<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
----------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
510 BERING DRIVE
SUITE 500
HOUSTON, TEXAS 77057
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(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 [_] No [X]*
* The Registrant became subject to the reporting requirements of Section 13
of the Securities Exchange Act of 1934 on April 16, 1998.
Number of shares of common stock outstanding at May 1, 1998:
Class A Common Stock--208,313
Class B Common Stock--1,873,433
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<PAGE>
CROWN CASTLE INTERNATIONAL CORP.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I--FINANCIAL INFORMATION ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheet at December 31, 1997 and March 31, 1998..... 3
Consolidated Statement of Operations and Comprehensive Loss for the
three months ended March 31, 1997 and 1998............................ 4
Consolidated Statement of Cash Flows for the three months ended March
31, 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................................................... 9
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............. 15
Item 6. Exhibits and Reports on Form 8-K................................. 15
Signatures............................................................... 16
</TABLE>
2
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 55,078 $ 53,395
Receivables:
Trade, net of allowance for doubtful accounts of
$177 and $157 at December 31, 1997 and March 31,
1998, respectively............................... 9,264 9,908
Other............................................. 811 1,029
Inventories........................................ 1,322 1,220
Prepaid expenses and other current assets.......... 681 1,028
-------- --------
Total current assets.............................. 67,156 66,580
Property and equipment, net of accumulated
depreciation of $4,852 and $6,142 at December 31,
1997 and March 31, 1998, respectively............... 81,968 105,034
Investments in affiliates............................ 59,082 59,688
Goodwill and other intangible assets, net of
accumulated amortization of $3,997 and $6,283 at
December 31, 1997 and March 31, 1998, respectively.. 152,541 150,468
Deferred financing costs and other assets, net of
accumulated amortization of $743 and $834 at
December 31, 1997 and March 31, 1998,
respectively........................................ 10,644 10,918
-------- --------
$371,391 $392,688
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable................................... $ 7,760 $ 4,964
Accrued compensation and related benefits.......... 1,792 1,451
Other accrued liabilities.......................... 2,398 1,651
-------- --------
Total current liabilities......................... 11,950 8,066
Long-term debt....................................... 156,293 187,299
Other liabilities.................................... 607 607
-------- --------
Total liabilities................................. 168,850 195,972
-------- --------
Commitments and contingencies
Redeemable preferred stock, $.01 par value; 6,435,228
shares authorized:
Senior Convertible Preferred Stock; 657,495 shares
issued (stated at redemption value; aggregate
liquidation value of $68,916 and $71,874,
respectively)..................................... 67,948 70,003
Series A Convertible Preferred Stock; 1,383,333
shares issued (stated at redemption and aggregate
liquidation value)................................ 8,300 8,300
Series B Convertible Preferred Stock; 864,568
shares issued (stated at redemption and aggregate
liquidation value)................................ 10,375 10,375
Series C Convertible Preferred Stock; 3,529,832
shares issued (stated at redemption and aggregate
liquidation value)................................ 74,126 74,126
-------- --------
Total redeemable preferred stock.................. 160,749 162,804
-------- --------
Stockholders' equity:
Common stock, $.01 par value; 11,511,109 shares
authorized:
Class A Common Stock; 208,313 shares issued....... 2 2
Class B Common Stock; 1,873,433 shares issued..... 19 19
Additional paid-in capital......................... 58,248 58,358
Cumulative foreign currency translation
adjustment........................................ 562 1,233
Accumulated deficit................................ (17,039) (25,700)
-------- --------
Total stockholders' equity ....................... 41,792 33,912
-------- --------
$371,391 $392,688
======== ========
</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)
<TABLE>
<CAPTION>
THREE
MONTHS ENDED
MARCH 31,
---------------
1997 1998
------ -------
<S> <C> <C>
Net revenues:
Site rental................................................ $1,667 $ 5,061
Network services and other................................. 327 6,776
------ -------
1,994 11,837
------ -------
Operating expenses:
Costs of operations (exclusive of depreciation and
amortization):
Site rental............................................... 258 1,172
Network services and other................................ 5 4,421
General and administrative................................. 511 3,803
Corporate development...................................... 2,105 1,331
Depreciation and amortization ............................. 408 3,604
