particular period may vary
significantly, and should not be considered as necessarily being indicative of
longer-term results.
Costs of operations for the three months ended September 30, 1998 were
$24.0 million, an increase of $1.7 million from the three months ended June 30,
1998. This increase was primarily attributable to a $2.3 million increase in
network services costs related to the Crown operations, offset by a $0.8 million
decrease in site rental and broadcast transmission costs. Costs of operations
for site rental and broadcast transmission as a percentage of site rental and
broadcast transmission revenues decreased to 36.9% for the third quarter of 1998
from 42.2% for the second quarter of 1998; this improvement in margins was due
to lower costs at CTI, where a greater proportion of engineering staff cost was
incurred in connection with digital terrestrial transmission projects and
capitalized. Costs of operations for network services as a percentage of network
services revenues increased to 65.2% for the third quarter of 1998 from 55.6%
for the second quarter of 1998, primarily due to lower margins from the Crown
operations. Margins from the Crown network services operations decreased as a
result of increasingly competitive market conditions.
General and administrative expenses for the three months ended September
30, 1998 were $7.1 million, a decrease of $0.2 million from the three months
ended June 30, 1998. General and administrative expenses as a percentage of
revenues decreased to 13.0% for the third quarter of 1998 from 14.8% from the
second quarter of 1998, primarily due to lower expenses at CTI.
Discussion of Nine Months Ended September 30, 1998
Revenues for the nine months ended September 30, 1998 were $149.2 million,
consisting of (i) $113.2 million in site rental and broadcast transmission
revenues and (ii) $36.0 million in network services and other revenues. Site
rental and broadcast transmission revenues from CTI amounted to $97.0 million,
or 85.7% of total site rental and broadcast transmission revenues. Network
services revenues from CTI, the Crown operations and the TEA operations amounted
to $14.5 million, $13.3 million and $4.8 million, respectively.
Costs of operations for the nine months ended September 30, 1998 were $66.4
million, consisting of (i) $44.3 million in site rental and broadcast
transmission costs and (ii) $22.1 million in network services and other costs.
Costs of operations for site rental and broadcast transmission as a percentage
of site rental and broadcast transmission revenues were 39.1% (41.5% at CTI and
25.3% at Crown). Costs of operations for network services as a percentage of
network services revenues were 61.4%.
General and administrative expenses for the nine months ended September 30,
1998 were $20.0 million. General and administrative expenses as a percentage of
revenues were 13.4%.
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<PAGE>
Corporate development expenses for the nine months ended September 30, 1998
were $2.8 million, or 1.9% of revenues. Such costs are incurred primarily at
the Company's corporate office.
Discussion of Historical Results of Operations
The following information is derived from the Company's Consolidated
Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1998 September 30, 1997 September 30, 1998
--------------------- -------------------- -------------------- -------------------
Percent of Percent of Percent of Percent of
Amount Net Revenues Amount Net Revenues Amount Net Revenues Amount Net Revenues
------ ------------ ------ ------------ ------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues:
Site rental and broadcast
transmission $ 3,402 29.6% $ 18,008 62.3% $ 6,743 37.0% $ 28,456 54.4%
Network services and other 8,079 70.4 10,886 37.7 11,503 63.0 23,805 45.6
-------- ----- --------- ----- -------- ----- --------- -----
Total net revenues 11,481 100.0 28,894 100.0 18,246 100.0 52,261 100.0
-------- ----- --------- ----- -------- ----- --------- -----
Operating expenses:
Costs of operations:
Site rental and broadcast
transmission 817 24.0 5,980 33.2 1,422 21.1 8,398 29.5
Network services and other 5,016 62.1 7,079 65.0 7,187 62.5 14,234 59.8
-------- --------- -------- ---------
Total costs of operations 5,833 50.8 13,059 45.2 8,609 47.2 22,632 43.3
General and administrative 2,350 20.5 6,254 21.7 3,841 21.0 15,022 28.8
Corporate development 872 7.6 816 2.8 4,654 25.5 2,838 5.4
Non-cash compensation
charges - - 11,361 39.3 - - 11,361 21.7
Depreciation and
amortization 2,365 20.6 9,410 32.6 3,295 18.1 17,105 32.7
-------- ----- --------- ----- -------- ----- --------- -----