------ -------
3,287 14,331
------ -------
Operating loss............................................... (1,293) (2,494)
Other income (expense):
Equity in earnings (losses) of unconsolidated affiliate.... 197 (99)
Interest and other income.................................. 1,301 706
Interest expense and amortization of deferred financing
costs..................................................... (626) (4,706)
------ -------
Loss before income taxes..................................... (421) (6,593)
Provision for income taxes................................... (22) (13)
------ -------
Net loss..................................................... (443) (6,606)
Dividends on Senior Convertible Preferred Stock.............. -- (2,055)
------ -------
Net loss after deduction of dividends on Senior Convertible
Preferred Stock............................................. $ (443) $(8,661)
====== =======
Net loss..................................................... $ (443) $(6,606)
Other comprehensive income:
Foreign currency translation adjustments................... 385 671
------ -------
Comprehensive loss........................................... $ (58) $(5,935)
====== =======
</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>
THREE
MONTHS ENDED
MARCH 31,
------------------
1997 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (443) $ (6,606)
Adjustments to reconcile net loss to net cash used for
operating activities:
Amortization of deferred financing costs and discount on
long-term debt ......................................... 34 4,207
Depreciation and amortization............................ 408 3,604
Equity in losses (earnings) of unconsolidated affiliate.. (197) 99
Changes in assets and liabilities:
Increase (decrease) in other liabilities................ (229) 72
Decrease in accounts payable............................ (540) (2,796)
Decrease (increase) in receivables...................... 679 (862)
Increase in inventories, prepaid expenses and other
assets................................................. (251) (669)
Decrease in accrued interest............................ (86) --
-------- --------
Net cash used for operating activities................. (625) (2,951)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (232) (24,539)
Investment in affiliate................................... (57,542) --
-------- --------
Net cash used for investing activities................. (57,774) (24,539)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit agreements.......... 3,300 27,050
Incurrence of financing costs............................. (549) (1,243)
Proceeds from issuance of capital stock................... 69,626 --
Principal payments on long-term debt...................... (2,441) --
Purchase of capital stock................................. (2,111) --
-------- --------
Net cash provided by financing activities.............. 67,825 25,807
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 9,426 (1,683)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD........... 7,343 55,078
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................. $ 16,769 $ 53,395
======== ========
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 $ --
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid............................................. $ 671 $ 486
Income taxes paid......................................... -- --
</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-4,
as amended (Reg. No. 333-43873), 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, 1998
and the consolidated results of operations and consolidated cash flows for the
three months ended March 31, 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 will adopt the requirements of SFAS 128 at such
time as it has publicly held common stock.
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)
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 a pro forma basis as if the TEA and Crown
acquisitions and the investment in Castle Transmission Services (Holdings) Ltd
("CTI") had been consummated as of January 1, 1997, the Company had
consolidated net revenues and a consolidated net loss for the three months
ended March 31, 1997 of $15,264,000 and $1,526,000, respectively. Such pro
forma results reflect appropriate adjustments 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. 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.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
-------------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
Senior Credit Facility......................... $ 4,700 $ 31,750
10 5/8% Senior Discount Notes due 2007, net of
discount...................................... 151,593 155,549
------------ ------------
$ 156,293 $ 187,299
============ ============
</TABLE>
Reporting Requirements Under the Indenture Governing the 10 5/8% Senior
Discount Notes due 2007 (the "Indenture")
As of March 31, 1998, the Company does not have any Unrestricted
Subsidiaries (as defined in the Indenture). The following information (as such
capitalized terms are defined in the Indenture) is presented solely for the
purpose of measuring compliance with respect to the terms of the Indenture;
such information is not intended as an alternative measure of 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.