Operating income (loss) 61 0.5 (12,006) (41.6) (2,153) (11.8) (16,697) (31.9)
Other income (expense):
Equity in earnings (losses)
of unconsolidated affiliate (968) (8.4) 1,530 5.3 (1,189) (6.5) 2,055 3.9
Interest and other income
(expense) 98 0.8 923 3.2 1,606 8.8 2,293 4.4
Interest expense and
amortization of deferred
financing costs (3,172) (27.6) (7,554) (26.1) (4,368) (23.9) (17,581) (33.7)
-------- ----- --------- ----- -------- ----- --------- -----
Loss before income taxes and
minority interests (3,981) (34.7) (17,107) (59.2) (6,104) (33.4) (29,930) (57.3)
Provision for income taxes (20) (0.2) (9) (0.1) (46) (0.3) (218) (0.4)
Minority interests - - (328) (1.1) - - (328) (0.6)
-------- ----- --------- ----- -------- ----- --------- -----
Net loss $ (4,001) (34.9)% $ (17,444) (60.4)% $ (6,150) (33.7)% $ (30,476) (58.3)%
======== ===== ========= ===== ======== ===== ========= =====
</TABLE>
Comparison of Three Months Ended September 30, 1998 and 1997
Consolidated revenues for the three months ended September 30, 1998 were
$28.9 million, an increase of $17.4 million from the three months ended
September 30, 1997. This increase was primarily attributable to (i) a $14.6
million, or 429.3%, increase in site rental and broadcast transmission revenues,
of which $12.3 million was attributable to CTI and $2.3 million was attributable
to the Crown operations; (ii) a $3.6 million increase in network services
revenues from the Crown operations, partially offset by a $3.1 million decrease
in network services revenues from TEA ; and (iii) $1.9 million in network
services revenues from CTI.
Costs of operations for the three months ended September 30, 1998 were
$13.1 million, an increase of $7.2 million from the three months ended September
30, 1997. This increase was primarily attributable to (i) a $5.2 million
increase in site rental and broadcast transmission costs, of which $4.3 million
was attributable to CTI and $0.9 million was attributable to the Crown
operations; (ii) a $2.6 million increase in network services costs related to
the Crown operations, offset by a $2.7 million decrease in network services
costs from TEA; and (iii) $1.9 million in network services costs from CTI. Costs
of operations for site rental and broadcast transmission as a percentage of site
rental and broadcast transmission revenues increased to 33.2% for the three
months ended September 30, 1998 from 24.0% for the three months ended September
30, 1997 because of higher costs attributable to the CTI and Crown operations.
Costs of operations for network services as a percentage of network services
revenues increased to 65.0% for the three months ended September 30, 1998 from
62.1% for the three months ended September 30, 1997, primarily due to lower
margins from the Crown and CTI operations. Margins from the Crown network
services operations decreased for the three months ended September 30, 1998 as a
result of increasingly competitive market conditions.
General and administrative expenses for the three months ended September
30, 1998 were $6.3 million, an increase of $3.9 million from the three months
ended September 30, 1997. This increase was primarily
14
<PAGE>
attributable to (i) a $2.2 million increase in expenses related to the Crown
operations; (ii) a $0.7 million increase in expenses at the Company's corporate
office; and (iii) $0.8 million in expenses at CTI. General and administrative
expenses as a percentage of revenues increased for the three months ended
September 30, 1998 to 21.7% from 20.5% for the three months ended September 30,
1997 because of higher overhead costs as a percentage of revenues for Crown and
TEA and the increase in costs at the Company's corporate office.
Corporate development expenses for the three months ended September 30,
1998 were $0.8 million, compared to $0.9 million for the three months ended
September 30, 1997.
The Company has recorded non-cash compensation charges of $11.4 million
related to the issuance of stock options to certain employees and executives.
Such charges are expected to amount to approximately $1.6 million per year
through the second quarter of 2003. See "--Compensation Charges Related to Stock
Option Grants."
Depreciation and amortization for the three months ended September 30, 1998
was $9.4 million, an increase of $7.0 million from the three months ended
September 30, 1997. This increase was primarily attributable to (i) $5.1 million
of depreciation and amortization related to the property and equipment and
goodwill from CTI; and (ii) a $1.7 million increase in depreciation and
amortization related to the property and equipment, goodwill and other
intangible assets acquired in the Crown Merger.