<TABLE>
<CAPTION>
(IN
THOUSANDS
OF DOLLARS)
-----------
<S> <C>
Tower Cash Flow, for the three months ended March 31, 1998..... $ 3,490
========
Consolidated Cash Flow, for the twelve months ended March 31,
1998.......................................................... $ 10,934
Less: Tower Cash Flow, for the twelve months ended March 31,
1998.......................................................... (12,941)
Plus: four times Tower Cash Flow, for the three months ended
March 31, 1998................................................ 13,960
--------
Adjusted Consolidated Cash Flow, for the twelve months ended
March 31, 1998................................................ $ 11,953
========
</TABLE>
4. 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
7
<PAGE>
CROWN CASTLE INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
5. SUBSEQUENT EVENTS
On April 27, 1998, the Company announced that it had entered into a share
exchange agreement with certain shareholders of CTI pursuant to which certain
of CTI's shareholders have agreed to exchange their shares of CTI for shares
of the Company. Upon the consummation of the exchange, the Company's ownership
of CTI will increase from approximately 34.3% to approximately 80%.
Consummation of the share exchange is subject to a number of significant
conditions, including certain third party consents and the consummation of an
initial public offering of common stock by the Company.
In connection with the share exchange, the Company intends to offer shares
of its common stock in an underwritten initial public offering during the
summer of 1998. A registration statement in respect of such initial public
offering has not yet been filed with the Securities and Exchange Commission
and any securities offered in such initial public offering will only be
offered by means of a prospectus forming a part of such a registration
statement.
8
<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 March 31, 1998 and its
results of operations for the three-month periods ended March 31, 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 the risks and uncertainties described in "Risk
Factors" in the Company's Registration Statement on Form S-1, as amended (Reg.
No. 333-43873) (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. 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 months ended March 31, 1997 are not comparable to the results of
operations for the three months ended March 31, 1998.
Discussion of Three Months Ended March 31, 1998 and December 31, 1997
As discussed above, the historical financial statements included elsewhere
herein do not reflect the results of operations of the businesses of CCIC and
Crown (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' results of operations, therefore, to supplement the historical
financial information included elsewhere herein to assist investors in
evaluating the Businesses' historical results of operations.
Consolidated site rental revenues for the three months ended March 31, 1998
were $5.1 million, an increase of 18.6% from the three months ended December
31, 1997. This increase was primarily attributable to the addition of 82 owned
and managed tower sites between December 31, 1997 and March 31, 1998. Included
in these 82 additional sites are 50 towers acquired and 22 towers constructed
pursuant to the Nextel Agreement and 10 towers constructed in the greater
Pittsburgh area. The Company also installed antennae for 13 new tenants on
existing towers during the first quarter of 1998.
Consolidated network services and other revenues for the three months ended
March 31, 1998 were $6.8 million, a decrease of 23.8% from the three months
ended December 31, 1997. This decrease was primarily attributable to lower
network services revenues from TEA and a decline in the number of completed
tenant antennae installations. The Company completed 48 such installations
during the first quarter of 1998, as compared to 57 during the fourth quarter
of 1997. 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
9
<PAGE>
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 site rental for the three months ended March 31,
1998 were $1.2 million, an increase of 48.2% from the three months ended
December 31, 1997. This increase was primarily attributable to the additional
owned and managed towers discussed above. As a percentage of site rental
revenues, such costs increased to 23.2% for the first quarter of 1998 as
compared to 18.5% for the fourth quarter of 1997 due to the lower margins
associated with new towers which initially have relatively fewer tenant leases
than existing towers. Costs of operations for network services for the three
months ended March 31, 1998 were $4.4 million, a decrease of 25.7% from the
three months ended December 31, 1997. As a percentage of network services
revenues, such costs decreased to 65.2% for the first quarter of 1998 as
compared to 66.9% for the fourth quarter of 1997.
General and administrative expenses for the three months ended March 31,
1998 were $3.8 million, an increase of 27.5% from the three months ended
December 31, 1997. This increase was primarily attributable to higher
personnel and overhead costs associated with the hiring of new employees. The
Company has been increasing the size of its workforce in order to be
positioned to take advantage of new business opportunities.