The equity in earnings (losses) of unconsolidated affiliate represents the
Company's 34.3% share of CTI's net earnings (losses) for the periods from March
1997 through August 1998 (at which time the share exchange with CTI's
shareholders was consummated). For the two months ended August 31, 1998, after
making appropriate adjustments to CTI's results of operations for such period to
conform to generally accepted accounting principles of the United States, CTI
had net revenues, operating income, interest expense (including amortization of
deferred financing costs) and net income of $25.4 million, $7.4 million, $3.1
million and $4.5 million, respectively. Included in CTI's results of operations
for such period are noncash compensation charges for approximately $0.6 million
related to the issuance of stock options to certain members of CTI's management.
Interest and other income for the three months ended September 30, 1998
resulted primarily from (i) the investment of excess proceeds from the sale of
the Company's 10 5/8% Senior Discount Notes due 2007 (the "Notes") in November
1997 (the "1997 Notes Offering"); and (ii) the investment of the net proceeds
from the Offering (see "--Liquidity and Capital Resources").
Interest expense and amortization of deferred financing costs for the three
months ended September 30, 1998 was $7.6 million, an increase of $4.4 million,
or 138.1%, from the three months ended September 30, 1997. This increase was
primarily attributable to amortization of the original issue discount on the
Notes and interest on CTI's indebtedness.
Minority interests represent the minority shareholder's 20% interest in
CTI's operations.
Comparison of Nine Months Ended September 30, 1998 and 1997
Consolidated revenues for the nine months ended September 30, 1998 were
$52.3 million, an increase of $34.0 million from the nine months ended September
30, 1997. This increase was primarily attributable to (i) a $21.7 million, or
322.0%, increase in site rental and broadcast transmission revenues, of which
$12.3 million was attributable to CTI and $9.4 million was attributable to the
Crown operations; (ii) a $10.4 million increase in network services revenues
from the Crown operations, partially offset by a $2.2 million decrease in
network services revenues from TEA; and (iii) $1.9 million in network services
revenues from CTI.
Costs of operations for the nine months ended September 30, 1998 were $22.6
million, an increase of $14.0 million from the nine months ended September 30,
1997. This increase was primarily attributable to (i) a $7.0 million increase
in site rental and broadcast transmission costs, of which $4.3 million was
attributable to CTI and $2.7 million was attributable to the Crown operations;
(ii) a $6.4 million increase in network services costs related to the Crown
operations, partially offset by a $2.3 million decrease in network services
costs from TEA;
15
<PAGE>
and (iii) $1.9 million in network services costs from CTI. Costs of operations
for site rental and broadcast transmission as a percentage of site rental and
broadcast transmission revenues increased to 29.5% for the nine months ended
September 30, 1998 from 21.1% for the nine months ended September 30, 1997
because of higher costs attributable to the CTI and Crown operations. Costs of
operations for network services as a percentage of network services revenues
decreased to 59.8% for the nine months ended September 30, 1998 from 62.5% for
the nine months ended September 30, 1997, primarily due to improved margins from
the TEA operations. Margins from the Crown network services operations decreased
for the nine months ended September 30, 1998 as a result of increasingly
competitive market conditions.
General and administrative expenses for the nine months ended September 30,
1998 were $15.0 million, an increase of $11.2 million from the nine months ended
September 30, 1997. This increase was primarily attributable to (i) a $7.1
million increase in expenses related to the Crown operations; (ii) a $0.8
million increase in expenses related to the TEA operations; (iii) a $2.0 million
increase in expenses at the Company's corporate office; and (iv) $0.8 million in
expenses at CTI. General and administrative expenses as a percentage of
revenues increased for the nine months ended September 30, 1998 to 28.8% from
21.0% for the nine months ended September 30, 1997 because of higher overhead
costs as a percentage of revenues for Crown and TEA and the increase in costs at
the Company's corporate office.
Corporate development expenses for the nine months ended September 30, 1998
were $2.8 million, a decrease of $1.8 million from the nine months ended
September 30, 1997. Corporate development expenses for the nine months ended
September 30, 1997 include nonrecurring compensation charges associated with the
CTI Investment of (i) $0.9 million for certain executive bonuses and (ii) the
repurchase of shares of the Company's common stock from a member of its Board of
Directors, which resulted in compensation charges of $1.3 million. Corporate
development expenses for the nine months ended September 30, 1998 include
discretionary bonuses related to the Company's performance totaling
approximately $0.8 million for certain members of the Company's management.
The Company has recorded non-cash compensation charges of $11.4 million
related to the issuance of stock options to certain employees and executives.
Such charges are expected to amount to approximately $1.6 million per year
through the second quarter of 2003. See "--Compensation Charges Related to
Stock Option Grants."
Depreciation and amortization for the nine months ended September 30, 1998
was $17.1 million, an increase of $13.8 million from the nine months ended
September 30, 1997. This increase was primarily attributable to (i) an $8.0
million increase in depreciation and amortization related to the property and
equipment, goodwill and other intangible assets acquired in the Crown Merger;
(ii) $5.1 million of depreciation and amortization related to the property and
equipment and goodwill from CTI; and (iii) a $0.3 million increase in
depreciation and amortization related to the property and equipment and goodwill
acquired in the TEA and TeleStructures Acquisitions.
The equity in earnings (losses) of unconsolidated affiliate represents the
Company's 34.3% share of CTI's net earnings (losses) for the periods from March
1997 through August 1998 (at which time the share exchange with CTI's
shareholders was consummated). For the eight months ended August 31, 1998,
after making appropriate adjustments to CTI's results of operations for such
period to conform to generally accepted accounting principles of the United
States, CTI had net revenues, operating income, interest expense (including
amortization of deferred financing costs) and net income of $97.2 million, $18.6
million, $13.4 million and $6.0 million, respectively. Included in CTI's
results of operations for such period are noncash compensation charges for
approximately $3.8 million related to the issuance of stock options to certain
members of CTI's management.
Interest and other income for the nine months ended September 30, 1997
includes a $1.2 million fee received in March 1997 as compensation for leading
the investment consortium which provided the equity financing for CTI. Interest
income for the nine months ended September 30, 1998 resulted primarily from (i)
the investment of excess proceeds from the sale of the Notes in November 1997;
and (ii) the investment of the net proceeds from the Offering (see "--Liquidity
and Capital Resources").
16
<PAGE>
Interest expense and amortization of deferred financing costs for the nine
months ended September 30, 1998 was $17.6 million, an increase of $13.2 million,
or 302.5%, from the nine months ended September 30, 1997. This increase was
primarily attributable to amortization of the original issue discount on the
Notes and interest on CTI's indebtedness.
Minority interests represent the minority shareholder's 20% interest in
CTI's operations.
LIQUIDITY AND CAPITAL RESOURCES
On August 18, 1998, the Company consummated the Offering at a price to the
public of $13 per share. The Company sold 12,320,000 shares of its common stock
and received proceeds of $151.0 million (after underwriting discounts of $9.1
million but before other expenses of the Offering, which are expected to total
approximately $3.8 million). The net proceeds from the Offering are currently
invested in short-term investments.
On April 24, 1998, the Company entered into a share exchange agreement with
certain shareholders of CTI pursuant to which such CTI shareholders agreed to
exchange their shares of CTI for shares of the Company. On August 18, 1998, the
exchange was consummated and the Company's ownership of CTI increased from
approximately 34.3% to 80%. The Company issued 20,867,700 shares of its Common
Stock and 11,340,000 shares of its Class A Common Stock, with such shares valued
at an aggregate of $418.7 million (based on the price per share to the public in
the Offering). The Company recognized goodwill of $343.9 million in connection
with this transaction, which was accounted for as an acquisition using the
purchase method. CTI's results of operations and cash flows are included in the
consolidated financial statements for the period subsequent to the date the
exchange was consummated.
As of September 30, 1998, the Company had consolidated cash and cash
equivalents of $201.3 million (including $18.2 million at CTI), consolidated
long-term debt of $494.3 million and consolidated stockholders' equity of $755.1
million.
The Company's business strategy contemplates substantial capital
expenditures in connection with (i) the expansion of its tower footprints by
partnering with wireless communications carriers to assume ownership of their
existing towers and by pursuing build-to-suit opportunities and (ii) to acquire
existing transmission networks globally as opportunities arise. The exact amount
of such capital expenditures will depend on the number of such opportunities
that the Company is able to successfully consummate. The Company is currently
pursuing potential significant acquisitions, investments and joint venture
opportunities that could require the Company to use all of the proceeds of the
Offering and its other cash on hand prior to the end of 1998. For example, the
Company has submitted a bid in connection with an auction by a major Regional
Bell Operating Company of its U.S. wireless communications infrastructure. In
addition to such U.S. opportunities, the Company is pursuing acquisition
opportunities in Australia and New Zealand, including in certain instances
together with other partners. The Company is also pursuing acquisition
opportunities in connection with privatizations of state-owned networks. Any of
the foregoing could result in an agreement with respect to a significant
acquisition, investment or joint venture in the near term. However, there can be
no assurance that the Company will consummate any of the foregoing transactions
in the near term or at all.