Corporate development expenses for the three months ended March 31, 1998
were $1.3 million, an increase of 23.6% from the three months ended December
31, 1997. Corporate development expenses for the three months ended March 31,
1998 include discretionary bonuses related to the Company's performance
totaling approximately $0.8 million for certain members of the Company's
management.
Discussion of Historical Operations
The following information is derived from the Company's Consolidated
Statements of Operations for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1998
---------------- -----------------
PERCENT PERCENT
OF NET OF NET
AMOUNT REVENUES AMOUNT REVENUES
------ -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net revenues:
Site rental............................... $1,667 83.6% $ 5,061 42.8%
Network services and other................ 327 16.4 6,776 57.2
------ ----- ------- -----
Total net revenues...................... 1,994 100.0 11,837 100.0
------ ----- ------- -----
Operating expenses:
Costs of operations:
Site rental............................... 258 15.5 1,172 23.2
Network services and other................ 5 1.5 4,421 65.2
------ -------
Total costs of operations............... 263 13.2 5,593 47.3
General and administrative................ 511 25.6 3,803 32.1
Corporate development..................... 2,105 105.6 1,331 11.2
Depreciation and amortization............. 408 20.4 3,604 30.5
------ ----- ------- -----
Operating loss.............................. (1,293) (64.8) (2,494) (21.1)
Other income (expense):
Equity in earnings (losses) of
unconsolidated affiliate................. 197 9.9 (99) (0.8)
Interest and other income................. 1,301 65.2 706 6.0
Interest expense and amortization of
deferred financing costs................. (626) (31.4) (4,706) (39.8)
------ ----- ------- -----
Loss before income taxes.................... (421) (21.1) (6,593) (55.7)
Provision for income taxes.................. (22) (1.1) (13) (0.1)
------ ----- ------- -----
Net loss.................................... $ (443) (22.2)% $(6,606) (55.8)%
====== ===== ======= =====
</TABLE>
10
<PAGE>
Comparison of Three Months Ended March 31, 1998 and 1997
Consolidated revenues for the three months ended March 31, 1998 were $11.8
million, an increase of $9.8 million from the three months ended March 31,
1997. This increase was primarily attributable to (i) a $3.4 million, or
203.6%, increase in site rental revenues, of which $3.3 million was
attributable to the Crown operations; (ii) $2.3 million in network services
revenues from TEA; and (iii) $3.3 million in network services revenues from
the Crown operations.
Costs of operations for the three months ended March 31, 1998 were $5.6
million, an increase of $5.3 million from the three months ended March 31,
1997. This increase was primarily attributable to (i) $1.9 million of network
services costs related to the TEA operations; (ii) $2.1 million of network
services costs related to the Crown operations; and (iii) $0.9 million in site
rental costs attributable to the Crown operations. Costs of operations for
site rental as a percentage of site rental revenues increased to 23.2% for the
three months ended March 31, 1998 from 15.5% for the three months ended March
31, 1997 because of higher costs attributable to the Crown operations. Costs
of operations for network services as a percentage of network services
revenues were 65.2% for the three months ended March 31, 1998, reflecting
lower margins that are inherent in the network services businesses acquired in
1997.
General and administrative expenses for the three months ended March 31,
1998 were $3.8 million, an increase of $3.3 million from the three months
ended March 31, 1997. This increase was primarily attributable to $2.2 million
of expenses related to the Crown operations and $0.6 million of expenses
related to the TEA operations, along with an increase in costs of $0.4 million
at the Company's corporate office. General and administrative expenses as a
percentage of revenues increased for the three months ended March 31, 1998 to
32.1% from 25.6% for the three months ended March 31, 1997 because of higher
overhead costs as a percentage of revenues for Crown and the increase in costs
at the Company's corporate office.