In addition, the Company anticipates that it will build, through the end of
1999, approximately 700 towers in the United States at a cost of approximately
$158.0 million and approximately 200 towers in the United Kingdom at a cost of
approximately $23.0 million. The Company also expects that the capital
expenditure requirements related to the rollout of digital broadcast
transmission in the United Kingdom will be approximately (Pounds)110.0 million
($187.0 million).
17
<PAGE>
On October 8, 1998, the Company acquired all of the outstanding shares of
Millennium Communications Limited ("Millennium"), a company which develops, owns
and operates telecommunications towers and related assets in the United Kingdom.
Millennium currently owns 102 tower sites and will be operated as a subsidiary
of CTI. The purchase price of $14.5 million consists of $9.8 million in cash
(of which $7.2 million has been paid to date), the assumption of $2.4 million in
outstanding debt and 358,678 shares of the Company's common stock valued at $2.3
million (based on the market value of the stock on the acquisition date). In
addition, the purchase agreement provides for the issuance of an additional
229,921 shares of the Company's common stock to the sellers upon the achievement
of certain operational objectives.
To fund the execution of the Company's business strategy, the Company and
its subsidiaries expect to use the net proceeds of the Offering, the borrowings
available under the Senior Credit Facility, the borrowings available under the
CTI Credit Facility and the remaining net proceeds from the 1997 Notes Offering.
Whether the Company utilizes the Senior Credit Facility and the CTI Credit
Facility to finance expansion opportunities will depend upon a number of
factors, including (i) the attractiveness of the opportunities, (ii) the time
frame in which they are identified, (iii) the number of pre-existing projects to
which the Company is committed and (iv) the Company's liquidity at the time of
any potential opportunity. In the event the Company does not otherwise have cash
available (from the net proceeds of the 1997 Notes Offering, the net proceeds of
the Offering or otherwise), or borrowings under the Senior Credit Facility or
the CTI Credit Facility have otherwise been utilized, when an opportunity
arises, the Company would be forced to seek additional debt or equity financing
or to forego the opportunity. In the event the Company determines to seek
additional debt or equity financing, there can be no assurance that any such
financing will be available (on commercially acceptable terms or at all) or
permitted by the terms of the Company's existing indebtedness. To the extent the
Company is unable to finance future capital expenditures, it will be unable to
achieve its currently contemplated business strategy.
For the nine months ended September 30, 1997 and 1998, the Company's net
cash provided by (used for) operating activities was ($2.1 million) and $3.4
million, respectively. Since its inception, the Company has generally funded its
activities (other than its acquisitions and investments) through excess proceeds
from contributions of equity capital. The Company has financed its acquisitions
and investments with the proceeds from equity contributions, borrowings under
the Senior Credit Facility and the issuance of promissory notes to sellers.
Since its inception, CTI has generally funded its activities (other than the
acquisition of the BBC Home Service Transmission Business) through cash provided
by operations and borrowings under the CTI Credit Facility. CTI financed the
acquisition of the BBC Home Service Transmission Business with the proceeds from
equity contributions and the issuance of the CTI Bonds.
Capital expenditures were $77.7 million for the nine months ended
September 30, 1998, of which $3.4 million was for CCIC, $62.1 million was for
Crown and $12.2 million was for CTI.
As of November 1, 1998, the Company's subsidiaries had no significant
unused borrowing availability under the Senior Credit Facility. The Senior
Credit Facility requires the Company to maintain certain financial covenants and
places restrictions on the ability of the Company and its subsidiaries to, among
other things, incur debt and liens, pay dividends, make capital expenditures,
undertake transactions with affiliates and make investments.
As of November 1, 1998, CTI had unused borrowing availability under the CTI
Credit Facility of approximately (Pounds)30.0 million ($50.2 million). The CTI
Credit Facility requires CTI to maintain certain financial covenants and places
restrictions on the ability of CTI to, among other things, incur debt and liens,
pay dividends, make capital distributions, make acquisitions, undertake
transactions with affiliates and make investments.
Prior to May 15, 2003, the Company's interest expense on the Notes will be
comprised solely of the accretion of original issue discount. Thereafter, the
Notes will require annual cash interest payments of approximately $26.7 million.
In addition, the Senior Credit Facility, the CTI Credit Facility and the CTI
Bonds will require periodic interest payments on amounts borrowed thereunder.
The Company's ability to make
18
<PAGE>
scheduled payments of principal of, or to pay interest on, its debt obligations,
and its ability to refinance any such debt obligations (including the Notes and
the CTI Bonds), will depend on its future performance, which, to a certain
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. As discussed above,
the Company's business strategy contemplates substantial acquisitions and
capital expenditures in connection with the expansion of its tower footprints.
There can be no assurance that the Company will generate sufficient cash flow
from operations in the future, that anticipated revenue growth will be realized
or that future borrowings, equity contributions or loans from affiliates will be
available in an amount sufficient to service its indebtedness and make
anticipated capital expenditures. The Company anticipates that it may need to
refinance all or a portion of its indebtedness (including the Notes and the CTI
Bonds) on or prior to its scheduled maturity. There can be no assurance that the
Company will be able to effect any required refinancings of its indebtedness
(including the Notes and the CTI Bonds) on commercially reasonable terms or at
all.
In July 1998, all of the holders of the Company's Senior Convertible
Preferred Stock converted such shares into an aggregate of 9,629,200 shares of
the Company's common stock. Upon consummation of the Offering, all of the
holders of the Company's then-existing shares of Class A Common Stock, Class B
Common Stock, Series A Convertible Preferred Stock, Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock converted such shares
into an aggregate of 39,842,290 shares of the Company's common stock.
REPORTING REQUIREMENTS UNDER THE INDENTURE GOVERNING THE NOTES (THE
"INDENTURE")
The following information (as such capitalized terms are defined in the
Indenture) is presented solely as a requirement of the Indenture; 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.
Upon consummation of the share exchange with CTI's shareholders, which
increased the Company's ownership interest in CTI to 80%, the Company designated
CTI as an Unrestricted Subsidiary. In addition, the net proceeds from the
Offering were placed into a newly formed subsidiary that was also designated as
an Unrestricted Subsidiary. Prior to these transactions, the Company did not
have any Unrestricted Subsidiaries. Summarized financial information for (i)
the Company and its Restricted Subsidiaries and (ii) the Company's Unrestricted
Subsidiaries is as follows:
<TABLE>
<CAPTION>
September 30, 1998
------------------------------------------
Company and
Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total
------------------------------------------
(In thousands of dollars)
<S> <C> <C> <C>
Cash and cash equivalents $ 34,116 $ 167,233 $ 201,349
Other current assets 16,051 26,540 42,591
Property and equipment, net 142,211 402,275 544,486
Goodwill and other intangible assets, net 146,115 417,591 563,706
Other assets, net 15,600 2,207 17,807
-------- ---------- ----------
$354,093 $1,015,846 $1,369,939
======== ========== ==========
Current liabilities $ 11,183 $ 66,166 $ 77,349
Long-term debt 232,803 261,521 494,324
Other liabilities 684 3,936 4,620
Minority interests - 38,529 38,529
Stockholders' equity 109,423 645,694 755,117
-------- ---------- ----------
$354,093 $1,015,846 $1,369,939
======== ========== ==========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998 Nine Months Ended September 30, 1998
---------------------------------------- ----------------------------------------
Company and Company and
Restricted Unrestricted Consolidated Restricted Unrestricted Consolidated
Subsidiaries Subsidiaries Total Subsidiaries Subsidiaries Total
------------ ------------ ------------ ------------ ------------ ------------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 14,626 $14,268 $ 28,894 $ 37,993 $14,268 $ 52,261
Costs of operations (exclusive
of depreciation and amortization) 6,804 6,255 13,059 16,377 6,255 22,632
General and administrative 5,502 752 6,254 14,270 752 15,022
Corporate development 816 - 816 2,838 - 2,838
Non-cash compensation charges 9,384 1,977 11,361 9,384 1,977 11,361
Depreciation and amortization 4,347 5,063 9,410 12,042 5,063 17,105
-------- ------- -------- -------- ------- --------
Operating income (loss) (12,227) 221 (12,006) (16,918) 221 (16,697)
Equity in earnings of unconsolidated
affiliate 1,530 - 1,530 2,055 - 2,055
Interest and other income
(expense) 16 907 923 1,386 907 2,293
Interest expense and amortization