Corporate development expenses for the three months ended March 31, 1998
were $1.3 million, a decrease of $0.8 million from the three months ended
March 31, 1997. Corporate development expenses for the three months ended
March 31, 1997 include a $1.3 million nonrecurring compensation charge
associated with the CTI Investment resulting from the repurchase of shares of
the Company's common stock from a member of its Board of Directors. Corporate
development expenses for the three months ended March 31, 1998 include
discretionary bonuses related to the Company's performance totaling
approximately $0.8 million for certain members of the Company's management.
Depreciation and amortization for the three months ended March 31, 1998 was
$3.6 million, an increase of $3.2 million from the three months ended March
31, 1997. This increase was primarily attributable to (i) $2.9 million of
depreciation and amortization related to the property and equipment, goodwill
and other intangible assets acquired in the Crown Merger; and (ii) $0.2
million of 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 beginning
in March 1997. For the three months ended March 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 losses of $34.2 million, $4.6 million,
$5.2 million and $0.3 million, respectively. Included in CTI's results of
operations for such period are noncash compensation charges for approximately
$2.9 million related to the issuance of stock options to certain members of
CTI's management. If successful, the consummation of a share exchange
agreement with certain shareholders of CTI (see "--Liquidity and Capital
Resources") would accelerate the vesting of certain options granted to CTI's
management and employees, resulting in additional noncash compensation charges
of approximately $0.7 million.
Interest and other income for the three months ended March 31, 1997 includes
a $1.2 million fee received in March 1997 as compensation for leading the
investment consortium which provided the equity financing for
11
<PAGE>
CTI. Interest income for the three months ended March 31, 1998 resulted
primarily from 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.
Interest expense and amortization of deferred financing costs for the three
months ended March 31, 1998 was $4.7 million, an increase of $4.1 million, or
651.8%, from the three months ended March 31, 1997. This increase was
primarily attributable to amortization of the original issue discount on the
Notes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had consolidated cash and cash equivalents
of $53.4 million, consolidated long-term debt of $187.3 million, invested
capital from the issuance of its redeemable preferred stock of $162.8 million
and consolidated stockholders' equity of $33.9 million.
For the three months ended March 31, 1997 and 1998, the Company's net cash
used for operating activities was $0.6 million and $3.0 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 its
bank credit facility and the issuance of promissory notes to sellers.
Capital expenditures were $24.5 million for the three months ended March 31,
1998, of which $0.8 million was for CCIC and $23.7 million was for Crown.
As of May 1, 1998, the Company and its subsidiaries had unused borrowing
availability under the Senior Credit Facility of approximately $52.7 million.
The Company and its subsidiaries expect to use the borrowing availability
under the Senior Credit Facility, together with a portion of the net proceeds
from the Offering of the Notes, to fund the execution of the Company's
business plan. The Company's business strategy contemplates substantial
capital expenditures in connection with the expansion of its tower footprints.
The exact amount of the Company's future capital expenditures, however, will
depend upon a number of factors. Pursuant to the Nextel Agreement, the Company
has exercised an option to acquire 50 towers from Nextel in 1998 (46 of which
have been acquired as of March 31, 1998) for an aggregate purchase price of
approximately $14.4 million. In addition, pursuant to the Nextel Agreement,
the Company has the exclusive right and option to construct up to 250 new
towers within selected markets (and along parts of certain interstate highway
corridors) with Nextel as the anchor tenant. The Company currently anticipates
that it will build approximately 100 of the 250 towers in 1998 (23 of which
have been built as of March 31, 1998) for an aggregate amount of approximately
$20.0 million, and the Company currently expects to expend similar amounts in
1999. The Company also intends to continue to explore other opportunities to
build and acquire additional towers. Whether the Company utilizes the Senior
Credit Facility to finance the Nextel build-out and/or to finance such other
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 borrowings under the Senior Credit Facility have
otherwise been utilized when an opportunity arises (including additional
Nextel build-out opportunities), and the Company does not otherwise have cash
available (from the net proceeds of the Offering of the Notes or otherwise),
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 commercially available 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.
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 will require periodic
interest payments on amounts borrowed thereunder. The Company's ability to
make scheduled payments of principal of, or to pay
12
<PAGE>
interest on, its debt obligations, and its ability to refinance any such debt
obligations (including the Notes), 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 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) 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) on commercially reasonable terms or at
all.