of deferred financing costs (5,877) (1,677) (7,554) (15,904) (1,677) (17,581)
Provision for income taxes (9) - (9) (218) - (218)
Minority interests - (328) (328) - (328) (328)
-------- ------- -------- -------- ------- --------
Net loss $(16,567) $ (877) $(17,444) $(29,599) $ (877) $(30,476)
======== ======= ======== ======== ======= ========
</TABLE>
Tower Cash Flow and Adjusted Consolidated Cash Flow for the Company and its
Restricted Subsidiaries is as follows:
<TABLE>
<CAPTION>
(In thousands
of dollars)
-------------
<S> <C>
Tower Cash Flow, for the three months ended September 30, 1998 $ 3,560
========
Consolidated Cash Flow, for the twelve months ended September 30, 1998 $ 7,571
Less: Tower Cash Flow, for the twelve months ended September 30, 1998 (14,564)
Plus: four times Tower Cash Flow, for the three months ended September 30, 1998 14,240
--------
Adjusted Consolidated Cash Flow, for the twelve months ended September 30, 1998 $ 7,247
========
</TABLE>
COMPENSATION CHARGES RELATED TO STOCK OPTION GRANTS
During the period from April 24, 1998 through July 15, 1998, the Company
granted options to employees and executives for the purchase of 3,236,980 shares
of its common stock at an exercise price of $7.50 per share. Of such options,
options for 1,810,730 shares vested upon consummation of the Offering and the
remaining options for 1,426,250 shares will vest at 20% per year over five
years, beginning one year from the date of grant. In addition, the Company has
assigned its right to repurchase shares of its common stock from a stockholder
(at a price of $6.26 per share) to two individuals (including a newly-elected
director) with respect to 100,000 of such shares. Since the granting of these
options and the assignment of these rights to repurchase shares occurred
subsequent to the date of the share exchange agreement with CTI's shareholders
and at prices substantially below the price to the public in the Offering, the
Company has recorded a non-cash compensation charge related to these options and
shares based upon the difference between the respective exercise and purchase
prices and the price to the public in the Offering. Such compensation charge
will total approximately $18.4 million, of which approximately $10.6 million was
recognized upon consummation of the Offering (for such options and shares which
vested upon consummation of the Offering), and the remaining $7.8 million is
being recognized over five years (approximately $1.6 million per year) through
the second quarter of 2003. An additional $1.6 million in non-cash compensation
charges will be recognized through the third quarter of 2001 for stock options
issued to certain members of CTI's management prior to the consummation of the
share exchange.
20
<PAGE>
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 128, Earnings per Share
("SFAS 128"). SFAS 128 establishes new standards for computing and presenting
earnings per share ("EPS") amounts for companies with publicly held common stock
or potential common stock. The new standards require the presentation of both
basic and diluted EPS amounts for companies with complex capital structures.
Basic EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period, and
excludes the effect of potentially dilutive securities (such as options,
warrants and convertible securities) which are convertible into common stock.
Dilutive EPS reflects the potential dilution from such convertible securities.
SFAS 128 is effective for periods ending after December 15, 1997. The Company
has adopted the requirements of SFAS 128 in its financial statements for the
year ended December 31, 1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income in a company's
financial statements. Comprehensive income includes all changes in a company's
equity accounts (including net income or loss) except investments by, or
distributions to, the company's owners. Items which are components of
comprehensive income (other than net income or loss) include foreign currency
translation adjustments, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities. The
components of comprehensive income must be reported in a financial statement
that is displayed with the same prominence as other financial statements. SFAS
130 is effective for fiscal years beginning after December 15, 1997. The Company
has adopted the requirements of SFAS 130 in its financial statements for the
three months ended March 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures about Segments of an Enterprise and Related Information
("SFAS 131"). SFAS 131 establishes standards for the way that public companies
report, in their annual financial statements, certain information about their
operating segments, their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 also requires that certain
information about operating segments be reported in interim financial
statements. SFAS 131 is effective for periods beginning after December 15, 1997.
The Company will adopt the requirements of SFAS 131 in its financial statements
for the year ending December 31, 1998.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities be charged to expense as incurred and broadly
defines such costs. The Company has deferred certain costs incurred in
connection with potential business initiatives and new geographic markets, and
SOP 98-5 will require that such deferred costs be charged to results of
operations upon its adoption. SOP 98-5 is effective for fiscal years beginning
after December 15, 1998. The Company will adopt the requirements of SOP 98-5 as
of January 1, 1999. The cumulative effect of the change in accounting principle
for the adoption of SOP 98-5 will result in a charge to results of operations in
the Company's financial statements for the three months ended March 31, 1999; it
is currently estimated that such charge will amount to approximately $2,300,000.
YEAR 2000 COMPLIANCE
The Company is in the process of conducting a comprehensive review of its
computer systems to identify which of its systems will have to be modified,
upgraded or converted to recognize and process dates after December 31, 1999
(the "Year 2000 Issue"), and is in the initial stages of developing an
implementation plan to resolve the issue. The Company expects to incur internal
staff costs, as well as other expenses, related to testing and updating its
systems to prepare for the Year 2000. The Company presently believes that, with
modifications and upgrades to existing software and successful conversion to new
software, the Year 2000 Issue will not pose significant operational problems for
the Company's systems as so modified, upgraded or converted. Although the
Company is in the initial phases of determining the impact of the Year 2000
Issue, the Company anticipates it will be fully Year 2000 compliant by September
1, 1999; however, any delays or omissions by the Company or its customers,
suppliers or contractors to resolve the Year 2000 Issue could materially
adversely affect the Company's business, financial condition or results of
operations. There can be no assurance that amounts to be spent on addressing the
Year 2000 Issue will not be material.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 7, 1998, the stockholders of the Company unanimously approved the
following matters: (i) various terms of the share exchange agreement with
certain shareholders of CTI in relation to shares and options held by certain
officers of the Company and CTI; (ii) the Company's restated Certificate of
Incorporation to take effect upon consummation of the initial public offering
and the share exchange agreement; (iii) a five-for-one stock split for
outstanding shares of the Company's common stock; and (iv) an amendment to the
Crown Castle International Corp. 1995 Stock Option Plan to, among other things,
authorize the issuance of up to 18,000,000 shares of common stock pursuant to
awards made thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
11.1 Computation of Net Loss Per Common Share
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CROWN CASTLE INTERNATIONAL CORP.
Date: November 16, 1998 By: /s/ CHARLES C. GREEN, III
-------------------------------------
Charles C. Green, III
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: November 16, 1998 By: /s/ WESLEY D. CUNNINGHAM
-------------------------------------
Wesley D. Cunningham
Vice President, Corporate Controller
and Chief Accounting Officer
(Principal Accounting Officer)
23
<PAGE>
EXHIBIT 11.1
CROWN CASTLE INTERNATIONAL CORP.
COMPUTATION OF NET LOSS PER COMMON SHARE
(In thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- -------------------
1997 1998 1997 1998
---- ---- ---- ----
(In thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
Net loss $(4,001) $(17,444) $(6,150) $(30,476)
Dividends on Senior Convertible Preferred Stock (461) (216) (461) (4,348)
------- -------- ------- --------
Net loss applicable to common stock for basic and
diluted computations $(4,462) $(17,660) $(6,611) $(34,824)
======= ======== ======= ========
Weighted-average number of common shares
outstanding during the period for basic and
diluted computations (in thousands) 7,254 53,879 4,672 25,262
======= ======== ======= ========
Loss per common share - basic and diluted $ (0.62) $ (0.33) $ (1.42) $ (1.38)
======= ======== ======= ========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS TOGETHER WITH THE RELATED FOOTNOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 201,349
<SECURITIES> 0
<RECEIVABLES> 34,066
<ALLOWANCES> 232
<INVENTORY> 5,209
<CURRENT-ASSETS> 243,940
<PP&E> 557,666
<DEPRECIATION> 13,180
<TOTAL-ASSETS> 1,369,939
<CURRENT-LIABILITIES> 77,349
<BONDS> 494,324
0
0
<COMMON> 938
<OTHER-SE> 754,179
<TOTAL-LIABILITY-AND-EQUITY> 1,369,939
<SALES> 0
<TOTAL-REVENUES> 52,261
<CGS> 0
<TOTAL-COSTS> 22,632
<OTHER-EXPENSES> 46,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,581
<INCOME-PRETAX> (29,930)
<INCOME-TAX> 218
<INCOME-CONTINUING> (30,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,476)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