On April 27, 1998, the Company announced that it had entered into a share
exchange agreement with certain shareholders of CTI pursuant to which certain
of CTI's shareholders have agreed to exchange their shares of CTI for shares
of the Company. Upon the consummation of the exchange, the Company's ownership
of CTI will increase from approximately 34.3% to approximately 80%.
Consummation of the share exchange is subject to a number of significant
conditions, including certain third party consents and the consummation of an
initial public offering of common stock by the Company.
In connection with the share exchange, the Company intends to offer shares
of its common stock in an underwritten initial public offering during the
summer of 1998. A registration statement in respect of such initial public
offering has not yet been filed with the Securities and Exchange Commission
and any securities offered in such initial public offering will only be
offered by means of a prospectus forming a part of such a registration
statement.
REPORTING REQUIREMENTS UNDER THE INDENTURE GOVERNING THE NOTES (THE
"INDENTURE")
As of March 31, 1998, the Company does not have any Unrestricted
Subsidiaries (as defined in the Indenture). The following information (as such
capitalized terms are defined in the Indenture) is presented solely for the
purpose of measuring compliance with respect to the terms of the Indenture;
such information is not intended as an alternative measure of 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.
<TABLE>
<CAPTION>
(IN
THOUSANDS
OF DOLLARS)
-----------
<S> <C>
Tower Cash Flow, for the three months ended March 31, 1998..... $ 3,490
========
Consolidated Cash Flow, for the twelve months ended March 31,
1998.......................................................... $ 10,934
Less: Tower Cash Flow, for the twelve months ended March 31,
1998.......................................................... (12,941)
Plus: four times Tower Cash Flow, for the three months ended
March 31, 1998................................................ 13,960
--------
Adjusted Consolidated Cash Flow, for the twelve months ended
March 31, 1998................................................ $ 11,953
========
</TABLE>
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
13
<PAGE>
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 will adopt the requirements of SFAS 128 at such
time as it has publicly held common stock.
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.
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 July 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.
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 1, 1998, the stockholders of the Company unanimously approved the
following matters: (i) an amendment to the Crown Castle International Corp.
1995 Stock Option Plan to increase the number of shares of Class B Common
Stock reserved for awards from 1,153,000 to 2,300,000; (ii) an amendment to
the Company's Certificate of Incorporation to increase the number of
authorized shares of common stock from 11,511,109 to 12,800,000; and (iii) the
re-election of the eleven existing members of the Company's Board of
Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K.
The Registrant filed a Current Report on Form 8-K dated April 27, 1998
and filed with the Securities and Exchange Commission on May 6, 1998
reporting under Item 5 thereof the execution of a share exchange agreement
with certain shareholders of CTI.
15
<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 : May 15, 1998 By: /s/ CHARLES C. GREEN, III
----------------------------------
Charles C. Green, III
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
Date : May 15, 1998 By: /s/ WESLEY D. CUNNINGHAM
----------------------------------
Wesley D. Cunningham
Vice President, Corporate
Controller
and Chief Accounting Officer
(Principal Accounting Officer)
16
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 53,395
<SECURITIES> 0
<RECEIVABLES> 10,065
<ALLOWANCES> 157
<INVENTORY> 1,220
<CURRENT-ASSETS> 66,580
<PP&E> 111,176
<DEPRECIATION> 6,142
<TOTAL-ASSETS> 392,688
<CURRENT-LIABILITIES> 8,066
<BONDS> 187,299
70,003
92,801
<COMMON> 21
<OTHER-SE> 33,891
<TOTAL-LIABILITY-AND-EQUITY> 392,688
<SALES> 0
<TOTAL-REVENUES> 11,837
<CGS> 0
<TOTAL-COSTS> 5,593
<OTHER-EXPENSES> 8,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,706
<INCOME-PRETAX> (6,593)
<INCOME-TAX> 13
<INCOME-CONTINUING> (6,606)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,606)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
